<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION NO. 333-37211
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MOTOR CARGO INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
UTAH 4213 87-0406479
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION CODE IDENTIFICATION NO.
ORGANIZATION) NUMBER)
</TABLE>
845 WEST CENTER STREET, NORTH SALT LAKE, UTAH 84054
(801) 292-1111
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARVIN L. FRIEDLAND, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
845 WEST CENTER STREET
NORTH SALT LAKE, UTAH 84054
(801) 292-1111
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
ARTHUR B. RALPH, ESQ. ROBERT WALKER, ESQ.
VAN COTT, BAGLEY, CORNWALL & MCCARTHY BAKER, DONELSON, BEARMAN & CALDWELL
50 SOUTH MAIN STREET, SUITE 1600 2000 FIRST TENNESSEE BUILDING
SALT LAKE CITY, UTAH 84144-0540 MEMPHIS, TENNESSEE 38103
</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. [ ]
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997
2,230,000 SHARES
[MOTOR CARGO INDUSTRIES LOGO]
COMMON STOCK
Of the 2,230,000 shares of Common Stock offered hereby (the "Offering"),
1,150,000 are being sold by Motor Cargo Industries, Inc. (the "Company") and
1,080,000 are being sold by certain selling shareholders of the Company (the
"Selling Shareholders"). See "Principal and Selling Shareholders." The Company
will not receive any proceeds from the sale of the Common Stock by the Selling
Shareholders. Prior to the Offering there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $12.00 and $14.00 per share. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price. Application has been made for quotation of the Common
Stock on the Nasdaq National Market under the symbol "CRGO." Upon completion of
the Offering, Harold R. Tate, the Chairman of the Board of Directors of the
Company, will beneficially own approximately 56% of the voting power of the
capital stock of the Company and will be able to control the outcome of all
matters requiring a shareholder vote, including the election of directors.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
==================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------------------------
Per Share................. $ $ $ $
Total(3).................. $ $ $ $
==================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities arising under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses estimated at approximately $600,000 payable by the
Company.
(3) The Company and certain Selling Shareholders have granted the Underwriters
options, exercisable within 30 days after the date hereof, to purchase up to
an additional 17,250 and 317,250 shares of Common Stock, respectively, at
the Price to Public less Underwriting Discounts and Commissions, solely to
cover over-allotments, if any. If all such shares are purchased, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company, and Proceeds to Selling Shareholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters, subject to
their right to withdraw, cancel, modify, or reject orders in whole or in part,
and subject to certain other conditions. It is expected that delivery of the
shares of Common Stock offered hereby will be made on or about ,
1997.
MORGAN KEEGAN & COMPANY, INC. FURMAN SELZ
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[THE INSIDE FRONT COVER OF THE PROSPECTUS CONTAINS SUPERIMPOSED IMAGES OF
THE COMPANY'S HEADQUARTERS IN NORTH SALT LAKE, UTAH, A COMPANY TRACTOR PULLING A
TRIPLE TRAILER AND A MAP OF THE WESTERN UNITED STATES SHOWING LOCATIONS SERVICED
BY MOTOR CARGO. IMAGES ALSO INCLUDE THE MOTOR CARGO LOGO, THE MC DISTRIBUTION
SERVICES LOGO AND A GRAPHICAL DESIGN WHICH INCLUDES THE FOLLOWING TEXT: "A
TRADITION OF EXCELLENCE FOR OVER 75 YEARS -- MOTOR CARGO -- 1922-1997]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET TO COVER
SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED FINANCIAL STATEMENTS AND QUARTERLY REPORTS CONTAINING
UNAUDITED FINANCIAL STATEMENTS FOR EACH OF THE FIRST THREE QUARTERS OF EACH
FISCAL YEAR.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere in this Prospectus. See "Risk Factors" for a
discussion of certain factors to be considered by prospective investors. Unless
otherwise indicated in this Prospectus, (i) all information assumes that the
Underwriters' over-allotment option is not exercised, (ii) all references to the
"Company" in this Prospectus refer to Motor Cargo Industries, Inc., a Utah
corporation, and its subsidiaries and (iii) all financial information includes
the historical operations of Ute Trucking and Leasing, LLC, a Utah limited
liability company formerly owned by certain shareholders of the Company. See
"History of the Company."
THE COMPANY
Motor Cargo Industries, Inc. (the "Company") is a less-than-truckload
("LTL") carrier which provides transportation and logistics services to shippers
primarily within the western region of the United States. The Company transports
general commodities, including consumer goods, packaged foodstuffs, electronics,
computer equipment, apparel, hardware, industrial goods and auto parts for major
shippers such as Starbucks Coffee Company, 3M Corporation, Steelcase, Pepperidge
Farm, Sony Music, Eli Lilly, General Motors and Square D Corp. No one customer
accounts for over 5% of the Company's total revenues. The Company offers a broad
range of services, including expedited scheduling and full
temperature-controlled service. The Company's management believes that by
focusing on the high service segment of the LTL industry the Company can
continue its profitable growth within the western region of the United States,
which is one of the fastest growing regions of the United States. The Company's
management believes that the Company's rigorous focus on cost controls, its
largely nonunion work force (over 95% of its employees are nonunion) and its
focus on the western region give the Company a competitive advantage with
respect to the larger, national LTL carriers that compete with the Company
within the western region.
The Company has 22 service centers strategically located in each major
population center in the western region. The Company uses a single service
center, rather than multiple satellite terminals, in each of the major cities it
serves in order to reduce intermediate handling. The Company also utilizes 20
independent agents in smaller markets, enabling the Company to offer shippers
extensive coverage throughout the region. Approximately 58% of the Company's
shipments are currently delivered overnight and over 90% of all shipments are
delivered within two days.
Instead of utilizing a "hub and spoke" system, which is typically used by
large, national LTL carriers, the Company emphasizes "direct loading" of freight
between service centers with no intermediate handling on most shipments. Hub and
spoke systems generally require shipments to be loaded and unloaded several
times at a number of service centers and breakbulk facilities prior to delivery.
Direct loading allows shipments to be transported directly from the originating
service center to the destination service center without intermediate handling.
Direct loading reduces the Company's costs because it requires less loading and
unloading of freight and requires fewer terminals and breakbulk operations.
The Company's growth strategy includes the following key elements:
- Increase Market Share Within Core Service Region. The Company believes
that its core western regional market has the potential for significant
profitable revenue growth. In addition, the Company believes it is in a
position to increase its market share within its core service region. In
the second half of 1995 the Company initiated a significant expansion of
its terminal network in order to increase coverage within its core
service region. The Company is now focused on improving route, lane and
service center densities within its core service region through
aggressive sales and marketing efforts and expanded service offerings.
The Company expanded its sales force significantly during 1996 and
intends to further expand its sales force in 1998 and 1999. The Company
anticipates that it will continue to increase the capacity of its
terminal network by adding capacity to existing service centers and
establishing new service centers incrementally as needed, with
particular emphasis in the Pacific northwest.
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<PAGE> 5
- Expand into Additional Major Markets. The Company's strategic growth
plan calls for establishing market and operational presence in several
major business economic areas ("BEAs") within the midwest and southeast
regions of the United States during the next three years. Unlike more
traditional inter-regional expansion models, the Company intends only to
solicit tonnage from these markets moving west into its core service
region. The Company intends to utilize third-party truckload carriers to
transport freight from these markets to its core service region. The
Company anticipates that this strategy of selling into the region will
improve lane, route and service center densities in its core service
region without requiring the Company to incur the costs associated with
building an inter-regional terminal network. The Company intends to
enter into interline partnerships to provide immediate revenue and
offset start-up costs associated with certain BEA expansions. The
Company commenced operations at its first BEA expansion facility in
Dallas in October 1997. Additional BEAs under consideration for 1998 and
1999 include major distribution centers such as Atlanta, Chicago,
Cleveland, Houston, Indianapolis, Memphis, Minneapolis and St. Louis.
- Expand the Market Presence of MCDS. The Company believes that many
companies are increasingly focused on outsourcing certain non-core
functions and are engaging third-party logistics companies to provide
distribution management services. Through its subsidiary, MC
Distribution Services, Inc. ("MCDS"), the Company provides customized
logistics, warehousing and distribution management services. MCDS
targets customers with distribution requirements that are time-sensitive
and require a significant amount of transportation. MCDS currently
provides "just-in-time" delivery services for two major specialty
retailers. Although MCDS has the ability to provide services for large
projects, MCDS targets smaller and mid-sized projects which do not meet
the minimum revenue requirements of many of its larger competitors. By
focusing on capabilities which are complementary to the Company's
services, and leveraging the Company's existing customer base, the
Company believes that MCDS provides a significant opportunity for future
revenue and earnings growth.
- Emphasize Low-cost Operations. By focusing on the western region, the
Company believes it will be able to improve lane, route and service
center densities, allowing the Company to better leverage the fixed
costs of its terminal network. In addition, the Company believes that
its largely nonunion work force gives it a competitive advantage over
larger unionized carriers that operate within the Company's core service
region. The Company also believes it is among the leading carriers in
the country in adopting technology-based solutions for analyzing the
profitability of shipments and reducing costs. As a result, the Company
recently eliminated certain business and tonnage that did not meet the
Company's margin requirements. Management believes that this account
rationalization process was responsible for improved profit margins
during the first nine months of 1997. The Company intends to continually
analyze the profitability of each customer, lane and service center.
The Company was incorporated in Utah in 1996. The Company's wholly-owned
operating subsidiary, Motor Cargo, a Utah corporation ("Motor Cargo"), is the
surviving corporation resulting from the merger of certain trucking companies in
1973. The Company's principal executive offices are located at 845 West Center
Street, North Salt Lake, Utah 84054, and its telephone number is (801) 292-1111.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company............................ 1,150,000 Shares
Common Stock offered by the Selling
Shareholders....................... 1,080,000 Shares
Common Stock to be outstanding after
this Offering...................... 6,990,000 Shares(1)
Use of proceeds...................... To reduce indebtedness and purchase revenue equipment
and for working capital. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol............................. "CRGO"
</TABLE>
- ---------------
(1) Includes 20,000 shares to be issued upon completion of the Offering pursuant
to a restricted stock agreement between the Company and Louis V. Holdener.
Excludes 500,000 shares of Common Stock reserved for issuance upon exercise
of options which may be granted under the Company's 1997 Stock Option Plan.
It is anticipated that options for up to 229,500 shares will be granted
under the Company's 1997 Stock Option Plan simultaneously with the
completion of this Offering with an exercise price equal to the initial
public offering price for the Common Stock. See "Management -- 1997 Stock
Option Plan."
RISK FACTORS
A number of factors should be considered by potential investors before
purchasing shares of the Company's Common Stock. See "Risk Factors."
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues............... $ 63,660 $ 68,726 $ 82,984 $ 80,808 $ 92,310 $ 68,272 $ 77,446
Operating income................. 5,439 5,883 9,412 7,367 7,315 5,328 7,792
Interest expense................. 1,400 1,408 1,392 1,500 1,430 1,129 772
Net earnings..................... 2,823 2,969 5,181 3,880 3,735 2,659 4,308
Pro forma(1)
Earnings before income taxes... $ 4,130 $ 4,444 $ 8,124 $ 5,974 $ 5,853 4,215 7,132
Income taxes................... 1,549 1,569 3,125 2,303 2,256 1,627 2,878
Net earnings................... 2,581 2,875 4,999 3,671 3,597 2,588 4,254
Earnings per common share...... $ 0.44 $ 0.49 $ 0.86 $ 0.63 $ 0.62 $ 0.44 $ 0.73
Weighted average shares
outstanding.................. 5,820 5,820 5,820 5,820 5,820 5,820 5,820
Supplemental pro forma earnings
per share(2)................... $ 0.61 $ 0.44 $ 0.70
OPERATING DATA:
Operating Ratio (3).............. 91.4% 91.4% 88.7% 90.9% 92.1% 92.2% 89.9%
Average revenue per mile......... $ 2.71 $ 2.84 $ 3.00 $ 2.90 $ 2.80 $ 2.76 $ 3.05
Revenue per hundredweight........ $ 10.61 $ 10.97 $ 10.82 $ 10.78 $ 10.74 $ 10.61 $ 11.08
Average revenue per bill......... $ 119.20 $ 119.85 $ 126.29 $ 122.51 $ 122.54 $ 119.64 $ 125.57
Average tractors for period(4)... 368 402 435 476 520 520 541
Tractors at end of period(4)..... 382 422 448 504 535 535 576
Trailers at end of period........ 1,376 1,571 1,802 2,080 2,251 2,251 2,297
Average miles per tractor(4)..... 64,142 60,451 63,800 58,991 62,868 47,190 46,162
Tons shipped..................... 301,588 314,865 384,416 377,042 426,109 316,715 343,686
Shipments........................ 536,955 576,288 658,982 663,648 747,024 561,652 606,415
Average weight per bill.......... 1,123 1,093 1,167 1,136 1,141 1,128 1,134
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
ACTUAL AS ADJUSTED(5)(6)
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<S> <C> <C>
BALANCE SHEET DATA:
Net property and equipment............................................... $39,836 $42,836
Total assets............................................................. 62,888 68,692
Long-term obligations, less current maturities........................... 12,500 8,257
Total liabilities........................................................ 32,998 40,498
Stockholders' equity..................................................... 29,890 43,194
</TABLE>
- ---------------
(1) Effective August 28, 1997, the Company acquired the membership interests of
Ute Trucking and Leasing, LLC, a Utah limited liability company ("Ute"). A
limited liability company passes through to its members essentially all
taxable earnings and losses and pays no tax at the company level.
Accordingly, for comparative purposes, a pro forma provision for income
taxes using an effective tax rate of 38% has been determined assuming Ute
has been taxed as a C corporation for all periods presented.
(2) Supplemental pro forma earnings per share is calculated by dividing pro
forma net earnings (adjusted for the pro forma reduction in interest expense
that specifically corresponds to the application of proceeds from the
Offering to repay indebtedness of $7,500,000 of notes payable) by weighted
average shares outstanding used in the calculation of net earnings per
common share (adjusted for the estimated shares at each date that would be
issued by the Company at $13 per share to retire the $7,500,000). See "Use
of Proceeds" and "Certain Transactions."
(3) Operating expenses as a percentage of operating revenues. The operating
ratio for 1995 and subsequent periods includes the revenues and expenses of
MCDS. All other operating data presented includes only operating data for
trucking operations and excludes operating data for MCDS.
(4) Includes pick-up and delivery tractors and trucks. See "Business -- Revenue
Equipment."
(5) Adjusted for the sale of 1,150,000 shares of Common Stock offered by the
Company and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds."
(6) Effective August 28, 1997, Ute was acquired by the Company and became a
taxable entity. Previously, its earnings and losses were included in the
personal tax returns of members, and Ute did not record an income tax
provision. Effective with the change, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes,"
income taxes will be provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of property and
equipment for financial and income tax reporting. The deferred tax liability
represents the future tax return consequences of these differences, which
will be taxable when the liabilities are settled. Accordingly, a deferred
tax liability at the date of the change (of approximately $238,000) has been
recorded through a one-time charge to the deferred tax provision. See
"Certain Transactions."
6
<PAGE> 8
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. The following factors should be considered carefully, together with the
information provided elsewhere in this Prospectus, in evaluating an investment
in the shares of Common Stock offered hereby.
ECONOMIC FACTORS
The availability and price of fuel, insurance costs, interest rates,
fluctuations in customers' business cycles and national and regional economic
conditions are economic factors over which the Company has little or no control.
Significant increases in fuel prices, interest rates or increases in insurance
costs, to the extent not offset by increases in freight rates, or disruptions in
fuel supply, would adversely affect the Company's results of operations. A
significant downturn in customers' businesses or temporary inventory imbalances
(resulting from a recession or otherwise) also could have a material adverse
effect on the profitability of the Company. Finally, the Company may be forced
to curtail its plans for growth due to changes in economic conditions,
particularly decreased demand for LTL carrier services. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Fuel Availability and Cost."
AVAILABILITY OF EMPLOYEE DRIVERS AND INDEPENDENT CONTRACTORS
The Company utilizes the services of both employee drivers and independent
contractors. Competition for employee drivers and independent contractors is
intense in the trucking industry, and the Company occasionally experiences
difficulty attracting and retaining enough qualified employee drivers and
independent contractors. There can be no assurance that the Company will not be
affected by a shortage of qualified employee drivers or independent contractors
in the future, which could result in temporary underutilization of revenue
equipment, difficulty in meeting shipper demands and increased compensation
levels. Prolonged difficulty in attracting or retaining qualified employee
drivers or independent contractors could have a materially adverse effect on the
Company's operations and limit its growth. See "Business -- Drivers, Independent
Contractors and other Personnel."
RISKS ASSOCIATED WITH GEOGRAPHIC EXPANSION
As part of the Company's growth strategy, the Company intends to establish
market and operational presence in several metropolitan areas outside its core
service region. Unlike more traditional inter-regional expansion models, the
Company intends only to solicit tonnage from these markets moving west into its
core service region. These anticipated expansions involve establishing terminal
facilities that will be operated differently from the service centers currently
operated by the Company in its core service region. The Company has no previous
experience with operations in these markets and limited experience with this new
operating concept, and no assurance can be given that such operations will be
successful. There may be unanticipated costs or problems associated with
implementing this new operating strategy. While the Company intends to enter
into interline partnerships to provide immediate revenue and offset start-up
costs associated with such expansions in certain markets, such expansions may
have a negative effect on the Company's short-term operating results. In
addition, such expansions may require the Company to attract and retain
experienced management personnel and require the integration of management
information systems and other operating systems. The success of the Company's
expansion strategy will depend on the Company's ability to manage effectively an
increasing number of new facilities while continuing to manage its existing
business. See "Business -- Growth Strategy."
CAPITAL REQUIREMENTS
The trucking industry is very capital intensive. The Company historically
has relied upon cash flow from operations and debt to finance new revenue
equipment, and it has granted its lenders a lien on a substantial portion of its
assets. If in the future the Company were unable to borrow sufficient funds,
enter into acceptable operating lease arrangements, or raise additional equity,
the resulting capital shortage would impair the Company's ability to acquire
additional revenue equipment and adversely affect the Company's growth and
7
<PAGE> 9
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
CLAIMS EXPOSURE AND INSURANCE COSTS
Trucking companies, including the Company, face multiple claims for
personal injury and property damage relating to accidents, cargo damage and
workers' compensation. The Company currently maintains liability insurance for
bodily injury and property damage in the amount of $30 million, with a self
retention amount of $500,000 per incident and cargo insurance in the amount of
$1 million, with a self retention amount of $100,000, per load. The Company also
maintains workers' compensation insurance, with a deductible of $250,000 in
Nevada, and without a deductible in Washington. The Company is responsible for
workers' compensation claims in other states in which the Company operates, up
to an aggregate of approximately $1.9 million per year, and the Company
maintains insurance for workers' compensation payments in excess of such amount.
During 1996 and the first nine months of 1997 the Company experienced higher
than expected claims for accidents, and the payments and reserves for these
claims adversely affected the Company's operating results for such periods. To
the extent that the Company experiences a material increase in the frequency or
severity of accidents or workers' compensation claims, or unfavorable
developments on existing claims, the Company's operating results and financial
condition could be materially adversely affected. Significant increases in the
Company's claims and insurance costs, to the extent not offset by rate
increases, would reduce the Company's profitability. See "Management's
Discussion and Analysis -- Results of Operations" and "Business -- Safety and
Insurance."
COMPETITION
The trucking industry is highly competitive and fragmented. Competition for
freight transported by the Company is based primarily on service and efficiency
and on freight rates. The Company competes with regional, inter-regional and
national LTL carriers of varying sizes and, to a lesser extent with truckload
carriers, railroads and overnight delivery companies. Some of the Company's
competitors are divisions or subsidiaries of larger trucking companies. Many of
the Company's competitors have greater financial resources, more equipment and
greater freight capacity than the Company. Certain carriers occasionally
experience periods of over capacity during which these carriers reduce prices in
order to increase utilization of revenue equipment. See
"Business -- Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company's success is highly dependent upon the continued services of
the Company's Chairman, Harold R. Tate, and the Company's senior management
team, particularly Marshall L. Tate, the Company's President and Chief Executive
Officer, and Louis V. Holdener, the President of the Company's operating
subsidiary, Motor Cargo. The Company does not have employment agreements with
Harold R. Tate or Marshall L. Tate. The loss of one or more of these individuals
could have a materially adverse effect upon the Company. The Company's success
also depends upon its ability to attract and retain skilled employees. There is
significant competition for qualified personnel in the trucking industry. There
can be no assurance that the Company will attract and retain qualified
management personnel in the future. See "Management."
LABOR RELATIONS
Approximately 5% of the Company's employees are covered by two separate
collective bargaining agreements which expire in 1999 and 2000. The Company
believes that it has satisfactory relations with its employees. There can be no
assurance, however, that new labor agreements will be reached without a work
stoppage or strike or will be reached on terms satisfactory to the Company. A
prolonged work stoppage or strike at any of the Company's facilities could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Drivers, Independent Contractors and
other Personnel."
8
<PAGE> 10
SEASONALITY
The Company experiences some seasonal fluctuations in freight volume.
Historically, the Company's shipments decrease during the winter months. In
addition, the Company's operating expenses historically have been higher in the
winter months due to decreased fuel efficiency and increased maintenance costs
for revenue equipment in colder weather. Historically, on average, the Company's
revenues have been 3% to 4% lower in the first and fourth quarters of each year
compared to the second and third quarters of each year. The Company's operating
expenses, as a percentage of revenues, have historically been one or two
percentage points higher in the first and fourth quarters of each year compared
to the second and third quarters of each year. The Company's operating revenue
and net earnings may vary as a result of seasonal factors, and accordingly,
results of operations are subject to fluctuation, and results in any period
should not be considered indicative of the results to be expected for any future
period. Fluctuations in operating results may also result in fluctuations in the
price of the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Seasonality."
FUEL PRICE FLUCTUATIONS
Fuel prices tend to fluctuate. Any increase in fuel taxes or in fuel
prices, to the extent not offset by freight rate increases or fuel surcharges to
customers, or any interruption in the supply of fuel, could have a materially
adverse effect on the Company's operating results. Because of the highly
competitive nature of the market for LTL services, the Company generally must
wait for larger carriers to implement fuel surcharges before the Company can
effectively implement fuel surcharges. See "Business -- Fuel Availability and
Cost."
ENVIRONMENTAL HAZARDS
The Company's operations are subject to various environmental laws and
regulations dealing with the transportation, storage, presence, use, disposal,
and handling of hazardous materials and hazardous wastes, discharge of
stormwater, and underground fuel storage tanks. The Company transports certain
commodities that are or may be deemed hazardous substances. The Company also
currently maintains above-ground and underground fuel storage tanks on several
of its properties. The Company is not aware of any fuel spills or hazardous
substance contamination on its properties that would have a material adverse
effect on the Company and the Company believes that its operations are in
material compliance with existing environmental laws and regulations. If,
however, the Company should be involved in a fuel spill, or a spill or other
accident involving hazardous substances, if any such substances were found on
the Company's properties, or if the Company were found to be in violation of
applicable laws and regulations, the Company could be responsible for clean-up
costs, property damage, and fines or other penalties, any one of which could
have a materially adverse effect on the Company. See "Risk Factors -- Government
Regulation" and "Business -- Regulation."
GOVERNMENT REGULATION
Trucking companies are subject to regulation by various federal and state
agencies, including the United States Department of Transportation (the "DOT").
These regulatory authorities govern activities such as operational safety,
accounting systems, and financial reporting. State regulation of intrastate
authority and routes of service was preempted by federal law in 1995. The
abolition of the Interstate Commerce Commission effective January 1, 1996,
terminated regulation by that agency, including regulation of rates and certain
mergers, consolidations, and acquisitions (subject to continued antitrust review
by the Department of Justice and the Federal Trade Commission). The use of
triple trailers is subject to state regulation and is prohibited by several
states within the Company's core service region. Federal legislation prohibiting
the use of triple trailers has also been proposed. The Company also is subject
to regulations promulgated by the Environmental Protection Agency ("EPA") and
similar state agencies. See "Risk Factors -- Environmental Hazards" and
"Business -- Regulation."
9
<PAGE> 11
VOTING CONTROL OF THE COMPANY
On all matters with respect to which the Company's shareholders have a
right to vote, including the election of directors, each share of Common Stock
is entitled to one vote. Upon completion of the Offering, Harold R. Tate will
beneficially own approximately 56% of the outstanding shares of Common Stock
(approximately 55% if the underwriters' over-allotment option is exercised in
full). As long as Mr. Tate controls a majority of the votes entitled to be cast
by the Company's Common Stock, he will have the ability to elect the entire
Board of Directors of the Company, determine the outcome of all matters
involving a shareholder vote, and take certain actions by written consent with
proper notice given to the other shareholders. Control by Mr. Tate of a majority
of the votes entitled to be cast by the holders of outstanding Common Stock
could make it more difficult for a third party to acquire, or discourage a third
party from attempting to acquire, control of the Company. See "Principal and
Selling Shareholders" and "Description of Capital Stock."
LIMITATIONS ON TAKEOVERS
Certain corporate governance and statutory provisions may inhibit changes
in control of the Company. Applicable provisions of Utah law restrict the voting
rights of certain acquirors and the ability of such persons to engage in
unapproved business combinations with the Company. The Company's Articles of
Incorporation allow the Board of Directors to issue and establish all relevant
provisions of preferred stock without further action by the shareholders. Such
preferred stock could be used, for example, in a shareholders' rights plan
designed to restrict or delay a change in control of the Company. The Company's
Bylaws limit the persons who may call a special meeting of the shareholders. In
addition, Harold R. Tate will beneficially own stock entitled to a majority of
the voting power of all of the Company's outstanding Common Stock after the
offering. These provisions and Mr. Tate's stock ownership could make a takeover
more difficult or discourage a person from attempting a takeover, including a
takeover that some shareholders may deem to be in their best interests. See
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Common Stock or the
availability of such shares for sale in the public market following this
Offering may adversely affect prevailing market prices for the Common Stock.
Upon completion of this Offering, the Company will have 6,990,000 shares of
outstanding Common Stock. All of the 2,230,000 shares of Common Stock offered
hereby will be freely tradeable without restriction or further registration
unless acquired by "affiliates" of the Company as defined in Rule 144 ("Rule
144") under the Securities Act of 1933, as amended (the "Securities Act"). In
connection with this Offering, the Company and all of its existing shareholders,
who will beneficially own approximately 4,760,000 or approximately 68% of the
Company's outstanding Common Stock after the Offering, have agreed not to sell
or otherwise dispose of any shares, directly or indirectly, for 180 days from
the commencement of this Offering without the prior written consent of Morgan
Keegan & Company, Inc. After the 180 day period, 4,040,000 of such shares will
be eligible for sale, subject to compliance with Rule 144. An additional 700,000
shares will be eligible for sale under Rule 144 beginning in August 1998. An
additional 20,000 shares subject to a restricted stock agreement will be
eligible for sale in accordance with the terms of such agreement. See "Principal
and Selling Shareholders" and "Shares Eligible for Future Sale."
LACK OF DIVIDENDS
The Company has never declared or paid cash dividends on its capital stock.
The Company intends to continue to retain earnings to finance the growth and
development of its business and does not anticipate paying cash dividends in the
foreseeable future. Any payment of cash dividends in the future will depend upon
the Company's financial condition, capital requirements, earnings, restrictions
under loan agreements, and other factors the Board of Directors may deem
relevant. See "Dividend Policy."
10
<PAGE> 12
NO PRIOR PUBLIC MARKET FOR COMMON STOCK, DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if developed, that such market will be sustained or that the stock will
trade at or above the initial public offering price. The initial public offering
price of the Common Stock offered hereby has been determined by negotiation
among the Company, the Selling Shareholders, and the Underwriters and may bear
no relationship to the price at which the Common Stock will trade after
completion of this Offering. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
IMMEDIATE AND SUBSTANTIAL DILUTION
The current shareholders of the Company acquired their shares of Common
Stock at a cost substantially below the initial public offering price of the
Common Stock offered hereby and, accordingly, at an assumed offering price of
$13 per share, purchasers of Common Stock in this Offering will incur immediate
and substantial dilution in the net tangible book value of their shares of $6.82
per share. In addition, although the consideration to be paid by purchasers of
the Common Stock in the Offering will constitute over 99% of the consideration
paid to the Company for shares of its capital stock, such purchasers will
possess only 32% of the voting power of the Company's capital stock upon
completion of the Offering. See "Dilution."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements relating to future
events or the future financial performance of the Company. Such statements may
relate, but not be limited, to projections of revenues, income or loss, capital
expenditures, construction or expansion of regional facilities, acquisitions,
plans for growth and future operations, financing needs or plans or intentions
relating to acquisitions by the Company, as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Such risks
include, but are not limited to, the matters discussed in the preceding
paragraphs under "Risk Factors." Future events and actual results could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements.
11
<PAGE> 13
HISTORY OF THE COMPANY
The Company's predecessor, Barton Truck Line ("Barton"), was formed in 1922
in Tooele, Utah to provide freight service in the Tooele community. In 1947,
W.C. Tate and Harold R. Tate purchased Barton, which at the time operated two
trucks and had annual revenues of approximately $35,000. In 1960, Barton
acquired Bonanza Trucking Company ("Bonanza"), a company which operated
primarily in Colorado. Barton and Bonanza were merged in 1973 and renamed Motor
Cargo. During the 1970's, Motor Cargo received further operating authority from
the Interstate Commerce Commission (the "ICC") to expand service throughout
Nevada and into the central and southern California markets. In 1978, Motor
Cargo purchased R & R Transportation Company and acquired statewide intrastate
operating authority in Nevada. Deregulation of the trucking industry after 1980
permitted Motor Cargo to further expand its operations in California, Arizona
and other western states. See "Business -- Regulation."
The Company was incorporated in Utah in January 1996 as a holding company
for Motor Cargo. The Company continues to conduct its operations through Motor
Cargo, its wholly-owned subsidiary. MC Distribution Services, Inc. ("MCDS"), a
wholly-owned subsidiary of Motor Cargo, was formed in 1995 to provide customized
logistics, warehousing and distribution management services.
On August 28, 1997, the Company acquired Ute Trucking and Leasing, LLC, a
Utah limited liability company ("Ute"). Ute's assets consist primarily of
tractors and trailers utilized by the Company pursuant to contracts between the
Company and Ute. The Company issued an aggregate of 700,000 shares of Common
Stock to the four members of Ute, Harold R. Tate, Marshall L. Tate, Darrell Tate
and Marvin L. Friedland, in exchange for their interests in Ute. As of August
31, 1997, the Ute assets had a net book value of approximately $912,000
($3,506,000 less $2,594,000 in related debt). The Company accounted for the
acquisition of Ute as a reorganization of entities under common control in an
accounting method similar to a "pooling of interests" and, accordingly, the
financial statements reflect the assets of Ute at their historical bases. Harold
R. Tate is the Chairman of the Board and Marshall L. Tate and Marvin L.
Friedland are executive officers and directors of the Company. See "Certain
Transactions" and Note M to the Company's Consolidated Financial Statements.
The Company's principal executive offices are located at 845 West Center
Street, North Salt Lake, Utah 84054 and its telephone number is (801) 292-1111.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,150,000 shares of
Common Stock offered by it hereby are estimated to be approximately $13,303,500,
assuming an initial public offering price of $13 per share, after deducting
underwriting discounts and commissions and estimated expenses payable by the
Company. The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."
The Company will use approximately $7.5 million of the net proceeds to
repay certain borrowings incurred to purchase revenue equipment, including
approximately $2.3 million in borrowings assumed by the Company in connection
with the acquisition of Ute. At September 30, 1997, these obligations bore
interest at a weighted average annual rate of 7.9% and provided for maturity
dates between 1998 and 2005. See Note F to the Company's Consolidated Financial
Statements. The Company will use approximately $2.4 million of the net proceeds
to purchase revenue equipment pursuant to commitments that provide for delivery
of such revenue equipment by December 31, 1997.
The balance of the net proceeds will be used for working capital and
general corporate purposes, including the purchase of additional revenue
equipment, and possible future business acquisitions. The Company currently does
not have any commitments or agreements for any business acquisition and is not
in active negotiations regarding any such acquisitions. Pending their use by the
Company as described above, the Company intends to invest the net proceeds of
the Offering in short-term, investment-grade instruments.
12
<PAGE> 14
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain all future earnings, if any, to
fund the development and growth of its business. Any future determination to pay
cash dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results of operations, capital
requirements from time to time, restrictions under loan agreements, and such
other factors as the Board of Directors deems relevant. The Company's operating
subsidiary, Motor Cargo, is a party to a credit agreement which restricts the
payment of cash dividends by Motor Cargo during the term of the credit
agreement. Under the terms of the credit agreement, Motor Cargo may not declare
or pay cash dividends following the Offering unless, as of the end of the most
recent fiscal quarter preceding the date of declaration or payment of any
dividend, (i) the ratio of Motor Cargo's current assets (less the amount of the
cash dividend) to current liabilities would be at least 1.10 to 1.0, (ii) the
ratio of Motor Cargo's net, after tax income (plus non-cash expenditures) for
the twelve month period then ended (less the amount of the cash dividend) to the
current portion of long-term debt would not be less than 1.50 to 1 and (iii)
after giving effect to the payment of such dividend, Motor Cargo would otherwise
be in full compliance with the terms of the credit agreement. Accordingly,
because the Company would ordinarily be dependent upon cash dividends from Motor
Cargo in order to pay a cash dividend on its Common Stock, the provisions of the
credit agreement limit the ability of the Company to pay cash dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth (i) the current maturities of long-term
obligations and (ii) the capitalization of the Company (a) as of September 30,
1997 and (b) as adjusted to give effect to the sale of the 1,150,000 shares of
Common Stock offered by the Company hereby (at an assumed initial public
offering price of $13 per share) and application of the estimated net proceeds
therefrom as described in "Use of Proceeds." The following table should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
AS
ACTUAL ADJUSTED(1)
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term obligations.............................. $ 3,346 $ 89
======= =======
Long-term obligations (less current maturities):......................... $12,500 $ 8,257
Stockholders' equity
Preferred stock, no par value; Authorized -- 25,000,000 shares
Issued -- none
Common Stock, no par value;
Authorized -- 100,000,000 shares Issued and outstanding -- 5,820,000
and 6,990,000 shares issued and outstanding as adjusted................ 1 13,304
Retained earnings...................................................... 29,889 29,889
------- -------
Total stockholders' equity.......................................... 29,890 43,193
------- -------
Total capitalization................................................ $42,390 $51,450
======= =======
</TABLE>
- ---------------
(1) Includes 20,000 shares to be issued upon completion of the Offering pursuant
to a restricted stock agreement between the Company and Louis V. Holdener.
Excludes 500,000 shares of Common Stock reserved for issuance upon exercise
of options which may be granted under the Company's 1997 Stock Option Plan.
It is anticipated that options for up to 229,500 shares will be granted
under the Company's 1997 Stock Option Plan simultaneously with the
completion of this Offering with an exercise price equal to the initial
public offering price for the Common Stock. See "Management -- 1997 Stock
Option Plan."
13
<PAGE> 15
DILUTION
The net tangible book value of the Company at September 30, 1997, was
$29,890,398 or $5.14 per share of Common Stock. Net tangible book value per
share of Common Stock is determined by dividing the net tangible book value
(total tangible assets less total liabilities) of the Company by the number of
shares of Common Stock outstanding.
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
Offering made hereby and the net tangible book value per share of Common Stock
immediately after completion of the Offering. Without taking into account any
changes in the net tangible book value of the Company, other than to give effect
to the sale of the shares of Common Stock offered hereby at an assumed offering
price of $13 per share and receipt of the net proceeds therefrom, the adjusted
net tangible book value of the Company at September 30, 1997 would have been
$43,193,890, or $6.18 per share. This represents an immediate dilution in net
tangible book value of $6.82 per share to new investors purchasing shares in the
Offering and an immediate increase in net tangible book value of $1.04 per share
to existing shareholders. The following table illustrates this per share
dilution, calculated as of September 30, 1997:
<TABLE>
<S> <C> <C>
Assumed public offering price per share............................. $13.00
Net tangible book value per share at September 30, 1997........... $5.14
=====
Increase per share attributable to new investors.................. 1.04
=====
Net tangible book value per share after the Offering................ 6.18
======
Net tangible book value dilution per share to new investors......... $ 6.82
======
</TABLE>
The following table shows the difference between existing shareholders and
the purchasers of shares in this Offering with respect to the number of shares
purchased from the Company, the total consideration paid, and the average price
per share paid:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION(1)
---------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT(3) AMOUNT(3) PERCENT PER SHARE
--------- ---------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(2)......... 5,840,000 83.55% $ 1,000 .01% $ 0.00
New investors.................... 1,150,000 16.45% $14,950,000 99.99% $ 13.00
Total....................... 6,990,000 100.0% $14,951,000 100.0%
</TABLE>
- ---------------
(1) The total consideration set forth in the table paid by existing shareholders
does not include the value of the Ute assets contributed to the Company by
four existing shareholders as of August 1997. See "Certain Transactions."
(2) Includes 20,000 shares to be issued upon completion of the Offering pursuant
to a restricted stock agreement between the Company and Louis V. Holdener.
Does not include approximately 229,500 shares of Common Stock reserved for
issuance upon the exercise of stock options that will be granted on the date
of this Prospectus to existing shareholders and other employees under the
Company's 1997 Stock Option Plan. See "Management -- 1997 Stock Option
Plan."
(3) The sale of 1,080,000 shares of Common Stock in the Offering by the Selling
Shareholders will cause the number of shares held by existing shareholders
to be reduced to 4,760,000 shares or approximately 68% of the total number
of shares outstanding after the Offering. If the Underwriters'
over-allotment option is exercised in full, sales by the Selling
Shareholders in the Offering will reduce the number of shares held by
current shareholders to 4,442,750 or approximately 63% of the Common Stock
outstanding after the Offering.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of earnings and balance sheet
data as of and for each of the periods in the five year period ended December
31, 1996 and the nine month period ended September 30, 1997 are derived from the
financial statements of the Company, which have been audited by Grant Thornton
LLP, independent public accountants. The selected consolidated statement of
earnings for the nine month period ended September 30, 1996 and pro forma data
are unaudited, but, in the opinion of management, the unaudited financial
statements reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the information included therein. The
financial data for the Company should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus. The results for the nine month period ended
September 30, 1997 are not necessarily indicative of results that may be
expected for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues.............................. $63,660 $68,726 $82,984 $80,808 $92,310 $68,272 $77,446
Operating expenses
Salaries, wages and benefits.................. 29,414 31,432 36,055 35,495 39,666 29,412 33,005
Operating supplies and expenses............... 8,874 9,899 12,145 12,669 14,947 10,969 11,540
Purchased transportation...................... 10,232 11,021 12,238 11,532 14,164 10,578 11,132
Operating taxes and licenses.................. 1,828 1,969 3,068 3,178 3,531 2,534 2,681
Insurance and claims.......................... 1,707 1,963 2,685 1,842 2,785 1,998 3,400
Depreciation and amortization................. 4,145 4,524 4,974 5,930 6,578 4,965 5,156
Communications and utilities.................. 1,164 1,277 1,314 1,521 1,784 1,327 1,474
Building rents................................ 857 758 1,093 1,274 1,540 1,161 1,266
------- ------- ------- ------- ------- ------- -------
Total operating expenses................. 58,221 62,843 73,572 73,441 84,995 62,944 69,654
------- ------- ------- ------- ------- ------- -------
Operating income......................... 5,439 5,883 9,412 7,367 7,315 5,328 7,792
Other income (expense)
Interest expense......................... (1,400) (1,408) (1,392) (1,500) (1,430) (1,129) (772)
Other, net............................... 91 (31) 104 107 (32) 15 112
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes.................... 4,130 4,444 8,124 5,974 5,853 4,215 7,132
Income taxes.................................... 1,307 1,475 2,943 2,094 2,118 1,556 2,824
------- ------- ------- ------- ------- ------- -------
Net earnings.................................... $ 2,823 $ 2,969 $ 5,181 $ 3,880 $ 3,735 $ 2,659 $ 4,308
======= ======= ======= ======= ======= ======= =======
Pro forma(1)
Earnings before income taxes.................. $ 4,130 $ 4,444 $ 8,124 $ 5,974 $ 5,853 $ 4,215 $ 7,132
Income taxes.................................. 1,549 1,569 3,125 2,303 2,256 1,627 2,878
------- ------- ------- ------- ------- ------- -------
Net earnings.................................. $ 2,581 $ 2,875 $ 4,999 $ 3,671 $ 3,597 $ 2,588 $ 4,254
======= ======= ======= ======= ======= ======= =======
Earnings per common share..................... $ 0.44 $ 0.49 $ 0.86 $ 0.63 $ 0.62 $ 0.44 $ 0.73
======= ======= ======= ======= ======= ======= =======
Weighted average shares outstanding........... 5,820 5,820 5,820 5,820 5,820 5,820 5,820
======= ======= ======= ======= ======= ======= =======
Supplemental pro forma earnings per share(2).... $ 0.61 $ 0.44 $ 0.70
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.................................. $10,171 $13,481 $18,741 $20,233 $23,197 $22,563
Current liabilities............................. 9,078 10,741 13,414 14,752 15,752 14,711
Total assets.................................... 38,072 42,016 49,391 59,507 63,834 62,888
Long-term obligations, less current
maturities.................................... 12,920 13,745 14,044 17,724 16,820 12,500
Total liabilities............................... 24,470 27,081 30,631 36,784 37,794 32,998
Stockholders' equity............................ 13,602 14,935 18,760 22,723 26,040 29,890
</TABLE>
15
<PAGE> 17
- ---------------
(1) Effective August 28, 1997, the Company acquired the membership interests of
Ute, a Utah limited liability company. A limited liability company passes
through to its members essentially all taxable earnings and losses and pays
no tax at the company level. Accordingly, for comparative purposes, a pro
forma provision for income taxes using an effective income tax rate of 38%
has been determined assuming Ute had been taxed as a C corporation for all
periods presented.
(2) Supplemental pro forma earnings per share is calculated by dividing pro
forma net earnings (adjusted for the pro forma reduction in interest expense
that specifically corresponds to the application of proceeds from the
Offering to repay indebtedness of $7,500,000 of notes payable) by weighted
average shares outstanding used in the calculation of net earnings per
common share (adjusted for the estimated shares at each date that would be
issued by the Company at $13 per share to retire the $7,500,000). See "Use
of Proceeds" and "Certain Transactions."
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the financial statements
and notes thereto included elsewhere in this Prospectus.
OVERVIEW
The Company's results of operations for 1994, 1995, 1996 and the nine
months ended September 30, 1997 reflect fluctuations within the motor carrier
industry and significant changes within the Company's operations. Results of
operations for 1994 were positively affected by a Teamster strike which
adversely affected certain unionized carriers. As a result of this strike, the
Company and other carriers with predominantly nonunion employees experienced
unusually large increases in freight volumes. Freight volumes and operating
margins returned to more normal levels in 1995 and 1996.
In the second half of 1995 the Company initiated a significant expansion of
its terminal network in order to increase coverage within its core service
region. As part of this expansion, the Company opened new service centers in
Rialto, California; Oxnard, California; Bakersfield, California; Fresno,
California; and Grand Junction, Colorado. Accordingly, although the Company's
revenues in 1995 were only slightly lower than the unusually high levels
experienced in 1994, earnings were significantly impacted by start-up costs and
expenses associated with the Company's terminal network expansion.
Costs associated with the Company's new service centers continued to affect
earnings in 1996 as several of these service centers were in the early stages of
operation. Earnings in 1996 were also adversely affected by sluggish demand for
LTL carrier services throughout the year, which resulted in severe pricing
pressures, and by escalating fuel prices in the latter half of 1996.
In 1997 the Company began to experience favorable results associated with
its terminal network expansion. Revenues produced by the Company's new service
centers during the nine months ended September 30, 1997 were more consistent
with the revenues of the Company's other service centers than in prior periods.
Higher demand for carrier services also contributed to a more stable pricing
environment during the first nine months of 1997. The Company's results of
operations for the nine months ended September 30, 1997 were also significantly
affected by an aggressive account rationalization program initiated by the
Company in late 1996 to improve revenue quality. By analyzing each account based
upon revenue quality characteristics such as revenue per bill and revenue per
hundredweight, the Company was able to identify accounts providing inadequate
profit margins. While revenue growth was negatively affected by this account
rationalization, the Company's earnings for the nine months ended September 30,
1997 were positively affected by the elimination of certain business and tonnage
which did not meet the Company's margin requirements.
The Company's management believes that its expanded terminal network
provides the Company with the necessary infrastructure for continued growth
within its core service region. With an established terminal network in place to
provide high quality service throughout its core service region, the Company
intends to focus on improving route, lane and service center densities by
increasing the amount of business handled by the Company within its core service
region. The Company intends to achieve this growth by increasing the amount of
business generated by existing customers within its core service region and
acquiring new customers outside its core service region for the purpose of
soliciting new business into its core service region. The Company intends to
continue its rigorous analysis of costs and profitability associated with each
customer, lane and service center.
Effective August 28, 1997, the Company acquired the membership interests of
Ute. A limited liability company passes through to its members essentially all
taxable earnings and losses and pays no tax at the company level. The following
discussion includes financial information of the Company which includes the
results of operations of Ute; however, such financial information does not
reflect any provision for income taxes that would have been paid by the Company
if Ute had been owned by the Company during the relevant periods. For
comparative purposes, the Company's Consolidated Financial Statements contain a
pro forma provision for income taxes. See Note A14 to the Company's Consolidated
Financial Statements.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain items
to revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Operating revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages and benefits..................... 43.5 43.9 43.0 43.1 42.6
Operating supplies and expenses.................. 14.6 15.7 16.2 16.1 14.9
Purchased transportation......................... 14.8 14.3 15.3 15.5 14.4
Depreciation and amortization.................... 6.0 7.3 7.1 7.3 6.7
Insurance and claims............................. 3.2 2.3 3.0 2.9 4.3
Operating taxes and licenses..................... 3.7 3.9 3.9 3.7 3.5
Communications and utilities..................... 1.6 1.9 1.9 1.9 1.9
Building rents................................... 1.3 1.6 1.7 1.7 1.6
----- ----- ----- ----- -----
Total operating expenses................. 88.7 90.9 92.1 92.2 89.9
----- ----- ----- ----- -----
Operating income................................... 11.3 9.1 7.9 7.8 10.1
Other income (expense)
Interest expense................................. (1.7) (1.8) (1.6) (1.7) (1.0)
Other, net....................................... 0.1 0.1 0.0 0.0 0.1
----- ----- ----- ----- -----
Earnings before income taxes....................... 9.7 7.4 6.3 6.1 9.2
Income taxes....................................... 3.5 2.6 2.3 2.3 3.6
----- ----- ----- ----- -----
Net earnings....................................... 6.2% 4.8% 4.0% 3.8% 5.6%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Operating revenues increased 13.4% for the nine months ended September 30,
1997 to $77.4 million from $68.3 million for the comparable period in 1996. The
increase was attributable to the Company's efforts beginning in the third
quarter of 1996 to improve significantly the yield of its revenue base, the
addition of new customers and, to a lesser extent, expansions within the
Company's operating region. The number of shipments during the first nine months
of 1997 increased by 8.0% to 606,415 compared to 561,652 for the same period in
1996. Revenue per hundred weight increased to $11.08 in the first nine months of
1997 from $10.61 for the same period in 1996.
Of the $9.1 million increase in operating revenues for the nine month
period ended September 30, 1997, $2.3 million was attributable to the Company's
warehousing and distribution management company, MCDS. The increase in revenues
for MCDS resulted primarily from the addition of a single large distribution
management project for a large retail company.
As a result of the Company's focus on revenue quality, tonnage grew by 8.5%
to 343,686 tons for the nine months ended September 30, 1997, compared to
316,715 tons for the same period in 1996, while total shipments increased 8.0%
to 606,415 for the nine months of 1997 compared to 561,652 for the same period
in 1996. During this same period, average revenue per bill increased 5% to
$125.57 compared to $119.64 for the comparable period of 1996. Lower margin
yields resulting from a difficult freight market in early 1996 and sluggish
demand throughout the year contributed to lower revenues in 1996. Revenues for
the first nine months of 1997 were adversely affected by the Company's decision
to discontinue service to certain customers whose business volumes did not meet
minimum margin yield requirements.
As a percentage of operating revenues, salaries, wages and benefits
decreased to 42.6% for the nine months ended September 30, 1997 from 43.1% for
the comparable period of 1996. While salary and wage rates increased
approximately 4% for the nine months ended September 30, 1997, salaries and
wages decreased as a percentage of revenues due to improved quality of revenue
as well as improved utilization of labor. Workers compensation costs increased
0.8% in the first nine months of 1997 due to a workers compensation credit
18
<PAGE> 20
which eliminated workers compensation expense for the same period in 1996.
Pension costs decreased 0.4 percent for the first nine months of 1997 compared
to the first nine months of 1996 due to a better rate of return on invested
pension assets.
Operating supplies and expenses, which includes agent commissions, tires,
parts, repairs and fuel, decreased for the nine months ended September 30, 1997
to 14.9% of operating revenues compared to 16.1% for the comparable period of
1996. This decrease was due to lower fuel prices and agent commissions,
partially offset by increased general, marketing and employee related expense.
Purchased transportation decreased to 14.4% of operating revenues for the
nine months ended September 30, 1997 from 15.5% for the comparable period of
1996. This decrease was primarily due to improved linehaul load factors and
higher revenue per operating mile.
Insurance and claims increased to 4.3% of operating revenues for the nine
months ended September 30, 1997 from 2.9% in the comparable period of 1996. This
increase was a result of the Company and its insurance carrier increasing the
insurance reserves in 1997 for two accidents which occurred in prior years.
As a percentage of operating revenues, depreciation and amortization
decreased to 6.7% for the nine months ended September 30, 1997 compared to 7.3%
for the same period of 1996. This decrease was due largely to increased revenue
levels and continued improvement in asset utilization of equipment acquired in
the second half of 1995 to facilitate the Company's terminal network expansion.
As a percentage of operating revenues, interest expense decreased to 1.0%
for the nine months ended September 30, 1997, compared to 1.7% for the same
period in 1996. This decrease was due primarily to lower debt levels resulting
from strong operating cash flows and continued improvement in cash management
techniques. At September 30, 1997, total obligations were $15.8 million compared
to $17.1 million at September 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Operating revenues increased 14.2% in 1996 to $92.3 million from $80.8
million in 1995 due primarily to a 13% increase in tonnage to 426,109 in 1996
from 377,042 in 1995. This increase in tonnage was primarily attributable to new
customers and increased shipments from existing customers within the Company's
core operating region. The number of shipments in 1996 increased by 12.6% to
747,024 compared to 663,648 in 1995. During this same period, revenue per bill
remained flat at $122.54 for 1996 compared to $122.51 for the same period in
1995. Revenue per hundredweight decreased slightly to $10.74 in 1996 from $10.78
in 1995. In September 1996, the Company implemented a sliding-scale fuel
surcharge which resulted in a fourth quarter revenue increase of approximately
1.5%.
As a percentage of operating revenues, salaries, wages and benefits
decreased to 43.0% in 1996 from 43.9% in 1995. This was largely attributable to
a workers compensation credit from a previous period which reduced fringe
benefit expense by approximately $800,000 and an increased use of purchased
transportation.
Operating supplies and expenses as a percentage of operating revenues
increased to 16.2% in 1996 compared to 15.7% in 1995. This increase was largely
attributable to increased fuel expense during the year which was only partially
offset by a fuel surcharge implemented in September 1996.
Purchased transportation increased to 15.3% of operating revenues in 1996
compared to 14.3% in 1995. This increase was attributable to increased use of
purchased transportation combined with reduced revenue per operating mile in
1996 as a result of severe price competition and costs associated with the
Company's terminal network expansion initiated during the second half of 1995.
As a percentage of operating revenues, depreciation and amortization
decreased to 7.1% in 1996 compared to 7.3% in 1995. This decrease was largely
attributable to increased revenue levels and better asset utilization of
equipment acquired in 1995 to facilitate the Company's terminal network
expansion.
Insurance and claims increased to 3.0% of operating revenues in 1996
compared to 2.3% for 1995. This increase was caused primarily by two large
liability claims.
19
<PAGE> 21
As a percentage of operating revenues, interest expense decreased slightly
to 1.6% in 1996 compared to 1.8% in 1995. This decrease resulted from lower debt
levels and improved cash management techniques. At December 31, 1996, total
obligations were $23.7 million compared to $23.9 million at December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Operating revenues declined 2.7% in 1995 to $80.8 million from $83.0
million in 1994. The decline in operating revenues for the period was largely
due to an unusual revenue increase in early 1994, which resulted from a Teamster
strike that adversely affected certain of the Company's unionized competitors
and resulted in unusually high freight volumes for non-unionized carriers,
combined with aggressive price discounting by these competitors during 1995 in
an effort to regain lost market share. Tonnage also declined 1.9% to 377,042
tons for 1995 compared to 384,416 tons for 1994, while total shipments increased
less than 1% to 663,648 in 1995 compared to 658,982 in 1994.
Purchased transportation decreased to 14.3% of operating revenues in 1995
compared to 14.8% in 1994. This was largely attributable to a reduced use of
purchased transportation and an increased use of Company-owned equipment in
1995.
Operating supplies and expenses increased to 15.7% of operating revenues in
1995 compared to 14.6% in 1994. This increase was largely attributable to costs
associated with the Company's terminal network expansion in 1995.
As a percentage of operating revenues, depreciation and amortization
increased to 7.3% in 1995 compared to 6.0% in 1994. This increase is
attributable to reduced revenue and more normal ratios after the 1994 strike
combined with increased equipment purchases associated with the Company's
terminal network expansion during 1995.
Insurance and claims decreased to 2.3% of operating revenues in 1995
compared to 3.2% in 1994. This decrease is attributable to higher freight claim
related expenses in 1994 associated with the Teamster strike and the resulting
sudden demand increase.
Communications and utilities increased marginally to 1.9% of operating
revenues for 1995 compared to 1.6% for 1994. This increase is attributable to
lower operating revenue levels combined with costs associated with expanding the
Company's terminal network.
Building rents increased to 1.6% of operating revenues in 1995, compared to
1.3% in 1994, primarily as a result of the Company's terminal network expansion.
As a percentage of operating revenues, interest expense increased to 1.8%
in 1995 compared to 1.7% in 1994. This increase was due primarily to higher debt
levels associated with the acquisition of equipment. At December 31, 1995, total
obligations were $23.9 million compared to $19.3 million at December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been funds provided by
operations and bank borrowings. Net cash provided by operating activities was
approximately $11.0 million, $10.7 million, $10.2 million and $10.0 million in
1994, 1995 and 1996 and the nine months ended September 30, 1997, respectively.
Net cash provided by operating activities is primarily attributable to the
Company's income before depreciation and amortization expense.
Capital expenditures totaled approximately $7.1 million, $15.0 million,
$9.7 million and $4.9 million during 1994, 1995 and 1996 and the nine months
ended September 30, 1997, respectively. The majority of the Company's capital
expenditures are financed with long-term debt. The Company's budget for total
capital expenditures is approximately $2.5 million for the fourth quarter of
1997 and approximately $12.0 million for 1998. These capital expenditures will
consist primarily of the acquisition of new revenue equipment and construction
of terminal facilities.
Net cash provided by financing activities was $0.4 million and $4.3
million, respectively, in 1994 and 1995 and net cash used in financing
activities was $0.6 million and $8.3 million in 1996 and the nine months ended
September 30, 1997, respectively. At September 30, 1997, total borrowings under
long-term obligations totaled $15.8 million.
20
<PAGE> 22
The Company is a party to a credit agreement with Sanwa Bank California
("Sanwa Bank"). The credit agreement provides for a $5 million revolving line of
credit. Any outstanding amounts under the revolving line of credit accrue
interest at a variable rate established from time to time by Sanwa Bank;
however, the Company may elect to have an advance accrue interest at a fixed
rate quoted by Sanwa Bank subject to certain prepayment restrictions. The credit
agreement is collateralized by the Company's cash and cash equivalents,
receivables, supplies, inventory, documents, instruments and chattel paper. At
September 30, 1997 there were no outstanding balances under the revolving loan
agreement. The Company has not drawn on the revolving line of credit since 1989.
The Sanwa Bank credit agreement also provides for term loans collateralized
by equipment. As of September 30, 1997, the amount available for term loans
under the credit agreement was $12,067,000. This amount is reduced by 1/20th
each quarter until the year 2002. As of September 30, 1997 the Company had
approximately $6,500,000 in term loans outstanding pursuant to the credit
agreement.
At September 30, 1997, the Company had outstanding long-term obligations
(including current maturities) consisting of approximately $15.8 million, most
of which comprised obligations for the purchase of revenue equipment. See Note F
to the Company's Consolidated Financial Statements. The Company believes that
the net proceeds from this Offering, funds generated from operations and
available borrowings under its current or future credit facilities will be
sufficient to fund the Company's activities at least through 1998. See "Use of
Proceeds."
INFLATION
Inflation has had a minimal effect upon the Company's profitability in
recent years. Most of the Company's operating expenses are inflation-sensitive,
with inflation generally producing increased costs of operation. Although the
Company historically has been able to pass through most increases in fuel prices
and taxes to customers in the form of fuel surcharges or higher rates, the
Company generally must wait for larger carriers to implement fuel surcharges
before the Company can effectively implement fuel surcharges. See "Business-Fuel
Availability and Cost." The Company expects that inflation will affect its costs
no more than it affects those of other regional LTL carriers.
SEASONALITY
The Company experiences some seasonal fluctuations in freight volume.
Historically, the Company's shipments decrease during the winter months. In
addition, the Company's operating expenses historically have been higher in the
winter months due to decreased fuel efficiency and increased maintenance costs
for revenue equipment in colder weather.
THE YEAR 2000 ISSUE
The Company utilizes computer hardware and software in its operations.
Certain computer applications could fail or create erroneous results due to the
upcoming change in the century (the "Year 2000 Issue"). The Company regularly
upgrades its computer hardware and believes that it will not incur any
additional expenses to modify computer hardware due to the Year 2000 Issue. In
addition, the Company has received commitments from software vendors that will
allow the Company to upgrade third-party software programs with minimal expense
to the Company. The Company anticipates, however, that it will incur expenses of
approximately $100,000 over the next two years to upgrade certain proprietary
software developed for the Company. The Company does not expect that its
expenditures related to the Year 2000 Issue will have a material adverse effect
on the results of operations or financial condition of the Company.
21
<PAGE> 23
INDUSTRY OVERVIEW
The Company is a less-than-truckload ("LTL") carrier which provides
transportation and logistics services to shippers primarily within the western
region of the United States. LTL shipments are defined as shipments weighing
less than 10,000 pounds. Generally, LTL carriers transport freight from multiple
shippers to multiple consignees on a scheduled basis. Unlike truckload carriers,
LTL carriers typically do not transport full trailer loads directly from origin
to destination. LTL operations require the handling of shipments in several
coordinated stages.
Typically, LTL carriers transport freight along scheduled routes from
multiple shippers to multiple consignees utilizing a network of terminals,
together with fleets of linehaul and pickup and delivery tractors and trailers.
Freight is picked up from customers by local drivers and consolidated for
shipment. The freight is then loaded into inter-city trailers and transported to
other terminals by linehaul drivers. Large LTL carriers have traditionally
employed a series of hub and spoke terminals. This method improves truck
utilization but requires both multiple cargo rehandlings, which are expensive,
and a fixed network of pickup, breakbulk and destination terminals, which is
capital intensive and requires a large staff of freight handlers. At each
breakbulk terminal, freight is unloaded and reloaded with other freight destined
for locations in the same general direction of another breakbulk terminal, where
the truck is sent for further unloading and loading, until the freight arrives
at a destination terminal located nearest the region of the consignee. At the
destination terminal, freight is then loaded onto a local truck for final
delivery. The Company emphasizes direct loading between the originating and
destination service centers in order to avoid the costly and time-consuming use
of breakbulk terminals.
LTL companies compete in a market estimated at approximately $20 billion
per year and are generally categorized as regional, inter-regional or national
carriers, based upon length of haul and service territory. Carriers with average
lengths of haul less than 500 miles are referred to as regional carriers and
generally provide either overnight or second day service. Regional LTL carriers
usually are able to load freight for direct transport to a destination terminal,
thereby avoiding the costly and time-consuming use of breakbulk terminals (where
freight is rehandled and reloaded to its ultimate destination). Carriers with
average lengths of haul between 500 and 1,000 miles are generally referred to as
inter-regional carriers. National carriers, with average lengths of haul greater
than 1,000 miles, generally operate coast-to-coast relying on networks of
breakbulk and satellite terminals. Due to the geographical size of the western
United States, the Company has a longer average length of haul than most other
regional carriers. For the year ended December 31, 1996, the Company had an
average length of haul of approximately 600 miles.
The national LTL segment is dominated by the so-called "Big Four"
carriers -- Yellow Corporation ($3.07 billion in 1996 revenues), Consolidated
Freightways ($2.15 billion in 1996 revenues), Roadway Express ($2.37 billion in
1996 revenues), and Arkansas Best Corporation ($1.66 billion in 1996 revenues).
Each of these carriers has a largely-unionized work force and an extensive hub
and spoke network of terminals and breakbulk facilities, resulting in a
relatively high cost structure. The regional LTL industry segment includes
carriers that focus on a particular region as well as regional subsidiaries of
large multi-regional holding companies. In the western United States, the
Company's core service region, there are numerous LTL carriers that focus on the
region or a portion of the region. Several of these carriers are subsidiaries of
larger companies, such as Reddaway and Bestway (subsidiaries of US Freightways),
Con-Way Western Express (a subsidiary of CNF Transportation) and Viking Freight
Systems (a subsidiary of Caliber Systems).
In general, the more freight volume an LTL carrier has within a given
geographical area, the lower its incremental operating costs. This is
particularly true with respect to its pickup and delivery operations where
increased freight volumes generally result in less distance between stops and
more shipments per stop ("route density"). As route density increases, an LTL
carrier is able to make more deliveries on shorter routes, thereby increasing
the number of shipments that can be delivered within a defined period and
lowering overall labor costs for each shipment. Similarly, the more business a
carrier experiences in a given traffic lane from one service center to another
("lane density") the lower its incremental costs. As lane density increases, a
carrier experiences improved load factors resulting in increased revenue per
mile, reduced empty miles and reduced costs associated with intermediate
shipment handling and reconsolidation. A carrier's incremental costs are also
improved as the amount of freight handled at a given service center location
("service center density") increases. As service center density improves, a
carrier experiences higher revenues, while maintaining the same fixed cost
structure, thereby improving asset utilization.
22
<PAGE> 24
BUSINESS
GENERAL
The Company is a less-than-truckload ("LTL") carrier which provides
transportation and logistics services to shippers primarily within the western
region of the United States. The Company transports general commodities,
including consumer goods, packaged foodstuffs, electronics, computer equipment,
apparel, hardware, industrial goods and auto parts for major shippers such as
Starbucks Coffee Company, 3M Corporation, Steelcase, Pepperidge Farm, Sony
Music, Eli Lilly, General Motors and Square D Corp. The Company offers a broad
range of services, including expedited scheduling and full
temperature-controlled service. Through MCDS, a wholly-owned subsidiary of the
Company formed in 1995, the Company also provides customized logistics,
warehousing and distribution management services.
The Company utilizes 22 strategically located service centers (also
referred to as "terminals") to serve major markets within the Company's core
service region. In addition, the Company provides service to smaller markets
within its core service region pursuant to agreements with 20 independent
agents, most of which act as exclusive agents for the Company. This combination
of Company-operated service centers and independent agents allows the Company to
provide efficient, high quality service to customers in a large geographical
area. Approximately 58% of the Company's shipments are currently delivered
overnight and over 90% of all shipments are delivered within two days.
CORE SERVICE REGION
The Company's core service region is the western United States, including
Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, western Texas,
Utah and Washington.
The western United States has experienced rapid growth in recent years.
Based upon United States Bureau of Labor statistics, Nevada, Utah and Idaho
experienced the largest percentage increases in nonagricultural job growth in
the United States from 1990 to 1995. More recent data confirm that the western
United States continues to experience above-average nonagricultural job growth.
From June 1996 to June 1997, Nevada again led the nation in nonagricultural job
growth, followed by Arizona, Utah, Washington and Oregon. California, which
experienced an economic downturn in the early 1990s, had the eighth highest
percentage increase in nonagricultural job growth during this same twelve-month
period. The relatively favorable economic conditions have led to a significant
population increase in several western states. From 1990 to 1995, the six
fastest growing states (in terms of percentage increase in population) were
Nevada, Idaho, Arizona, Colorado, Utah and New Mexico. The United States Census
Bureau estimates that the total population of Arizona, California, Colorado,
Idaho, New Mexico, Oregon, Utah and Washington will increase approximately 12%
from 1997 to 2005.
Although the Company's core service region includes the concentrated
population centers along the California coast, the remainder of the region is
characterized by population centers that are separated by longer distances
relative to other regions within the United States. As a result, the Company's
service centers are farther apart and the Company has a longer average length of
haul than most LTL carriers in other regions. Accordingly, linehaul costs
represent a higher percentage of overall operating costs for the Company than
for other regional carriers in other regions of the United States. In general,
the higher costs associated with LTL operations in the western United States are
passed on to customers, resulting in a higher revenue per shipment relative to
other regions.
GROWTH STRATEGY
The Company seeks to achieve sustainable long-term growth by increasing the
amount of business generated by existing customers, acquiring new customers
within its core service region and acquiring new customers outside its service
region for the purpose of soliciting new business into its core service region.
The Company believes that by increasing the amount of business handled by the
Company within its core service
23
<PAGE> 25
region it will be able to achieve longterm growth while improving the efficiency
of its operations. The key elements of the Company's growth strategy are:
- Increase Market Share Within Core Service Region. The Company believes
that its core western regional market has the potential for significant
profitable revenue growth. In addition, the Company believes it is in a
position to increase its market share within its core service region. In
the second half of 1995 the Company initiated a significant expansion of
its terminal network in order to increase coverage within its core
service region. The Company is now focused on improving route, lane and
service center densities within its core service region through
aggressive sales and marketing efforts and expanded service offerings.
The Company expanded its sales force significantly during 1996 and
intends to further expand its sales force in 1998 and 1999. The Company
anticipates that it will continue to increase the capacity of its
terminal network by adding capacity to existing service centers and
establishing new service centers incrementally as needed, with particular
emphasis in the Pacific northwest.
- Expand into Additional Major Markets. The Company's strategic growth plan
calls for establishing market and operational presence in several major
business economic areas ("BEAs") within the midwest and southeast regions
of the United States during the next three years. Unlike more traditional
inter-regional expansion models, the Company intends only to solicit
tonnage from these markets moving west into its core service region. The
Company intends to utilize third-party truckload carriers to transport
freight from these markets to its core service region. The Company
anticipates that this strategy of selling into the region will improve
lane, route and service center densities in its core service region
without requiring the Company to incur the costs associated with building
an inter-regional terminal network. The Company intends to enter into
interline partnerships to provide immediate revenue and offset start-up
costs associated with certain BEA expansions. The Company commenced
operations at its first BEA expansion facility in Dallas in October 1997.
Additional BEAs under consideration for 1998 and 1999 include major
distribution centers such as Atlanta, Chicago, Cleveland, Houston,
Indianapolis, Memphis, Minneapolis and St. Louis.
- Expand the Market Presence of MCDS. The Company believes that many
companies are increasingly focused on outsourcing certain non-core
functions and are engaging third-party logistics companies to provide
distribution management services. Through its subsidiary, MCDS, the
Company provides customized logistics, warehousing and distribution
management services. MCDS targets customers with distribution
requirements that are time-sensitive and require a significant amount of
transportation. MCDS currently provides "just-in-time" delivery services
for two major specialty retailers. Although MCDS has the ability to
provide services for large projects, MCDS targets smaller and mid-sized
projects which do not meet the minimum revenue requirements of many of
its larger competitors. By focusing on capabilities which are
complementary to the Company's services, and leveraging the Company's
existing customer base, the Company believes that MCDS provides a
significant opportunity for future revenue and earnings growth.
- Emphasize Low-cost Operations. By focusing on the western region, the
Company believes it will be able to improve lane, route and service
center densities, allowing the Company to better leverage the fixed costs
of its terminal network. In addition, the Company believes that its
largely nonunion work force gives it a competitive advantage over larger
unionized carriers that operate within the Company's core service region.
The Company also believes it is among the leading carriers in the country
in adopting technology-based solutions for analyzing the profitability of
shipments and reducing costs. As a result, the Company recently
eliminated certain business and tonnage that did not meet the Company's
margin requirements. Management believes that this account
rationalization process was responsible for improved profit margins
during the first nine months of 1997. The Company intends to continually
analyze the profitability of each customer, lane and service center.
24
<PAGE> 26
OPERATIONS
The Company picks up freight with pickup and delivery trucks during the day
and transports the freight to Company service centers by early evening. Pick-ups
and deliveries are typically made within a 70 mile radius of each service
center. Upon arrival at a service center, freight is unloaded, logged onto the
Company's computerized tracing system, and reloaded onto trailers destined for
the Company's other service centers. Trucks depart later in the evening for
their destination service centers. In order to ensure prompt service, the
Company enforces established time schedules for linehaul service between service
centers and utilizes an advanced computer system to track and coordinate
deliveries. Through the Company's wide-area computer network, all vital
information relating to shipments is available to each service center on a
real-time basis. Before the cargo arrives at its destination service center, a
manifest showing the contents of each trailer and the sequence in which it is
loaded, along with the delivery bills, is generated by the Company's
computerized tracing system and is available to the destination service center
manager via the Company's computer network. Upon arrival at the destination
service center, the freight is unloaded, sorted and delivered to its final
destination by local delivery trucks.
Instead of utilizing a "hub and spoke" system, which is typically used by
large, national LTL carriers, the Company emphasizes direct loading of freight
between service centers with no intermediate handling on most shipments. Hub and
spoke systems generally require shipments to be loaded and unloaded several
times at a number of service centers and breakbulk facilities prior to delivery.
Direct loading allows shipments to be transported directly from the originating
service center to the destination service center without intermediate handling.
Direct loading reduces the Company's costs because it requires less loading and
unloading of freight and requires fewer terminals and breakbulk facilities.
The Company uses a single service center, rather than multiple satellite
terminals, in each of the major cities it serves. Single service centers reduce
rehandling of freight, shorten delivery times and thereby reduce the risk of
freight damage or loss.
In addition to the Company's 22 service centers, the Company also utilizes
20 independent agents in smaller markets in which the Company does not operate
service centers. These agents are independent businesses which operate within a
specific area as the Company's pick-up and delivery agent. Shipments are
coordinated through these agents in the same manner as the Company's service
centers. Agents are compensated based upon a percentage of freight bill revenue
and are required to maintain standards established by the Company. The Company
believes that its utilization of agents in smaller markets helps the Company
maintain a lower fixed cost structure and emphasize variable costs while
improving the level of local market presence and allowing the Company to provide
its customer base with broader geographical coverage.
25
<PAGE> 27
The following map shows the location of each of the Company's service centers
and agents within its core service region:
[MAP OMITTED. THE MAP SHOWS THE LOCATION OF THE COMPANY'S SERVICE CENTERS AND
AGENTS SET FORTH IN THE FOLLOWING TABLE:
<TABLE>
<CAPTION>
Service Centers Agents
--------------- ------
<S> <C>
Albuquerque, New Mexico Battle Mountain, Nevada
Bakersfield, California Beatty, Nevada
Colorado Springs, Colorado Bishop, California
Denver, Colorado Boise, Idaho
El Paso, Texas Cedar City, Utah
Fresno, California Elko, Nevada
Grand Junction, Colorado Ely, Nevada
Kent, Washington Eugene, Oregon
Las Vegas, Nevada Flagstaff, Arizona
Medford, Oregon Hawthorne, Nevada
Newark, California Hermiston, Oregon
North Salt Lake, Utah Kingman, Arizona
Oxnard, California Las Vegas, New Mexico
Phoenix, Arizona Lovelock, Nevada
Pico Rivera, California Redding, California
Portland Oregon Ridgecrest, California
Reno, Nevada Tonopah, Nevada
Rialto, California Wells, Nevada
Sacramento, California Wendover, Utah
San Diego, California Winnemucca, Nevada]
Spokane, Washington
Tucson, Arizona
</TABLE>
In October 1997, the Company commenced operations at its BEA expansion
facility in Dallas. This facility functions similarly to the Company's other
service centers with respect to pick-up and shipping operations; however, the
Company does not regularly transport freight from its other service centers to
the Dallas facility for delivery. The Company transports freight from the Dallas
service center to service centers within its core service region using primarily
purchased transportation.
Approximately 58% of the Company's shipments are currently delivered
overnight. The Company uses two-man "sleeper" teams to transport the remaining
second and third day deliveries to outlying service centers and agents. Over 90%
of the Company's shipments are delivered within two days. When necessary, the
Company contracts with third parties for transportation services ("purchased
linehaul transportation") to supplement peak demand periods and address lane
imbalances. The Company obtains purchased linehaul transportation from several
sources, including truckload carriers and independent contractors. By utilizing
purchased linehaul transportation, the Company is able to reduce "empty miles"
and improve load factors.
The Company selectively solicits business from customers to reduce
operational inefficiencies by improving the mix of shipment and lane density,
shipment size and lane flow. The Company currently handles an average of
approximately 3,100 shipments per day with an average weight per shipment of
approximately 1,130 lbs. and an average revenue per bill of approximately $125.
The Company's revenue per hundredweight was $11.08 for the nine months ended
September 30, 1997.
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<PAGE> 28
The Company's rates for LTL shipments are typically based on weight and
volume characteristics and the distance traveled. The Company periodically
publishes base rates that are generally applicable to customer shipments. The
Company typically offers special rates to customers based on tonnage levels and
other factors. In certain instances, the Company competes with other carriers
for business by participating in competitive bidding. Customers generally
solicit bids for relatively large shipment and tonnage volumes over a one or two
year period. These customers often enter into contractual relationships with a
limited number of carriers based upon price and service.
In early 1997, the Company reorganized its reporting and incentive based
compensation structure, creating direct responsibility for overall service
center profitability. The revised structure has allowed the Company to establish
financial accountability at its most basic operating level.
SPECIALIZED SERVICES
The Company offers a broad range of services, including service
capabilities beyond the scope of most LTL carriers. These services include
Priority+Plus, an expedited time-definite service; Protective+Plus, a full
temperature-controlled service for LTL shipments within the Company's core
service region; and Canadian+Plus, full points coverage into all major Canadian
markets through an exclusive regional marketing partnership with one of Canada's
leading LTL carriers. In November 1997, the Company expects to begin providing
less-than-container load service to Hawaii. The Company plans to consolidate
shipments, load containers and tender them to a major transoceanic carrier for
transport to Hawaii. The shipments will then be delivered by a local carrier in
Hawaii pursuant to an agreement between the carrier and the Company. The Company
will continue to evaluate additional niche service offerings which complement
existing operating systems.
In addition to the service offerings described above, the Company offers
customized services tailored to the ongoing needs of a particular customer.
These customized services often involve a high level of coordination between the
Company and the customer and may include time definite delivery, highly
specialized reporting requirements and electronic data interchange, full time
on-site loading by Company employees, return goods consolidation and management,
and specialized handling and equipment requirements.
Through a program referred to as "Motor Cargo USA," the Company also
provides customers with service to points outside its core service region. The
Company recently entered into a strategic interline partnership with a large
southeastern regional carrier. The companies utilize Dallas, Texas as their
interchange point. This service allows the Company to provide service to
additional points throughout the southeastern United States to its present
customer base. The Company expects to increase the number of interline
partnerships over the next twelve months. Interchange points will be selected
which assist the Company in offsetting startup costs associated with BEA
expansions. See "Business -- Growth Strategy."
In 1995, the Company began providing customized logistics, warehousing and
distribution management services through its subsidiary MCDS. MCDS currently
provides "just-in-time" delivery services for two major specialty retailers.
These two customers currently account for more than 90% of the operating
revenues of MCDS and, for the nine months ended September 30, 1997, these two
customers accounted for approximately 3% of the Company's total revenues;
however, the Company believes that MCDS provides a significant opportunity for
future revenue and earnings growth. See "Business -- Growth Strategy."
CUSTOMERS AND MARKETING
The Company has approximately 3,000 regular customers with an average
monthly revenue billing of $1,000 or more. The Company's customers are not
concentrated in any one area or industry and no one customer accounts for over
5% of total revenues. The Company believes that the diversity of its customers
helps reduce the effects of cyclicality or other conditions in any one industry.
No major industry classification accounts for more than 10% of the Company's
revenues. Some of the companies with which the Company has established core
carrier relationships include Starbucks Coffee Company, 3M Corporation,
Steelcase, Pepperidge Farm, Sony Music, Eli Lilly, General Motors and Square D
Corp.
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<PAGE> 29
The Company's revenues from its current top ten customers increased 75% to
$11,367,000 for the nine months ended September 30, 1997 compared to $6,504,000
from the same ten customers for the same period in 1995. The Company intends to
continue developing business with existing customers and to capitalize on its
reputation for service.
The Company has positioned itself in the high service end of the regional
LTL market. The Company targets prospective customers that require high levels
of customized service and are not inclined to select a carrier solely on the
basis of price. The Company emphasizes its ability to provide specialized or
customized services to shippers, including (i) highly flexible scheduling, (ii)
consistent and expedited transit commitments, (iii) strong management
information systems and electronic data interchange capabilities, (iv)
commitment to customer service and responsiveness and (v) a willingness to
provide transportation programs outside the scope of the traditional LTL
industry. The Company believes that this strategy of differentiation based upon
high quality service has helped to reduce the effects on the Company of pricing
pressures within the industry. According to survey results published by
Distribution Magazine in August 1997, Motor Cargo ranked highest among western
regional carriers in three out of five core service categories, including
overall value, customer service and administration.
The Company has written contracts with most of its large customers. These
contracts specify rate levels and eliminate the need to negotiate rates for
individual shipments. The Company's contracts typically do not provide for
guaranteed volumes. Although the Company's contracts typically run for a
specified term of one year, they generally may be terminated by either party
upon 30 days' notice. The Company has pricing agreements with substantially all
of its customers which are not covered by contracts. These pricing agreements
specify rate levels but do not require minimum tonnage commitments on the part
of the customer. Pricing agreements may generally be terminated by either party
upon five days' notice.
The Company's senior management is actively involved in the Company's sales
and marketing activities. In order to attract new customers, the Company relies
on its ability to provide quality service and on selective targeting of
potential accounts. At September 30, 1997, the Company had a marketing staff of
56 account executives located throughout its core service region. The account
executives are managed by four regional directors of sales. The account
executives are responsible for developing new business and maintaining relations
with existing customers. The Company also employs three corporate account
managers in its corporate account office in Chicago. These corporate account
managers solicit business from corporate level decision-makers who are
responsible for freight shipments to locations within the Company's service
region. The Company offers bonuses to account executives of up to 15% of their
salary based primarily upon (i) the total revenue generated within an account
executive's territory, (ii) the amount of new business secured by the account
executive and (iii) market penetration (as defined by total customers within the
account executive's territory meeting minimum revenue criteria). The Company
believes these bonuses provide a strong incentive for its account executives and
contribute to the Company's successful marketing efforts. Approximately 50% of
the Company's account executives received a bonus during 1996.
Approximately one-half of the Company's account executives are recruited
from within the transportation industry and have proven track records prior to
joining the Company. The remaining account executives are college graduates
recruited from universities or account executives recruited from positions
outside the transportation industry. Upon joining the Company, all account
executives participate in a 15 month training program, regardless of their
experience. The Company promotes continuous performance improvement by its
account executives through continuing education and mentoring programs.
The Company has designed and implemented a sales force automation system
which provides for improved contact and opportunity management, improved sales
forecasting and simplified reporting. The Company maintains comprehensive
customer base profiles of more than 20,000 existing and prospective customers.
Using this database, key strategic and account development information is
updated daily by the Company's sales force using automated processes. The
Company utilizes this resource to track emerging opportunities and direct highly
targeted and precisely timed marketing messages to existing and prospective
customers.
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<PAGE> 30
TECHNOLOGY
The Company believes it is among the industry leaders in utilizing
technology to increase productivity and efficiency in its operations. The
Company pursues technology-based solutions within the context of stringent
return on investment criteria. The Company has received significant benefits in
the areas of computer-aided dispatch and routing, document imaging and
retrieval, sales management, productivity analysis and maintenance and parts
management. The Company's technological applications include:
Automated Shipment Costing. The Company has implemented an automated
activity-based costing capability. The Company's system provides actual
profitability analysis on each shipment handled, utilizing real-time data as
opposed to industry or system averages. The data is then formatted to analyze
profitability by customer, lane and service center. This data is then used to
verify the intrinsic profitability of each account and to isolate areas within
the Company's cost structure which require improvement.
Computer-Aided Dispatch and Routing. The Company has developed a computer
based dispatch and routing capability which the Company is using at several
service centers and will soon be available at all Company service centers.
Historically, the dispatching and routing of pick-up and delivery vehicles has
been a manual process. By automating this process and providing
computer-assisted decision support, the Company believes that fleet utilization
can be maximized with a higher degree of labor efficiency. This capability will
also serve as the foundation for future applications in the areas of on-board
computer communications, advanced linehaul planning and optimization, and
platform productivity optimization.
Linehaul Modeling. The Company recently retained The Sabre Group, a large
systems management organization, to develop and implement a linehaul modeling
system. The linehaul modeling system, which is in the early stages of
implementation, will allow the Company to model its present linehaul route
structure and test various hypothetical configuration changes from a cost and
service standpoint. The Company believes that the linehaul modeling system will
significantly increase the Company's ability to improve the efficiency of its
linehaul operations.
Document Imaging. The Company uses an optical imaging system to scan bills
of lading and delivery receipts from remote operating locations. These images
are stored electronically at the Company's central office and may be accessed
through the Company's computer network. Electronic storage of these images
reduces the amount of clerical and management time required for entering and
retrieving information, particularly in the areas of customer service and
accounts receivable management. The Company is in the process of upgrading its
document imaging system to allow broader application in areas such as freight
claims management, safety and compliance, human resources and accounts payable.
Fleet Maintenance and Parts Management. The Company uses a fully integrated
computer-based application to manage all aspects of its fleet maintenance and
parts management. This system tracks full maintenance scheduling and history for
each vehicle. In addition, this system provides for parts inventory management
and fuel tracking and utilization management.
Electronic Data Interchange / Internet. The Company's electronic data
interchange ("EDI") capability allows customers to communicate directly with the
Company's information systems via computer links in order to tender bills of
lading, receive shipment status and receive billing information. In most cases,
standard industry data formats are used for transmission; however, the Company
has also developed proprietary capabilities for several key customers. Many of
the Company's customers require EDI services from their core carriers, and the
Company believes that the number of customers requiring EDI service will
continue to increase.
The Company has also developed Internet based applications primarily for
internal applications. One such application allows the Company's sales and
management personnel to access the Company's main database via the Internet
instead of more costly dial-up connections. The Company is in the early stages
of supplementing the information available to customers on the Company's
Internet web site. The Company intends to provide interactive shipment tracking
capabilities, document retrieval and customer support functions through its
Internet web site.
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<PAGE> 31
DRIVERS, INDEPENDENT CONTRACTORS AND OTHER PERSONNEL
At September 30, 1997, the Company employed 1,423 persons in the following
categories:
<TABLE>
<CAPTION>
CATEGORY NO. OF EMPLOYEES
--------------------------- ------------------
<S> <C>
Full time drivers.......... 419
Part time drivers and dock
workers.................. 528
Salaried and clerical...... 323
Warehousemen............... 19
Mechanics.................. 76
Sales and sales
management............... 58
</TABLE>
At September 30, 1997, the Company employed 81 linehaul drivers and 447
pick-up and delivery drivers. The Company selects its drivers based upon
experience and driving records. Pursuant to DOT regulations, drivers are
required to pass drug tests prior to employment and periodically thereafter. The
trucking industry experiences driver shortages from time to time; however, the
Company has maintained an adequate and qualified driver force. The Company's
linehaul schedules allow drivers to return home regularly, which contributes to
a low driver turnover rate. The Company's driver turnover rate was 13% in 1996.
The Company compensates linehaul drivers on a per mile basis. Pick-up and
delivery drivers are compensated on an hourly basis.
In addition to its employee drivers, the Company utilized approximately 78
linehaul drivers, as of September 30, 1997, pursuant to an agreement with FHF
Transportation, Inc. ("FHF"). These drivers operate tractors owned by the
Company but are not employees of the Company. The Company makes payments to FHF
based upon mileage.
The Company supplements its linehaul fleet with the use of approximately 50
independent contractors. Because independent contractors provide their own
tractor, independent contractors provide the Company with an alternative method
of obtaining additional revenue equipment with reduced capital investment. This
approach reduces costs and maximizes flexibility by quickly providing additional
linehaul capacity during peak periods of demand. Further, because independent
contractors are compensated at a contracted rate per mile, the use of
independent contractors helps the Company reduce fixed overhead and improve
asset utilization. Independent contractors also allow the Company to better
adjust to seasonal fluctuations in shipping volumes.
Approximately 5% of the Company's employees are covered by two separate
collective bargaining agreements relating to employees at the Company's North
Salt Lake, Utah and Reno, Nevada service centers. Although the employees covered
by these contracts are members of the International Brotherhood of Teamsters,
the contracts are not tied to the Teamsters National Master Contract. The
Company's agreement with Reno employees expires on November 30, 2000, and the
Company's agreement with North Salt Lake employees expires on November 30, 1999.
Both agreements provide for automatic renewal from year to year after
expiration, subject to the right of either party to cancel or terminate the
agreement upon at least 60 days' notice prior to the date of expiration.
Employees at the Company's Phoenix, Arizona service center were covered by
a collective bargaining agreement which expired in 1994. The agreement has not
been renewed.
SAFETY AND INSURANCE
The Company emphasizes safety in all aspects of its operations. The Company
employs a Director of Safety and Compliance who has over 24 years of
safety-related experience with the Company. Each of the Company's terminals
conducts its own safety program and all tractors are inspected daily by Company
personnel. The Company has also established guidelines for hauling hazardous
materials. The Company earned the highest DOT safety and fitness rating of
"satisfactory" during its last audit.
The Company currently maintains liability insurance for bodily injury and
property damage in the amount of $30 million, with a self retention amount of
$500,000 per incident, and cargo insurance in the
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<PAGE> 32
amount of $1 million, with a self retention amount of $100,000, per load. The
Company is self-insured with respect to physical damage to its properties. The
Company also maintains workers' compensation insurance, with a deductible of
$250,000 in Nevada, and without a deductible in Washington. The Company is
responsible for workers' compensation claims in other states in which the
Company operates up to an aggregate of approximately $1.9 million per year, and
the Company maintains insurance for workers' compensation payments in excess of
such amount.
PROPERTIES
The Company owns its executive offices, located in North Salt Lake, Utah,
consisting of a two-story building of approximately 21,377 square feet. Of the
22 service centers used by the Company as of September 30, 1997, nine were
owned, 12 were leased and one was partially owned and partially leased by the
Company. These facilities range in size according to the markets served. The
Company has not experienced and does not anticipate difficulties in renewing
existing leases on favorable terms or obtaining new facilities as and when
required. The following table sets forth the location of each service center
owned or leased by the Company as of September 30, 1997.
<TABLE>
<CAPTION>
# OF OWNED OR LEASE
LOCATION DOORS LEASED EXPIRATION
--------------------------------------- ----- -------- ---------------
<S> <C> <C> <C>
Pico Rivera, CA........................ 102 Leased December 1998
Rialto, CA............................. 78 Owned
North Salt Lake, UT.................... 77 Owned
Denver, CO
Building 1........................... 43 Leased November 1998
Building 2........................... 36 Owned
Newark, CA............................. 35 Owned
Portland, OR........................... 34 Owned
Reno, NV............................... 32 Leased December 1999
Sacramento, CA......................... 30 Owned
Kent, WA............................... 30 Owned
Phoenix, AZ............................ 24 Owned
El Paso, TX............................ 20 Owned
Las Vegas, NV.......................... 20 Owned
San Diego, CA.......................... 20 Leased May 2001
Fresno, CA............................. 20 Leased October 1998
Albuquerque, NM........................ 12 Leased October 1998
Oxnard, CA............................. 9 Leased Month-to-month
Bakersfield, CA........................ 9 Leased October 2000
Tucson, AZ............................. 8 Leased August 2000
Medford, OR............................ 8 Leased July 2001
Spokane, WA............................ 8 Leased August 1998
Colorado Springs, CO................... 7 Leased August 1998
Grand Junction, CO..................... 3 Leased May 1998
</TABLE>
In October 1997, the Company commenced operations at its BEA expansion
facility in Dallas. The Dallas facility has 16 doors and is leased by the
Company pursuant to a lease which expires in May 1998. Upon expiration of the
current lease, the Company intends to move its Dallas operations to a different
location which has been leased by the Company. The new location has 23 doors and
the Company's lease term is from June 1998 through May 2000.
In addition to the service center facilities leased by the Company as
described above, the Company also leases a sales office in Chicago pursuant to a
lease which expires in April 1998. The Company's subsidiary
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<PAGE> 33
MCDS leases an aggregate of 161,286 square feet of warehouse space in southern
California pursuant to two leases which expire in January 2001 and February
2001.
REVENUE EQUIPMENT
At September 30,1997, the Company operated a fleet of 576 tractors and
trucks and 2,297 trailers. The Company uses new linehaul tractors in linehaul
operations for approximately five years. After five years of use, the Company
trades-in used linehaul tractors and purchases new linehaul tractors. The table
below reflects, as of September 30, 1997, the average age of the type of
equipment, the number of units and the Company's revenue equipment:
<TABLE>
<CAPTION>
NUMBER AVERAGE
TYPE OF EQUIPMENT (CATEGORIZED BY PRIMARY USE) OF UNITS AGE
--------------------------------------------------------- -------- ---------
<S> <C> <C>
Linehaul tractors........................................ 186 2.8 years
Pick-up and delivery tractors............................ 299 3.2 years
Pick-up and delivery trucks.............................. 91 3.9 years
Trailers................................................. 2,297 6.8 years
</TABLE>
The Company lowers its cost structure and reduces cargo claims expenses by
using twin 28 foot trailers in its linehaul operations whenever possible. To the
extent permitted by state regulations, the Company also utilizes triple trailers
in its linehaul operations. The use of twin and triple trailers permits more
freight to be hauled behind a tractor than could be hauled if the Company used
one larger trailer.
The Company maintains its revenue equipment through the use of its own
maintenance facilities as well as outside vendors. The Company's service centers
in Pico Rivera, Las Vegas, Reno, Denver, Portland and North Salt Lake each have
maintenance facilities. In addition to scheduled maintenance on its equipment,
the Company also performs occasional equipment modifications which are designed
to improve operating performance and reduce operating costs of equipment. All
data regarding equipment costs, depreciation, mileage and maintenance are
recorded on the Company's computer system, allowing management to access
equipment records quickly and plan scheduled maintenance efficiently.
The Company purchases all of its parts through nationally-recognized
vendors. To enable management to better control inventory and costs, all orders
are placed through the Company's central purchasing unit at the Company's
headquarters. The Company is seeking to standardize its line parts by
concentrating its new truck purchases with two tractor manufacturers,
International and Freightliner.
FUEL AVAILABILITY AND COST
Fuel comprises 2% to 3% of the Company's total operating expenses.
Generally, in order to obtain lower fuel costs and greater flexibility in
fueling its fleet, the Company purchases its own fuel in bulk and requires its
drivers to fuel at Company terminals. The Company emphasizes fuel economy
through the use of modern, fuel-efficient equipment, driver and mechanic
training programs and aerodynamic improvements. Although fuel constitutes a much
lower percentage of costs to the Company than it would to a full truckload
carrier, increases in fuel prices or fuel taxes, shortages of fuel or rationing
of petroleum products could have a material adverse effect on the operations and
profitability of the Company.
Generally, in times of sharp fuel price increases, the Company implements
fuel surcharges. The Company presently has a sliding scale fuel surcharge which
is based on a fuel price index for the west coast. Because of the highly
competitive nature of the market for LTL services, the Company generally must
wait for larger carriers to implement fuel surcharges before the Company can
effectively implement fuel surcharges.
COMPETITION
The transportation industry is highly competitive on the basis of both
price and service. The Company competes with regional, inter-regional and
national LTL carriers and, to a lesser extent, with truckload carriers,
railroads and overnight delivery companies. Several large regional LTL carriers
operate within the
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<PAGE> 34
Company's core service region, including Consolidated Freightways, Yellow
Corporation, Roadway Express and Arkansas Best Corporation. Some of the
Company's competitors are divisions or subsidiaries of larger trucking
companies. Many of the Company's competitors have greater financial resources,
more equipment and greater freight capacity than the Company. Certain carriers
occasionally experience periods of over capacity during which these carriers
reduce prices in order to increase utilization of revenue equipment. The Company
believes that it is able to compete effectively in its markets by providing high
quality customized service at competitive prices.
REGULATION
The Motor Carrier Act of 1980 significantly deregulated the trucking
industry and increased competition among motor carriers. Following enactment of
the Motor Carrier Act, applicants have obtained operating authority more easily,
and interstate motor carriers such as the Company are able to change their rates
and services with less regulatory oversight and delay. The Motor Carrier Act
also removed many route and commodity restrictions on transportation of freight.
Effective January 1, 1995, Section 601 of the Federal Aviation
Administrative Authorization Act and the Trucking Industry Regulatory Reform Act
("TIRRA") substantially deregulated intrastate operating authority. Prior to
TIRRA, the Company maintained intrastate authority in California, Nevada and
Utah. Subsequent to TIRRA, the Company obtained intrastate authority in
Colorado, Oregon, New Mexico and Washington. The passage of TIRRA provides
additional intrastate growth opportunities in the states in which the Company
operates.
The Company was regulated by the ICC until the ICC Termination Act of 1995
abolished the ICC effective January 1, 1996. The Surface Transportation Board,
an independent entity within the DOT, assumed many of the responsibilities of
the ICC. The Company is also regulated by various state agencies. These
regulatory authorities have broad powers, generally governing matters such as
authority to engage in motor carrier operations, rates, certain mergers,
consolidations and acquisitions, and periodic financial reporting. The trucking
industry is subject to regulatory and legislative changes that can affect the
economics of the industry by requiring changes in operating practices or
influencing the demand for, and the costs of providing services to, shippers.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as weight and dimensions of equipment are
also subject to federal and state regulation. The use of triple trailers is
subject to state regulation and is prohibited by several states within the
Company's core service region. The Company is subject to federal, state and
local environmental laws and regulations governing the management of hazardous
wastes, other discharge of pollutants into the air and surface and underground
waters, and the disposal of certain substances. These regulations extend to the
Company's above-ground and underground fuel storage tanks. The Company is in the
process of modifying the underground storage tanks at several of its facilities
in order to comply with new federal regulations which become effective at the
end of 1998. In most cases, the Company is replacing its underground storage
tanks with above-ground tanks. The Company expects that its total capital
expenditures through the end of 1998 relating to the modification of its
remaining underground storage tanks will be approximately $575,000. The Company
believes that all of its fuel storage tanks will be in compliance with the new
regulations when they become effective. The Company also believes that it is in
material compliance with all other applicable environmental laws and regulations
and does not believe that the cost of future compliance should have a material
adverse effect on the Company's operations or financial condition.
LEGAL PROCEEDINGS
The Company is routinely a party to litigation incidental to its business,
primarily involving claims for personal injury or property damage incurred in
the transportation of freight. The Company maintains insurance to cover
liabilities in excess of self-insured amounts. The Company's management is not
aware of any claims or threatened claims that it believes are likely to exceed
insurance limits or have a materially adverse effect upon the Company's
operations or financial position.
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<PAGE> 35
MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
directors, executive officers and certain key employees of the Company as of the
date hereof:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ----------------------------------------
<S> <C> <C>
Harold R. Tate 71 Chairman of the Board, Director
Marshall L. Tate 35 President and Chief Executive Officer,
Director
Louis V. Holdener 59 Vice President, President of Motor Cargo
Marvin L. Friedland 56 Vice President and General Counsel,
Secretary, Director
Lynn H. Wheeler 56 Vice President and Chief Financial
Officer
R. Scott Price 34 Vice President
Steven E. Wynn(1) 47 Vice President of Operations (Motor
Cargo)
Kevin L. Avery(1) 40 Vice President of Traffic (Motor Cargo)
Jim D. Matt(1) 42 Vice President of Sales (Motor Cargo)
Robert Anderson 76 (2)
James Clayburn La Force, Jr. 68 (2)
</TABLE>
- ---------------
(1) Messers Wynn, Avery and Matt are officers of the Company's principal
operating subsidiary, Motor Cargo, and are not officers of the Company.
(2) Mr. Anderson and Mr. La Force have agreed to serve as directors effective
with the closing of the Offering.
All directors are elected at the annual meeting of shareholders and hold
office until their successors are elected and qualified. The executive officers
are appointed by the Company's Board of Directors and serve at the Board's
discretion.
Harold R. Tate has over 50 years experience in the trucking industry and
has served as Chairman of the Board of the Company and its predecessors since
1947. Mr. Tate served as Chief Executive Officer of the Company and its
predecessors from 1947 to March 1997. Mr. Tate also serves as a member of the
Board of Trustees of the Buffalo Bill Historical Center.
Marshall L. Tate has over 13 years experience in the trucking industry. Mr.
Tate has been employed by the Company since 1984, has served as its President
and Chief Executive Officer since March 1997, and was appointed to the Board of
Directors of the Company in 1996. Prior to becoming the Company's President and
Chief Executive Officer, Mr. Tate served in various divisional positions as well
as Vice President of Sales and Marketing and Executive Vice President of
Corporate Development for Motor Cargo. In 1995, Mr. Tate directed the start-up
of the Company's logistics warehousing and distribution management services
subsidiary, MC Distribution Services. Marshall L. Tate is the son of Harold R.
Tate.
Louis V. Holdener has over 32 years experience in the trucking industry.
Mr. Holdener has been employed by the Company since 1965, has served as
President of Motor Cargo, the Company's primary operating subsidiary, since
1991, and was named Vice President of the Company in 1997. Prior to 1991, Mr.
Holdener served in various positions with the Company, including Vice President
of Operations of Motor Cargo.
Marvin L. Friedland has served as Vice President and General Counsel of the
Company and its predecessors since 1982. Prior to joining the Company, Mr.
Friedland was an attorney in private practice. Mr. Friedland was appointed to
the Board of Directors in 1996. Mr. Friedland is a Certified Public Accountant
and a member of the California Bar and the Utah Bar.
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<PAGE> 36
Lynn H. Wheeler has been employed by the Company since 1983 and has served
as Vice President Finance of Motor Cargo since 1988. Mr. Wheeler was appointed
Vice President and Chief Financial Officer of the Company in March 1997. Mr.
Wheeler is a Certified Public Accountant, a Certified Internal Auditor and a
member of the American Institute of Certified Public Accountants.
R. Scott Price joined the Company in 1986 and has served as a Vice
President of the Company since October 1997. From 1995 to 1997, Mr. Price served
as Vice President of Sales of Motor Cargo. From 1986 to 1995, Mr. Price held
various positions with Motor Cargo, including Service Center Manager and
Director of Corporate Accounts.
Steven E. Wynn has been employed by Motor Cargo since 1973 and has served
as Vice President of Operations of Motor Cargo since 1991. From 1973 to 1991,
Mr. Wynn served in various positions, including Director of Linehaul Operations
and Director of Operations for Motor Cargo.
Kevin L. Avery joined the Company in 1985 and has served as Vice President
of Traffic of Motor Cargo since 1992. From 1985 to 1992, Mr. Avery served in
various positions, including Director of Pricing, Rate Department Manager and
Director of Quality Assurance for Motor Cargo.
Jim D. Matt joined the Company in October 1997 as Vice President of Sales
for Motor Cargo. Prior to joining the Company, Mr. Matt was Vice President of
Sales for the Midwestern and Eastern divisions of Viking Freight Incorporated
from 1996 to 1997, Vice President of Sales and Marketing for Spartan Express
from 1995 to 1996 and Vice President of Sales and Marketing for Spartan Central
from 1992 to 1995.
Robert Anderson was formerly Chairman and Chief Executive Officer of
Rockwell International Corporation. He has served as Chairman Emeritus of
Rockwell International Corporation since 1990. Mr. Anderson is also a director
of Gulfstream Aerospace Corporation, Optical Data Systems, Inc., After-Market
Technology Corporation and The Timken Company.
James Clayburn La Force, Jr. is Dean Emeritus of the John B. Anderson
School of Management, University of California, Los Angeles. He is also a
director of Eli Lilly and Company, Rockwell International Corporation, Jacobs
Engineering Group, Inc., The Black Rock Funds, Imperial Credit Industries, Inc.,
Provident Investment Council Mutual Funds and The Timken Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Following completion of this Offering, the Board of Directors intends to
establish Audit and Compensation Committees. The Audit Committee will be
comprised initially of Robert Anderson and James Clayburn La Force, Jr., and the
Compensation Committee will be comprised initially of Harold R. Tate, Robert
Anderson and James Clayburn La Force, Jr. The Audit Committee will have
responsibility for reviewing audit plans and discussing audit work, internal
controls and related matters with the Company's independent auditors, reviewing
the audit report and any accompanying recommendations, and nominating
independent auditors to perform the annual audit. The Compensation Committee
will have responsibility for reviewing the compensation of the Company's
executive officers, making recommendations to the Board of Directors, and
administering the Company's 1997 Stock Option Plan. See "Management -- 1997
Stock Option Plan."
DIRECTOR COMPENSATION
Prior to this Offering, directors of the Company were not compensated for
their services as such. Following completion of this Offering, the Company will
pay each non-employee director $2,500 for each meeting of the Board of Directors
and $500 for each telephonic meeting of the Board of Directors attended. The
Company will also reimburse such directors for their expenses incurred in
connection with their activities as directors. On the date of this Prospectus, a
non-qualified option to purchase 10,000 shares of Common Stock at the initial
public offering price set forth on the cover page of this Prospectus will be
granted to each of Mr. Anderson and Mr. La Force. These options will vest over a
four-year period, with 25% of these options vesting on each of the first,
second, third and fourth anniversaries of the date of grant.
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<PAGE> 37
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid or accrued for services rendered to the Company in all capacities during
the fiscal year ended December 31, 1996 by the Company's Chief Executive Officer
and the Company's other executive officers whose salary and bonus for such
fiscal year was in excess of $100,000 (the "Named Executive Officers"). None of
the Company's other executive officers received salary and bonus for such fiscal
year in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
------------------------------------ -----------------------------
NAME AND OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) SAR(#) COMPENSATION($)(3)
- ----------------------------------- -------- ------- --------------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Harold R. Tate..................... $105,000 $ -- -- -- --
Chief Executive Officer until
March 19, 1997(4)
Marshall L. Tate................... $118,917 $15,344 -- -- --
President
Chief Executive Officer since
March 19, 1997(4)
Marvin L. Friedland................ $126,625 $15,344 $ 4,560 -- $ 17,555
Vice President and
General Counsel
Louis V. Holdener.................. $121,667 $17,844 -- -- $ 16,927
President of Motor Cargo
Lynn H. Wheeler.................... $ 90,125 $15,344 -- -- $ 16,612
Vice President of Finance
and Chief Financial Officer
</TABLE>
- ---------------
(1) Amounts in this table include payments made to certain Named Executive
Officers by Ute during 1996. Amounts in this table do not include payments
made by the Company to PDLM Consulting Limited, a company in which Harold R.
Tate owns a 50% equity interest. See "Certain Transactions."
(2) The amount in this column for Mr. Friedland consists of a cash automobile
allowance.
(3) Amounts in this column include matching contributions made by the Company
under its 401(k) plan on behalf of Mr. Friedland, Mr. Holdener and Mr.
Wheeler of $2,629, $2,063 and $2,299, respectively. Amounts in this column
also include accrued benefits for 1996 under salary continuation agreements
between the Company and Mr. Friedland, Mr. Holdener and Mr. Wheeler of
$14,926, $14,864 and $14,313, respectively.
(4) Harold R. Tate resigned from the office of Chief Executive Officer on March
19, 1997, retaining his position as Chairman of the Board. At that time,
Marshall L. Tate was elected Chief Executive Officer. Effective September 1,
1997, Harold R. Tate's annual salary was increased to $250,000 and Marshall
L. Tate's annual salary was increased to $175,000.
The Board of Directors has awarded Louis V. Holdener 20,000 shares of the
Company's Common Stock, contingent upon completion of the Offering. The award
was made pursuant to a Restricted Stock Agreement, dated October 2, 1997. Under
the Restricted Stock Agreement, upon completion of the Offering, 20,000 shares
of the Company's Common Stock will be issued in Mr. Holdener's name. The Company
will hold the certificates for the shares, which will be released to Mr.
Holdener in four installments, each consisting of 25% of the shares issued under
the agreement on January 1 of 1998, 1999, 2000 and 2001. The shares not released
are subject to forfeiture in the event Mr. Holdener voluntarily ceases his
continuous employment with the Company or the Company terminates his employment
for cause. Termination of employment by the Company without cause, or
termination due to disability or death before January 1, 1999 will result in the
forfeiture of 10,000 shares. Such termination on or after January 1, 1999 will
result in the prompt release of all
36
<PAGE> 38
shares not previously released. Notwithstanding the scheduled release of shares
and the forfeiture provisions, the Board of Directors may, in its discretion,
release any or all shares held by the Company at any time. Pending release or
forfeiture of the restricted shares, Mr. Holdener may exercise all rights of a
shareholder with respect to the restricted shares, except the right to pledge or
convey ownership.
1997 STOCK OPTION PLAN
On October 1, 1997, the Company's Board of Directors adopted the Motor
Cargo Industries, Inc. 1997 Stock Option Plan (the "1997 Stock Option Plan").
The purpose of the 1997 Stock Option Plan is to provide certain of the Company's
key employees who are responsible for the continued growth of the Company an
opportunity to acquire a proprietary interest in the Company and thereby create
in such key employees an increased interest in and a greater concern for the
welfare of the Company.
The Compensation Committee of the Board of Directors will administer the
1997 Stock Option Plan. Under the terms of the 1997 Stock Option Plan, the
committee of the Board of Directors administering the plan is required to be
composed of two or more directors. The Compensation Committee has the authority
to interpret the 1997 Stock Option Plan and to determine and designate the
persons to whom options or awards shall be made and the terms, conditions and
restrictions applicable to each option or award (including, but not limited to,
the price, any restriction or limitation, any vesting schedule or acceleration
thereof, and any forfeiture restrictions). The Board of Directors may amend the
1997 Stock Option Plan but may not, without the prior approval of the
shareholders of the Company, amend the plan to increase the total number of
shares reserved for options and rights under the plan, reduce the exercise price
of any incentive stock option granted under the plan, modify the provisions of
the plan relating to eligibility, or materially increase the benefits accruing
to participants under the plan.
The Company has reserved 500,000 shares of Common Stock for issuance
pursuant to the 1997 Stock Option Plan. Pursuant to the 1997 Stock Option Plan,
on the date of this Prospectus, non-qualified options to purchase 229,500 shares
of Common Stock at the initial public offering price set forth on the cover page
of this Prospectus will be granted to employees of the Company, including an
aggregate of 115,000 options to the Named Executive Officers, other than Harold
R. Tate. These options will vest over a four year period, with 25% of these
options vesting on each of the first, second, third and fourth anniversaries of
the date of grant.
The 1997 Stock Option Plan contains provisions for granting various
stock-based awards, including incentive stock options as defined in Section 422
of the Internal Revenue Code of 1986, nonqualified stock options and stock
appreciation rights. The term of the 1997 Stock Option Plan is ten years,
subject to earlier termination or amendment.
401(k) PROFIT SHARING PLAN
The Company maintains a defined contribution plan (the "401(k) Plan"),
which is intended to satisfy the tax qualification requirements of the Internal
Revenue Code of 1986, as amended (the "Code"). All Company personnel who work
1,000 or more hours per year are eligible to participate in the 401(k) Plan
after one year of service with the Company. The 401(k) Plan permits participants
to contribute between 1% and 15% of their annual compensation from the Company,
subject to the limit imposed by the Code. The Company is obligated to match at
least 25% of employee contributions, up to 6% of a participant's annual
compensation. All amounts contributed by a participant fully vest immediately. A
participant becomes vested over time and is fully vested in any Company matching
contributions after seven years of service. The 401(k) Plan also permits
discretionary contributions by the Company, which contributed $585,000, $344,815
and $310,000 in 1994, 1995 and 1996, respectively, and $347,500 during the nine
months ended September 30, 1997.
PENSION PLAN
The Company has a defined benefit pension plan (the "Pension Plan")
covering substantially all of its employees. Benefits under the Pension Plan are
based upon years of service and hours of service in each year of service. A
participant is fully vested after five years of employment. Once vested,
employees are entitled to
37
<PAGE> 39
receive an annual benefit for each year of service in which such employee worked
at least 1,000 hours. The amount of benefit for each year of service ranges from
$144 for 1,000 hours of service to $240 for 1,800 hours or more of service.
Harold R. Tate receives an annual benefit of $17,256 under the Pension Plan. The
estimated annual benefits payable upon retirement at normal retirement age for
Marshall L. Tate, Marvin L. Friedland, Louis V. Holdener and Lynn H. Wheeler are
$6,025, $5,832, $7,320 and $5,572, respectively. See Note H to the Company's
Consolidated Financial Statements.
SALARY CONTINUATION AGREEMENTS
The Company has salary continuation agreements with certain key management
employees, including Marvin L. Friedland, Louis V. Holdener and Lynn H. Wheeler.
Under the agreements, the Company is obligated to provide for each such employee
or his beneficiaries, during a period of not more than ten years after the
employee's death, disability or retirement, annual benefits ranging from $17,000
to $23,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996, decisions concerning compensation of executive officers were made
by the Company's Board of Directors, consisting at that time of Harold R. Tate,
Marshall L. Tate and Marvin L. Friedland.
CERTAIN TRANSACTIONS
Effective August 28, 1997, the Company acquired Ute. Ute's assets consist
primarily of tractors and trailers utilized by the Company pursuant to contracts
between the Company and Ute. The Company issued an aggregate of 700,000 shares
of Common Stock to the four owners of Ute, Harold R. Tate, Marshall L. Tate,
Darrell Tate and Marvin L. Friedland, in exchange for their interests in Ute.
Harold R. Tate is the principal shareholder and the Chairman of the Board of
Directors of the Company. Marshall L. Tate is the President and Chief Executive
Officer and a director of the Company. Marvin L. Friedland is Vice President and
General Counsel, Secretary and a director of the Company. Harold R. Tate,
Marshall L. Tate and Marvin L. Friedland received 490,000, 70,000 and 70,000
shares of Common Stock, respectively, for their interests in Ute. As of August
31, 1997, the Ute assets had a net book value of approximately $912,000
($3,506,000 less $2,594,000 in related debt). The aggregate lease payments on
the assets paid by the Company to Ute during 1995, 1996 and the nine months
ended September 30, 1997 totaled $3,176,675, $3,458,417 and $2,746,556,
respectively. The number of shares of Common Stock issued to the members of Ute
was determined by the Company and the members of Ute. In making such
determination, the Company and the Ute members considered a number of factors,
including (i) the current and projected earnings of Ute, (ii) the estimated per
share value of the Common Stock at the time Ute was acquired and the price per
share expected to be received by the Company in this Offering, (iii) the
estimated useful life of the Ute assets and (iv) the resale restrictions under
applicable securities laws with respect to the shares of Common Stock issued to
the Ute members. Due to the fact that three directors of the Company had
interests in Ute, the transaction was submitted to the disinterested
shareholders of the Company for their approval in accordance with the Utah
Revised Business Corporation Act. The disinterested shareholders of the Company
unanimously approved the Ute acquisition as of October 3, 1997.
Pursuant to a consulting agreement between the Company and PDLM Consulting
Limited ("PDLM") the Company has made payments to PDLM for consulting services
since 1994. Harold R. Tate owns a 50% equity interest in PDLM. The Company paid
$480,000 to PDLM during 1996 and $160,000 to PDLM during the nine months ended
September 30, 1997 pursuant to the terms of the consulting agreement. The
consulting agreement was terminated in April 1997.
The Company has adopted a policy that any future transactions with
affiliated persons or entities will be on terms no less favorable to the Company
than those that could have been obtained on an arms-length basis from
unaffiliated third parties and that any such transactions must be approved by a
majority of the disinterested directors.
38
<PAGE> 40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information as of September 30, 1997
and as adjusted to reflect the sale of the shares of Common Stock offered
hereby, with respect to the beneficial ownership of the Common Stock by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each Selling Shareholder, (iii) each
director and each person who has consented to become a director of the Company,
(iv) each executive officer named in the Summary Compensation Table, and (v) all
directors and executive officers of the Company as a group. Except as indicated
below, the address for each person is c/o Motor Cargo Industries, Inc., 845
Center Street, North Salt Lake, Utah 84054.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING AFTER OFFERING(1)
--------------------- ---------------------
NAME SHARES PERCENT SHARES OFFERED SHARES PERCENT
- ------------------------------------- --------- ------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
Harold R. Tate(2).................... 4,890,000 84.02% 1,000,000 3,890,000 55.65%
Marshall L. Tate..................... 190,000 3.26% -- 190,000 2.72%
Marvin L. Friedland.................. 190,000 3.26% -- 190,000 2.72%
Louis V. Holdener(3)................. -- -- -- 20,000 0.29%
Lynn H. Wheeler...................... -- -- -- -- --
Lauri Tate Franks(4)................. 120,000 2.06% 20,000 100,000 1.43%
Darrell Tate(5)...................... 190,000 3.26% 20,000 170,000 2.43%
Troy Tate(6)......................... 120,000 2.06% 20,000 100,000 1.43%
Mia Tate(7).......................... 120,000 2.06% 20,000 100,000 1.43%
Robert Anderson...................... -- -- -- -- --
James Clayburn La Force, Jr.......... -- -- -- -- --
All directors and executive officers
as a group (five persons).......... 5,270,000 90.55% 1,000,000 4,290,000 61.37%
</TABLE>
- ---------------
(1) Assumes no exercise of the Underwriters' over-allotment option. The
over-allotment option gives the Underwriters the option to purchase an
additional 17,250 shares from the Company and an additional 317,250 shares
from certain Selling Shareholders, including certain officers and directors
of the Company. Harold R. Tate, Marshall L. Tate and Marvin L. Friedland
have agreed to sell up to 37,250, 20,000, and 20,000 shares, respectively,
in the event the over-allotment option is exercised.
(2) Harold R. Tate is Chairman of the Board of Directors of the Company. Until
March 19, 1997, Mr. Tate was President and Chief Executive Officer of the
Company.
(3) Beneficial ownership after Offering reflects 20,000 shares awarded under a
restricted stock agreement and to be issued upon completion of the Offering.
See "Management -- Executive Compensation."
(4) The address of Lauri Tate Franks is 3905 East Prospector Drive, Salt Lake
City, Utah 84121. Lauri Tate Franks is the daughter of Harold R. Tate.
(5) The address of Darrell Tate is 851 South Westgate Avenue #102, Los Angeles,
California 90049. Darrell Tate is the son of Harold R. Tate.
(6) The address of Troy Tate is 29 Doheny, Laguna Niguel, California 92677. Troy
Tate is the son of Harold R. Tate.
(7) The address of Mia Tate is 4947 Laurel Canyon Blvd #8, North Hollywood,
California 91607. Mia Tate is the daughter of Harold R. Tate.
39
<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value, and 25,000,000 shares of Preferred Stock, no par
value ("Preferred Stock"). After the issuance of the shares of Common Stock
offered hereby, a total of 6,990,000 shares of Common Stock will be issued and
outstanding (assuming the Underwriters' over-allotment option is not exercised).
See "Principal and Selling Shareholders."
COMMON STOCK
Subject to the rights of holders of any Preferred Stock then outstanding,
holders of Common Stock are entitled to receive such dividends out of assets
legally available therefor as may from time to time be declared by the Board of
Directors of the Company. Holders of Common Stock are entitled to one vote per
share on all matters on which the holders of Common Stock are entitled to vote.
Holders of Common Stock do not have cumulative voting rights; thus, the holders
of a majority of the shares of Common Stock represented at a meeting can elect
all the directors standing for election at such meeting. In the event of
liquidation, dissolution or winding up of the Company, holders of Common Stock
would be entitled to share ratably, subject to the rights of any Preferred Stock
then outstanding, in assets of the Company available for distribution to holders
of Common Stock.
Fully-paid shares of Common Stock are not liable to further calls or
assessments by the Company and holders of Common Stock are not liable for any
liabilities of the Company. The Common Stock does not have any preemptive or
other subscription rights, any conversion rights or any redemption or sinking
fund provisions.
PREFERRED STOCK
The Company is authorized to issue up to 25,000,000 shares of Preferred
Stock from time to time in one or more series without shareholder approval. No
shares of Preferred Stock are presently issued and outstanding. The Board of
Directors is authorized, without any further action by the shareholders of the
Company, to determine the designation, powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of any series of Preferred Stock and the number of shares
constituting any such series. Holders of Preferred Stock, if issued, will be
entitled to such voting rights as the Board of Directors, in its sole
discretion, shall determine. Thus, the Board of Directors, without shareholder
approval, could authorize the issuance of Preferred Stock with rights which
could adversely affect the rights of the holders of Common Stock. Any future
issuance of Preferred Stock may have the effect of delaying or preventing a
change in control of the Company without further action by the shareholders and
may adversely affect the voting and other rights of the holders of Common Stock.
The Company has no present plans to issue any Preferred Stock.
UTAH CONTROL SHARES ACQUISITION ACT
The Utah Control Shares Acquisition Act (the "Control Shares Act")
essentially provides that, when a person or group (the "Acquiror") acquires
shares (or the power to direct the voting of shares) of a corporation that is
subject to the Control Shares Act equal to or in excess of 20%, 33 1/3% or a
majority of the voting power of the corporation, the Acquiror is not permitted
to vote (or to direct the voting of) the shares unless a majority of the
corporation's shares (voting in voting groups, if applicable), excluding shares
held by the Acquiror or by the officers and employee-directors of the
corporation, approve a resolution granting the Acquiror the right to vote the
shares. Shareholder approval may occur at the next meeting of the shareholders
or, if the Acquiror requests a special meeting and agrees to pay the associated
costs of the corporation for the requested special meeting, at the requested
special meeting of the shareholders (to be held within 50 days of the
corporation's receipt of the request by the Acquiror).
If authorized by the corporation's articles of incorporation or bylaws, the
corporation may redeem the Acquiror's shares at their fair market value if the
Acquiror does not file an "acquiring person statement." The Company's Articles
of Incorporation and Bylaws do not provide for redemption of an Acquiror's
shares in the
40
<PAGE> 42
event the Acquiror fails to file an "acquiring person statement." An Acquiror's
shares are not subject to redemption after an "acquiring person statement" has
been filed unless the shares are not accorded full voting rights by the
shareholders.
If the Acquiror obtains the right to vote, and if the Acquiror obtains a
majority of the voting power of the corporation, the shareholders may be
entitled to dissenters' rights.
The Control Shares Act does not apply if (a) a corporation's articles of
incorporation or bylaws provide that the Control Shares Act does not apply, (b)
the acquisition of shares of the corporation is consummated pursuant to a merger
(to which the corporation is a party), or (c) under certain other specified
circumstances. In addition, the Control Shares Act applies only to Utah
corporations that (a) have 100 or more shareholders, (b) have their (i)
principal place of business, (ii) principal office, or (iii) substantial assets
in the State of Utah, and (c) have (i) more than 10% of their shareholders who
are residents of Utah, (ii) more than 10% of their shares owned by Utah
residents, or (iii) 10,000 or more shareholders who are residents of Utah.
The Company's Articles of Incorporation and Bylaws contain no additional
provision restricting transactions with interested shareholders or other
takeover situations, nor do they contain provisions opting out of the Control
Shares Act.
REGISTRAR AND TRANSFER AGENT
The transfer agent and registrar for the Common Stock of the Company is
Zions First National Bank, Salt Lake City, Utah.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company's directors and officers and
all other current shareholders will beneficially own 4,760,000 shares of Common
Stock, representing approximately 68% of the total outstanding shares. The
Company and current shareholders have agreed not to offer, sell, or otherwise
dispose of any shares of Common Stock owned (or in the case of the Company,
owned or issuable) by them for 180 days from the commencement of this Offering
without the prior written consent of Morgan Keegan & Company, Inc. After the 180
day period, 4,040,000 shares held by existing shareholders will be eligible for
sale by the holders thereof under Rule 144 under the Securities Act not later
than , 1998. An additional 700,000 shares will be eligible for sale
under Rule 144 beginning in August 1998. An additional 20,000 shares subject to
a restricted stock agreement will become eligible for sale in accordance with
the terms of such agreement. See "Management -- Executive Compensation."
In general, Rule 144 provides that, subject to its provisions and other
applicable federal and state securities law requirements, any person (or persons
whose shares are aggregated), including any person who may be deemed an
"affiliate" as defined under the Securities Act, who has acquired securities
directly or indirectly from the issuer or an affiliate in a transaction not
involving a public offering ("restricted securities"), and who has beneficially
owned such restricted securities for at least one year is entitled to sell,
within any three-month period, a number of such shares that does not exceed the
greater of (i) the average weekly trading volume of the same class of securities
during the four calendar weeks preceding the filing of notice of the sale with
the Securities and Exchange Commission; or (ii) one percent of the same class of
securities then outstanding, subject to certain manner-of-sale provisions,
notice requirements, and the availability of current information concerning the
Company. A person who is not deemed an "affiliate" of the Company and who has
beneficially owned shares for at least two years is entitled to sell such shares
under Rule 144 without regard to the volume limitations and current public
information, manner of sale, and notice requirements described above.
Affiliates, including officers, directors and principal shareholders of the
Company, are subject to the volume limitations and certain other requirements as
to all shares owned by them, regardless of the length of time such shares have
been beneficially owned and irrespective of whether such shares were acquired
from the issuer or otherwise and whether acquired in a transaction involving a
public offering.
41
<PAGE> 43
Prior to this Offering, there has been no public market for the Common
Stock of the Company and no determination can be made as to the effect, if any,
that the sale or availability for sale of additional shares of the Common Stock
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of the shares on the public market
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through the sale of its equity securities.
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Morgan Keegan &
Company, Inc. and Furman Selz LLC are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company and the Selling
Shareholders, the aggregate number of shares of the Common Stock set forth
opposite their respective names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
-------------------------------------------------------- ----------------
<S> <C>
Morgan Keegan & Company, Inc............................
Furman Selz LLC.........................................
---------
Total......................................... 2,230,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions, including, among other things, the
continuing accuracy of the representations and warranties of the Company and
Selling Shareholders contained in the Underwriting Agreement, the performance by
the Company and Selling Shareholders of their respective obligations under the
Underwriting Agreement, and the receipt of an opinion of counsel for the Company
and counsel for the Selling Shareholders in form and substance reasonably
satisfactory to counsel for the Underwriters. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
shares of Common Stock if any are purchased. The Underwriting Agreement contains
covenants of indemnity between the Underwriters and the Company and Selling
Shareholders against certain civil liabilities, including liabilities under the
Securities Act.
In order to facilitate the Offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the Common Stock. Specifically, the Underwriters may over-allot
in connection with the Offering, creating a short position in the Common Stock
for their own account. In addition, to cover such over-allotments or to
stabilize the price of the Common Stock, the Underwriters may bid for, and
purchase, the Common Stock in the open market. Any of these activities may
stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and, if commenced, may end any of these activities at any time. The
Representatives, on behalf of the syndicate of Underwriters, also may reclaim
selling concessions allowed to an Underwriter or dealer, if the syndicate
repurchases shares distributed by that Underwriter or dealer.
The Company has been advised by the Underwriters that they propose to offer
the shares of Common Stock to the public at the initial public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price, less a concession not in excess of $0. per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $0. per share
to other dealers. The initial public offering price and the concessions and
discount to dealers may be changed by the Underwriters after the Offering.
The Company and certain Selling Shareholders have granted to the
Underwriters options, expiring on the thirtieth day subsequent to the date of
this Prospectus, to purchase up to an additional 17,250 and
42
<PAGE> 44
317,250 shares of Common Stock, respectively, at the price to public, less
underwriting discount, shown on the cover page of this Prospectus. The
Underwriters may exercise such options solely for the purpose of covering
over-allotments, if any, incurred in the sale of the Common Stock offered
hereby. To the extent that the Underwriters exercise such options, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common Stock set forth next to such Underwriter's name in the
preceding table bears to the total offered initially.
The Company and all of the existing shareholders of the Company have agreed
not to offer, sell, contract to sell, grant any option to purchase, or otherwise
dispose (or announce any offer, sale, or grant of any option to purchase or
other disposition) of any shares of Common Stock, or any securities convertible
into, or exercisable or exchangeable for, shares of Common Stock for a period of
180 days after the date of this Prospectus, without the prior written consent of
Morgan Keegan & Company, Inc.
The Underwriters have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price was determined by
negotiations between the Company and the Underwriters. Among the factors
considered in such negotiations were the history of, and the prospects for, the
Company and the industry in which it competes, an assessment of the Company's
management, the Company's past and present operations, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the general
condition of the securities markets at the time of the Offering and the market
price of and demand for publicly-traded common stocks of comparable companies in
recent periods.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CRGO." The Company has been advised by the
Representatives that each of the Representatives presently intends to make a
market in the Common Stock offered hereby; however, the Representatives are not
obligated to do so, and any market making activity may be discontinued at any
time. There can be no assurance that an active public market for the Common
Stock will develop and continue after the Offering.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Van Cott, Bagley, Cornwall & McCarthy, a
professional corporation, Salt Lake City, Utah. Certain legal matters will be
passed upon for the Underwriters by Baker, Donelson, Bearman & Caldwell, a
Professional Corporation, Memphis, Tennessee.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995, 1996 and September 30, 1997 and for each of the years in the three year
period ended December 31, 1996 and for the nine months ended September 30, 1997
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Grant Thornton LLP, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance upon
their authority as experts in accounting and auditing.
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<PAGE> 45
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933 with respect to the 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 parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock, reference
is made to the Registration Statement and the exhibits and schedules filed as a
part thereof. The Registration Statement may be examined without charge at the
Public Reference Section of the Commission located at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the regional offices
of the Commission located at Seven World Trade Center, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C., at prescribed rates. This
information is also available from the Commission's Internet web site at
http://www.sec.gov. For further information pertaining to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto and the consolidated financial statements and
notes filed as a part thereof.
Statements made in this Prospectus as to the contents of any contract,
agreement, or other document referred to are not necessarily complete. With
respect to each such contract, agreement, or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
44
<PAGE> 46
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1995, December 31, 1996 and September 30, 1997...... F-3
Statements of Earnings for the years ended December 31, 1994, December 31, 1995 and
December 31, 1996 and for the nine months ended September 30, 1996 (unaudited) and
1997................................................................................ F-4
Statement of Stockholders' Equity for the years ended December 31, 1994, December 31,
1995 and December 31, 1996 and for the nine months ended September 30, 1997......... F-5
Statements of Cash Flows for the years ended December 31, 1994, December 31, 1995 and
December 31, 1996 and for the nine months ended September 30, 1996 (unaudited) and
1997................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Motor Cargo Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Motor Cargo
Industries, Inc. and Subsidiaries (the Company) as of December 31, 1995 and 1996
and September 30, 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996 and for the nine months ended September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Motor Cargo
Industries, Inc. and Subsidiaries as of December 31, 1995 and 1996 and September
30, 1997, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended December
31, 1996 and for the nine months ended September 30, 1997, in conformity with
generally accepted accounting principles.
Grant Thornton LLP
Salt Lake City, Utah
October 24, 1997
F-2
<PAGE> 48
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Notes E and L)............. $ 7,102,118 $ 8,771,887 $ 5,765,977
Receivables (Notes B and E)........................... 9,596,151 10,758,456 13,295,981
Prepaid expenses (Notes H and N)...................... 2,048,745 2,086,189 1,588,891
Supplies inventory (Note E)........................... 367,512 338,830 443,564
Deferred income taxes (Note G)........................ 1,052,500 1,074,600 1,469,000
Income taxes receivable............................... 66,458 166,983 --
----------- ----------- -----------
Total current assets.......................... 20,233,484 23,196,945 22,563,413
PROPERTY AND EQUIPMENT, AT COST
(Notes C, E, F and N)................................. 65,699,258 71,559,377 75,477,924
Less accumulated depreciation and amortization........ 26,766,896 31,365,464 35,642,201
----------- ----------- -----------
38,932,362 40,193,913 39,835,723
OTHER ASSETS
Deferred charges...................................... 260,383 367,555 417,951
Unrecognized net pension obligation (Note H).......... 81,231 75,441 71,098
----------- ----------- -----------
341,614 442,996 489,049
----------- ----------- -----------
$59,507,460 $63,833,854 $62,888,185
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations (Note F).. $ 6,133,636 $ 6,844,960 $ 3,346,480
Accounts payable...................................... 2,729,193 2,981,597 3,341,191
Accrued liabilities (Notes H and O)................... 4,213,943 3,896,876 5,309,741
Accrued claims (Note P)............................... 1,675,118 2,028,631 2,713,573
----------- ----------- -----------
Total current liabilities..................... 14,751,890 15,752,064 14,710,985
LONG-TERM OBLIGATIONS, less current maturities (Note F). 17,723,618 16,819,747 12,499,802
DEFERRED INCOME TAXES (Note G).......................... 4,308,529 5,221,629 5,787,000
COMMITMENTS AND CONTINGENCIES (Notes D, E, F, H, J, K
and Q)................................................ -- -- --
STOCKHOLDERS' EQUITY (Notes M, N and Q)
Preferred stock, no-par value
Authorized -- 25,000,000 shares
Issued -- none..................................... -- -- --
Common stock, no-par value
Authorized -- 100,000,000 shares
Issued -- 5,820,000 shares......................... 1,000 1,000 1,000
Retained earnings..................................... 22,722,423 26,039,414 29,889,398
----------- ----------- -----------
22,723,423 26,040,414 29,890,398
----------- ----------- -----------
$59,507,460 $63,833,854 $62,888,185
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 49
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues.............. $82,984,307 $80,807,913 $92,310,142 $68,272,131 $77,445,561
----------- ----------- ----------- ----------- -----------
Operating expenses
Salaries, wages and
benefits................... 36,055,305 35,494,479 39,666,468 29,412,125 33,004,480
Operating supplies and
expenses................... 12,144,802 12,668,945 14,947,069 10,969,121 11,539,799
Purchased transportation...... 12,237,962 11,531,478 14,164,292 10,577,242 11,132,355
Operating taxes and
licenses................... 3,068,598 3,178,345 3,531,244 2,534,474 2,681,422
Insurance and claims.......... 2,685,045 1,842,141 2,784,489 1,997,761 3,400,093
Depreciation and
amortization............... 4,973,975 5,930,353 6,577,569 4,965,108 5,155,815
Communications and
utilities.................. 1,313,892 1,521,389 1,783,797 1,327,027 1,474,323
Building rents................ 1,093,101 1,274,081 1,540,407 1,160,907 1,265,745
----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 73,572,680 73,441,211 84,995,335 62,943,765 69,654,032
----------- ----------- ----------- ----------- -----------
Operating income...... 9,411,627 7,366,702 7,314,807 5,328,366 7,791,529
----------- ----------- ----------- ----------- -----------
Other income (expense)
Interest expense.............. (1,392,044) (1,499,720) (1,429,843) (1,128,857) (772,232)
Other, net.................... 104,259 106,577 (32,073) 15,083 112,688
----------- ----------- ----------- ----------- -----------
(1,287,785) (1,393,143) (1,461,916) (1,113,774) (659,544)
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes............... 8,123,842 5,973,559 5,852,891 4,214,592 7,131,985
Income taxes (Note G)........... 2,943,000 2,094,000 2,118,000 1,556,000 2,824,000
----------- ----------- ----------- ----------- -----------
NET EARNINGS.......... $ 5,180,842 $ 3,879,559 $ 3,734,891 $ 2,658,592 $ 4,307,985
=========== =========== =========== =========== ===========
Pro forma (Notes A11 and A14)
Earnings before income
taxes...................... $ 8,123,842 $ 5,973,559 $ 5,852,891 $ 4,214,592 $ 7,131,985
Income taxes.................. 3,125,000 2,303,000 2,256,000 1,627,000 2,878,000
----------- ----------- ----------- ----------- -----------
Net earnings.................. $ 4,998,842 $ 3,670,559 $ 3,596,891 $ 2,587,592 $ 4,253,985
=========== =========== =========== =========== ===========
Earnings per common share..... $ 0.86 $ 0.63 $ 0.62 $ 0.44 $ 0.73
=========== =========== =========== =========== ===========
Weighted average shares
outstanding................ 5,820,000 5,820,000 5,820,000 5,820,000 5,820,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 50
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ------------------ PENSION COST OVER
NUMBER NUMBER RETAINED UNRECOGNIZED
OF SHARES AMOUNT OF SHARES AMOUNT EARNINGS PENSION LIABILITY TOTAL
--------- ------ ---------- ------ ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994.... -- $ -- 5,820,000 $1,000 $14,934,333 $ -- $14,935,333
Pension adjustment............ -- -- -- -- -- (310,555) (310,555)
Distributions to LLC
members..................... -- -- -- -- (1,045,394) -- (1,045,394)
Net earnings for the year..... -- -- -- -- 5,180,842 -- 5,180,842
--- --- --------- ------ ----------- --------- -----------
Balance at December 31,
1994........................ -- -- 5,820,000 1,000 19,069,781 (310,555) 18,760,226
Pension adjustment............ -- -- -- -- -- 310,555 310,555
Distributions to LLC
members..................... -- -- -- -- (226,917) -- (226,917)
Net earnings for the year..... -- -- -- -- 3,879,559 -- 3,879,559
--- --- --------- ------ ----------- --------- -----------
Balance at December 31,
1995........................ -- -- 5,820,000 1,000 22,722,423 -- 22,723,423
Net distributions to LLC
members..................... -- -- -- -- (417,900) -- (417,900)
Net earnings for the year..... -- -- -- -- 3,734,891 -- 3,734,891
--- --- --------- ------ ----------- --------- -----------
Balance at December 31,
1996........................ -- -- 5,820,000 1,000 26,039,414 -- 26,040,414
Distributions to LLC
members..................... -- -- -- -- (458,001) -- (458,001)
Net earnings for the period... -- -- -- -- 4,307,985 -- 4,307,985
--- --- --------- ------ ----------- --------- -----------
Balance at September 30,
1997........................ -- $ -- 5,820,000 $1,000 $29,889,398 $ -- $29,890,398
=== === ========= ====== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 51
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings for the period..................... $ 5,180,842 $ 3,879,559 $ 3,734,891 $ 2,658,592 $ 4,307,985
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization................. 4,973,975 5,930,353 6,577,569 4,965,108 5,155,815
Provision for losses on trade and other
receivables................................ 594,441 270,000 286,000 212,500 157,500
Loss (gain) on disposition of property and
equipment.................................. 20,745 5,891 72,458 (94,932) (82,288)
Amortization of unrecognized pension
obligation (benefit)....................... 310,555 (782,364) 5,790 4,343 4,343
Deferred income taxes......................... 51,700 785,000 891,000 555,971 170,971
Changes in assets and liabilities
Receivables................................ (737,420) (383,072) (1,448,305) (1,509,287) (2,695,025)
Prepaid expenses........................... (314,203) (65,573) (37,444) 602,600 497,298
Supplies inventory......................... (71,442) 34,164 28,682 57,704 (104,734)
Income taxes receivable.................... (92,953) 26,495 (100,525) 66,458 166,983
Other assets............................... (67,743) 144,841 (107,172) (79,445) (50,396)
Accounts payable........................... 18,206 (380,033) 252,404 20,443 359,594
Accrued liabilities and claims............. 1,152,960 1,267,252 36,446 160,201 2,097,807
----------- ----------- ----------- ----------- -----------
Total adjustments...................... 5,838,821 6,852,954 6,456,903 4,961,664 5,677,868
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities........................... 11,019,663 10,732,513 10,191,794 7,620,256 9,985,853
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment................ (7,082,154) (14,982,131) (9,712,567) (6,381,312) (4,930,521)
Proceeds from disposition of property and
equipment....................................... 38,476 190,280 1,800,989 239,484 215,184
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities........................... (7,043,678) (14,791,851) (7,911,578) (6,141,828) (4,715,337)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities
Distributions to LLC members...................... (1,045,394) (226,917) (524,000) (475,000) (458,001)
Contributions from LLC members.................... -- -- 106,100 106,100 --
Proceeds from issuance of long-term obligations... 5,670,263 33,780,585 55,564,002 39,180,160 24,915,000
Principal payments on long-term obligations....... (4,178,138) (29,252,749) (55,756,549) (45,961,135) (32,733,425)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................... 446,731 4,300,919 (610,447) (7,149,875) (8,276,426)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.............................. 4,422,716 241,581 1,669,769 (5,671,447) (3,005,910)
Cash and cash equivalents at beginning of period.... 2,437,821 6,860,537 7,102,118 7,102,118 8,771,887
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period.......... $ 6,860,537 $ 7,102,118 $ 8,771,887 $ 1,430,671 $ 5,765,977
=========== =========== =========== =========== ===========
Supplemental cash flow information
Cash paid during the period for
Interest........................................ $ 1,385,484 $ 1,477,356 $ 1,459,189 $ 1,100,392 $ 734,837
Income taxes.................................... 3,555,730 1,882,300 2,077,215 762,000 1,695,100
</TABLE>
Supplemental schedule of noncash investing and financing activities
Year ended December 31, 1994
The Company increased accrued pension cost by $308,530 and reduced
unrecognized net pension obligation by $2,025. The excess of additional pension
cost over unrecognized net pension obligation of $310,555 was recorded as a
reduction of stockholders' equity.
Year ended December 31, 1995
The Company decreased accrued pension cost by $397,576 and increased
prepaid pension cost by $384,788. Unrecognized net pension obligation decreased
by $5,790, and excess of additional pension cost over unrecognized net pension
obligation decreased by $310,555.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 52
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Insofar as the notes refer to the nine months ended September 30, 1996, they are
not audited. In the opinion of management, the unaudited interim financial
statements for the nine months ended September 30, 1996 include all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
Company's results of operations and cash flows. Operating results for the
interim period as of September 30, 1997 and for the nine months then ended are
not necessarily indicative of the results that may be expected for the full 1997
year.
1. Financial statement presentation
The accounting and reporting policies of Motor Cargo Industries, Inc. and
Subsidiaries (the Company) conform with generally accepted accounting principles
and with general practices in the motor carrier industry. In preparing the
Company's financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
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 significantly from those
estimates. Significant estimates include accrued claims and allowance for
doubtful accounts.
2. Principles of consolidation
The consolidated financial statements include the accounts of Motor Cargo
Industries, Inc. (MCI) and its wholly-owned subsidiaries, Ute Trucking and
Leasing, LLC (Ute) and Motor Cargo and its wholly-owned subsidiaries, MC
Leasing, Inc., MC Distribution Services, Inc., and ICC, Inc. All significant
intercompany accounts and transactions have been eliminated.
3. Business activity
Motor Cargo is a regulated motor carrier which hauls commercial commodities both
intrastate and interstate.
4. Cash equivalents
For the purposes of the financial statements, the Company considers all highly
liquid debt instruments with a maturity of three months or less when purchased
to be cash equivalents.
5. Supplies inventory
Supplies inventory consists primarily of fuel and equipment parts and is stated
at the lower of cost (first-in, first-out method) or market.
6. Depreciation and amortization
Depreciation of property and equipment is provided on the straight-line method
over the estimated useful lives of the assets.
Leasehold improvements are amortized over the lesser of the useful life of the
asset or term of the lease.
Maintenance, repairs, and renewals which neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on dispositions of property and equipment are included
in earnings.
F-7
<PAGE> 53
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
7. Income taxes
The Company utilizes the liability method of accounting for income taxes. Under
the liability method, deferred income tax assets and liabilities are provided
based on the difference between the financial statement and tax bases of assets
and liabilities as measured by the currently enacted tax rates in effect for the
years in which these differences are expected to reverse. Deferred tax expense
or benefit is the result of changes in deferred tax assets and liabilities.
8. Insurance coverage and accrued claims
The Company is self-insured for health costs, cargo damage claims, and
automobile and general liability claims up to $70,000, $100,000, and $500,000
respectively, per single occurrence. The Company also maintains workers'
compensation insurance, with a deductible of $250,000 in Nevada, and without a
deductible in Washington. The Company is responsible for workers' compensation
claims in other states in which the Company operates up to an aggregate of
approximately $1.9 million per year. Liabilities in excess of these amounts are
assumed by insurance companies up to applicable policy limits.
The Company estimates and accrues a liability for its share of final settlements
using all available information including the services of a third-party
insurance risk claims administrator to assist in establishing reserve levels for
each occurrence based on the facts and circumstances of the incident coupled
with the Company's past history of such claims. The Company accrues for workers'
compensation and automobile liabilities when reported, usually the same day as
the occurrence. Additionally, the Company accrues an estimated liability for
incurred but not reported claims. Expense depends upon actual loss experience
and changes in estimates of settlement amounts for open claims which have not
been fully resolved. The Company provides for adverse loss developments in the
period when new information becomes available.
9. Revenue recognition
Freight charges and related expenses are generally recognized as revenue and
operating expense when freight is picked up. The application of this method did
not result in a material difference in reported net earnings in any of the
periods presented when compared to other preferred industry methods.
10. Prepaid tires
The Company capitalizes tires purchased with new equipment and depreciates them
over the estimated useful life of the equipment (5 - 10 years). Replacement
tires are expensed upon placement into service (Note N).
11. Earnings per share
Pro forma earnings per share
Pro forma earnings per common share are based upon the weighted average number
of common shares outstanding during the period presented.
Supplemental pro forma earnings per share
Supplemental pro forma earnings per share for December 31, 1996 and September
30, 1997 were $0.61 and $0.70, respectively, and are calculated by dividing pro
forma net earnings (adjusted for the pro forma reduction in interest expense
that specifically corresponds to the application of proceeds from the offering
to repay indebtedness of $7,500,000 of notes payable) by the weighted average
shares outstanding used in the calculation of earnings per common share
(adjusted for the estimated shares at each date that would be issued by the
Company at $13 per share to retire the $7,500,000).
F-8
<PAGE> 54
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
12. Fair value of financial instruments
The fair value of the Company's cash and cash equivalents, receivables, accounts
payable, and accrued liabilities approximates carrying value due to the
short-term maturity of the instruments. The fair value of long-term obligations
approximates carrying value based on their effective interest rates compared to
current market prices.
13. Certain reclassifications
Certain nonmaterial reclassifications have been made to the 1994, 1995, and 1996
financial statements to conform to the September 30, 1997 presentation.
14. Pro forma financial information (unaudited)
Effective August 28, 1997, MCI acquired the membership interests of Ute (Note
M). A limited liability company passes through to its members essentially all
taxable earnings and losses and pays no tax at the company level. Accordingly,
for comparative purposes, a pro forma provision for income taxes using an
effective income tax rate of 38% has been determined assuming Ute had been taxed
as a C Corporation for all periods presented.
15. Recently issued accounting pronouncements not yet adopted
Earnings per share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share." SFAS 128 eliminates the presentation of primary earnings per share (EPS)
and requires the presentation of basic EPS, which includes no common stock
equivalents and thus no dilution. The statement also eliminates the modified
treasury stock method of computing potential common shares. This statement is
effective for financial statements issued for periods ending after December 15,
1997.
Capital structure
Also in February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129 (SFAS 129), "Disclosure of Information about Capital
Structure." SFAS 129 consolidates in one statement disclosures about the rights
of outstanding securities and changes in the number of equity securities during
the period, disclosures about liquidation preferences and preferred stock, and
disclosures about redemption requirements of certain redeemable stock.
Disclosures were previously included in Accounting Principles Board (APB)
Opinion 10, APB Opinion 15 and SFAS 47. The statement does not change the
required disclosures about capital structure for entities currently subject to
the requirements of APB Opinions 10 and 15 and SFAS 47. SFAS 129 is effective
for financial statements for interim and annual periods ending after December
15, 1997.
Comprehensive income
In September 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 requires entities
presenting a complete set of financial statements to include details of
comprehensive income that arise in the reporting period. Comprehensive income
consists of net earnings or loss for the current period and other comprehensive
income, which consists of revenue, expenses, gains, and losses that bypass the
statement of earnings and are reported directly in a separate component of
equity. Other comprehensive income includes, for example, foreign currency
items, minimum pension liability adjustments, and unrealized gains and losses on
certain investment securities.
F-9
<PAGE> 55
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
15. Recently issued accounting pronouncements not yet adopted -- continued
Comprehensive income -- continued
SFAS 130 requires that components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997 and requires restatement of prior period financial
statements presented for comparative purposes.
Disclosure of segments
Also in September 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and
Related Information." This statement requires an entity to report financial and
descriptive information about their reportable operating segments. An operating
segment is a component of an entity for which financial information is developed
and evaluated by the entity's chief operating decision maker to assess
performance and to make decisions about resource allocation. Entities are
required to report segment profit or loss, certain specific revenue and expense
items and segment assets based on financial information used internally for
evaluating performance and allocating resources. This statement is effective for
fiscal years beginning after December 15, 1997 and requires restatement of prior
period financial statements presented for comparative purposes.
Management does not believe that the adoption of SFAS 128, SFAS 129, SFAS 130
and SFAS 131 will have a material effect on the Company's consolidated financial
statements.
NOTE B -- RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Trade receivables................................... $ 9,850,104 $10,829,234 $ 13,387,461
Other receivables................................... 601,047 435,016 438,658
----------- ----------- -----------
10,451,151 11,264,250 13,826,119
Less allowance for doubtful accounts................ (855,000) (505,794) (530,138)
----------- ----------- -----------
$ 9,596,151 $10,758,456 $ 13,295,981
=========== =========== ===========
</TABLE>
The history of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period....................... $ 533,388 $ 950,478 $ 855,000 $ 855,000 $ 505,794
Provisions..................... 594,441 270,000 286,000 212,500 157,500
Write-offs..................... (177,351) (365,478) (635,206) (253,221) (133,156)
--------- --------- --------- --------- ---------
Balance at end of period....... $ 950,478 $ 855,000 $ 505,794 $ 814,279 $ 530,138
========= ========= ========= ========= =========
</TABLE>
F-10
<PAGE> 56
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C -- PROPERTY AND EQUIPMENT
Cost of property and equipment and estimated useful lives are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997 YEARS
----------- ----------- ------------- -----
<S> <C> <C> <C> <C>
Land....................................... $ 4,921,588 $ 4,984,268 $ 4,984,268 --
Buildings.................................. 9,659,861 9,696,481 9,702,411 20-45
Revenue equipment.......................... 41,644,581 46,678,422 49,928,749 5-10
Service cars and equipment................. 423,232 356,722 386,742 3-10
Shop and garage equipment.................. 124,945 128,765 136,875 3-10
Office furniture and fixtures.............. 1,379,138 2,004,227 2,043,428 3-10
Other property and equipment............... 5,156,257 5,731,077 6,155,333 3-10
Leasehold improvements..................... 1,069,342 1,952,308 2,137,618 4-5
Construction in progress................... 1,320,314 27,107 2,500 --
----------- ----------- -----------
$65,699,258 $71,559,377 $ 75,477,924
=========== =========== ===========
</TABLE>
NOTE D -- LEASES
The Company leases buildings and revenue equipment under operating lease
agreements. The following is a schedule of future minimum lease payments under
operating leases:
<TABLE>
<CAPTION>
YEAR ENDING TOTAL
SEPTEMBER 30, BUILDINGS EQUIPMENT LEASES
--------------- ---------- --------- ----------
<S> <C> <C> <C>
1998.......................... $1,247,928 $92,223 $1,340,151
1999.......................... 566,484 -- 566,484
2000.......................... 310,810 -- 310,810
2001.......................... 57,506 -- 57,506
Thereafter.................... -- -- --
---------- ------- ----------
Total minimum lease payments.... $2,182,728 $92,223 $2,274,951
========== ======= ==========
</TABLE>
The leases generally provide that property taxes, insurance, and maintenance
expenses are obligations of the Company. It is expected that in the normal
course of business, operating leases that expire will be renewed or replaced by
leases on other properties. The total rent expense for the years ended December
31, 1994, 1995, and 1996, and the nine months ended September 30, 1996
(unaudited) and 1997, was approximately $1,093,101, $1,274,081, $1,540,407,
$1,151,221, and $1,275,044, respectively.
NOTE E -- REVOLVING BANK LOAN
The Company has a revolving bank loan. Under the loan agreement, borrowings are
limited to the lesser of 70% of allowable trade receivables, or $5,000,000. Any
outstanding amounts accrue interest at the lending institution's prime rate,
which is payable monthly. No principal payments are required until maturity (May
1998) as long as the loan does not exceed the required limits. The agreement is
collateralized by cash and cash equivalents, receivables, supplies inventory,
and all documents, instruments, and chattel paper now owned or hereafter
acquired by the Company. At December 31, 1995 and 1996, and at September 30,
1996 and 1997, there were no draws against the loan.
The Company also has a line of credit with a limit of $12,067,000 as of
September 30, 1997. This line is collateralized by revenue equipment. The upper
limit of this line reduces by 1/20th each quarter until reaching $0 in the year
2002. As of September 30, 1997, there was $6,500,000 drawn against the line
(Note F).
F-11
<PAGE> 57
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Prime plus 1% (9.5% at September 30, 1997)
note payable to a bank, due in 2003,
payable in quarterly installments of
$6,562 plus interest, collateralized by
real property............................. $ 216,564 $ 190,314 $ 170,626
6.75-10.53% notes payable to corporations,
due through 2003, payable in monthly
installments totaling $33,842, including
interest, collateralized by real property
and revenue equipment..................... 2,138,392 1,927,386 1,757,257
Prime (8.5% at September 30, 1997) note
payable on a line of credit (up to
$12,067,000) to a bank, due in 2001,
payable in quarterly installments of
$636,230 plus interest, collateralized by
revenue equipment (Note E)................ 8,742,996 10,975,714 6,500,000
6.75-10% notes payable to corporations, due
through 2000, payable in monthly
installments totaling $163,087 plus
interest, collateralized by revenue
equipment................................. 5,016,275 4,529,960 2,804,712
6.5-10.45% notes payable to banks, due
through 2001, payable in monthly
installments totaling $205,063 plus
interest, collateralized by revenue
equipment................................. 4,823,369 4,218,358 3,024,208
8.4-9.25% notes payable to banks, due
through 2005, payable in monthly
installments totaling $28,864 plus
interest, collateralized by real
property.................................. 2,134,103 1,822,975 1,589,479
10% note payable to a corporation, due in
2000, payable in monthly installments of
$9,361, including interest, collateralized
by real property; paid in full during
1996...................................... 785,555 -- --
----------- ----------- ------------
23,857,254 23,664,707 15,846,282
Less current maturities..................... 6,133,636 6,844,960 3,346,480
----------- ----------- ------------
$17,723,618 $16,819,747 $ 12,499,802
=========== =========== ============
</TABLE>
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
------------------------------------------------
<S> <C>
1998........................................ $ 3,346,480
1999........................................ 4,961,028
2000........................................ 3,891,412
2001........................................ 2,075,413
2002........................................ 217,182
Thereafter...................................... 1,354,767
-----------
$15,846,282
===========
</TABLE>
The line of credit agreements contain various restrictive covenants including
provisions relating to the maintenance of net worth, debt-to-equity ratio, and
cash-flow coverage. As of September 30, 1997, the Company was in compliance with
all covenants under the line of credit agreements.
F-12
<PAGE> 58
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G -- INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current
Federal............................ $2,407,300 $1,081,000 $1,009,000 $ 835,024 $2,215,279
State.............................. 484,000 228,000 218,000 165,005 437,750
---------- ---------- ---------- ---------- ----------
2,891,300 1,309,000 1,227,000 1,000,029 2,653,029
---------- ---------- ---------- ---------- ----------
Deferred
Federal............................ 46,013 655,475 743,985 464,236 142,761
State.............................. 5,687 129,525 147,015 91,735 28,210
---------- ---------- ---------- ---------- ----------
51,700 785,000 891,000 555,971 170,971
---------- ---------- ---------- ---------- ----------
$2,943,000 $2,094,000 $2,118,000 $1,556,000 $2,824,000
========== ========== ========== ========== ==========
</TABLE>
The income tax provision reconciled to the tax computed at the federal
statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal income taxes at statutory
rate............................... $2,762,100 $2,031,000 $1,990,000 $1,433,000 $2,425,000
State income taxes, net of federal
tax benefit........................ 327,800 252,100 248,800 176,000 298,800
One time charge attributed to
Ute(1)............................. -- -- -- -- 238,000
Income taxes attributed to Ute....... (182,000) (209,000) (136,000) (71,000) (147,000)
All other............................ 35,100 19,900 15,200 18,000 9,200
---------- ---------- ---------- ---------- ----------
$2,943,000 $2,094,000 $2,118,000 $1,556,000 $2,824,000
========== ========== ========== ========== ==========
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets (liabilities)
Allowance for doubtful accounts....... $ 327,000 $ 193,200 $ 203,000
Vacation accrual...................... 310,100 353,500 389,000
Reserve for claims.................... 452,700 575,300 900,000
Unfunded pension...................... -- (58,800) (231,000)
Accrued compensation.................. -- 58,400 63,000
Equipment temporary differences....... (4,308,529) (5,221,229) (5,619,000)
Prepaid tires......................... (37,300) (47,400) (23,000)
----------- ----------- -----------
Net deferred tax liability $(3,256,029) $(4,147,029) $ (4,318,000)
=========== =========== ===========
</TABLE>
- ---------------
(1) Effective August 28, 1997, Ute was acquired by MCI and became a taxable
entity (Note M). Previously, its earnings and losses were included in the
personal tax returns of the members, and Ute did not record an income tax
provision. Effective with the change, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," income taxes will be provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due
F-13
<PAGE> 59
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G -- INCOME TAXES (CONTINUED)
plus deferred taxes related primarily to differences between the basis of
property and equipment for financial and income tax reporting. The deferred
tax liability represents the future tax return consequences of these
differences, which will be taxable when the liabilities are settled.
Accordingly, a deferred tax liability at the date of the change of
approximately $238,000 was recorded through a one time non-cash charge to
the deferred tax provision.
NOTE H -- PENSION AND PROFIT-SHARING PLANS
1. Pension plan
The Company participates in a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and hours of service in the current year. A participant is fully vested after
five years. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected benefits to be earned
in the future.
The following table sets forth the plan's funded status as of the periods
presented, in accordance with FASB Statement 87: "Employers' Accounting for
Pensions":
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligations, including
vested benefits of $3,303,221, $3,808,232,
and $4,066,025, for the years ended
December 31, 1995 and 1996 and the nine
months ended September 30, 1997,
respectively.............................. $ 3,423,736 $ 3,972,111 $ 4,257,884
=========== =========== ===========
Projected benefit obligation for service
rendered to date.......................... $(3,606,505) $(4,111,673) $ (4,372,001)
Plan assets at fair value, primarily U.S.
government securities and common stock
funds..................................... 3,423,488 4,125,240 4,859,658
----------- ----------- -----------
Projected benefit obligation (in excess of)
or less than plan assets.................. (183,017) 13,567 487,657
Unrecognized net obligation at January 1,
1987, being recognized over 16 years...... 81,231 75,441 71,098
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions.................... (283,250) (379,979) (707,600)
----------- ----------- -----------
Accrued pension costs included in accrued
liabilities (Note O)...................... $ (385,036) $ (290,971) $ (148,845)
=========== =========== ===========
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service cost -- benefits earned during
the period........................... $ 207,337 $ 247,891 $ 238,559 $ 178,920 $ 186,726
Interest cost on projected benefit
obligation........................... 239,457 268,620 288,520 216,390 251,523
Actual return on plan assets........... 162,362 768,665 (497,698) (307,620) (659,290)
Net (deferral) amortization............ (342,779) (944,968) 199,300 84,073 378,915
--------- --------- --------- --------- ---------
Net pension cost....................... $ 266,377 $ 340,208 $ 228,681 $ 171,763 $ 157,874
========= ========= ========= ========= =========
</TABLE>
F-14
<PAGE> 60
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H -- PENSION AND PROFIT-SHARING PLANS (CONTINUED)
1. Pension plan -- continued
The following table sets forth the funded status and amounts recognized in the
Company's balance sheet at September 30, 1997:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations
Vested benefit obligation.............................. $4,066,025
==========
Projected benefit obligation........................... $4,372,001
==========
Accumulated benefit obligation......................... $4,257,884
Plan assets at fair value (primarily U.S. government
securities and common stock funds).................. 4,859,658
----------
Plan assets greater than accumulated benefit
obligation.......................................... 601,774
Pension liability included in accrued liabilities...... 148,845
----------
Prepaid pension costs included in prepaid expenses..... $ 750,619
==========
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8.0% for the years ended December
31, 1994, 1995 and 1996 and for the nine months ended September 30, 1996 and
1997. The expected long-term rate of return was 8.0% for the years ended
December 31, 1994, 1995 and 1996 and for the nine months ended September 30,
1996 and 1997.
2. 401(k) profit-sharing plan
The Company has a qualified 401(k) profit-sharing plan (the Plan) in which
substantially all of its employees participate. All employees who have completed
one year of service with the Company are eligible to participate in the Plan.
Under the Plan, employees are allowed to make contributions of between 1% and
15% of their annual compensation. The Company matches certain percentages of
employee contributions up to 6%, depending on the Company's operating ratio. All
amounts contributed by a participant are fully vested at all times. A
participant becomes vested over time and is fully vested in any Company matching
contributions after 7 years of service. Expenses for Company contributions
approximated $585,000, $345,000, and $310,000 for the years ended December 31,
1994, 1995 and 1996, respectively, and $214,000 and $348,000 for the nine months
ended September 30, 1996 and 1997, respectively.
NOTE I -- RELATED PARTY TRANSACTIONS
Related parties include the Company's officers, directors, stockholders and
other entities under their common control.
During the years ended December 31, 1994, 1995, and 1996 the Company made
payments for consulting services of $480,000 per year to an entity in which the
Company's chairman is a 50% owner. The Company made payments of $360,000 and
$160,000, respectively, to this entity during the nine months ended September
30, 1996 and 1997. The agreement terminated April 1997 and was not renewed.
Guaranteed payments to members of Ute were $140,000 for the years ended December
31, 1994, 1995, and 1996, and $107,700, and $105,000 for the nine months ended
September 30, 1996 and 1997, respectively.
NOTE J -- DEFERRED COMPENSATION
The Company has salary continuation agreements with certain key management
employees. Under the agreements, the Company is obligated to provide for each
such employee or his beneficiaries, during a period of not more than ten years
after the employee's death, disability, or retirement, annual benefits ranging
from $17,000 to $23,000. The Company has purchased universal life insurance
policies on the lives of these
F-15
<PAGE> 61
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J -- DEFERRED COMPENSATION (CONTINUED)
participants. These insurance policies, which remain the sole property of the
Company, are payable to the Company upon the death of the participant or
maturity of the insurance policy. As of September 30, 1997, the value of the
insurance policies exceeded the deferred compensation obligations by
approximately $25,000.
The Company separately contracts with the participants to pay stated benefits
substantially equivalent to those received or available under the insurance
policies upon retirement, death, or permanent disability. The expense incurred
for the years ended December 31, 1994, 1995 and 1996, was approximately $19,000,
$18,000 and $62,660, respectively. The expense incurred for the nine months
ended September 30, 1996 and 1997 was approximately $36,000 for each period.
NOTE K -- COMMITMENTS AND CONTINGENCIES
1. Letters of credit
At September 30, 1997, the Company had outstanding letters of credit totaling
$2,010,000 ($2,035,000, and $2,010,000 at December 31, 1995 and 1996). There
were no draws against these letters of credit during any of the periods
presented.
2. Purchase commitment
As of September 30, 1997, the Company had placed orders for the purchase of
miscellaneous equipment at an estimated total purchase price of $2,430,000. The
equipment is to be delivered by December 31, 1997.
3. Litigation
The Company is involved in litigation arising in the normal course of business.
It is not possible to state the ultimate liability, if any, in these matters. In
the opinion of management, such litigation will have no material effect on the
financial position and results of operations of the Company, in excess of
amounts accrued.
NOTE L -- CONCENTRATION OF CREDIT RISK
The Company maintains cash and cash equivalents at several financial
institutions. At September 30, 1997, uninsured amounts held in these financial
institutions totaled approximately $11,512,000, (approximately $7,388,000, and
$9,121,000 as of December 31, 1995 and 1996, respectively).
NOTE M -- CAPITAL TRANSACTIONS
Effective December 31, 1995, a prior entity known as Motor Cargo Industries,
Inc., a related entity through common ownership, was merged into Motor Cargo as
a result of which its wholly-owned subsidiary MC Leasing, Inc. became a
wholly-owned subsidiary of Motor Cargo. The merger was accounted for in a manner
similar to a pooling of interests with assets acquired approximating liabilities
assumed and no additional shares of Motor Cargo's common stock being issued.
On January 1, 1996 a new entity, MCI was incorporated. Following its
incorporation, the Company issued 5,120,000 shares of common stock in exchange
for all of the outstanding common stock of Motor Cargo (256 shares). This
transaction was accounted for in a manner similar to a pooling of interests.
MCI, which had no significant assets or liabilities at the time of the exchange,
functions as a non-operating holding company for the operating entities. The
consolidated financial statements for all periods presented include the accounts
and operations of all entities for the periods the entities were in existence.
Effective August 28, 1997, the membership interests of Ute were acquired in
exchange for 700,000 shares of common stock of the Company. Because of the
common ownership of the two entities, this transaction was
F-16
<PAGE> 62
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M -- CAPITAL TRANSACTIONS (CONTINUED)
accounted for in a manner similar to a pooling of interests. Ute is included in
the consolidated financial statements for all periods presented as a
wholly-owned subsidiary of MCI. Revenues and earnings for Ute for each of the
three years in the period ended December 31, 1996 and for the nine months ended
September 30, 1996 and 1997 are as follows: $8,283,197 and $486,544; $7,773,901
and $523,606; $9,018,480 and $361,350; $2,737,282 and $507,379; $6,895,730 and
$140,856, respectively. All revenue generated in Ute is from the renting and
contracting, under an independent operating agreement, of revenue equipment to
Motor Cargo. Therefore, Ute's related operations are eliminated in the
consolidated financial statements.
NOTE N -- PRIOR PERIOD ADJUSTMENT
During the nine months ended September 30, 1997, the Company changed its method
of accounting for tires. The previous method involved recording new tires,
(tires purchased with new equipment and replacement stock) as prepaid tires upon
purchase and amortizing them based on normal tread-wear. The new method involves
expensing replacement tires upon placement into service. Under the new method,
tires purchased with new equipment are capitalized as equipment and depreciated
over the estimated useful life of the equipment (5 - 10 years). Management
believes the new method should simplify the comparability of its financial
statements with other regulated motor carriers. The effect of the change, which
was not significant, was retroactively applied to all periods presented.
NOTE O -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Salaries, wages, and payroll taxes.... $2,261,821 $1,943,386 $ 2,501,335
Accrued employee benefits............. 705,538 684,301 697,212
Income taxes payable.................. -- -- 749,411
Vacation accrual...................... 811,962 925,274 1,022,775
All other............................. 434,622 343,915 339,008
---------- ---------- ----------
$4,213,943 $3,896,876 $ 5,309,741
========== ========== ==========
</TABLE>
NOTE P -- ACCRUED CLAIMS PAYABLE
The history of accrued claims payable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
Balance at beginning of period........ $1,552,200 $1,675,118 $ 2,028,631
Provisions............................ 1,462,594 2,385,923 3,117,442
Expenditures.......................... (1,339,676) (2,032,410) (2,432,500)
---------- ---------- ----------
Balance at end of period.............. $1,675,118 $2,028,631 $ 2,713,573
========== ========== ==========
</TABLE>
F-17
<PAGE> 63
MOTOR CARGO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE Q -- SUBSEQUENT EVENTS
1. Common stock offering
In October 1997, the Company's Board of Directors approved the filing of a Form
S-1 registration statement under the Securities Act of 1933, to register up to
2,564,500 shares of the Company's common stock of which up to 1,397,250 shares
could be sold by identified selling stockholders.
2. Stock option plan
In October 1997, the Company's Board of Directors adopted the Motor Cargo
Industries, Inc. 1997 Stock Option Plan (the Plan). The purpose of the Plan is
to provide certain of the Company's key employees an opportunity to acquire an
ownership interest in the Company. The Company has reserved 500,000 shares of
common stock for issuance under the Plan. Pursuant to the Plan, non-qualified
options to purchase 229,500 shares of Common Stock at the initial public
offering price will be granted to employees of the Company. Included are
approximately 115,000 options that will be granted to certain officers of the
Company. These shares may be issued as incentive stock options or awards. To
date, no options have been granted under the Plan.
The Company intends to account for stock-based compensation under Accounting
Principles Board Opinion No. 25, under which no significant compensation cost is
expected to be recognized upon grant of the options. The Company intends to
adopt only the disclosure provisions of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). The Company, therefore,
does not expect SFAS 123 to have a material impact on its financial position or
operations.
3. Stock award
In October 1997, the Company's Board of Directors awarded an officer of the
Company 20,000 shares of the Company's common stock, contingent upon completion
of the common stock offering. The award was made pursuant to a Restricted Stock
Agreement which states that upon completion of the offering, 20,000 shares of
the Company's common stock will be issued in the officer's name. The Company
will hold the certificates for the shares, which will be released in four
installments, each consisting of 25% of the shares issued based on the officer's
continued employment. In the event the officer voluntarily ceases his employment
with the Company or the Company terminates his employment for cause, the shares
not previously released will be forfeited. Termination of employment by the
Company without cause, or termination due to disability or death will result in
the prompt release of some or all shares not previously released, depending upon
the date of the relevant event.
F-18
<PAGE> 64
[THE INSIDE BACK COVER OF THE PROSPECTUS CONTAINS SUPERIMPOSED IMAGES OF A
COMPANY SERVICE CENTER, THE COMPANY'S MAIN COMPUTER ROOM, A COMPANY EMPLOYEE,
SEVERAL COMPANY TRACTORS (INCLUDING ONE TRACTOR PULLING A DOUBLE TRAILER, A
COMPANY DELIVERY VAN DISPLAYING "PRIORITY+PLUS" AND A PHONE NUMBER FOR "HOT SHOT
SERVICE" AND A FLAG DISPLAYING THE COMPANY'S LOGO].
<PAGE> 65
======================================================
NO DEALER, SALESPERSON, OR 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 SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
History of the Company................ 12
Use of Proceeds....................... 12
Dividend Policy....................... 13
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Industry Overview..................... 22
Business.............................. 23
Management............................ 34
Certain Transactions.................. 38
Principal and Selling Shareholders.... 39
Description of Capital Stock.......... 40
Shares Eligible for Future Sale....... 41
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 44
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
2,230,000 SHARES
LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MORGAN KEEGAN & COMPANY, INC.
FURMAN SELZ
, 1997
======================================================
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee and the NASD filing fees.
<TABLE>
<CAPTION>
AMOUNT
TO
BE PAID
--------
<S> <C>
Registration fee.................................................. $ 10,880
NASD fee.......................................................... 4,090
Nasdaq listing and entry fee...................................... 35,000
Printing and engraving............................................ 75,000
Legal fees and expenses of the Company............................ 200,000
Accounting fees and expenses...................................... 175,000
Blue sky fees and expenses........................................ 6,000
Directors and officers liability insurance........................ 75,000
Transfer agent fees............................................... 6,000
Miscellaneous..................................................... 13,030
--------
TOTAL................................................... $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 16-10a-902 ("Section 902") of the Utah Revised Business Corporation
Act (the "Revised Act") provides that a corporation may indemnify any individual
who was, is, or is threatened to be made a named defendant or respondent (a
"Party") in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and whether formal or
informal (a "Proceeding"), because he is or was a director of the corporation
or, while a director of the corporation, is or was serving at its request as a
director, officer, partner, trustee, employee, fiduciary or agent of another
corporation or other person or of an employee benefit plan (an "Indemnified
Director"), against any obligation incurred with respect to a Proceeding,
including any judgment, settlement, penalty, fine or reasonable expenses
(including attorneys' fees), incurred in the Proceeding if his conduct was in
good faith, he reasonably believed that his conduct was in, or not opposed to,
the best interests of the corporation, and, in the case of any criminal
Proceeding, he had no reasonable cause to believe his conduct was unlawful;
except that (i) indemnification under Section 902 in connection with a
Proceeding by or in the right of the corporation is limited to payment of
reasonable expenses (including attorneys' fees) incurred in connection with the
Proceeding and (ii) the corporation may not indemnify a director in connection
with a Proceeding by or in the right of the corporation in which the director
was adjudged liable to the corporation, or in connection with any other
Proceeding charging that the director derived an improper personal benefit,
whether or not involving action in his official capacity, in which Proceeding he
was adjudged liable on the basis that he derived an improper personal benefit.
Section 16-10a-903 ("Section 903") of the Revised Act provides that, unless
limited by its articles of incorporation, a corporation shall indemnify a
director who was successful, on the merits or otherwise, in the defense of any
Proceeding, or in the defense of any claim, issue or matter in the proceeding,
to which he was a Party because he is or was a director of the corporation,
against reasonable expenses (including attorneys' fees) incurred by him in
connection with the Proceeding or claim with respect to which he has been
successful.
In addition to the indemnification provided by Sections 902 and 903,
Section 16-10a-905 ("Section 905") of the Revised Act provides that, unless
otherwise limited by a corporation's articles of
II-1
<PAGE> 67
incorporation, a director may apply for indemnification to the court conducting
the Proceeding or to another court of competent jurisdiction. On receipt of an
application and after giving any notice the court considers necessary, (i) the
court may order mandatory indemnification under Section 903, in which case the
court shall also order the corporation to pay the director's reasonable expenses
to obtain court-ordered indemnification, or (ii) upon the court's determination
that the director is fairly and reasonably entitled to indemnification in view
of all the relevant circumstances and regardless of whether the director met the
applicable standard of conduct set forth in Section 902, the court may order
indemnification as the court determines to be proper, except that
indemnification with respect to certain Proceedings resulting in a director
being found liable for certain actions against the corporation may be limited to
reasonable expenses (including attorneys' fees) incurred by the director.
Section 16-10a-904 ("Section 904") of the Revised Act provides that a
corporation may pay for or reimburse the reasonable expenses (including
attorneys' fees) incurred by a director who is a Party to a Proceeding in
advance of the final disposition of the Proceeding if (i) the director furnishes
the corporation a written affirmation of his good faith belief that he has met
the applicable standard of conduct described in Section 902, (ii) the director
furnishes to the corporation a written undertaking, executed personally or on
his behalf, to repay the advance if it is ultimately determined that he did not
meet the required standard of conduct, and (iii) a determination is made that
the facts then known to those making the determination would not preclude
indemnification under Section 904.
Section 16-10a-907 ("Section 907") of the Revised Act provides that, unless
a corporation's articles of incorporation provide otherwise, (i) an officer of
the corporation is entitled to mandatory indemnification under Section 903 and
is entitled to apply for court ordered indemnification under Section 905, in
each case to the same extent as a director, (ii) the corporation may indemnify
and advance expenses to an officer, employee, fiduciary or agent of the
corporation to the same extent as a director, and (iii) a corporation may also
indemnify and advance expenses to an officer, employee, fiduciary or agent who
is not a director to a greater extent than the right of indemnification granted
to directors, if not inconsistent with public policy, and if provided for by its
articles of incorporation, bylaws, general or specific action of its board of
directors or contract.
The Company's Bylaws provide that the Company may indemnify an individual
made a party to a proceeding because he is or was a director of the Company
against liability if the Company has authorized the indemnification pursuant to
(i) the majority vote of the Board of Directors of the Company present at a
meeting at which a quorum is present, with only those directors not party to the
proceeding being counted to satisfy the quorum, (ii) the majority vote of a
committee of the Board of Directors of the Company consisting of two or more
directors not party to the proceeding, (iii) where the procedure set forth in
clauses (i) and (ii) above cannot be satisfied, the majority vote of the full
Board of Directors of the Company, including any directors who are party to the
proceeding, or (iv) the majority vote of the shareholders of the Company. In
addition, a determination must be made in the same manner as described in the
preceding sentence, or by special legal counsel selected by the Board of
Directors of the Company or its committee, to the effect that the standard of
conduct set forth in Section 902 has been met.
The Bylaws also provide that the Company may pay for or reimburse in
advance of final disposition of any proceeding the reasonable expenses incurred
by an individual made a party to a proceeding because he is or was a director of
the Company if authorization of such payment is made in the same manner as
described in the first sentence of the preceding paragraph and a determination
is made in the same manner as described in the last sentence of the preceding
paragraph that (i) the individual has furnished to the Company a written
affirmation of his good faith belief that he has met the standard of conduct set
forth in Section 902, (ii) the individual has furnished to the Company a written
undertaking to repay the advance if it is ultimately determined that the
individual did not meet the standard of conduct set forth in Section 902, and
(iii) the facts then know to those making the determination would not preclude
indemnification under the Bylaws of the Company or Section 904.
The Bylaws of the Company also provide that the Company may indemnify and
advance expenses to any individual made a party to a proceeding because the
individual is or was an officer, employee, fiduciary, or
II-2
<PAGE> 68
agent of the Company to the same extent as to an individual made a party to a
proceeding because he is or was a director of the Company, or to a greater
extent, if not inconsistent with public policy, if provided for by general or
specific action of the Board of Directors of the Company.
The Company's Articles of Incorporation and Bylaws have similar provisions
providing that a director of the Company shall not be liable to the Company or
its shareholders for monetary damages for any action taken or any failure to
take any action as a director, except liability for (i) the amount of a
financial benefit received by a director to which he is not entitled, (ii) an
intentional infliction of harm on the Company or its shareholders, (iii) a
violation of Section 16-10a-842 of the Revised Act which prohibits unlawful
distributions by a corporation or its shareholders, or (iv) an intentional
violation of criminal law. Utah law permits director liability to be eliminated
to the extent liability for the items described in clauses (i) through (iv) of
the preceding sentence is preserved.
Reference is also made to the Underwriting Agreement filed herewith
pursuant to which the Underwriters have agreed to indemnify the Company and its
officers and directors against certain liabilities, including liabilities under
the Securities Act.
Indemnification may be granted pursuant to any other agreement, bylaw, or
vote of shareholders or directors. In addition to the foregoing, the Company
maintains insurance from commercial carriers against certain liabilities which
may be incurred by its directors and officers. The foregoing description is
necessarily general and does not describe all details regarding the
indemnification of officers, directors or controlling persons of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In January 1996, the Company issued 4,400,000 shares of Common Stock to
Harold R. Tate and 120,000 shares of Common Stock to each of Marshall L. Tate,
Marvin L. Friedland, Lauri Tate Franks, Darrell Tate, Troy Tate and Mia Tate in
exchange for their respective shares of Motor Cargo common stock. The Company
believes that the issuance of Common Stock to the foregoing persons, which did
not involve a public offering or sale of securities, was exempt from the
registration requirements of the Securities Act pursuant to the exemption from
registration afforded by Section 4(2) of the Securities Act. No underwriters,
brokers or finders were involved in this transaction.
Effective as of August 28, 1997, the Company issued 490,000 shares of
Common Stock to Harold R. Tate and 70,000 shares of Common Stock to each of
Marshall L. Tate, Marvin L. Friedland and Darrell Tate for their respective
interests in Ute Trucking and Leasing, LLC. The Company believes that the
issuance of the Common Stock to the foregoing persons, which did not involve a
public offering or sale of securities, was exempt from the registration
requirements of the Securities Act pursuant to the exemption from registration
afforded by Section 4(2) of the Securities Act. No underwriters, brokers or
finders were involved in this transaction.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation of the Company.**
3.2 Bylaws of the Company.**
4.1 Articles of Incorporation of the Company filed as Exhibit 3.1 to this
Registration Statement.**
4.2 Bylaws of the Company filed as Exhibit 3.2 to this Registration
Statement.**
4.3 Specimen certificate.*
5 Opinion of Van Cott, Bagley, Cornwall & McCarthy.*
</TABLE>
II-3
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------
<C> <S>
10.1 1997 Credit Agreement, dated September 30, 1997, between Motor Cargo and
Sanwa Bank California.*
10.2 1997 Stock Option Plan.**
10.3 Pension Plan of Employees of Motor Cargo and Trust Agreement.**
10.4 Motor Cargo Profit Sharing Plan.*
10.5 Restricted Stock Agreement, dated October 2, 1997, between the Company and
Louis V. Holdener.**
10.6 Agreement to Purchase and Sell Leasehold Interest dated October 2, 1990
between Leonard L. Gumport and Motor Cargo.**
10.7 Lease Agreement dated December 23, 1996 between Channing, Inc. and Motor
Cargo.**
10.8 Lease Agreement dated as of January 1, 1989 between Andrea Tacchino
Company and Motor Cargo.**
10.9 First Amendment to Lease dated March 1, 1990 between Andrea Tacchino
Company and Motor Cargo.**
10.10 Lease Agreement dated October 31, 1995 between Pete Aardema and Motor
Cargo.**
10.11 Lease Agreement dated September 29, 1995 among Colburn R. Thomason,
Michael Tolladay, Kevin Tweed and Motor Cargo.**
10.12 Form of Salary Continuation Agreement.**
10.13 Promissory Note dated July 29, 1994 in favor of General Electric Capital
Corporation.*
10.14 Promissory Note dated September 8, 1994 in favor of General Electric
Capital Corporation.*
10.15 Promissory Note dated May 7, 1996 in favor of Lease Plan U.S.A.*
10.16 Promissory Note dated August 16, 1993 in favor of Sanwa Bank.*
10.17 Contribution Agreement, dated August 28, 1997, between the Company and the
members of Ute Trucking and Leasing, LLC.**
10.18 Management Agreement between the Company and FHF Transportation, Inc.*
21 List of subsidiaries**
23.1 Consent of Grant Thornton LLP.*
23.2 Consent of Van Cott, Bagley, Cornwall & McCarthy (included in Exhibit 5).*
23.3 Consent of Robert Anderson to be named as a director.*
23.4 Consent of James Clayburn La Force, Jr. to be named as a director.*
24.1 Power of Attorney.**
27 Financial Data Schedule.*
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
II-4
<PAGE> 70
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the provisions set forth in Item 14, 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 Registrant
of expenses incurred or paid by a director, officer, or controlling person of
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, 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 of whether such indemnification by it
is against public policy as expressed in the Securities Act and the Registrant
will be governed by the final adjudication of such issue.
The 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.
The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 71
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 North Salt Lake, State of
Utah, on this 7th day of November, 1997.
MOTOR CARGO INDUSTRIES, INC.
By: /s/ MARSHALL L. TATE
------------------------------------
Marshall L. Tate
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on November 7,
1997 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
/s/ HAROLD R. TATE Chairman of the Board
- ---------------------------------------------
Harold R. Tate
/s/ MARSHALL L. TATE President and Chief Executive Officer and
- --------------------------------------------- Director
Marshall L. Tate (principal executive officer)
/s/ LYNN H. WHEELER Vice President, Finance and Chief Financial
- --------------------------------------------- Officer
Lynn H. Wheeler (principal financial and accounting officer)
/s/ MARVIN L. FRIEDLAND Director
- ---------------------------------------------
Marvin L. Friedland
</TABLE>
II-6
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER PAGE
- ------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*.........................................
3.1 Articles of Incorporation of the Company**..............................
3.2 Bylaws of the Company**.................................................
4.1 Articles of Incorporation of the Company filed as Exhibit 3.1 to this
Registration Statement**................................................
4.2 Bylaws of the Company filed as Exhibit 3.2 to this Registration
Statement**.............................................................
4.3 Specimen certificate*...................................................
5 Opinion of Van Cott, Bagley, Cornwall & McCarthy*.......................
10.1 1997 Credit Agreement, dated September 30, 1997, between Motor Cargo and
Sanwa Bank California*..................................................
10.2 1997 Stock Option Plan**................................................
10.3 Pension Plan of Employees of Motor Cargo and Trust Agreement**..........
10.4 Motor Cargo Profit Sharing Plan*........................................
10.5 Restricted Stock Agreement, dated October 2, 1997, between the Company
and Louis V. Holdener**.................................................
10.6 Agreement to Purchase and Sell Leasehold Interest dated October 2, 1990
between Leonard L. Gumport and Motor Cargo**............................
10.7 Lease Agreement dated December 23, 1996 between Channing, Inc. and Motor
Cargo**.................................................................
10.8 Lease Agreement dated as of January 1, 1989 between Andrea Tacchino
Company and Motor Cargo**...............................................
10.9 First Amendment to Lease dated March 1, 1990 between Andrea Tacchino
Company and Motor Cargo**...............................................
10.10 Lease Agreement dated October 31, 1995 between Pete Aardema and Motor
Cargo**.................................................................
10.11 Lease Agreement dated September 29, 1995 among Colburn R. Thomason,
Michael Tolladay, Kevin Tweed and Motor Cargo**.........................
10.12 Form of Salary Continuation Agreement**.................................
10.13 Promissory Note dated July 29, 1994 in favor of General Electric Capital
Corporation*............................................................
10.14 Promissory Note dated September 8, 1994 in favor of General Electric
Capital Corporation*....................................................
10.15 Promissory Note dated May 7, 1996 in favor of Lease Plan U.S.A*.........
10.16 Promissory Note dated August 16, 1993 in favor of Sanwa Bank*...........
10.17 Contribution Agreement, dated August 28, 1997, between the Company and
the members of Ute Trucking and Leasing, LLC**..........................
10.18 Management Agreement between the Company and FHF Transportation, Inc*...
21 List of subsidiaries**..................................................
23.1 Consent of Grant Thornton LLP*..........................................
23.2 Consent of Van Cott, Bagley, Cornwall & McCarthy (included in Exhibit
5)*.....................................................................
23.3 Consent of Robert Anderson to be named as a director*...................
23.4 Consent of James Clayburn La Force, Jr. to be named as a director*......
24.1 Power of Attorney**.....................................................
27 Financial Data Schedule*................................................
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
MOTOR CARGO INDUSTRIES, INC.
2,230,000 SHARES
COMMON STOCK
(NO PAR VALUE)
UNDERWRITING AGREEMENT
____________, 1997
Morgan Keegan & Company, Inc.
Furman Selz LLC
As Representatives of the
Underwriters
Morgan Keegan & Company, Inc.
50 Front Street
Memphis, TN 38103
Dear Sirs:
Motor Cargo Industries, Inc., a Utah corporation (the "Company"), Harold
R. Tate, Marshall L. Tate, Marvin L. Friedland, Lauri Tate Franks, Darrell Tate,
Troy Tate and Mia Tate (collectively, the "Selling Shareholders") propose to
sell to the several underwriters named in Schedule I (collectively, the
"Underwriters") an aggregate of 2,230,000 shares of the Company's common stock,
no par value per share (the "Common Stock"), as set forth in Schedule I hereto
(such 2,230,000 shares are herein referred to as the "Firm Shares"). The Firm
Shares are to be sold to each Underwriter, acting severally and not jointly, in
such amounts as are set forth in Schedule I opposite the name of such
Underwriter.
Solely for the purpose of covering overallotments in the sale of the
Firm Shares, the Company and certain of the Selling Shareholders further propose
to grant pro rata the right to said Underwriters to purchase up to an additional
334,500 shares of the Common Stock (the "Option Shares") identical to the Firm
Shares. The Firm Shares and Option Shares are herein sometimes referred to as
the "Shares." The Company operates five wholly-owned subsidiaries, Motor Cargo,
a Utah corporation, MC Distribution Services, Inc., a Utah corporation,
Interstate Commerce Collections, Inc., a Utah corporation, MC Leasing, Inc., a
Utah corporation and Ute Trucking and Leasing, L.L.C., a Utah limited liability
company (collectively, the "Subsidiaries"). The "Company" refers to Motor Cargo
Industries, Inc. and the Subsidiaries, unless the context clearly indicates
otherwise.
Section 1. Representations and Warranties of the Company, the
Subsidiaries and Tate. The Company, the Subsidiaries and Harold R. Tate ("Tate")
represent and warrant to and agree with each of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-37211) with
respect to the Shares, including a preliminary form of prospectus, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "1933 Act"), and the applicable rules and
regulations (the "1933 Act Regulations") of the Securities and Exchange
Commission (the "Commission") and has been filed with the Commission; and such
amendments to such registration statement as may have been required, if any,
prior to the date hereof have been filed with the Commission, and such
amendments have been similarly prepared. Copies of the Registration Statement
and amendment or amendments and of each related preliminary prospectus, and the
exhibits, financial statements and schedules, as finally amended and revised,
have been delivered to you. The Company has prepared in the same manner, and
proposes so to file with the Commission, one of the following: (i) prior to
effectiveness of such registration statement, a further amendment thereto,
including the form of final prospectus, or (ii) a final prospectus in accordance
with Rules 430A and 424(b) of the 1933 Act Regulations. As filed, such amendment
and form of final prospectus, or such final prospectus, shall include all Rule
430A Information (as defined below) and, except to the extent that you shall
agree in writing to a modification, shall be in all respects in the form
furnished to you prior to the date
<PAGE> 2
and time that this Agreement was executed and delivered by the parties hereto,
or, to the extent not completed at such date and time, shall contain only such
specific additional information and other changes (beyond that contained in the
latest preliminary prospectus) as the Company shall have previously advised you
in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Time (as hereinafter defined), shall also mean
such registration statement as so amended; provided, however, that such term
shall also include all Rule 430A Information deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the 1933 Act Regulations. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration Statement
at the time it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares in the form in which it is first filed with the Commission pursuant to
Rule 424(b) of the 1933 Act Regulations or, if no filing pursuant to Rule 424(b)
of the 1933 Act Regulations is required, shall mean the form of final prospectus
included in the Registration Statement at the time the Registration Statement
becomes effective. The term "Rule 430A Information" means information with
respect to the Shares and the offering thereof permitted pursuant to Rule 430A
of the 1933 Act Regulations to be omitted from the Registration Statement when
it becomes effective.
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission and no proceedings for that purpose
have been instituted or to the best of our knowledge threatened by the
Commission or the state securities authority of any jurisdiction, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the 1933 Act and the 1933 Act Regulations and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty shall not
apply to untrue statements or omissions of material facts to the extent they are
corrected in the Prospectus, or to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company by
an Underwriter expressly for use in the Registration Statement.
(c) When the Registration Statement shall become effective, when the
Prospectus is first filed pursuant to Rule 424(b) of the 1933 Act Regulations,
when any amendment to the Registration Statement becomes effective, and when any
supplement to the Prospectus is filed with the Commission, and at each Date of
Delivery (as defined in Section 3), (i) the Registration Statement, the
Prospectus and any amendments thereof and supplements thereto will conform in
all material respects with the applicable requirements of the 1933 Act and the
1933 Act Regulations and (ii) neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto, will contain any untrue
statement of a 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; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter expressly
for use in the Registration Statement.
(d) The Company and the Subsidiaries have been duly incorporated or
organized and each is validly existing as a corporation or limited liability
company in good standing under the laws of its respective state of incorporation
or organization with all requisite corporate power and authority to own, lease
and license their respective properties and to conduct their respective business
as now conducted and as described in the Registration Statement and the
Prospectus, and each has been duly qualified to do business and is in good
standing as a foreign corporation in each other jurisdiction in which the
ownership or leasing of its properties or the nature or conduct of its business
requires such qualification, and where the failure to do so would have a
material adverse effect on the Company and the Subsidiaries taken as a whole.
The Company does not own or control, directly or indirectly, any corporation,
association or other entity, other than the Subsidiaries.
(e) The Company has full legal right, power and authority to enter into
this Agreement, to issue, sell and deliver the Shares as provided herein, and to
consummate the transactions contemplated herein. This Agreement has been duly
authorized, executed and delivered by the Company and constitutes the valid and
binding agreement of the
<PAGE> 3
Company, enforceable against the Company in accordance with its terms, except to
the extent that the indemnification provisions set forth in Section 9 of this
Agreement may be limited by applicable law or equitable principles, and except
as enforceability may be limited by bankruptcy, reorganization, moratorium or
similar laws affecting the enforceability of creditors' rights generally and
rules of law governing specific performance, injunctive relief and other
equitable remedies. Each consent, approval, authorization, order, designation or
filing by or with any governmental agency or body necessary for the valid
authorization, issuance, sale and delivery of the Shares, the execution,
delivery and performance of this Agreement by the Company, and the consummation
by the Company and Tate of the transactions contemplated hereby, has been made
or obtained and is in full force and effect, except such as may be necessary to
make the Registration Statement effective (and maintain it as effective) under
the 1933 Act and to qualify the Shares for public offering by you under state
securities or "blue sky" laws or by the National Association of Securities
Dealers, Inc. ("NASD") in connection with the purchase and distribution of the
Shares by the Underwriters. Neither the issuance, sale and delivery of the
Shares nor the execution, delivery and performance of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby will result in a breach or violation of any of the terms and provisions
of, or constitute a default by the Company, or the Subsidiaries, under the
Articles of Incorporation or Bylaws or the Articles of Organization or Operating
Agreement of the Company or the Subsidiaries, or will result in a breach or
violation of any of the terms or provisions of, or constitute default by the
Company, the Subsidiaries or Tate under, any indenture, mortgage, deed of trust,
loan agreement, note, lease or other agreement or instrument to which the
Company, the Subsidiaries or Tate is a party or to which it or he or its or his
properties is subject, or of any statute, judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to the
Company, the Subsidiaries or Tate or any of their respective properties.
(f) The Company has common stock issued and outstanding as set forth in
the Registration Statement. The Company has no other issued and outstanding
capital stock. The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
as of the date therein; all the issued and outstanding shares of capital stock
of the Company, including the Shares to be sold by the Selling Shareholders,
have been duly authorized and validly issued, are fully paid and nonassessable
and conform to the description of the Common Stock contained in the Prospectus
and the rights set forth in the instruments defining the same; the Shares to be
sold by the Company and the Selling Shareholders when issued and delivered by
the Company and the Selling Shareholders, and paid for pursuant to this
Agreement, will be validly issued, fully paid and nonassessable and will conform
in all material respects to the description thereof contained in the Prospectus.
No preemptive rights of shareholders exist with respect to the Shares. No person
or entity holds a right to require or participate in the registration under the
1933 Act of the Shares and no person holds a right to require registration under
the 1933 Act of any shares of Common Stock of the Company at any other time. No
person or entity has a right of participation or first refusal with respect to
the sale of the Shares by the Company. None of the issued shares of capital
stock of the Company has been issued in violation of any preemptive or similar
rights; all shares of Common Stock of the Company subject to outstanding options
or warrants have been duly authorized and reserved for issuance, and, when
issued in accordance with the terms of the applicable option or warrant, will be
validly issued, fully paid and nonassessable and will not be issued in violation
of any preemptive rights (contractual or other); there is no outstanding option,
warrant or other right calling for the issuance of and no commitment, plan or
arrangement to issue, any share of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the Company, except as is
disclosed in the Registration Statement and the Prospectus.
(g) The financial statements of the Company (including the related notes
and schedules) included in the Registration Statement and the Prospectus present
fairly the financial position of the Company as of the dates indicated and the
results of its operations and its cash flows for the periods specified, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved. The supporting schedules included in the
Registration Statement and the amounts in the Prospectus under the captions
"Prospectus Summary -- Summary Consolidated Financial and Operating Data" and
"Selected Consolidated Financial Data" are accurately computed, fairly present
the information shown therein and, to the extent derived therefrom, have been
determined on a basis consistent with the financial statements included in the
Registration Statement and the Prospectus. No other financial statements or
schedules are required by Form S-1 or otherwise to be included in the
Registration Statement, the Prospectus or any Preliminary Prospectus.
<PAGE> 4
(h) To the Company's knowledge, Grant Thornton LLP, which has examined
and is reporting upon the audited financial statements and schedules included in
the Registration Statement, are, and were during the periods covered by their
reports included in the Registration Statement and Prospectus, independent
public accountants with respect to the Company and the Subsidiaries within the
meaning of the 1933 Act and the 1933 Act Regulations.
(i) Neither the Company nor the Subsidiaries has sustained, since
December 31, 1996, any material loss or interference with its business from
fire, explosion, flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or arbitrators' or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus, and
except as otherwise stated in the Registration Statement and Prospectus, there
has not been (i) any material change in the capital stock, long-term debt,
obligations under capital leases or short-term borrowings of the Company or the
Subsidiaries; (ii) any material adverse change, or any development which could
reasonably be seen as involving a prospective material adverse change, in or
affecting the business, prospects, properties, assets, results of operations or
condition (financial or other) of the Company or the Subsidiaries; (iii) any
liability or obligation, direct or contingent, incurred or undertaken by the
Company or the Subsidiaries which is material to the business or condition
(financial or other) of the Company or the Subsidiaries, except for liabilities
or obligations incurred in the ordinary course of business; (iv) any declaration
or payment of any dividend or distribution of any kind on or with respect to the
capital stock of the Company; or (v) any transaction that is material to the
Company or the Subsidiaries, except transactions in the ordinary course of
business.
(j) Neither the Company nor the Subsidiaries is in violation of its
Articles of Incorporation or Bylaws or Articles of Organization or Operating
Agreement; and, as of the date hereof, no material default exists, and no
material event has occurred, nor state of facts exists, which, with notice or
after the lapse of time to cure or both, would constitute a material default on
the part of the Company or the Subsidiaries in the due performance and
observance of any obligation, agreement, covenant, consideration or condition
contained in any indenture, mortgage, deed of trust, loan agreement, note, lease
or other agreement or instrument to which the Company or the Subsidiaries are a
party or by which they or any of their properties are subject, and no violation
on the part of the Company or the Subsidiaries exists of any law, order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign, in any such case where the
consequences of such violation or default is likely to materially adversely
affect the assets, properties, results of operation, financial condition or
business prospects of the Company or the Subsidiaries.
(k) Except as otherwise disclosed in the Prospectus, (i) neither the
Company nor the Subsidiaries has authorized nor conducted nor has knowledge of
the generation, transportation, storage, presence, use, treatment, disposal,
release or handling of (in an amount or of a type that has been or must be
reported to any governmental agency, violates any Environmental Law (as defined
below), or has required or could require remediation expenditures) any hazardous
substance, asbestos, radon, polychlorinated biphenyls ("PCBs"), petroleum
product or waste (including crude oil or any fraction thereof), natural gas,
liquefied gas, synthetic gas or other material defined, regulated, controlled or
potentially subject to any remediation requirement under any Environmental Law
(collectively, "Hazardous Materials"), on, in or under any real property owned,
leased or by any means controlled by the Company or the Subsidiaries, (ii) the
Company and the Subsidiaries are in compliance with all federal, state and local
laws, ordinances, rules, regulations and other governmental requirements
relating to pollution, control of chemicals, management of waste, discharges of
materials into the environment, health, safety, natural resources, and the
environment (collectively, "Environmental Laws"), and (iii) the Company and the
Subsidiaries have, and are in compliance with, all material licenses, permits,
registrations and government authorizations necessary to operate under all
applicable Environmental Laws. Except as otherwise disclosed in the Prospectus,
neither the Company nor the Subsidiaries has received any written or oral notice
from any governmental entity or any other person and there is no pending or to
the best of their knowledge threatened claim, litigation or any administrative
agency proceeding that: alleges that a violation of any Environmental Laws by
the Company or the Subsidiaries; alleges the Company or the Subsidiaries is a
liable party or a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601, et
seq., or any state superfund law; has resulted in or could result in the
attachment of an environmental lien on any real property owned, leased or
controlled by the Company or the Subsidiaries; or alleges the occurrence of
contamination of any of such real property, damage to natural resources,
property damage, or personal injury based on their activities or the
<PAGE> 5
activities of their predecessors or third parties (whether at such real property
or elsewhere) involving Hazardous Materials, whether arising under the
Environmental Laws, common law principles, or other legal standards.
(l) The Company and the Subsidiaries have good and marketable title to
all real property owned by them, free and clear of all liens, encumbrances,
claims, security interests, restrictions and defects except such as are
reflected in the Prospectus. Each parcel of real property owned, leased or
controlled by the Company and the Subsidiaries and each improvement thereon
complies with all applicable codes, laws and regulations (including, without
limitation, building and zoning codes, laws and regulations and laws relating to
access to facilities located on such real property) except if and to the extent
disclosed in the Prospectus and except for such failures to comply that would
not individually or in the aggregate have a material adverse impact on the
assets, properties, results of operation, financial condition or business
prospects of the Company or the Subsidiaries. Neither the Company, the
Subsidiaries nor Tate has knowledge of any pending or threatened condemnation
proceedings, zoning change, or other proceeding or action that will in any
manner affect the size of, use of, improvements on, construction on or access to
such real property and improvements, except such proceedings or actions that
would not have a material adverse effect on the assets, properties, results of
operation, financial condition or business prospects of the Company or the
Subsidiaries.
(m) Any real property and buildings held under lease by the Company or
the Subsidiaries are held by the Company or the Subsidiaries under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere in any material respect with the use made and proposed to be
made of such property and buildings by the Company or the Subsidiaries; such
leases conform in material respects to the description thereof, if any, set
forth in the Registration Statement; and no notice has been given or material
claim asserted by anyone adverse to the rights of the Company or the
Subsidiaries under any of the leases or affecting the rights of the Company or
the Subsidiaries to the continued possession of the leased property.
(n) Except as described in the Prospectus, there is not pending or, to
the best of the Company's, the Subsidiaries' and Tate's knowledge threatened,
any action, suit, proceeding, inquiry or investigation, against the Company, any
of the Subsidiaries or any of their respective officers, directors or
significant shareholders or to which the properties, assets or rights of the
Company or Subsidiaries are subject, before or brought by any court or
governmental agency or body or board of arbitrators, which could result in any
material adverse change in the assets, properties, results of operation,
financial condition or business prospects of the Company or the Subsidiaries, or
which could adversely affect the consummation of the transactions contemplated
by this Agreement.
(o) There are no contracts or other documents required by the 1933 Act
or the 1933 Act Regulations to be described in or incorporated by reference into
the Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which have not been so accurately described in all
material respects or incorporated or filed as required. The agreements to which
the Company and the Subsidiaries are parties described in the Registration
Statement and the Prospectus are valid and enforceable in all material respects
by the Company or the Subsidiaries, and, to the best of the Company's,
Subsidiaries' and Selling Shareholder's knowledge, the other contracting party
or parties thereto are not in material breach or default under any of such
agreements.
(p) The Company and the Subsidiaries own, possess or have obtained all
material permits, licenses, franchises, certificates, consents, orders,
approvals and other authorizations of governmental or regulatory authorities as
are necessary to own or lease, as the case may be, and to operate its properties
and to carry on their business as presently conducted. Neither the Company nor
the Subsidiaries has received any notice of proceedings relating to revocation
or modification of any such licenses, permits, certificates, consents, orders,
approvals or authorizations which revocation or modification could materially
and adversely affect the assets, properties, results of operation, financial
condition or business prospects of the Company or the Subsidiaries.
(q) The Company and the Subsidiaries own or possess appropriate licenses
or other rights to use all patents, trademarks, service marks, trade names,
copyrights, software and design licenses, trade secrets, manufacturing
processes, other intangible property rights and know-how (collectively
"Intangibles") necessary to entitle the Company and the Subsidiaries to conduct
their business as now conducted, and as proposed to be conducted or operated as
described in the Prospectus, and neither the Company nor the Subsidiaries has
received any notice of infringement of or conflict with (and knows of no such
infringement of or conflict with) asserted rights of others with respect to any
<PAGE> 6
Intangibles which could materially and adversely affect the assets, properties,
results of operation, financial condition or business prospects of the Company
or the Subsidiaries.
(r) The systems of internal accounting controls utilized by the Company
and the Subsidiaries are sufficient to meet the objectives of internal
accounting control insofar as those objectives pertain to the prevention or
detection of errors or irregularities in amounts that would be material in
relation to the Company's financial statements; and, neither the Company, the
Subsidiaries nor any employee or agent of the Company or the Subsidiaries (i)
has made any payment of funds of the Company or the Subsidiaries, (ii) received
or retained any such funds or (iii) set aside funds of the Company or the
Subsidiaries to be used for any payment in violation of any law, rule or
regulation.
(s) The Company and the Subsidiaries have filed on a timely basis all
federal, state, local and foreign income and franchise tax returns required to
be filed through the date hereof and have paid all taxes shown as due thereon;
and no tax deficiency, has been asserted against the Company or the
Subsidiaries, nor does the Company, the Subsidiaries or Tate know of any tax
deficiency which is likely to be asserted against the Company or the
Subsidiaries which if determined adversely to the Company or the Subsidiaries
could materially adversely affect the assets, properties, results of operation,
financial condition or business prospects of the Company or the Subsidiaries.
All tax liabilities are adequately provided for on the books of the Company and
the Subsidiaries.
(t) Except as disclosed in the Prospectus, the Company and the
Subsidiaries maintain insurance of the types and in the amounts generally deemed
adequate for their businesses and, to the best of the Company's, Subsidiaries'
and Tate's knowledge, consistent with insurance coverage maintained by similar
companies in similar businesses, including, but not limited to, insurance
covering real and personal property owned or leased by the Company and the
Subsidiaries against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, and casualty and liability insurance covering
the Company's and the Subsidiaries' operations, all of which insurance is in
full force and effect.
(u) Except as disclosed in the Prospectus; no labor problem exists with
the Company's or the Subsidiaries' employees or, to the best of the Company's,
Subsidiaries' and Tate's knowledge, is threatened or imminent that could
materially adversely affect the Company or the Subsidiaries, and neither the
Company nor the Subsidiaries is aware of any existing, threatened or imminent
labor disturbance by the employees of any of their principal suppliers,
contractors or customers that could be expected to materially adversely affect
the business, prospects, properties, assets, results of operation or condition
(financial or other) of the Company or the Subsidiaries.
(v) The Company has obtained the agreement of each of its shareholders
that, for a period of 180 days from the date on which the Registration Statement
becomes effective such persons will not, without your prior written consent,
directly or indirectly sell, offer to sell, grant any option for the sale of, or
otherwise dispose of any shares of the Common Stock (including, without
limitation, shares of the Common Stock which may be deemed to be beneficially
owned by such person in accordance with the Securities Exchange Act of 1934
Regulations); provided that during such period such persons may make gifts of
shares of Common Stock upon the condition that the donees agree to be bound by
the foregoing restriction in the same manner as it applies to such persons.
(w) Neither the Company nor any of its officers, directors, shareholders
or affiliates has taken or will take, directly or indirectly, any action
designed to, or that might be reasonably expected to, cause or result in or
constitute, the stabilization or manipulation of the price of the Shares to
facilitate the sale or resale of the Shares.
(x) The Common Stock has been registered pursuant to Section 12(g) of
the 1934 Act and the Shares have been approved for listing on The Nasdaq Stock
Market (National Market) (the "NSM"), subject to official notice of issuance.
(y) The Company, the Subsidiaries and Tate have participated in the
preparation of the Registration Statement and Prospectus and no facts have come
to the attention of the Company, the Subsidiaries or Tate which lead it or him
to believe that the Registration Statement or the Prospectus, or any amendment
thereto, as of their respective effective or filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
<PAGE> 7
(z) Neither the Company, the Subsidiaries nor Tate has incurred any
liability for a fee, commission or other compensation on account of the
employment of a broker or finder in connection with the transactions
contemplated by this Agreement other than as contemplated hereby.
Any certificate signed by any duly authorized officer of the Company and
Tate, respectively, and delivered to you or to counsel for the Underwriters
shall be deemed a representation and warranty by the Company, the Subsidiaries
and Tate, respectively, to each Underwriter as to the matters covered thereby.
Section 2. Representations and Warranties of the Selling Shareholders.
Each of the Selling Shareholders, severally and not jointly, represents and
warrants to each Underwriter and agrees that:
(a) The Selling Shareholder has all right, power and authority necessary
to execute and deliver this Agreement, to sell and deliver the Shares to be sold
by him or her hereunder and to perform all other obligations under this
Agreement; the execution, delivery and performance of this Agreement by the
Selling Shareholder will not conflict with, result in the creation or imposition
of any lien, charge or encumbrance upon any of the Shares to be sold by the
Selling Shareholder pursuant to the terms of, or constitute a default under, any
agreement or other instrument, or any order, rule or regulation of any court or
governmental agency having jurisdiction over the Selling Shareholder, or the
Selling Shareholder's Properties; and except as required by the 1933 Act and
applicable state securities laws, no consent, authorization or order of, or
filing or registration with, any court or governmental agency is required (or,
if required, has been obtained) for the execution, delivery and performance of
this Agreement by the Selling Shareholder.
(b) At the Closing Time, the Selling Shareholder will have good title to
the Shares being sold by him or her hereunder; such Shares are, and at the
Closing Time will be, validly authorized, issued and outstanding, fully paid and
nonassessable Common Stock of the Company with no personal liability attaching
to the ownership thereof; and upon the delivery of and payment for such Shares
as contemplated herein, the Underwriters will receive good title to the Shares
purchased by them, respectively, from such Selling Shareholder, free and clear
of any and all liens, encumbrances, security interests and adverse claims.
(c) Without the prior written consent of the Underwriters, the Selling
Shareholder and any affiliate controlled by him or her (other than the Company)
will not sell or offer or contract to sell, except to the Underwriters pursuant
to this Agreement, any securities of the Company which he or she beneficially
owns within 180 days after the effective date of the Registration Statement; the
Selling Shareholder has not taken, and agrees that he or she will not take,
directly or indirectly, any action which might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock of
the Company.
(d) Except as set forth in the Prospectus, the Selling Shareholder is
disposing of his or her Shares hereunder for his or her own account and is not
selling such Shares, directly or indirectly, for the benefit of the Company or
the Underwriters.
(e) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity with
written information furnished to the Company by the Selling Shareholder
expressly for use therein, such Preliminary Prospectus, did, and the
Registration Statement and the Prospectus and any amendment or supplement
thereto will, when they become effective or are filed with the Commission, as
the case may be, conform in all material respects to the requirements of the
1933 Act and the 1933 Act Regulations and will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(f) The sale of the Shares by the Selling Shareholder pursuant to this
Agreement is not prompted by any material information concerning the Company
which is not set forth in the Prospectus.
Section 3. Sale and Delivery of Shares to the Underwriters; Closing.
(a) On the basis of the representations and warranties herein contained,
and subject to the terms and conditions herein set forth, the Company and each
of the Selling Shareholders, for himself or herself individually and not
jointly,
<PAGE> 8
agrees to sell the number of Firm Shares set forth in Schedule II hereto
opposite the name of the Company or such Selling Shareholder, as the case may
be, to the Underwriters named in Schedule I hereto, and each such Underwriter
agrees, severally and not jointly, to purchase from the Company and the Selling
Shareholders, at a purchase price of $______ per share, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto.
(b) On the basis of the representations and warranties herein contained,
and subject to the terms and conditions herein set forth, the Company and the
Selling Shareholders listed on Schedule II, attached hereto (the "Option
Shareholders") hereby grant an option to the Underwriters, severally and not
jointly, to purchase up to an additional 334,500 Option Shares in the aggregate,
in the amounts set forth opposite each of the Option Shareholder's name on
Schedule II attached hereto, on the same terms and conditions as the Firm
Shares. The option hereby granted will expire if not exercised within the 30 day
period after the first date on which the Firm Shares are released by you for
sale to the public, by giving written notice to the Company. The option granted
hereby may be exercised, in whole or in part (but not more than once), only for
the purpose of covering the over-allotments that may be made in connection with
the offering and distribution of the Firm Shares. In the event such option is
exercised in part, such Option Shares shall be allocated among the Option
Shareholders excluding Tate in accordance with the percentages set forth
opposite their names on Schedule II hereto, adjusted by you in such manner as to
avoid fractional shares. To the extent that any partial exercise of the option
exceeds the number of Option Shares offered by the Option Shareholders excluding
Tate, then such excess Option Shares shall be allocated among Tate and the
Company in accordance with the percentages set forth opposite their names on
Schedule II hereto, adjusted by you in such manner as to avoid fractional shares
. The notice of exercise shall set forth the number of Option Shares as to which
the several Underwriters are exercising the option, and the time and date of
payment and delivery thereof. Such time and date of delivery (the "Date of
Delivery") shall be determined by you but shall not be earlier than the second
business day after the date on which the notice of the exercise of the option
shall have been given nor later than seven full business days after the exercise
of such option, nor in any event prior to the Closing Time. If the option is
exercised as to all or any portion of the Option Shares, the Option Shares as to
which the option is exercised shall be purchased by the Underwriters, severally
and not jointly, in their respective underwriting obligation proportions.
(c) Payment of the purchase price for and delivery of the Firm Shares
shall be made at the offices of Morgan Keegan & Company, Inc., 50 Front Street,
Memphis, Tennessee 38103 or at such other place as shall be agreed upon by the
Company, the Selling Shareholder and you, at 10:00 A.M., either (i) on the
fourth full business day after the effective date of the Registration Statement,
or (ii) at such other time not more than ten full business days thereafter as
you, the Selling Shareholder and the Company shall determine (unless, in either
case, postponed pursuant to Section 12) (such date and time of payment and
delivery being herein called the "Closing Time"). In addition, in the event that
any or all of the Option Shares are purchased by the Underwriters, payment of
the purchase price for and delivery of the Option Shares shall be made at the
offices of Morgan Keegan & Company, Inc. in the manner set forth above, or at
such other place as the Company, certain Selling Shareholders and you shall
determine, on the Date of Delivery as specified in the notice from you to the
Company and the Selling Shareholders. Payment for the Firm Shares and the Option
Shares shall be made to the Company in same day funds via wire transfer to the
order of the Company and "____________________, as Custodian" against delivery
of certificates therefor, against delivery to you for the respective accounts of
the Underwriters of the Shares to be purchased by them.
(d) The Shares to be purchased by the Underwriters shall be in such
denominations and registered in such names as you may request in writing at
least three full business days before the Closing Time or the Date of Delivery,
as the case may be. The Shares will be made available at the offices of Morgan
Keegan & Company, Inc. or at such other place as Morgan Keegan & Company, Inc.
may designate for examination and packaging not later than 10:00 A.M. at least
two full business days prior to the Closing Time or the Date of Delivery, as the
case may be.
(e) After the Registration Statement becomes effective, you intend to
offer the Shares to the public as set forth in the Prospectus, but after the
initial public offering of such Shares, you may from time to time increase or
decrease the public offering price, in your sole discretion, by reason of
changes in general market condition or otherwise.
Section 4. Certain Covenants of the Company. The Company covenants and
agrees with each Underwriter as follows:
<PAGE> 9
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (if not yet effective at the date and time that
this Agreement is executed and delivered by the parties hereto). If the Company
elects to rely upon Rule 430A of the 1933 Act Regulations or the filing of the
Prospectus is otherwise required under Rule 424(b) of the 1933 Act Regulations,
and subject to the provisions of Section 3(b) of this Agreement, the Company
will comply with the requirements of Rule 430A and will file the Prospectus,
properly completed, pursuant to the applicable provisions of Rule 424(b) within
the time period prescribed, and will notify you immediately, and confirm the
notice in writing, (i) when the Registration statement, or any post-effective
amendment to the Registration Statement, shall have become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been filed,
(ii) of the receipt of any comments from the Commission, (iii) of any request by
the Commission to amend the Registration Statement or amend or supplement the
Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any Preliminary
Prospectus, or of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, or of the institution or threatening of any
proceedings for any of such purposes. The Company will use every reasonable
effort to prevent the issuance of any such stop order or of any order preventing
or suspending such use and, if any such order is issued, to obtain the
withdrawal thereof at the earliest possible moment.
(b) The Company will not at any time file or make any amendment to the
Registration Statement or any amendment or supplement to the Prospectus (i) if
the Company has not elected to rely upon Rule 430A, or (ii) if the Company has
elected to rely upon Rule 430A, to either the prospectus included in the
Registration Statement at the time it becomes effective or to the Prospectus
filed in accordance with Rule 424(b), in either case if you shall not have
previously been advised and furnished a copy thereof a reasonable time prior to
the proposed filing, or if you or counsel for the Underwriters shall reasonably
object to such amendment or supplement.
(c) The Company has furnished or will furnish to you, at its expense, as
soon as available, two signed copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or after the
Registration Statement becomes effective, copies of all exhibits and documents
filed therewith and signed copies of all consents and certificates of experts
and has furnished or will furnish to each Underwriter, as many conformed copies
of the Registration Statement as originally filed and of each amendment thereto
as you may reasonably request (but without exhibits).
(d) The Company will deliver to each Underwriter, at its expense, from
time to time, as many copies of each Preliminary Prospectus as such Underwriter
may reasonably request, and the Company hereby consents to the use of such
copies for purposes permitted by the 1933 Act. The Company will deliver to each
Underwriter, at the Company's expense, as soon as the Registration Statement
shall have become effective, and thereafter from time to time as requested
during the period when the Prospectus is required to be delivered under the 1933
Act, such number of copies of the Prospectus (as supplemented or amended) as
each Underwriter may reasonably request. In case you are required to deliver a
prospectus within the nine-month period referred to in Section 10(a)(3) of the
1933 Act in connection with the sale of the Shares, the Company will prepare
promptly upon request, but at the expense of the Underwriters, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the 1933 Act.
(e) The Company will comply to the best of its ability with the 1933 Act
and the 1933 Act Regulations so as to permit the completion of the distribution
of the Shares as contemplated in this Agreement and in the Prospectus. If, at
any time when a Prospectus is required by the 1933 Act to be delivered in
connection with sales of the Shares, any event shall occur or condition exist as
a result of which it is necessary, in the opinion of counsel for the
Underwriters or counsel for the Company, to amend the Registration Statement or
amend or supplement the Prospectus in order that the Prospectus will not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of either such counsel, at any such time to
amend the Registration Statement or amend or supplement the Prospectus in order
to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the
Company will promptly prepare and file with the Commission, subject to the
provisions of Section 4(b), such amendment or supplement as may be necessary to
correct such untrue statement or omission or to make the Registration Statement
or the Prospectus comply with such requirements.
<PAGE> 10
(f) The Company will use its best efforts, in cooperation with you, to
qualify the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions as you may designate and to maintain such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation in any jurisdiction in which it is not otherwise so subject.
The Company will file such statements and reports as may be required by the laws
of each jurisdiction in which the Shares have been qualified as above provided.
(g) The Company will use the net proceeds received by it from the sale
of the Shares in the manner specified in the Prospectus under the caption "Use
of Proceeds."
(h) During a period of five years from the date hereof, the Company will
furnish to its shareholders, as soon as practicable after the end of each
respective period, annual reports (including financial statements audited by
independent public accountants) and unaudited quarterly reports of operations
for each of the first three quarters of the fiscal year, and will furnish to
you: (i) concurrently with furnishing such reports to its shareholders,
statements of operations of the Company for each of the first three quarters in
the form furnished to the Company's shareholders; (ii) concurrently with
furnishing such reports to its shareholders, a balance sheet of the Company as
of the end of such fiscal year, together with statements of operations, of cash
flows and of shareholders' equity of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent public
accountants; (iii) as soon as they are available, copies of all reports
(financial or otherwise) mailed to shareholders; (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the NASD; (v) concurrently with
its release, every material press release in respect of the Company or its
affairs which is released or prepared by the Company; and (vi) any additional
information of a public nature concerning the Company or its business that you
may reasonably request. During such five-year period, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company are consolidated with any subsidiaries, and shall be accompanied by
similar financial statements for any significant Subsidiaries that is not so
consolidated.
(i) Except with respect to grants under the Company's 1997 Stock Option
Plan, and grants of restricted stock as described in the Prospectus, for a
period of 180 days from the date hereof, the Company will not, without your
prior written consent, directly or indirectly, sell, offer to sell, grant any
option for the sale of, or otherwise dispose of, any Common Stock or securities
convertible into Common Stock, other than to the Underwriters pursuant to this
Agreement and other than pursuant to employee benefit plans in existence on the
date of this Agreement.
(j) 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 Common Stock.
(k) The Company will use it best efforts to maintain the listing of its
shares of Common Stock on the NSM.
(l) The Company is familiar with the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, and has in the past conducted
its affairs, and will in the future conduct its affairs, in such a manner so as
to ensure that the Company was not and will not be an "investment company"
within the meaning of the Investment Company Act of 1940 and the rules and
regulations thereunder.
(m) The Company will supply the Underwriters with copies of all
correspondence to and from and all documents issued to and by the Commission or
the Commission staff in connection with the registration of the Shares under the
1933 Act.
Section 5. Covenants of the Selling Shareholders. Each of the Selling
Shareholders covenant:
(a) To pay all taxes, if any, on the transfer and sale of the Shares to
be sold by him or her hereunder;
(b) To use reasonable efforts to cause the Registration Statement to
become effective, to do and perform all things to be done and performed by the
Selling Shareholders hereunder prior to the Closing Time and to satisfy all
conditions precedent to the delivery of the Shares to be sold by the Selling
Shareholders; and
<PAGE> 11
(c) Not to sell or offer or contract to sell or cause or permit his or
her affiliates to sell or offer or contract to sell, except to the Underwriters
pursuant to this Agreement, any Common Stock of the Company within 180 days
after the effective date of the Registration Statement without the prior written
consent of the Underwriters.
Section 6. Payment of Expenses. (a) The Company will pay and bear all
costs, fees and expenses incident to the performance of its obligations under
this Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits), as
originally filed and as amended, the Preliminary Prospectuses and the Prospectus
and any amendments or supplements thereto, and the cost of furnishing copies
thereof to the Underwriters; (ii) the preparation, printing and distribution of
this Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement,
and any instruments relating to any of the foregoing; (iii) the issuance and
delivery of the Shares to the Underwriters, including any transfer taxes payable
upon the sale of the Shares to the Underwriters (other than transfer taxes on
resales by the Underwriters); (iv) the fees and disbursements of the Company's
counsel and accountants; (v) the qualification of the Shares under the
applicable securities laws in accordance with Section 4(f) hereof and any filing
for review of the offering with the NASD, including filing fees and fees and
disbursements of counsel for the Underwriters in connection therewith; (vi) the
transfer agent's and registrar's fees and all miscellaneous expenses referred to
in Item 14 of the Registration Statement; (vii) costs related to travel and
lodging incurred by the Company and its representatives relating to meetings
with and presentations to prospective purchasers of the Shares reasonably
determined by the Underwriters to be necessary or desirable to effect the sale
of the Shares to the public; (viii) all other costs and expenses incident to the
performance of the Company's obligations hereunder (including costs incurred in
closing the purchase of the Option Shares, if any) that are not otherwise
specifically provided for in this section. The Company, upon your request, will
provide funds in advance for filing fees in connection with "blue sky"
qualifications and the NASD.
(b) Each of the Selling Shareholders shall pay his or her proportionate
share of all Underwriters' commissions relating to Shares of the Company sold by
such Selling Shareholder.
(c) If the sale of Shares provided for herein is not consummated because
any condition to the obligations of the Underwriters set forth in Section 7
hereof is not satisfied, because of any termination pursuant to Section 11
hereof or because of any refusal, inability or failure on the part of the
Company or the Selling Shareholders to perform any agreement herein or comply
with any provision hereof other than by reason of a default by any of the
Underwriters, the Company and the Selling Shareholders will reimburse the
Underwriters severally in accordance with each Selling Shareholders' respective
responsibility for costs as set forth in Section 6 on demand for all reasonable
out-of-pocket expenses, including fees and disbursements of Underwriters'
counsel, reasonably incurred by the Underwriters in reviewing the Registration
Statement and the Prospectus, and in investigating and making preparations for
the marketing of the Shares. The Company and the Selling Shareholders shall not
in any event be liable to any of the Underwriters for loss of anticipated
profits from the transactions contemplated by this Agreement.
Section 7. Conditions of Underwriters' Obligations. The obligations of
the Underwriters to purchase and pay for the Shares that they have severally
agreed to purchase pursuant to this Agreement (including any Option Shares as to
which the option granted in Section 3 has been exercised and as to which the
Date of Delivery determined by you is the same as the Closing Time) are subject
to the accuracy of the representations and warranties of the Company and the
Selling Shareholders contained herein or in certificates of any officer of the
Company delivered pursuant to the provisions hereof, to the performance by the
Company and the Selling Shareholders of their respective obligations hereunder,
and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., eastern time, on the date of this Agreement or, with your
consent, at a later time and date not later, however, than 5:30 P.M., eastern
time, on the first business day following the date hereof, or at such later time
or on such later date as you may agree to in writing; and at the Closing Time no
stop order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act and no proceedings for that purpose shall have
been instituted or shall be pending or, to your knowledge or the knowledge of
the Company shall be contemplated by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the satisfaction of counsel for the Underwriters. If the Company has elected to
rely upon Rule 430A, a prospectus containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
<PAGE> 12
(b) At the Closing Time you shall have received the opinion letter of
Van Cott, Bagley, Cornwall & McCarthy, counsel for the Company, Tate, Marshall
Tate and Marvin Friedland, together with signed or reproduced copies of such
opinion letters for each of the other Underwriters, in form and substance
reasonably satisfactory to Baker, Donelson, Bearman & Caldwell, counsel for the
Underwriters, to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Utah and has
the requisite corporate power and corporate authority to conduct its
business as described in the Registration Statement and the Prospectus.
To the best of such counsel's knowledge, the Company is duly qualified
and in good standing as a foreign corporation in each other jurisdiction
in which the ownership or leasing of its properties or the nature or
conduct of its business makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a
material adverse effect on the Company.
(ii) Each of the Subsidiaries has been duly incorporated or organized
and is validly existing as a corporation or limited liability company in
good standing under the laws of the State of Utah and has the requisite
corporate or organizational power and corporate or organizational
authority to conduct its business as described in the Registration
Statement and the Prospectus. To the best of such counsel's knowledge,
each of the Subsidiaries is duly qualified and in good standing as a
foreign corporation or limited liability company in each other
jurisdiction in which the ownership or leasing of its properties or the
nature or conduct of its business makes such qualification necessary,
except where the failure to be so qualified or in good standing would
not have a material adverse effect on the Subsidiaries.
(iii) The authorized capital stock of the Company is as set forth in the
Registration Statement and the Prospectus under the caption "Description
of Capital Stock," and the issued and outstanding shares of Common Stock
therein described have been duly authorized and validly issued and are
fully paid and nonassessable.
(iv) The Shares sold by the Company have been duly authorized and, when
issued and delivered to the Underwriters pursuant to the Underwriting
Agreement against payment of the consideration therefor as provided
therein, will be validly issued, fully paid and nonassessable.
(v) The issuance of the Shares in the manner contemplated by this
Agreement is not subject to any preemptive rights arising under the
Articles of Incorporation or Bylaws of the Company, or under Utah law,
or under any contract or other instrument known to such counsel to which
the Company is subject or by which it or its assets are bound.
(vi) To the best of such counsel's knowledge and other than as set forth
in the Prospectus, there is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation,
pending or threatened in which the Company or a Selling Shareholder is a
party or of which any property of the Company or a Selling Shareholder
is the subject which, if determined adversely to the Company or the
Selling Shareholder, would be required to be disclosed in the Prospectus
or have a material adverse effect on the financial condition or results
of operations of the Company and the Subsidiaries considered as one
enterprise.
(vii) No authorization, approval or consent of any court or governmental
authority or agency of the State of Utah or the United States of America
is required to be obtained by the Company in connection with the
offering, issuance or sale of the Shares by the Company, except such as
may be required under the 1933 Act or the 1933 Act Regulations, state
securities laws or by the NASD.
(viii) Neither the issuance, sale and delivery by the Company and the
Selling Shareholders of the Shares, nor the execution, delivery and
performance of this Agreement, nor the consummation by the Company of
any of the other transactions contemplated hereby will conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, encumbrance, claim or security interest upon any
property or assets of the Company, the Subsidiaries or the Selling
Shareholders pursuant to any contract, indenture, mortgage, loan
agreement, note, lease or material agreement or other instrument known
to such counsel to which the Company or the Selling Shareholders are a
party or by which it or they are bound or to which any
<PAGE> 13
of the property of the Company or the Selling Shareholders is subject
nor will such action violate the provisions of the Articles of
Incorporation or Bylaws of the Company, or, so far as is known to such
counsel, any law, administrative rule or regulation or arbitrators' or
administrative or court decree, judgment, or order or material franchise
or permit known to such counsel. To such counsel's knowledge, the
Company is conducting its business so as to comply in all material
respects with all applicable statutes and regulations, where the failure
to so comply would have a material adverse effect upon the Company.
(ix) The Registration Statement has become effective under the 1933 Act
and no stop order suspending the effectiveness of the Registration
Statement has been issued and, to such counsel's knowledge and
information, no proceeding for that purpose has been instituted or is
pending or contemplated by the Commission. Such counsel has participated
in the preparation of the Registration Statement and Prospectus. From
time to time such counsel has had discussions with officers, directors
and employees of the Company, accountants and auditors, the independent
accountants who examined certain of the financial statements of the
Company included in the Registration Statement and Prospectus, and your
representatives concerning the information contained in the Registration
Statement and Prospectus and the proposed responses to various Items in
Form S-1. Based thereon, such counsel is of the opinion that the
Registration Statement and the Prospectus and any further amendments and
supplements thereto made by the Company prior to the date hereof (except
for the operating statistics, financial statements, financial schedules,
and other financial data included therein, as to which such counsel
expresses no opinion) comply as to form in all material respects with
the requirements of the 1933 Act and the rules and regulations
thereunder.
(x) The descriptions in the Registration Statement and the Prospectus of
the contracts, leases and other legal documents therein described
present fairly the information required to be shown and there are no
contracts, leases or other documents known to such counsel of a
character required 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. To the best of such
counsel's knowledge, there are no statutes or regulations applicable to
the Company or certificates, permits or other authorizations from
governmental regulatory officials or bodies required to be obtained or
maintained by the Company of a character required to be disclosed in the
Registration Statement or the Prospectus which have not been so
disclosed and described therein
(xi) The Company has all requisite corporate power and corporate
authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby, including the issuance,
sale and delivery by it of the Shares hereunder. The opinions called for
by this clause (xi) may exclude from their scope any authorization,
approval, order, license, certificate or permit as may be required under
the "blue sky" laws of any jurisdiction in connection with the
distribution of the Shares contemplated by the Registration Statement.
(xii) This Agreement, the lock-up agreement, custody agreement and power
of attorney have each been duly authorized, executed and delivered by
the Company and have been duly executed and delivered by Marshall Tate,
Marvin Friedland and Tate, and, assuming the due authorization,
execution and delivery by the Underwriters, will be valid and binding
obligations of the Company , Marshall Tate, Marvin Friedland and Tate
enforceable against the Company , Marshall Tate, Marvin Friedland and
Tate in accordance with their respective terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization
or other laws of general applicability relating to or affecting
creditor's rights, to general equity principles, and except to the
extent that the indemnification provisions in Section 9 of the Agreement
may be limited by federal or state securities laws or the public policy
underlying such laws.
(xiii) To the best of such counsel's knowledge, neither the Company nor
the Subsidiaries is presently in breach of or default under its Articles
of Incorporation, Articles of Organization, Bylaws or Operating
Agreement and, to such counsel's actual knowledge, no material default
exists and, to the best knowledge of such counsel, no event has occurred
which with notice or after the lapse of time to cure or both, would
constitute a material default, in the due performance and observance by
the Company or the Subsidiaries of any term, covenant or condition of
any indenture, mortgage, deed of trust, loan agreement, note, lease or
other agreement or instrument known to such counsel to which the Company
or the Subsidiaries is a party or to which any of its
<PAGE> 14
properties is subject, in any such case where the consequences of such
violation or default is likely to materially adversely affect the
business, prospects, properties, assets, results of operation or
condition (financial or otherwise) of the Company and the Subsidiaries
considered as one enterprise.
(xiv) To the best of their knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of shares of Common
Stock or other securities of the Company have registration rights with
respect to shares of Common Stock or other securities of the Company.
(xv) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(xvi) Such counsel has participated in the preparation of the
Registration Statement and Prospectus and no facts have come to the
attention of such counsel which lead them to believe that the
Registration Statement (including the Rule 430A Information, if
applicable) or the Prospectus, or any amendment thereto (except for the
financial statements and schedules and other financial or operating data
included therein and written information provided by the Underwriters
for use in the section entitled "Underwriting," as to which such counsel
need express no belief), as of their respective effective, or filing
dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. Such counsel may state that their
belief is based on their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, and without
independent check or verification except as specified.
In rendering the foregoing opinion, such counsel may rely on the
following:
(A) as to matters involving the application of laws other than the laws
of the United States and the State of Utah, to the extent such counsel
deem proper and to the extent specified in such opinion, upon an opinion
or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel familiar with applicable laws;
and
(B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company or one or more of
the Selling Shareholders and certificates or other written statements of
officers or departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the
Company and certificates of the Company's transfer agent, provided that
copies of all such opinions, statements or certificates shall be
delivered to Underwriters' counsel, and, if written confirmation of the
Commission is not available at the time such opinion is rendered, upon
the current oral representations of members of the Commission's staff
with respect to the Registration Statement or any amendment or
supplement thereto having become effective and the lack of issuance of a
stop order or institution of proceedings for that purpose.
(c) At the Closing Time, you shall have received a favorable opinion
from Baker, Donelson, Bearman & Caldwell, counsel for the Underwriters, dated as
of the Closing Time, with respect to the Registration Statement, the Prospectus
and other related matters as the Underwriters may reasonably require, and the
Company shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(d) At the Closing Time, (i) the Registration Statement and the
Prospectus, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the 1933 Act and the
1933 Act Regulations and in all material respects shall conform to the
requirements of the 1933 Act and the 1933 Act Regulations, the Company shall
have complied in all material respects with Rule 430A (if it shall have elected
to rely thereon) and neither the Registration Statement nor the Prospectus, as
they may then be amended or supplemented, shall contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) there shall not
have been, since the respective dates as of which information is given in the
Registration Statement, any material adverse change in the business, prospects,
properties, assets, results of operation or condition (financial or otherwise)
of the Company, whether or not arising in the ordinary course of
<PAGE> 15
business; (iii) no action, suit or proceeding at law or in equity shall be
pending or, to the best of the Company's knowledge, threatened against the
Company that would be required to be set forth in the Prospectus other than as
set forth therein and no proceedings shall be pending or, to the knowledge of
the Company or the Selling Shareholders, threatened against the Company before
or by any federal, state or other commission, board or administrative agency
wherein an unfavorable decision, ruling or finding could materially adversely
affect the business, prospects, properties, assets, results of operations or
condition (financial or otherwise) of the Company, other than as set forth in
the Prospectus; (iv) the Company and the Selling Shareholders shall have
complied with all agreements and satisfied all conditions on their respective
parts to be performed or satisfied at or prior to the Closing Time; and (v) the
representations and warranties of the Company and the Selling Shareholders set
forth in Section 1 and the representations and warranties of the Selling
Shareholders set forth in Section 2 shall be accurate as though expressly made
at and as of the Closing Time. At the Closing Time, you shall have received
certificates executed by the Selling Shareholders, the President and the Chief
Financial Officer of the Company, dated as of the Closing Time, to such effect
and with respect to the following additional matters: (A) the Registration
Statement has become effective under the 1933 Act and no stop order suspending
the effectiveness of the Registration Statement or preventing or suspending the
use of the Prospectus has been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of their knowledge, threatened
under the 1933 Act; and (B) they have carefully reviewed the Registration
Statement and the Prospectus and when the Registration Statement became
effective and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus and any amendments or
supplements thereto contained all statements and information required to be
included therein or necessary to make the statements therein not misleading and
neither the Registration Statement nor the Prospectus and any amendment or
supplement thereto included any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, and, since the effective date of
the Registration Statement, there has occurred no event required to be set forth
in an amended or supplemented Prospectus that has not been so set forth, and (C)
all representations, warranties, covenants and statements made herein by the
Company and the Selling Shareholders, respectively, are true and correct at such
Closing Time, with the same effect as if made on and as of such Closing Time,
and all agreements herein to be performed by the Company and the Selling
Shareholders, respectively, on or prior to such Closing Time have been duly
performed.
(e) On the business day immediately preceding the date of this Agreement
and at the Closing Time you shall have received from Grant Thornton LLP, a
letter or letters, dated the date hereof and as of the Closing Time in form and
substance satisfactory to you, together with signed or reproduced copies of such
letter for each of the other Underwriters, confirming that they are independent
public accountants with respect to the Company within the meaning of the 1933
Act and 1933 Act Regulations, stating in effect that:
(i) in their opinion, the financial statements and any supplementary
financial information and schedules included in the Registration
Statement and covered by their opinion therein comply as to form in all
material respects with the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations;
(ii) on the basis of limited procedures (set forth in detail in such
letter and made in accordance with such procedures as may be reasonably
specified by you) not constituting an audit in accordance with generally
accepted auditing standards, consisting of (but not limited to) a
reading of the latest available internal unaudited financial statements
of the Company, a reading of minute books of the Company, inquiries of
officials of the Company responsible for financial and accounting
matters, and such other inquiries and procedures, as may be specified in
such letter, nothing has come to their attention which caused them to
believe that:
(A) the unaudited financial statements and supporting schedules
and other unaudited financial data of the Company included in the
Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the 1933
Act or the 1933 Regulations or are not presented in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included in the Registration Statement;
(B) the amounts of operating revenues, earnings before income
taxes, net earnings and earnings per common share for the five
fiscal years ended December 31, 1996, and the nine months ended
<PAGE> 16
September 30, 1997, included in the Prospectus under the caption
"Prospectus Summary -- Summary Consolidated Financial and
Operating Data" do not agree with the corresponding amounts in
the audited statements of earnings;
(C) at a specified date not more than five business days prior to
the date of delivery of such letter, there was any change in the
capital stock or long-term debt or obligations under capital
leases of the Company other than scheduled repayments or any
decreases in total assets, shareholders' equity or other items
specified by the Underwriters from that set forth in the
Consolidated Balance Sheets at September 30, 1997, included in
the Prospectus, except as described in such letter;
(D) for the period from September 30, 1997 , to a specified date
not more than five days prior to the date of delivery of such
letter, there were any decreases in revenues, gross profit, or
the total or per share amounts of income before extraordinary
items or net income, of the Company, in each case as compared
with the corresponding period of the preceding year, except in
each case for decreases or increases which the Prospectus
discloses have occurred or may occur or which are described in
such letter; and
(iii) in addition to the procedures referred to in clause (ii) above and
the examination referred to in their opinions included in the
Registration Statement, they have carried out certain specific
procedures, not constituting an audit in accordance with generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by you which are derived
from the general accounting records of the Company, which appear in the
Registration Statement or the exhibits or schedules thereto and are
specified by you, and have compared such amounts, percentages and
financial information with the accounting records of the Company and
with material derived from such records and have found them to be in
agreement.
(f) At the Closing Time, you shall have received from Grant Thornton LLP
a letter, in form and substance satisfactory to you and dated as of the Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) above, except that the specified date
referred to shall be a date not more than five business days prior to the
Closing Time.
(g) In the event that either of the letters to be delivered pursuant to
subsections (e) and (f) above sets forth any such changes, decreases or
increases, it shall be a further condition to your obligations that you shall
have determined, after discussions with officers of the Company responsible for
financial and accounting matters and with Grant Thornton LLP, that such changes,
decreases or increases as are set forth in such letters do not reflect a
material adverse change in the capital stock, long-term debt, obligations under
capital leases, total assets, or shareholders' equity of the Company as compared
with the amounts shown in the latest condensed consolidated balance sheet of the
Company, or a material adverse change in revenues or the total or per share
amounts of income before extraordinary items or net income, of the Company, in
each case as compared with the corresponding period of the prior year.
(h) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
reasonably request for the purpose of enabling them to pass upon the issuance
and sale of the Shares as contemplated in this Agreement and the matters
referred to in Section 7(d) and in order to evidence the accuracy and
completeness of any of the representations and warranties or statements of the
Company, the performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all proceedings taken
by the Company at or prior to the Closing Time in connection with the
authorization, issuance and sale of the Shares as contemplated in this Agreement
shall be satisfactory in form and substance to you and to counsel for the
Underwriters. The Company will furnish you with such number of conformed copies
of such opinions, certificates, letters and documents as you shall request.
(i) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(j) The Firm Shares and the Option Shares, if any, shall have been
approved for listing on NSM upon official notice of the issuance, sale and
evidence of satisfactory distribution thereof pursuant to this underwritten
public offering.
<PAGE> 17
(k) Each shareholder of the Company specified in Section 1(v) hereof
shall have agreed in writing as to the matters set forth in such section.
(l) At the Closing Time you shall have received the opinion of
____________, counsel for Troy Tate and Kruse, Landa & Maycock, L.L.C., counsel
for Darrell Tate, Mia Tate and Lauri Tate Franks, together with signed or
reproduced copies of such opinion letters for each of the other Underwriters,
in form and substance reasonably satisfactory to Baker, Donelson, Bearman &
Caldwell, counsel for the Underwriters, to the effect that:
(i) Neither the sale and delivery by such Selling Shareholders of the
Shares, nor the execution, delivery and performance of this Agreement,
will conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, encumbrance, claim or
security interest upon such Shares of the Selling Shareholders pursuant
to any contract, indenture, mortgage, loan agreement, note, lease or
material agreement or other instrument known to such counsel to which
the Selling Shareholders are a party or by which they are bound or to
which any of such Selling Shareholders Shares are subject nor will such
action violate, so far as is known to such counsel, any law,
administrative rule or regulation or arbitrators' or administrative or
court decree, judgment, or order or material franchise or permit
applicable to such Selling Shareholder known to such counsel.
(ii) This Agreement, the lock-up agreement, the custody agreement and
the power of attorney has been duly executed and delivered by each of
such Selling Shareholders, and, assuming the due authorization,
execution and delivery by the Underwriters, the other Selling
Shareholders and the Company, will be valid and binding obligations of
each of such Selling Shareholders enforceable in accordance with their
respective terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, reorganization or other laws of general
applicability relating to or affecting creditor's rights, to general
equity principles, and except to the extent that the indemnification
provisions in Section 9 of this Agreement may be limited by federal or
state securities laws or the public policy underlying such laws. To the
knowledge of such counsel, none of the Selling Shareholders is under
duress, fraud, or undue influence at the time of executing this
Agreement, the lock-up agreement, the custody agreement and the power of
attorney and has been advised by counsel as to the financial
implications in order to evaluate the merits and risks of the
transactions contemplated hereby.
In rendering the foregoing opinion, such counsel may rely on the
following:
(A) as to matters involving the application of laws other than the laws
of the United States and the State of Utah, to the extent such counsel
deem proper and to the extent specified in such opinion, upon an opinion
or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel familiar with applicable laws;
and
(B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company or one or more of
such Selling Shareholders, provided that copies of all such opinions,
statements or certificates shall be delivered to Underwriters' counsel.
If any of the conditions specified in this Section 7 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
may be terminated by you on notice to the Company and the Selling Shareholders
at any time at or prior to the Closing Time, and such termination shall be
without liability of any party to any other party. Notwithstanding any such
termination, the provisions of Section 9 shall remain in effect.
Section 8. Conditions to Purchase of Option Shares. In the event that
the Underwriters exercise the option granted in Section 3 hereof to purchase all
or any part of the Option Shares and the Date of Delivery determined by you
pursuant to Section 3 hereof is later than the Closing Time, the obligations of
the several Underwriters to purchase and pay for the Option Shares that they
shall have severally agreed to purchase pursuant to this Agreement are subject
to the accuracy of the representations and warranties of the Company and Selling
Shareholders herein contained, to the performance by the Company and the Selling
Shareholders of their obligations hereunder and to the following further
conditions:
<PAGE> 18
(a) The Registration Statement shall remain effective at the Date of
Delivery, and, at the Date of Delivery, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to your knowledge or the knowledge of the Company or the Selling
Shareholders, shall be contemplated by the Commission, and any request on the
part of the Commission for additional information shall have been complied with
to the satisfaction of counsel for the Underwriters.
(b) At the Date of Delivery, the provisions of Sections 7(d)(i) through
7(d)(v) shall have been complied with at and as of the Date of Delivery and, at
the Date of Delivery, you shall have received certificates executed by the
Selling Shareholders, the President and the Chief Financial Officer of the
Company, dated as of the Date of Delivery, to such effect and to the effect set
forth in clauses (A), (B) and (C) of Section 7(d).
(c) At the Date of Delivery, you shall have received a favorable opinion
letter of Van Cott, Bagley, Cornwall & McCarthy, counsel for the Company,
Marshall Tate, Marvin Friedland and Tate, ____________, counsel for Troy Tate
and Kruse, Landa & Maycock, L.L.C., counsel for Darrell Tate, Mia Tate and Lauri
Tate Franks together with signed or reproduced copies of such opinion letter for
each of the other Underwriters, in form and substance satisfactory to counsel
for the Underwriters, dated as of the Date of Delivery, relating to the Option
Shares and otherwise to the same effect as the opinions required by Section
7(b).
(d) At the Date of Delivery, you shall have received a favorable opinion
of Baker, Donelson, Bearman & Caldwell, counsel for the Underwriters, dated as
of the Date of Delivery relating to the Option Shares and otherwise to the same
effect as the opinion required by Section 7(c).
(e) At the Date of Delivery, you shall have received a letter from Grant
Thornton LLP, in form and substance satisfactory to you and dated as of the Date
of Delivery, to the effect that they reaffirm the statements made in the letter
furnished pursuant to Section 7(e), except that the specified date referred to
shall be a date no more than five business days prior to the Date of Delivery.
(f) At the Date of Delivery, counsel for the Underwriters shall have
been furnished with all such documents, certificates and opinions as they may
reasonably request for the purpose of enabling them to pass upon the issuance
and sale of the Option Shares as contemplated in this Agreement and the matters
referred to in Section 8(a) and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company and the Selling Shareholders, the performance of any of the covenants of
the Company and the Selling Shareholders, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company and the
Selling Shareholders, at or prior to the Date of Delivery in connection with the
authorization, issuance and sale of the Option Shares as contemplated in this
Agreement shall be satisfactory in form and substance to you and to counsel for
the Underwriters.
Section 9. Indemnification and Contribution. (a) The Company and the
Selling Shareholders jointly and severally will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject under the 1933 Act,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any breach of any warranty or covenant
of the Company herein contained or any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or in any "blue sky" application or other document executed by the Company or
based upon any information furnished in writing by the Company, filed in any
jurisdiction in order to qualify any or all of the Shares under the securities
laws thereof ("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 therein not misleading; and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company and the Selling Shareholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, or any Blue Sky Application in
reliance upon and in conformity with written information furnished to the
Company by you or by
<PAGE> 19
any Underwriter through you expressly for use therein; provided, further, that
the Company and the Selling Shareholders will not be liable for any such losses,
claims, damages, or liabilities arising from the sale of the Shares to any
person if a copy of the Prospectus (as first filed pursuant to Rule 424(b)) or
the Prospectus as amended or supplemented by all amendments or supplements
thereto which has been furnished to the Underwriters shall not have been sent,
mailed or given to such person, at or prior to the written confirmation of the
sale of such Shares to such person, but only if and to the extent that such
Prospectus, if so sent or delivered, would have cured the defect giving rise to
such losses, claims, damages or liabilities. The indemnity contained in this
Section 9(a) shall not be modified or diminished by any assertion or
determination by a third party that any Underwriter has been negligent in its
due diligence obligation related to this Registration Statement. In no event,
however, shall the liability of any Selling Shareholder for indemnification
under this Section 9(a) exceed the lesser of (i) that proportion of the total of
such losses, claims, damages or liabilities indemnified against equal to the
proportion of the total shares sold hereunder which is being sold by such
Selling Shareholder; and (ii) the proceeds received by such Selling Shareholder
from the Underwriters in the offering. In addition to their other obligations
under this Section 9(a), the Company and the Selling Shareholders agree that, as
an interim measure during the pendency of any such claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 9(a),
they will reimburse the Underwriters on a pro rata basis on a monthly basis for
all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's and the Selling Shareholders'
obligation to reimburse the Underwriters for such expense and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. This indemnity agreement shall be in addition to any
liabilities that the Company may otherwise have. For purposes of this Section 9,
the information set forth in the last paragraph on the front cover page (insofar
as such information related to the Underwriters) and under "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement.
(b) Each Underwriter, severally but not jointly, will indemnify and hold
harmless the Company and the Selling Shareholders against any losses, claims,
damages or liabilities to which the Company or the Selling Shareholders may
become subject, under the 1933 Act specifically including but not limited to
losses, claims, damages or liabilities related to negligence on the part of the
Company and the Selling Shareholders, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
breach of any warranty or covenant by you herein contained or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or 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 therein
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 the Registration Statement, such Preliminary Prospectus or the
Prospectus, or such amendment or supplement, or any Blue Sky Application, in
reliance upon and in conformity with information furnished to the Company by
such Underwriter expressly for use therein; and will reimburse the Company and
the Selling Shareholders for any legal or other expenses reasonably incurred by
the Company or the Selling Shareholders in connection with investigating or
defending any such loss, claim, damage, liability or action. In addition to
their other obligations under this Section 9(b), the Underwriters agree that, as
an interim measure during the pendency of any such claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 9(b),
they will reimburse the Company and the Selling Shareholders on a monthly basis
for all reasonable legal and other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of their obligation to reimburse the Company or
the Selling Shareholders for such expense and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
This indemnity agreement shall be in addition to any liabilities which the
Underwriters may otherwise have.
The indemnity agreement in this Section 9(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company and each person, if any, who controls the Company within
the meaning of the 1933 Act to the same extent as such agreement applies to the
Company.
<PAGE> 20
(c) Tate shall indemnify and hold harmless the Company and the
Underwriters against any losses, claims, damages or liabilities to which the
Company or the Underwriters may become subject, under the 1933 Act specifically
including but not limited to losses, claims, damages or liabilities related to
negligence on the part of the Company or the Underwriters, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any breach of any warranty or covenant by Tate herein
contained or any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or 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 therein 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 the Registration Statement, such Preliminary
Prospectus or the Prospectus, or such amendment or supplement, or any Blue Sky
Application, in reliance upon and in conformity with written information
furnished to the Company by Tate expressly for use therein; and will reimburse
the Company and the Underwriters for any legal or other expenses reasonably
incurred by the Company or the Underwriters in connection with investigating or
defending any such loss, claim, damage, liability or action. In addition to his
other obligations under this Section 9(c), Tate agrees that, as an interim
measure during the pendency of any such claim, action, investigation, inquiry or
other proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 9(c), he will reimburse
the Company and the Underwriters on a monthly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
his obligation to reimburse the Company or the Underwriters for such expense and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. This indemnity agreement shall be in addition
to any liabilities which Tate may otherwise have.
The indemnity agreement in this Section 9(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company and each person, if any, who controls the Company within
the meaning of the 1933 Act to the same extent as such agreement applies to the
Company.
(d) Within ten days after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; no indemnification provided in
this Section 9(a), 9(b) or 9(c) shall be available to any party who shall fail
to give notice as provided in this Section 9(d) if the party to whom notice was
not given was unaware of the proceeding to which such notice would have related
and was prejudiced by the failure to give such notice, but the omission so to
notify the indemnifying party will not relieve the indemnifying party from any
liability that it may have to any indemnified party otherwise than under this
Section 9. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein, and, to the
extent that it shall wish, jointly with any other indemnifying party, similarly
notified, assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its own counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment of counsel by such indemnified
party has been authorized by the indemnifying party, (ii) the indemnified party
shall have been advised by such counsel that there may be a conflict of interest
between the indemnifying party and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party)
or (iii) the indemnifying party shall not in fact have employed counsel to
assume the defense of such action, in any of which events such fees and expenses
shall be borne by the indemnifying party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 9(a), 9(b) and 9(c)
hereof, including the amounts of any requested reimbursement payments, the
<PAGE> 21
method of determining such amounts and the basis on which such amounts shall be
apportioned among the indemnifying parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
a written notice of intention to arbitrate, which demand or notice elects the
arbitration tribunal. In the event the party demanding arbitration does not
designate an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such arbitration
will be limited to the operation of the interim reimbursement provisions
contained in Sections 9(a), 9(b) and 9(c) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for expenses
that is created by the provisions of Sections 9(a), 9(b) and 9(c).
(f) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 9 is for
any reason judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Selling Shareholders and the Underwriters shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity that are incurred by the Company, the Selling Shareholders and
one or more of the Underwriters in such proportions that (i) the Underwriters
are responsible pro rata for that portion represented by the underwriting
discount appearing on the cover page of the Prospectus bears to the public
offering price (before deducting expenses) appearing thereon, and (ii) the
Company and the Selling Shareholders are responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation; provided,
further, that if the allocation provided above is not permitted by applicable
law, the Company, each of the Selling Shareholders and the Underwriters shall
contribute to the aggregate losses in such proportion as is appropriate to
reflect not only the relative benefits referred to above but also the relative
fault of the Company, the Selling Shareholders and the Underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. 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, by each of the Selling Shareholders or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages or
liabilities referred to above shall be deemed to include any legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any such action or claim. Notwithstanding, the liability of any
Selling Shareholder under this Section 9(f) shall not exceed the proceeds
received by such Selling Shareholder in the Offering. Notwithstanding the
provisions of this subsection (f), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. For purposes of this Section 9(f), each person, if
any, who controls an Underwriter within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as such Underwriter, and each
director of the Company, each officer of the Company who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act shall have the same rights to contribution as the
Company.
(g) The parties to this Agreement acknowledge that they are represented
by counsel during the negotiations regarding the provisions of this Agreement,
including without limitation, the provisions of this Section 9, and are fully
informed regarding said provisions. They further acknowledge that the provisions
of this Section 9 fairly allocate the risks in light of the ability of the
parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and Prospectus as
required by the 1933 Act. The parties are advised that federal or state public
policy, as interpreted by the courts in certain jurisdictions, may be contrary
to certain of the provisions of this Section 9, and the parties hereto hereby
expressly waive and relinquish any right or ability to assert such public policy
as a defense to a claim under this Section 9 and further agree not to attempt to
assert any such defense.
Section 10. Representations and Agreements to Survive Delivery. The
representations, warranties, indemnities, agreements and other statements of the
Selling Shareholders, the Company or its officers and the Underwriters set forth
in or made pursuant to this Agreement will remain operative and in full force
and effect regardless of any investigation made by or on behalf of the Company,
the Selling Shareholders or any Underwriter or controlling person, with respect
<PAGE> 22
to an Underwriter or the Company and will survive delivery of and payment for
the Shares or termination of this Agreement.
Section 11. Effective Date of Agreement and Termination. (a) This
Agreement shall become effective immediately as to Sections 6 and 9 and, as to
all other provisions, (i) if at the time of execution of this Agreement the
Registration Statement has not become effective, at 10:00 A.M. eastern time on
the first full business day following the effectiveness of the Registration
Statement, or (ii) if at the time of execution of this Agreement, the
Registration Statement has been declared effective, at 10:00 A.M. eastern time
on the first full business day following the date of execution of this
Agreement; but this Agreement shall nevertheless become effective at such
earlier time after the Registration Statement becomes effective as you may
determine on and by notice to the Company or by release of any of the Shares for
sale to the public. For the purposes of this Section 11, the Shares shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Shares or upon the release by you of
telegrams or facsimile messages (i) advising the Underwriters that the Shares
are released for public offering, or (ii) offering the Shares for sale to
securities dealers, whichever may occur first. By giving notice before the time
this Agreement becomes effective, you, as the Representative of the several
Underwriters, or the Company, may prevent this Agreement from becoming
effective, without liability of any party to any other party, except that the
Company shall remain obligated to pay costs and expenses to the extent provided
in Section 6 hereof.
(b) You may terminate this Agreement by notice to the Company and the
Selling Shareholders at any time at or prior to the Closing Time (i) in
accordance with the last paragraph of Section 7 of this Agreement; or (ii) if
there has been, since the respective dates as of which information is given in
the Registration Statement, any material adverse change, or any development
which might reasonably be viewed as resulting in a material adverse change in or
affecting the assets, properties, results of operation, financial condition or
business prospects of the Company, whether or not arising in the ordinary course
of business; or (iii) if there has occurred or accelerated any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions the effect of which on the financial markets of
the United States is such as to make it, in your judgment, impracticable to
market the Shares or enforce contracts for the sale of the Shares; or (iv) if
trading in any securities of the Company has been suspended by the Commission or
by the NASD or NSM, or if trading generally on the New York Stock Exchange or in
the over-the-counter market has been suspended, or limitations on prices for
trading (other than limitations on hours or numbers of days of trading) have
been fixed, or maximum ranges for prices for securities have been required, by
such exchange or the NASD or by order of the Commission or any other
governmental authority; or (v) if a banking moratorium has been declared by
federal or New York, Tennessee or Utah authorities; or (vi) any federal or state
statute, regulation, rule or order of any court or other governmental authority
has been enacted, published, decreed or otherwise promulgated which in your
reasonable opinion materially adversely affects or will materially adversely
affect the business or operations of the Company; or (vii) any action has been
taken by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States.
(c) If this Agreement is terminated pursuant to this Section 11, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 6. Notwithstanding any such termination, the
provisions of Section 9 shall remain in effect.
Section 12. Default by One or More of the Underwriters. (a) If any
Underwriter shall default in its obligation to purchase the Firm Shares which it
has agreed to purchase hereunder, you may in your discretion arrange for you or
another party or other parties to purchase such Firm Shares on the terms
contained herein. If within 36 hours after such default by any Underwriter you
do not arrange for the purchase of such Firm Shares, then the Company or the
Selling Shareholders shall be entitled to a further period of 36 hours within
which to procure another party or other parties satisfactory to you to purchase
such Firm Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company and the Selling Shareholders that you
have so arranged for the purchase of such Firm Shares, or the Company or the
Selling Shareholders notifies you that it has so arranged for the purchase of
such Firm Shares, you or the Company or the Selling Shareholders shall have the
right to postpone the Closing Time for a period of not more than seven days in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary.
<PAGE> 23
The term "Underwriter" as used in this Agreement shall include any persons
substituted under this Section 12 with like effect as if such person had
originally been a party to this Agreement with respect to such Firm Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Firm Shares of a defaulting Underwriter or Underwriters made by you or the
Company or the Selling Shareholders as provided in subsection (a) above, the
aggregate number of Firm Shares which remains unpurchased does not exceed
100,000, then the Company shall have the right to require each nondefaulting
Underwriter to purchase the Firm Shares which such Underwriter agreed to
purchase hereunder and, in addition, to require each nondefaulting Underwriter
to purchase its pro rata share (based on the number of Firm Shares which such
Underwriter agreed to purchase hereunder) of the Firm Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Firm Shares of a defaulting Underwriter or Underwriters made by you or the
Company or the Selling Shareholders as provided in subsection (a) above, the
number of Firm Shares which remains unpurchased exceeds 100,000, or if the
Company shall not exercise the right described in subsection (b) above to
require nondefaulting Underwriters to purchase Firm Shares of a defaulting
Underwriter or Underwriters, then this Agreement shall thereupon terminate,
without liability on the part of any nondefaulting Underwriter or the Company or
the Selling Shareholder except for the expenses to be borne by the Company, the
Selling Shareholder and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 9 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
Section 13. Default by the Company or the Selling Shareholders. If the
Company or the Selling Shareholders shall fail at the Closing Time to sell and
deliver the respective aggregate number of Firm Shares that they are obligated
to sell, then this Agreement shall terminate without any liability on the part
of any nondefaulting party, except to the extent provided in Section 6 and
except that the provisions of Section 9 shall remain in effect. No action taken
pursuant to this Section shall relieve the Company or the Selling Shareholders
from liability, if any, in respect of its default.
Section 14. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
mailed, delivered or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be directed c/o Morgan Keegan & Company, Inc.,
50 Front Street, Memphis, Tennessee 38103, attention of Mr. John H. Grayson,
Jr., Senior Vice President (with a copy sent in the same manner to Baker,
Donelson, Bearman & Caldwell, 2000 First Tennessee Building, 165 Madison Avenue,
Memphis, Tennessee 38103, attention of Robert Walker, Esq.); and notices to the
Company and the Selling Shareholders shall be directed to Motor Cargo
Industries, Inc., 845 W. Center Street, Salt Lake City, Utah, 84054, Attention
Marshall Tate, President (with a copy sent in the same manner to Van Cott,
Bagley, Cornwall & McCarthy, 50 South Main Street, Suite 1600, Salt Lake City,
Utah 84144, Attention: Arthur Ralph, Esq. And Kruse, Landa & Maycock, 50 West
Broadway, Suite 800, Salt Lake City, Utah 84101, Attention: James R. Kruse).
Each notice hereunder shall be effective upon receipt by the party to which it
is addressed.
Section 15. Parties. This Agreement is made solely for the benefit of
the Underwriters, the Selling Shareholders and the Company and, to the extent so
provided, any person controlling the Company or any of the Underwriters, and the
directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns and, subject to the provisions of Section 12, no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such purchaser,
from any of the several Underwriters of the Shares.
Section 16. Governing Law and Time. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Tennessee. Specified
time of the day refers to United States Central Time.
Section 17. Counterparts. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
<PAGE> 24
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Company, the Selling
Shareholders and the several Underwriters in accordance with its terms.
Very truly yours,
MOTOR CARGO INDUSTRIES, INC.
By:________________________________________________________
Marshall L. Tate, President and Chief Executive Officer
SELLING SHAREHOLDERS:
___________________________________________________________
HAROLD R. TATE
___________________________________________________________
MARSHALL L. TATE
___________________________________________________________
MARVIN L. FRIEDLAND
___________________________________________________________
Lauri TATE FRANKS
___________________________________________________________
DARRELL TATE
___________________________________________________________
TROY TATE
___________________________________________________________
MIA TATE
<PAGE> 25
Confirmed and accepted in Memphis,
Tennessee, as of the date
first above written, as
Representatives of the
Underwriters named
in Schedule I hereto.
MORGAN KEEGAN & COMPANY, INC.
By:_____________________________________________
John H. Grayson, Jr., Senior Vice President
<PAGE> 26
SCHEDULE I
<TABLE>
<CAPTION>
Number
of
Name Shares
---- ------
<S> <C>
Morgan Keegan & Company, Inc. ..................................................
Furman Selz LLC.................................................................
Total ..................................................................
</TABLE>
<PAGE> 27
SCHEDULE II
<TABLE>
<CAPTION>
Percentage Percentage
Name Firm Shares Option Shares Excluding Tate Including Tate
---- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Company 1,150,000 17,250 0% 5.16%
Harold R. Tate 1,000,000 37,250 0.00 11.14
Lauri Tate Franks 20,000 60,000 21.43 17.93
Darrell Tate 20,000 20,000 7.14 5.98
Troy Tate 20,000 100,000 35.71 29.90
Mia Tate 20,000 60,000 21.43 17.93
Marshall Tate -- 20,000 7.14 5.98
Marvin Friedland -- 20,000 7.14 5.98
</TABLE>
<PAGE> 1
EXHIBIT 4.3
COMMON STOCK COMMON STOCK
NUMBER:_______ SHARES:________
MOTOR CARGO INDUSTRIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF UTAH
(See reverse side for certain definitions)
THIS CERTIFIES THAT _____________________________ is the record holder
of_______________________________ FULLY-PAID AND NON-ASSESSABLE SHARES WITHOUT
PAR VALUE OF THE COMMON STOCK OF MOTOR CARGO INDUSTRIES, INC. transferable on
the books of the Corporation in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:_________
__________________________ [SEAL] _______________________
Secretary President and
Chief Executive Officer
Countersigned and registered,
ZIONS FIRST NATIONAL BANK
(Salt Lake City) Transfer Agent and Registrar
By: _____________________________
Authorized Signature
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT--.... Custodian ......
TEN ENT--as tenants by the entireties (Cust) (Minor)
JT TEN--as joint tenants with right under Uniform Gifts
of survivorship and not to Minors Act ......
as tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ______ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________________________________________,
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________
_________________________________________
NOTICE. The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
Signature(s) Guaranteed:
By:____________________
The Signatures should be guaranteed by an eligible guarantor institution
(Banks, stockbrokers, savings and loan associations and credit unions with
membership in approved signature medallion program), pursuant to SEC Rule
17Ad-15
<PAGE> 1
EXHIBIT 5
November 7, 1997
Motor Cargo Industries, Inc.
845 Center Street
North Salt Lake, Utah 84054
Re: Motor Cargo Industries, Inc.
Registration Statement on Form S-1
Gentlemen:
In our capacity as counsel to Motor Cargo Industries, Inc., a
Utah corporation (the "Company"), you have requested our opinion in connection
with the registration statement on Form S-1, file number 333-37211, as amended
(the "Registration Statement"), filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to (i) the issuance of up to
1,150,000 authorized and unissued shares (or 1,167,250 authorized and unissued
shares if the underwriters' over-allotment option is exercised in full) of the
Company's Common Stock, no par value, (the "Common Stock"), to be issued
subject to the effectiveness of the Registration Statement, and (ii) the
proposed sale by certain selling shareholders of the Company so identified in
the Registration Statement (the "Selling Shareholders") of an aggregate of
1,080,000 authorized and issued shares of the Common Stock (or 1,397,250
authorized and issued shares of the Common Stock if the underwriters'
over-allotment option is exercised in full).
In connection with the preparation of this opinion letter, and
as the basis for the opinions set forth below, we have made such investigations
of the Utah Revised Business Corporations Act as we have deemed relevant and
necessary, and we have examined such documents and records as we have deemed
relevant and necessary. As to various questions of fact material to this
opinion letter, we have relied upon representations and/or certificates of
officers of the Company.
Based upon and subject to the foregoing examination, we are of
the opinion that:
1. The Company has the authority to issue 1,167,250
shares of the Common Stock upon the effectiveness of the Registration
Statement.
<PAGE> 2
Motor Cargo Industries, Inc.
November 7, 1997
Page 2
2. The shares of the Common Stock to be sold by the
Company and by the Selling Shareholders upon the effectiveness of the
Registration Statement will, when sold and paid for as described in the
Registration Statement, be validly issued, fully paid and non- assessable.
We hereby consent to the filing of this opinion letter as
Exhibit 5 to the Registration Statement. In giving this consent, we do not
admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act or the General Rules and Regulations of
the Commission. This opinion letter does not extend to and may not be relied
upon or assigned to any other person or party.
Very truly yours,
VAN COTT, BAGLEY, CORNWALL & McCARTHY
By /s/ Arthur B. Ralph
----------------------------------
Arthur B. Ralph
<PAGE> 1
EXHIBIT 10.1
[SANWA BANK LOGO]
1997 CREDIT AGREEMENT
(MOTOR CARGO)
This 1997 CREDIT AGREEMENT (the "Agreement") is made and entered into
this 30th day of September, 1997, by and between SANWA BANK CALIFORNIA, a
California corporation (the "Bank"), and MOTOR CARGO, a Utah corporation (the
"Borrower").
RECITALS
A. On or about June 19, 1996, the Borrower made, executed and delivered
to the Bank that certain 1996 CREDIT AGREEMENT (the "1996 Agreement") pursuant
to which the Bank agree to make Advances and issue Letters of Credit under a
Line of Credit and to Term Advances under a Term Loan (as those terms are
defined in the 1996 Agreement).
B. On or about September 16, 1993 the Borrower made, executed and
delivered a PROMISSORY NOTE, in the original principal amount of $1,061,666.86
(the "1993 Note"). The current unpaid principal balance outstanding under the
1993 Note is $522,421.31.
C. On or about March 30, 1995 the Borrower made, executed and delivered
a Term Loan Agreement which provided for a term loan in the principal amount of
$848,437.50 (the "1995 Agreement"). The current unpaid principal balance
outstanding under the 1995 Agreement is $545,424.
D. The Bank and the Borrower desire to restate the terms and amounts of
the credit extended pursuant to the 1996 Agreement and to make the 1993 Note and
the 1995 Agreement subject to the terms of this Agreement but without modifying
the time or manner of payment.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
1. DEFINITIONS
1.1. DEFINITIONS. The following terms, as used in this Agreement,
shall have the following meanings:
"Advance" shall mean an Advance under the Line of Credit made
pursuant to Section 2.1.
"Business Day" shall mean a day other than a Saturday or Sunday
on which the Bank is open for business in Los Angeles, California.
"Collateral" shall mean the property described in Section 6.1,
together with any other personal property in which the Bank may be
granted a lien or security interest to secure payment of the Obligations
(subject to Permitted Liens).
"Debt" means all Indebtedness of the Borrower less Subordinated
Debt.
1997 CREDIT AGREEMENT -- Page 1
<PAGE> 2
"Default Interest Rate" means a rate per annum equal to the
Reference Rate plus three percent (3.0%).
"Drawing" shall mean the presentation of a draft(s) together
with any accompanying documents by a beneficiary under a Letter of
Credit to seeking payment under such Letter of Credit.
"Effective Tangible Net Worth" means the Borrower's stated net
worth plus Subordinated Debt but less (a) all intangible assets of the
Borrower (i.e., goodwill, trademarks, patents, copyrights, organization
expense and similar intangible items including, but not limited to trade
notes receivable, loans to officers and employees, and loans due from
related or affiliated companies) and (b) loans made to UTE, Inc. and
Motor Cargo Industries.
"Equipment" means that property described in Section 6.1(f).
"Equipment Term Advance" has the meaning given in Section 4.4.
"Event of Default" means each of those events described in
Subsection 11.1, which have not been waived by the Bank in writing,
after giving of any required notice and expiration of any applicable
grace period expressly provided therein.
"Fixed Rate" shall mean, with respect to any Fixed Rate Advance
or Fixed Rate Term Advance, the rate which is quoted and offered by the
Bank and accepted by the Borrower.
"Fixed Rate Advance" shall mean an Advance of not less than
$500,000.00 and in $100,000.00 increments thereafter which Borrower has
elected accrue interest at a Fixed Rate pursuant to Section 2.3.
"Fixed Rate Term Advance" means a Term Advance accruing interest
at the Fixed Rate.
"Funding Period" means that period from the date of this
Agreement to and including December 31, 1997.
"GAAP" shall mean generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies
with similar functions of comparable stature and authority within the
accounting profession), or in such other statements by such other entity
as may be in general use by significant segments of the U.S. accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Guarantor" means each of Motor Cargo Industries, Inc., a Utah
corporation, and M.C. Leasing Inc., a Utah corporation.
"Indebtedness" shall mean, with respect to the Borrower, (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which the Borrower is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which the Borrower otherwise assures a creditor against loss
and (ii) obligations under leases which shall have been or should be, in
accordance with generally accepted accounting principles, reported as
capital leases in respect of which the Borrower is liable, contingently
or otherwise, or in respect of which the Borrower otherwise assures a
creditor against loss.
1997 CREDIT AGREEMENT -- Page 2
<PAGE> 3
"Interest Period" means, with respect to a Fixed Rate Advance
and a Fixed Rate Term Advance, the period of time commencing on the
Business Day the Fixed Rate Advance or Fixed Rate Term Advance is made
or on the Business Day on which an Advance or Term Advance is converted
to or continued as a Fixed Rate Advance or Fixed Rate Term Advance and
ending on a Business Day not less than 30 days thereafter which is
offered by Bank and selected by Borrower during which Borrower has
elected an Advance or Term Advance accrue interest at a Fixed Rate
provided that:
(i) no Interest Period shall expire on a date which is
after the Expiration Date,
(ii) if any Interest Period would otherwise end on a day
which is not a Business Day, that Interest Period shall be
extended to the next succeeding Business Day and
(iii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business Day
of the calendar month at the end of such Interest Period.
"Inventory" means that property described in Section 6.1(b),
"Letter of Credit" shall mean a standby letter of credit issued
by Bank pursuant to Section 3.
"Letter of Credit Obligations" shall mean, at any time, the
aggregate obligations of the Borrower then outstanding, or which may
thereafter arise in respect of Letters of Credit then issued by Bank, to
reimburse the amount paid by the Bank with respect to a past, present or
future Drawing under Letters of Credit.
"Line of Credit" shall mean the credit facility described in
Section 2.
"Lost Opportunity Rate" shall mean, for any prepayment of a
Fixed Rate Advance or Fixed Rate Term Advance, the amount, expressed as
an interest rate, by which (a) the rate, determined by Bank, at which
the Bank could have issued a certificate of deposit in an amount
approximately equal to the Fixed Rate Advance or Fixed Rate Term Advance
being prepaid and for a term approximately equal to the Interest Period
for such Advance as of the date such Advance was made, exceeds (b) as of
the respective Prepayment Date, the rate determined by Bank, at which
the Bank could issue a certificate of deposit approximately equal in
amount to the respective amount prepaid for a term approximately equal
to the respective Prepayment Term, provided that such rate shall not be
less than the rate at which U.S. Treasury Notes are offered for purchase
at 10:00 a.m., Los Angeles time, as quoted on Telerate, page 5 or such
other, similar quotation source as of any relevant Prepayment Date for a
period approximately equal to the Prepayment Term; each of (a) and (b)
adjusted for all applicable assessments and reserve requirements.
"New Term Advances" means the aggregate amount of Term Advances
made between the date of this Agreement and the last day of the Funding
Period.
"Offering" means a public offering of securities by Motor Cargo
Industries, Inc., completed on or before December 31, 1997, and
complying with all applicable securities laws.
1997 CREDIT AGREEMENT -- Page 3
<PAGE> 4
"Obligations" shall mean all amounts owing by the Borrower to
the Bank pursuant to this Agreement including, but not limited to the
unpaid principal amount of Advances.
"Ordinary Course of Business" means, in respect of any
transaction involving the Borrower, the ordinary course of the
Borrower's business, as conducted by the Borrower in accordance with
past practice and undertaken by the Borrower in good faith and not for
purposes of evading any covenant or restriction in any Loan Document.
"Permitted Dividend" means a non-stock dividend payable either
(a) if the Offering is timely completed or (b) a one time non-stock
dividend if the Offering is not timely completed; provided, however,
that in such latter case, the amount of the dividend shall not exceed
the amount of the tax liability of the former partners of UTE Trucking
and Leasing, LLC attributable to their contribution of their equity
interests in such company to Motor Cargo Industries, Inc.
"Permitted Liens" shall mean:
(i) liens and security interests securing indebtedness
owed by the Borrower to the Bank;
(ii) liens for taxes, assessments or similar charges
either not yet due or being contested in good faith;
(iii) liens of materialmen, mechanics, warehousemen, or
carriers or other like liens arising in the Ordinary Course of
Business and securing obligations which are not yet delinquent;
(iv) purchase money liens or purchase money security
interests upon or in any real or personal property (including,
without limitation, truck terminals acquired after the date of
this Agreement) acquired or held by the Borrower in the Ordinary
Course of Business to secure Indebtedness outstanding on the
date hereof or incurred hereafter to the extent not prohibited
under Section 10;
(v) liens on equipment leased by the Borrower to the
extent rents payable in connection therewith are not prohibited
under Section 10; and
(vi) liens and security interests which, as of the date
hereof, have been disclosed to and approved by the Bank in
writing or which may hereafter be approved by the Bank in
writing.
"Prepayment" shall mean any principal payment made with respect
to a Fixed Rate Advance or Fixed Rate Term Advance on other than the
last day of the relevant Interest Period.
"Prepayment Date" shall mean the date of the respective
Prepayment.
"Prepayment Fee" shall mean the fee described in Section 5.
"Prepayment Term" shall mean, as of the Prepayment Date, the
number of years (or fraction thereof) from the Prepayment Date to the
last day of the Interest Period applicable to the Fixed Rate Advance or
Fixed Rate Term Advance being prepaid.
1997 CREDIT AGREEMENT -- Page 4
<PAGE> 5
"Reference Rate" shall mean an index for a variable interest
rate which is quoted, published or announced from time to time by the
Bank as its reference rate and as to which loans may be made by the Bank
at, below or above such rate.
"Revolving Credit Limit" means FIVE MILLION DOLLARS
($5,000,000).
"Revolving Expiration Date" means May 31, 1999 or the date of
termination of the Bank's commitment to lend under this Agreement
pursuant to Section 11.2, whichever shall occur first.
"Term Advance" means an advance made pursuant to Section 4.1.
"Term Credit Limit" means:
(a) during the Funding Period, the lesser of
(1) $12,703,202 to September 31, 1997,
$12,067,254 from September 31 1997 to December 31, 1997,
or
(2) The sum of (A) $9,703,254 through September
31, 1997 and $9,067,508 from September 31, 1997 through
December 31, 1997, plus (B) 100% of the cost of the
Equipment purchased with the proceeds of Term Advances
made after the date of this Agreement; and
(b) after the Funding Period, the principal balance
outstanding under this Agreement as of the close of business on
the last day of the Funding Period, reducing:
(1) on March 31, 1997 and on the last day of
each calendar quarter thereafter through and including
December 31, 2000, $636,230 plus 5% of gross amount of
New Term Advances,
(2) on March 31, 2001 and on the last day of
each calendar quarter thereafter through and including
December 31, 2001, $199,008 plus 5% of gross amount of
New Term Advances, and
(3) on March 31, 2002 and on the last day of
each calendar quarter thereafter through and including
September 31, 2002 plus 5% of gross amount of New Term
Advances.
"Term Expiration Date" means December 31, 2002 or the date of
termination of the Bank's commitment to lend under this Agreement
pursuant to Section 11.2, whichever shall occur first.
"Term Loan" means the loan described in Section 4.
"Variable Rate" means the Reference Rate.
"Variable Rate Advance" shall mean an Advance accruing interest
at the Variable Rate.
"Variable Rate Term Advance" means a Term Advance accruing
interest at the Variable Rate.
"Working Capital Term Advance" has the meaning given in Section
4.5.
1997 CREDIT AGREEMENT -- Page 5
<PAGE> 6
1.2. ACCOUNTING TERMS. All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with GAAP consistently applied and, except where otherwise specified,
all financial data submitted pursuant to this Agreement shall be prepared in
accordance with such principles.
1.3. OTHER TERMS. Other terms not otherwise defined shall have the
meanings attributed to such terms in the California Uniform Commercial Code. .
2. REVOLVING LINE OF CREDIT
2.1. PURPOSE/LIMIT. Subject to the terms and conditions herein, the Bank
agrees to make loans and advances (each an "Advance") to the Borrower, upon the
Borrower's request therefor made prior to the Revolving Expiration Date (the
"Line of Credit") provided that the aggregate amount of such Advances
outstanding at any time plus the then outstanding Letter of Credit Obligations
shall not exceed the Revolving Credit Limit. Any sums repaid under the Line of
Credit may be reborrowed prior to the Revolving Expiration Date.
2.2. PURPOSE. Advances shall be used for working capital purposes.
2.3. INTEREST. At Borrower's option, interest shall accrue from the date
of each Advance at a variable rate per annum equivalent to the Variable Rate
(each Advance so made a "Variable Rate Advance") or the applicable Fixed Rate
(each Advance so made a "Fixed Rate Advance").
EACH FIXED RATE ADVANCE IS SUBJECT TO THE PREPAYMENT PROHIBITIONS
AND PREPAYMENT FEES ENUMERATED IN SECTION 5 BELOW.
(a) NOTICE OF BORROWING. Upon telephonic notice which shall be
received by the Bank at or before 10:00 a.m. (California time) on a
Business Day, the Borrower may request an Advance by requesting:
(1) A Variable Rate Advance. A Variable Rate Advance may
be made on the day notice is received by the Bank; provided,
however, that if the Bank shall not have received notice at or
before 10:00 a.m. on the day such Advance is requested to be
made, such Variable Rate Advance may be made, at the Bank's
option, on the next Business Day.
(2) A Fixed Rate Advance. The Borrower may elect that an
Advance be made as a Fixed Rate Advance by requesting the Bank
to provide a quote as to the rate which would apply for a
designated Interest Period (the "Fixed Rate") and, concurrently
with receiving such quote, give the Bank irrevocable notice of
the Borrower's acceptance of the rate quoted provided such
notice shall be given to the Bank not more than two (2) Business
Days prior to but not later than 10:00 a.m. (California time) on
the day (which shall be a Business Day) on which the Borrower
requests such Fixed Rate Advance to be made.
(b) NOTICE OF ELECTION TO ADJUST INTEREST RATE. Upon written
notice to the Bank, the Borrower may elect:
(1) Conversion of a Variable Rate Advance. That interest
on a Variable Rate Advance be adjusted to accrue at the Fixed
Rate by requesting the Bank to provide a quote as to the rate
which would apply for a designated Interest Period (the "Fixed
Rate") and, concurrently with receiving such quote, give the
Bank irrevocable notice of the Borrower's acceptance of the rate
quoted provided such notice shall be given to the Bank not more
than two (2) Business Days prior to but not later than 10:00
a.m. (California time)
1997 CREDIT AGREEMENT -- Page 6
<PAGE> 7
on the day (which shall be a Business Day) on which the Borrower
requests such Variable Rate Advance be converted to a Fixed Rate
Advance.
(2) Conversion or Continuation of a Fixed Rate Advance.
That interest on a Fixed Rate Advance, effective on the last day
of the current Interest Period pertaining to such Fixed Rate
Advance, (i) continue to accrue at a Fixed Rate by requesting
the Bank to provide a quote as to the Fixed Rate which would
apply for a designated Interest Period and, concurrently with
receiving such quote, give the Bank irrevocable notice of the
Borrower's acceptance of the rate quoted provided such notice
shall be given to the Bank not more than two (2) Business Days
prior to but not later than 10:00 a.m. (California time) on the
last day of the then expiring Interest Period, (ii) be adjusted
to commence to accrue at the Variable Rate. If the Bank shall
not have received notice as prescribed herein of the Borrower's
election that interest on any Fixed Rate Advance shall continue
to accrue at the Fixed Rate, the Borrower shall be deemed to
have elected that interest thereon shall be adjusted to accrue
at the Variable Rate upon the expiration of the Interest Period
pertaining to such Fixed Rate Advance.
(c) CONFIRMATION. Bank may, at its option, confirm in writing
the terms of any Fixed Rate Advance which confirmation shall be
considered to be correct and conclusively binding on the Borrower unless
the Borrower notifies the Bank to the contrary within 5 days after the
Borrower's receipt of any such confirmation which it deems to be
incorrect.
(d) CALCULATION OF INTEREST. Interest at the Variable Rate shall
be adjusted concurrently with any change in the Reference Rate. Interest
at both the Variable Rate and the Fixed Rate shall be computed on the
basis of 360 days per year, but charged on the actual number of days
elapsed.
(e) PAYMENT OF INTEREST. The Borrower hereby promises and agrees
to pay interest, with respect to both Variable Rate Advances and Fixed
Rate Advances, on the last day of each month commencing on the first
such day to occur after the date of this Agreement. If interest is not
paid as it becomes due, it may be added to, become and be treated as a
part of the principal, and shall thereafter bear like interest.
2.4. PRINCIPAL. Unless sooner due in accordance with the terms of this
Agreement, the Borrower hereby promises and agrees to pay to the Bank in full
the aggregate unpaid principal amount of all Advances then outstanding on the
Revolving Expiration Date, together with all accrued and unpaid interest
thereon.
2.5. EXPIRATION OF LINE OF CREDIT. Unless earlier terminated in
accordance with the terms of this Agreement, the Bank's commitment to make
Advances to the Borrower hereunder shall automatically expire on the Revolving
Expiration Date and the Bank shall not be obligated to make any further Advance
thereafter.
2.6. LATE FEE. If any payment of interest or any portion thereof, is not
paid within ten (10) calendar days after it is due, a late payment charge equal
to five percent (5%) of such past due payment may be assessed and shall be
immediately payable.
2.7. DISBURSEMENT OF PROCEEDS FROM ADVANCES. Any Advance made hereunder
shall be conclusively presumed to have been made to and for the Borrower's
benefit when the proceeds of such Advance are disbursed in accordance with the
Borrower's instructions or deposited into a checking account of the Borrower
maintained at the Bank.
2.8. LINE ACCOUNT. The Bank shall maintain on its books a record of
account in which the Bank shall make entries for each Advance and such other
debits and credits as shall be appropriate in connection with each and the Line
of Credit (the "Line Account"). The Bank shall provide the Borrower with a
monthly statement of the Borrower's Line Account, which statement shall be
considered to be
1997 CREDIT AGREEMENT -- Page 7
<PAGE> 8
correct and conclusively binding on the Borrower unless the Borrower notifies
the Bank to the contrary within 30 days after the Borrower's receipt of any such
statement which it deems to be incorrect.
3. LETTERS OF CREDIT
3.1. ISSUANCE OF CREDITS. The Bank hereby agrees to issue Letters of
Credit for and on behalf of Borrower for the purpose of (a) supporting the
Borrower's workman's compensation self-insurance program, and (b) bonding and
liability insurance, provided that the aggregate amount of Advances outstanding
at any time plus the then outstanding Letter of credit Obligations shall not
exceed the Revolving Credit Limit. .
3.2. LETTER OF CREDIT GENERAL CONDITIONS.
(a) As a condition precedent to Bank's obligation to issue any
Letter of Credit hereunder, the Borrower shall pay to the Bank an
issuance fees for each Letter of Credit equal to one and one-quarter
percent (1.25%) per annum and shall promptly pay, upon request, such
other fees, commissions, costs and any out-of-pocket expenses charged or
incurred by the Bank with respect to any Letter of Credit.
(b) The commitment by the Bank to issue Letters of Credit shall,
unless earlier terminated in accordance with the terms of the Agreement,
automatically terminate on the Revolving Expiration Date and no Letter
of Credit shall expire, and no draft under a Letter of Credit shall be
payable on a date which is after the Revolving Expiration Date.
(c) Each Letter of Credit shall be in form and substance
satisfactory to the Bank and shall be in favor of beneficiaries
satisfactory to the Bank, provided that the Bank may refuse to issue a
Letter of Credit due to the nature of the transaction or its terms or in
connection with any transaction where the Bank, due to the beneficiary
or the nationality or residence of the beneficiary, would be prohibited
by any applicable law, regulation or order from issuing such Letter of
Credit.
(d) Prior to the issuance of each Letter of Credit, but in no
event later than 10:00 a.m. (California time) on the day such Letter of
Credit is to be issued (which shall be a Business Day), the Borrower
shall deliver to the Bank the Bank's standard form of application for
issuance of a standby letter of credit with proper insertions, duly
executed by Borrower.
3.3. DRAWINGS: Upon receipt from any beneficiary under a Letter of
Credit of a demand for payment under such Letter of Credit (each a "Drawing"),
the Bank shall promptly notify the Borrower. Each Drawing shall be payable in
full by the Borrower on the date thereof, without demand or notice of any kind.
If the Borrower desires to repay a Drawing from the proceeds of an Advance, the
Borrower may request an Advance in accordance with the terms and conditions of
this Agreement and, if disbursed on the date of such Drawing, shall be applied
in payment of such obligation by the Borrower. If any Drawing shall not be paid
when due in accordance with the terms of this Agreement, the Borrower shall
reimburse the Bank for each Drawing together with interest thereon until paid at
the Default Interest Rate. The obligation of the Borrower to reimburse the Bank
for Drawings shall be absolute, irrevocable, and unconditional under any and all
circumstances whatsoever and irrespective of any set-off, counterclaim or
defense to payment which the Borrower may have or have had against the Bank
(except such as may arise out of the Bank's gross negligence or willful
misconduct) or any other person, including, without limitation, and set-off,
counterclaim or defense based upon or arising out of:
(a) any lack of validity or enforceability of this Agreement or
any of the other Loan Docuents;
1997 CREDIT AGREEMENT -- Page 8
<PAGE> 9
(b) any amendment or waiver of or consent to departure from the
terms of any Letter of Credit;
(c) the existence of any claim, set-off, defense or other right
which the Borrower or any other person may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any person for
whom any such beneficiary or any such transferee may be acting); or
(d) any allegation that any demand, statement or any other
document presented under any Letter of Credit is forged, fraudulent,
invalid or insufficient in any respect, or any statement therein being
untrue or inaccurate in any respect whatsoever or any variations in
punctuation, capitalization, spelling or format of the drafts or any
statements presented in connection with any Drawing. .
3.4. RELEASE OF DOCUMENTS. The Bank shall not be obligated to release
any documents accompanying a Drawing under a Letter of Credit until such time as
the Borrower has paid the full amount of such Drawing. No past or future custom
or practice of releasing documents prior to receiving such payment shall operate
as a waiver of the Bank's right under this Section.
4. TERM LOAN
4.1. PURPOSE/LIMIT. The Bank agrees to make term advances (each a "Term
Advance") to the Borrower, upon the Borrower's request therefor made during the
Funding Period (the "Term Loan") provided that the aggregate amount of such Term
Advances outstanding at any time shall not exceed the Term Credit Limit. Any
sums repaid under the Term Loan may be reborrowed during the Funding Period only
as provided in Section 4.4.
4.2. PURPOSE. Term Advances shall be used (a) to finance the purchase of
Equipment and for working capital purposes and (b) to reimburse the Borrower for
Equipment purchased by the Borrower within four (4) months prior to the date of
this Agreement.
4.3. REIMBURSEMENTS. With respect to Term Advances made for purposes
described in Section 4.2(b), the Borrower shall submit to the Bank with a
schedule of Equipment purchased together with copies of invoices and/or bills of
sale evidencing the purchase and indicating the purchase price of each item and
the item's description (including, as applicable, motor number, vehicle
identification number, etc.). The Borrower shall grant the Bank a security
interest in each item of Equipment for which the Borrower is receiving
reimbursement. The proceeds of any such Term Advance shall be credited to the
Borrower's demand deposit account.
4.4. ACQUISITION TERM ADVANCES. Advances made for purposes described in
Section 4.2(a) shall be made according to the following procedures:
(a) The Borrower shall submit to the Bank an original Request for
Term Advance (each an "Term Advance Request") in the form attached as
Exhibit "A", completed and executed by the Borrower, together with
copies of invoices and/or bills of sale evidencing the purchase of
Equipment and indicating the purchase price of each item and the item's
description (including, as applicable, motor number, vehicle
identification number, etc.).
(b) The Borrower shall grant the Bank a security interest in each
item of Equipment being purchased with the proceeds of a Term Advance,
which security interest shall be a purchase money security interest.
(c) The Borrower shall provide the Bank with evidence
satisfactory to the Bank that the Bank's security interest in each item
of Equipment is, or before the Borrower receives possession of such
item, will be, perfected.
1997 CREDIT AGREEMENT -- Page 9
<PAGE> 10
(d) The proceeds of each Term Advance shall, unless otherwise
agreed by the Bank, be paid directly to the seller of the Equipment
being acquired.
4.5. INTEREST. At Borrower's option, interest shall accrue from the date
of each Term Advance at a variable rate per annum equivalent to the Variable
Rate (each Term Advance so made a "Variable Rate Term Advance") or the
applicable Fixed Rate (each Advance so made a "Fixed Rate Term Advance").
EACH FIXED RATE TERM ADVANCE IS SUBJECT TO THE PREPAYMENT
PROHIBITIONS AND PREPAYMENT FEES ENUMERATED IN SECTION 5 BELOW.
(a) NOTICE OF BORROWING. Subject to Section 4.3 during the
Funding Period, upon telephonic notice which shall be received by the
Bank at or before 10:00 a.m. (California time) on a Business Day, the
Borrower may request a Term Advance by requesting:
(1) A Variable Rate Term Advance. A Variable Rate Term
Advance may be made on the day notice is received by the Bank;
provided, however, that if the Bank shall not have received
notice at or before 10:00 a.m. on the day such Advance is
requested to be made, such Variable Rate Term Advance may be
made, at the Bank's option, on the next Business Day.
(2) A Fixed Rate Term Advance. The Borrower may elect
that an Advance be made as a Fixed Rate Term Advance by
requesting the Bank to provide a quote as to the rate which
would apply for a designated Interest Period (the "Fixed Rate")
and, concurrently with receiving such quote, give the Bank
irrevocable notice of the Borrower's acceptance of the rate
quoted provided such notice shall be given to the Bank not more
than two (2) Business Days prior to but not later than 10:00
a.m. (California time) on the day (which shall be a Business
Day) on which the Borrower requests such Fixed Rate Advance to
be made.
(b) NOTICE OF ELECTION TO ADJUST INTEREST RATE. Upon written
notice to the Bank, the Borrower may elect:
(1) Conversion of a Variable Rate Term Advance. That
interest on a Variable Rate Term Advance be adjusted to accrue
at the Fixed Rate by requesting the Bank to provide a quote as
to the rate which would apply for a designated Interest Period
(the "Fixed Rate") and, concurrently with receiving such quote,
give the Bank irrevocable notice of the Borrower's acceptance of
the rate quoted provided such notice shall be given to the Bank
not more than two (2) Business Days prior to but not later than
10:00 a.m. (California time) on the day (which shall be a
Business Day) on which the Borrower requests such Variable Rate
Term Advance be converted to a Fixed Rate Term Advance.
(2) Conversion or Continuation of a Fixed Rate Term
Advance. That interest on a Fixed Rate Term Advance, effective
on the last day of the current Interest Period pertaining to
such Fixed Rate Term Advance, (i) continue to accrue at a Fixed
Rate by requesting the Bank to provide a quote as to the Fixed
Rate which would apply for a designated Interest Period and,
concurrently with receiving such quote, give the Bank
irrevocable notice of the Borrower's acceptance of the rate
quoted provided such notice shall be given to the Bank not more
than two (2) Business Days prior to but not later than 10:00
a.m. (California time) on the last day of the then expiring
Interest Period, (ii) be adjusted to commence to accrue at the
Variable Rate. If the Bank shall not have received notice as
prescribed herein of the Borrower's election that interest on
any Fixed Rate Term Advance shall continue to accrue at the
Fixed Rate, the Borrower shall be deemed to have elected that
interest thereon shall be adjusted to accrue at the Variable
Rate upon the expiration of the Interest Period pertaining to
such Fixed Rate Term Advance.
1997 CREDIT AGREEMENT -- Page 10
<PAGE> 11
(c) CONFIRMATION. Bank may, at its option, confirm in writing the
terms of any Fixed Rate Term Advance which confirmation shall be
considered to be correct and conclusively binding on the Borrower unless
the Borrower notifies the Bank to the contrary within 5 days after the
Borrower's receipt of any such confirmation which it deems to be
incorrect.
(d) CALCULATION OF INTEREST. Interest at the Variable Rate shall
be adjusted concurrently with any change in the Reference Rate. Interest
at both the Variable Rate and the Fixed Rate shall be computed on the
basis of 360 days per year, but charged on the actual number of days
elapsed.
(e) PAYMENT OF INTEREST. The Borrower hereby promises and agrees
to pay interest, with respect to both Variable Term Advances and Fixed
Rate Term Advances, on the last day of each month commencing on the
first such day to occur after the date of this Agreement. If interest is
not paid as it becomes due, it may be added to, become and be treated as
a part of the principal, and shall thereafter bear like interest.
4.6. PRINCIPAL. Unless sooner due in accordance with the terms of this
Agreement, the Borrower hereby promises and agrees to pay to the Bank as of the
last day of each calendar quarter such amounts as are necessary such that the
outstanding principal balance of the Term Loan does not exceed the then
applicable Term Credit Limit. To the extent any such payment is required to be
applied against a Fixed Rate Term Advance, such payment shall be subject to
Section 5 below. On the Term Expiration Date, the then remaining principal
balance of the Term Loan and all accrued and unpaid interest shall be due and
payable.
4.7. FUNDING. Unless earlier terminated in accordance with the terms of
this Agreement, the Bank's commitment to make Term Advances to the Borrower
hereunder shall automatically expire on the last day f the Funding Period and
the Bank shall not be obligated to make any further Term Advance thereafter.
4.8. LATE FEE. If any payment of interest or principal, or any portion
thereof, is not paid within ten (10) calendar days after it is due, a late
payment charge equal to five percent (5%) of such past due payment may be
assessed and shall be immediately payable.
4.9. TERM ACCOUNT. The Bank shall maintain on its books a record of
account in which the Bank shall make entries for each Term Advance and such
other debits and credits as shall be appropriate in connection with each (the
"Term Account"). The Bank shall provide the Borrower with a monthly statement of
the Borrower's Term Account, which statement shall be considered to be correct
and conclusively binding on the Borrower unless the Borrower notifies the Bank
to the contrary within 30 days after the Borrower's receipt of any such
statement which it deems to be incorrect.
5. PREPAYMENT; INDEMNITY
5.1. PROHIBITION AGAINST PREPAYMENT. Notwithstanding anything to the
contrary in this Agreement, no prepayment shall be made on any Fixed Rate
Advance or Fixed Rate Term Advance except by reason of conversion pursuant to
Section 5.4, by reason of a required reduction in the aggregate principal amount
of Term Advances pursuant to Section 4.7, or by reason of acceleration pursuant
to Section 11.2 hereof.
5.2. PREPAYMENT FEE. Bank expects to incur or will incur certain
financial obligations in order to offer Borrower Fixed Rate Advances and Fixed
Rate Term Advances. In the event Borrower is required to prepay a Fixed Rate
Advance or Fixed Rate Term Advance before the end of the applicable Interest
Period, the Bank may incur certain costs and expenses which are a direct result
of Borrower's Prepayment(s). Such expenses would be difficult and costly to
determine at the time of occurrence. The parties agree that the prepayment fees
(each a "Prepayment Fee") described herein are reasonably approximate to the
Bank's actual damages as they can best be determined as of the date hereof.
1997 CREDIT AGREEMENT -- Page 11
<PAGE> 12
(a) PREPAYMENT FEE. In the event Borrower is required to prepay
all or a portion of a Fixed Rate Advance or a Fixed Rate Term Advance,
the Borrower shall pay Bank concurrently with any such Prepayment and as
compensation for the damages Bank is reasonably expected to incur, a
Prepayment Fee equal to the Lost Opportunity Rate times the Prepayment
Term times the amount of the Prepayment.
(b) UNAVAILABLE INDEX. In the event any index or rate described
herein cannot be determined on any date the same is to be determined,
the Bank shall make a good faith estimate such index or rate which
estimate shall be binding upon the parties. Absent manifest error, all
calculations made by Bank as to any index, rate or time period described
herein or the amount of any Prepayment Fee shall be conclusive and
binding upon all parties.
5.3. INDEMNIFICATION FOR COSTS. During any period of time in which a
Fixed Rate Advance or Fixed Rate Term Advance is outstanding, the Borrower
shall, upon Bank's request, promptly pay to and reimburse the Bank for all costs
incurred and payments made by Bank by reason of any future assessment, reserve,
deposit or similar requirements or any surcharge, tax or fee imposed upon Bank
or as a result of Bank's compliance with any directive or requirement of any
regulatory authority pertaining or relating to funds used by Bank in quoting and
determining the Fixed Rate. The Fixed Rate applicable to any Fixed Rate Advance
or Fixed Rate Term Advance for any Interest Period shall be automatically
adjusted during such Interest Period to reflect any change in the applicable
assessment, reserve or similar requirement provided, however, that any failure
or delay of the Bank to so adjust the Fixed Rate in any instance shall not be
deemed a waiver of the right to adjust the Fixed Rate for the same or any later
instance.
5.4. CONVERSION FROM FIXED RATE TO REFERENCE RATE. In the event that
Bank shall at any time determine that the accrual of interest on the basis of
the Fixed Rate is or has become unlawful or infeasible by reason of Bank's
compliance with any new law, rule, regulation, guideline or order, or any new
interpretation of any present law, rule, regulation, guideline or order, then
Bank shall give telephonic notice thereof (confirmed in writing) to the
Borrower, in which event any Fixed Rate Advance or Fixed Rate Term Advance shall
no longer be deemed to be a Fixed Rate Advance or Fixed Rate Term Advance and
interest shall thereupon immediately accrue at the Variable Rate, provided,
however, that in such event, the Prepayment Fee shall nonetheless be payable. .
6. OTHER LOAN TERMS
6.1. COLLATERAL. To secure payment and performance of all the
Borrower's Obligations under this Agreement and all other liabilities, loans,
guarantees, covenants and duties owed by the Borrower to the Bank, whether or
not evidenced by this or by any other agreement, absolute or contingent, due or
to become due, now existing or hereafter and howsoever created, the Borrower
hereby grants the Bank a security interest in and to (the "Collateral"):
(a) all accounts, deposit accounts, accounts receivable,
contract rights, chattel paper, instruments, documents, general
intangibles and all rights to payment of every kind now existing or
hereafter arising;
(b) all inventory, goods held for sale or lease or to be
furnished under contract of service, or goods so leased or furnished,
raw materials, components parts, work in progress and other materials
used or consumed in the Borrower's business, now or at any time
hereafter owned or acquired by the Borrower ("Inventory") , wherever
located, and all products thereof, whether in the possession of the
Borrower, any warehouseman, any bailee or any other person and whether
located at Borrower's places of business or elsewhere;
(c) all warehouse and other receipts, bills of sale, bills of
lading and other documents of every kind (whether or not negotiable) in
which Borrower now has or at any time hereafter acquires any interest,
and all additions and accessions thereto, including without limitation,
all bills
1997 CREDIT AGREEMENT -- Page 12
<PAGE> 13
of lading concerning any other Collateral subject hereto and all
warehouse and other receipts concerning any such other Collateral which
is in the possession or custody of the Borrower, any bailee or any other
person for any purpose.
(d) all money and property heretofore, now or hereafter
delivered to or deposited with, or otherwise coming into the possession,
custody or control of the Bank, in any manner of for any purpose
whatsoever during the existence if this Agreement and whether held in a
general or special account or deposit for safekeeping or otherwise;
(e) all right, title and interest of the Borrower under
licenses, guarantees, warranties, management agreements, marketing or
sales agreements, escrow contracts, indemnity agreements, insurance
policies, service agreements, maintenance agreements and other similar
contracts of every kind in which the Borrower now has or at any time
hereafter shall have an interest;
(f) all goods, tools, machinery, furnishings, furniture,
equipment and fixtures of every kind now owned or hereafter acquired by
the Borrower and financed with the proceeds of a Term Advance (including
the Initial Term Advance) and all appliances and parts therefore, and
all improvements, replacements, accessions and additions thereto,
whether located on any property owned or leased by the Borrower or
elsewhere, including without limitation, any of the foregoing now or at
any time hereafter located at or installed on the land or in the
improvements at any of the real property owned or leased by the
Borrower, and all such goods after they have been severed and removed
from any of said and removed from said real property ("Equipment"); and
(g) all trademarks and trademark applications, trade names,
trade secrets, business names, patents and patent applications,
licenses, copyrights and copyright applications, software, registrations
and franchise rights of the Borrower, and, in each case, all goodwill
associated therewith, and all books, records, client lists and account
information, ledger cards, files, correspondence, computer programs,
tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
together with whatever is receivable or received when any of the foregoing or
the 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"). The Bank's security interest in the
Collateral shall be a continuing lien and shall include the proceeds and
products of the Collateral including, but not limited to, the proceeds of any
insurance thereon.
6.2. GUARANTEE. All of Borrower's Obligations and the full and timely
performance by Borrower hereunder shall be unconditionally guaranteed in
writing, in form and substance satisfactory to Bank (the "Guarantee"), by each
Guarantor.
6.3. NATURE AND PLACE OF PAYMENTS. All payments made on account of the
Obligations shall be made without setoff or counterclaim in lawful money of the
United States of America in either immediately available or next day available
funds, free and clear of and without deduction for any taxes, fees or other
charges of any nature whatsoever imposed by any taxing authority (other than
California and United States income tax payable by the Bank), and must be
received by Bank by 2:00 p.m. (San Francisco time) on the day of payment, it
being expressly agreed and understood that if payment is received by the Bank
after 2:00 p.m. (San Francisco time), such payment will be considered to have
been made been made on the next succeeding Business Day and interest thereon
shall be payable at the then applicable rate during such extension. If any
payment required to be made by the Borrower hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the then
applicable rate during
1997 CREDIT AGREEMENT -- Page 13
<PAGE> 14
such extension. All payments required to be made hereunder shall be made to the
office of the Bank designated for the receipt of notices in Section 12.3 or such
other office as Bank shall from time to time designate.
6.4. OTHER AGREEMENTS. The Borrower and the Bank agree that:
(a) the 1996 Agreement is hereby superseded in its entirety by
this Agreement and that each Advance, Letter of Credit and Term Advance
outstanding or issued under the 1996 Agreement be deemed to be,
respectively, an Advance, Letter of Credit or Term Advance hereunder as
of the date of such Advance, Letter of credit or Term Advance was made
or issued as if this Agreement were in effect as of such date;
(b) the covenants and agreements, if any, contained in the 1993
Note and 1995 Agreement are superseded in their entirety by this
Agreement, provided that interest and parincip0al shall continue to
accrue and be payable as provided in the 1993 Note and 1995 Agreement,
respectively. .
7. CONDITIONS PRECEDENT
7.1. CONDITIONS PRECEDENT TO FIRST ADVANCE. Prior to making the first
Advance hereunder, the Borrower shall deliver or cause to be delivered to the
Bank, in form and substance satisfactory to the Bank:
(a) LOAN DOCUMENTS. This Agreement and all other documents,
instruments and agreements required or necessary to consummate the
transactions contemplated under this Agreement (collectively the "Loan
Documents"), all fully executed.
(b) EVIDENCE OF AUTHORITY. Evidence that the execution and
delivery of the Loan Documents have been duly authorized by all
necessary corporate action.
(c) GUARANTEES. The Guarantees described in Sections 6.2, duly
executed by each Guarantor together with such evidence that the
execution and delivery of such agreements by the respective Guarantor
has been duly authorized by all necessary corporate action.
(d) MISCELLANEOUS DOCUMENTS. Such other documents and opinions as
the Bank may require with respect to the transactions described in this
Agreement.
7.2. CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of the Bank to
make any Advance or Term Advance hereunder is subject to the further conditions
precedent that, as of the date of such Advance or Term Advance and after the
making thereof:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Section 8 hereof and in any other document,
instrument, agreement or certificate delivered to the Bank hereunder are
true and correct.
(b) EVENT OF DEFAULT. No event has occurred and is continuing
which constitutes, or, with the lapse of time or giving of notice or
both, would constitute an Event of Default as defined in Section 11.1
hereof.
(c) SECURITY INTEREST. The Bank's security interest in the
Collateral has been duly authorized, created and perfected of first
priority.
For the purposes hereof, the Borrower's acceptance of the proceeds of
any Advance and the Term Loan shall be deemed to constitute the Borrower's
representation and warranty that the statements set forth in this Section 7.2
above are true and correct.
1997 CREDIT AGREEMENT -- Page 14
<PAGE> 15
7.3. CONDITIONS PRECEDENT TO EQUIPMENT TERM ADVANCES. The obligation of
the Bank to make, during the Funding Period, any Equipment Term Advance (other
than the Initial Term Advance) hereunder is subject to the further conditions
precedent that:
(a) ADVANCE REQUEST. The Borrower shall have delivered to the
Bank a completed and executed Advance Request together with the required
accompanying documents.
(b) PURCHASE MONEY SECURITY INTEREST. The Bank shall have be
satisfied, in its sole judgment, that its security interest in the
Equipment being purchased with the proceeds of such Term Advance is a
purchase money security interest.
8. REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties
to the Bank, which representations and warranties are continuing:
8.1. STATUS. That the Borrower:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of Utah;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under, the
Loan Documents;
(c) is duly qualified as a foreign corporation, licensed and in
good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires
such qualification; and
(d) is in compliance with all applicable laws and regulations;
except, in each case referred to in clause (b) or clause (c), to the
extent that the failure to do so could not reasonably be expected to
have a material adverse effect.
8.2. AUTHORITY. The execution, delivery and performance by the Borrower
of this Agreement and any instrument, document or agreement required hereunder
have been duly authorized and do not and will not: (i) violate, in any material
respect, any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
application to the Borrower; (ii) result in a breach of or constitute a default
under any material indenture or loan or credit agreement or other material
agreement, lease or instrument to which the Borrower is a party or by which it
or its properties may be bound or affected; or (iii) require any consent or
approval of its stockholders or violate any provision of its articles of
incorporation or by-laws.
8.3. GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
governmental authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Borrower of
this Agreement or any other Loan Document.
8.4. LEGAL EFFECT. This Agreement has been duly executed and delivered
on behalf of the Borrower and constitutes, and any instrument, document or
agreement required hereunder when delivered hereunder will constitute, legal,
valid and binding obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms subject to insolvency laws and
equitable principles effecting creditors generally.
8.5. PLACE OF BUSINESS. Borrower regularly does business only in the
states of Utah, Montana, Texas, Wyoming, Idaho, Colorado, New Mexico, Arizona,
California, Washington, Oregon and
1997 CREDIT AGREEMENT -- Page 15
<PAGE> 16
Nevada. The Borrower will notify the Bank in writing prior to undertaking
regular business operations in any other state.
8.6. COLLATERAL. With respect to all of the Collateral, (i) the Borrower
is the sole owner of the Collateral (or, in the case of after-acquired
Collateral, at the time the Borrower acquires rights in the Collateral, will be
the sole owner thereof); (ii) all information heretofore, herein or hereafter
supplied to Bank by or on behalf of the Borrower with respect to the Collateral
is accurate and complete; and (iii) except for security interests in favor of
Bank, no person has (or, in the case of after-acquired Collateral, at the time
the Borrower acquires rights therein, will have) any right, title, claim or
interest (by way of security interest or other lien or otherwise) in, against or
to the Collateral.
8.7. PURCHASE MONEY SECURITY INTEREST. That the Bank's security interest
in Equipment purchased with the proceeds of a Term Advance will be a purchase
money security interest.
8.8. FINANCIAL STATEMENTS. All financial statements, information and
other data which may have been or which may hereafter be submitted by the
Borrower to the Bank are true, accurate and correct, with respect to year end
financial statements, have been or will be prepared in accordance with GAAP
consistently applied, and fairly represent the Borrower's financial condition
or, as applicable, the other information disclosed therein. Since the most
recent submission of any such financial statement, information or other data to
the Bank, the Borrower represents and warrants that no material adverse change
in the Borrower's financial condition has occurred which has not been fully
disclosed to the Bank in writing.
8.9. FICTITIOUS TRADE STYLES. Borrower is not, at present, doing
business under or using any trade style or fictitious name in connection with
its business operations. The Borrower shall notify the Bank not less than 30
days prior to using any other fictitious trade style at any future date,
indicating the trade style and state(s) of its use.
8.10. LITIGATION. Except as have been disclosed to the Bank in writing,
there are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or the Borrower's
properties before any court or administrative agency which, if determined
adversely to the Borrower, would have a material adverse effect on the
Borrower's financial condition or operations or the Collateral.
8.11. ERISA. If the Borrower has a pension, profit sharing or retirement
plan subject to ERISA, such plan has been and will continue to be funded in
accordance with its terms and otherwise complies with and continues to comply
with the requirements of ERISA.
8.12. TITLE TO ASSETS: The Borrower has good and marketable title to all
of its assets (including, but not limited to, the Collateral) and the same are
not subject to any security interest, encumbrance, lien or claim of any third
person except for Permitted Liens.
8.13. TAXES. The Borrower has filed all tax returns required to be filed
and paid all taxes shown thereon to be due, including interest and penalties,
other than taxes which are currently payable without penalty or interest or
those which are being duly contested in good faith.
8.14. ENVIRONMENTAL MATTERS. The operations of the Borrower complies,
and during the term of this Agreement will at all times comply, in all respects
with all Environmental Laws; the Borrower has obtained all licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for its Ordinary Course of Business, all
such Environmental Permits are in good standing, and the Borrower is in
compliance with all material terms and conditions of such Environmental Permits;
neither the Borrower nor any of its present property or operations is subject to
any outstanding written order from or agreement with any governmental authority
nor subject to any judicial or docketed administrative proceeding, respecting
any Environmental Law, Environmental Claim or Hazardous Material; there are no
Hazardous Materials or other conditions or circumstances existing, or arising
from operations prior to the date of this Agreement, with respect to any
property of the Borrower
1997 CREDIT AGREEMENT -- Page 16
<PAGE> 17
that would reasonably be expected to give rise to Environmental Claims;
provided, however, that with respect to property leased from an unrelated third
party, the foregoing representation is made to the best knowledge of the
Borrower. In addition, (i) the Borrower does not have any underground storage
tanks (x) that are not properly registered or permitted under applicable
Environmental Laws, or (y) that are leaking or disposing of Hazardous Materials
off-site, and (ii) the Borrower has notified all of their employees of the
existence, if any, of any health hazard arising from the conditions of their
employment and have met all notification requirements under Title III of CERCLA
and all other Environmental Laws.
9. FINANCIAL CONDITION; REPORTING
9.1. REPORTING AND CERTIFICATION REQUIREMENTS. The Borrower promises
and agrees, during the term of this Agreement and until full payment of all of
Borrower's Obligations hereunder, to deliver or cause to be delivered to the
Bank in form and detail satisfactory to the Bank:
(a) as soon as available but not later than 120 days after the
end of each of the Borrower's fiscal years, the CPA audited consolidated
and consolidating balance sheet of the Borrower as of the end of such
fiscal year and the related statements of income, shareholders' equity
and cash flows for such fiscal year, certified by the Borrower as being
complete and correct and fairly presenting, in accordance with GAAP, the
financial position and the results of operations of the Borrower;
(b) as soon as available, but not later than 30 days after the
end of each of the Borrower's fiscal quarters, a copy of the balance
sheet of the Borrower as of the end of such quarter and the related
statements of income and cash flows for the period commencing on the
first day of the fiscal year and ending on the last day of such quarter,
prepared and certified by the Borrower as being complete and correct and
fairly presenting the financial position and the results of operations
of the Borrower;
(c) as soon as available but not later than 30 days after the
end of each of the Borrower's fiscal quarters, an aging of receivables
and payables as of the end of such quarter;
(d) as soon as available but not later than 120 days after the
end of each of Guarantor's fiscal years, a copy of such Guarantor's
balance sheet as of the end of such fiscal year and the related
statements of income and shareholders' equity for such fiscal year,
certified by the Borrower as being complete and correct and fairly
presenting, in accordance with GAAP, the financial position and the
results of operations of the respective Guarantor;
(e) Promptly upon the Bank's request, such other information
pertaining to the Borrower or the Collateral as the Bank may reasonably
request.
9.2. FINANCIAL CONDITION. The Borrower promises and agrees, during the
term of this Agreement and until full payment of all of Borrower's Obligations
hereunder, the Borrower will maintain:
(a) A minimum Effective Tangible Net Worth of at least
$21,000,000 such minimum Effective Tangible New Worth to increased as of
the end of each fiscal year by not less than 75% of net, after-tax
income for the year then ending.
(b) A ratio of Debt to Effective Tangible Net Worth of not more
than 2.0 to 1.
(c) As of each fiscal year end, a ratio of (i) net, after tax
income plus non-cash expenditures (depreciation and amortization) for
the year then ending to (ii) the current portion long term debt, and as
of each June 30, a ratio of (i) net, after tax income plus non-cash
expenditures (depreciation and amortization) for each of the previous
four fiscal quarters to (ii) the current portion long term debt of not
less than 1.50 to 1.
(d) A net, after tax profit of not less than $1.00 at the end of
each fiscal year of the Borrower.
1997 CREDIT AGREEMENT -- Page 17
<PAGE> 18
9.3. ACCOUNTING RECORDS: The Borrower will maintain adequate books and
records in accordance with GAAP consistently applied and in a manner otherwise
acceptable to the Bank, and, at any reasonable time and from time to time,
permit the Bank or any representative thereof to examine and make copies of the
records and visit the properties of the Borrower and discuss the business and
operations of the Borrower with any employee or representative thereof. If the
Borrower shall maintain any records (including, but not limited to, computer
generated records or computer programs for the generation of such records) in
the possession of a third party, the Borrower hereby agrees to notify such third
party to permit the Bank free access to such records at all reasonable times and
to provide the Bank with copies of any records which it may request, all at the
Borrower's expense, the amount of which shall be payable immediately upon
demand. In addition, the Bank may, at any reasonable time and from time to time,
conduct inspections and audits of the Collateral and the Borrower's accounts
payable, the cost and expenses of which shall be paid by the Borrower to the
Bank upon demand.
10. OTHER COVENANTS
The Borrower covenants and agrees that, during the term of this
Agreement, and so long thereafter as the Borrower is indebted to the Bank under
this Agreement, the Borrower shall, unless the Bank otherwise consents in
writing:
10.1. PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS.
Maintain and preserve its existence and all rights and privileges now enjoyed;
not liquidate or dissolve, merge or consolidate with or into, or acquire any
other business organization; and conduct its business and operations in
accordance with all applicable laws, rules and regulations.
10.2. MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower operates and maintain such other insurance and coverages as may be
required by the Bank. All such insurance shall be in form and amount and with
companies satisfactory to the Bank. With respect to insurance covering Equipment
(or which is reimbursed to the Borrower by the Initial Advance), such insurance
(to the extent the Borrower has not "self insured" with respect to such
Equipment) shall name the Bank as loss payee pursuant to a loss payable
endorsement satisfactory to the Bank and shall not be altered or canceled except
upon 10 days' prior written notice to the Bank. Upon the Bank's request, the
Borrower shall furnish the Bank with the original policy or binder of all such
insurance.
10.3. LOCATION AND MAINTENANCE OF EQUIPMENT. Except as occurring in the
Ordinary Course of Business, the Equipment shall at all times be in the Debtor's
physical possession and shall not be held for sale or lease, shall be titled in
the State of Utah (if a certificate of title is issued therefor). The Borrower
shall not secrete, abandon or remove, or permit the removal of, the Equipment,
or any part thereof, from the location(s) shown above or remove or permit to be
removed any accessories now or hereafter placed upon the Equipment. The Borrower
shall, at the Borrower's sole cost and expense, keep and maintain the Equipment
in a good state of repair and shall not destroy, misuse, abuse, illegally use or
be negligent in the care of the Equipment or any part thereof. The Borrower
shall not remove, destroy, obliterate, change, cover, paint, deface or alter the
name plates, serial numbers, labels or other distinguishing numbers or
identification marks placed upon the Equipment or any part thereof by or on
behalf of the manufacturer, any dealer or rebuilder thereof, or the Bank. The
Borrower shall not be released from any liability to the Bank hereunder because
of any injury to or loss or destruction of the Equipment. The Borrower shall
allow the Bank and its representatives free access to and the right to inspect
the Equipment at all times and shall comply with the terms and conditions of any
leases covering the real property on which the Equipment is located and any
orders, ordinances, laws, regulations or rules of any federal, state or
municipal agency or authority having
1997 CREDIT AGREEMENT -- Page 18
<PAGE> 19
jurisdiction of such real property or the conduct of the business of the persons
having control or possession of the Equipment.
10.4. EQUIPMENT SCHEDULES. Upon the Bank's request, the Borrower shall
promptly provide the Bank with a complete and accurate description of the
Equipment including, as applicable, the make, model, identification number and
serial number of each item of Equipment. In addition, the Borrower shall
immediately notify the Bank of the acquisition of any new or additional
Equipment or the replacement of any existing Equipment and shall supply the Bank
with a complete description of any such additional or replacement Equipment.
10.5. INVENTORY. Borrower's Inventory is now and shall at all times
hereafter be of good and merchantable quality and free from defects; is not now
and shall not at any time hereafter be stored with a bailee, warehouseman or
similar party without the Bank's prior written consent; shall at all times be in
the Borrower's physical possession; shall not be held by any other party on
consignment, sale on approval, or sale or return; and, except as occurring in
the Ordinary Course of Business. The Borrower shall keep correct and accurate
records itemizing and describing the kind, type, quality and quantity of
inventory, the Borrower's cost therefor and selling price thereof, and the daily
withdrawals therefrom and additions thereto, all of which records shall be
available to the Bank or any representative thereof upon demand for inspection
and copying thereof at any reasonable time. At any reasonable time and from time
to time, the Borrower will allow Bank to, upon demand, inspect and examine
inventory and to check and test the same as to quality, quantity, value and
condition and the Borrower agrees to reimburse the Bank for the Bank's
reasonable costs and expenses in so doing.
10.6. PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all
assessments and taxes and all of its liabilities and obligations including, but
not limited to, trade payables, unless the same are being contested in good
faith by appropriate proceedings with the appropriate court or regulatory
agency. For purposes hereof, the Borrower's issuance of a check, draft or
similar instrument without delivery to the intended payee shall not constitute
payment.
10.7. LOANS: Not make any loans or advances or extend credit to any
third person, including, but not limited to, directors, officers, shareholders,
partners, employees, affiliated entities and subsidiaries of the Borrower,
except for (a) credit extended in the Ordinary Course of Business, (b) credit
extended to UTE Trucking and Leasing, LLC., and/or Motor Cargo Industries not
exceeding $3,000,000.00 in the aggregate outstanding at in time and (c) loans
not exceeding, in the aggregate, $250,000
10.8. PAYMENT OF DIVIDENDS. Not declare or pay any dividends on any
class of stock now or hereafter outstanding except dividends payable solely in
the Borrower's capital stock and Permitted Dividends. Borrower may declare or
pay Permitted Dividends only if
(a) on a year to date basis, as of the end of the most recent fiscal
quarter to the date of such declaration and as of the end of the most recent
fiscal quarter to the date of payment of such dividend,
(i) the ratio of Borrower's current assets less the amount of the
non-stock dividend to current liabilities would not be less than 1.10 to
1.0; and
(ii) the Borrower's ratio of (1) net, after tax income plus non-cash
expenditures (depreciation and amortization) for the twelve month period
then ended less the amount of the non-stock dividend to (2) the current
portion long term debt would not be less than 1.50 to 1; and
(b) after giving effect to the payment of any such Permitted Dividend,
the Borrower is otherwise in full compliance with all of the terms and
provisions of this Agreement.
10.9. REDEMPTION OR REPURCHASE OF STOCK: Not redeem or repurchase any
class of the Borrower's stock now or hereafter outstanding in an aggregate
amount exceeding twenty percent (20%) of the number of shares issued and
outstanding as of the date of this Agreement.
10.10. LIENS AND ENCUMBRANCES: Not create, assume or permit to exist any
security interest, encumbrance, mortgage, deed of trust, or other lien
(including, but not limited to, a lien of attachment,
1997 CREDIT AGREEMENT -- Page 19
<PAGE> 20
judgment or execution) affecting any of the Borrower's properties, or execute or
allow to be filed any financing statement or continuation thereof affecting any
of such properties, except for (a) Permitted Liens, and (b) liens securing
Indebtedness not exceeding that outstanding as of the date of this Agreement
increasing by $250,000 during each of the Borrower's fiscal years.
10.11. SELL OR TRANSFER ASSETS. Not, after the date hereof, sell,
contract for sale, convey, transfer, assign, lease or sublet, any of its assets
(including, but not limited to, the Collateral and any and all patents,
trademarks, trade styles and trade names) except in the Ordinary Course Business
and, then, only for full, fair and reasonable consideration.
10.12. CHANGE IN NATURE OF BUSINESS. Not make any material change in its
financial structure or the nature of its business as existing or conducted as of
the date hereof.
10.13. COMPENSATION OF EMPLOYEES. Compensate its employees for services
rendered at an hourly rate at least equal to the minimum hourly rate prescribed
by any applicable federal or state law or regulation.
10.14. NOTICES. Give prompt written notice to the Bank of:
(a) any and all Event(s) of Default and each event or occurrence
which, but for the giving of notice or the lapse of time, or both, would
be an Event of Default;
(b) any and all litigation, arbitration or administrative
proceedings to which the Borrower is a party and in which the claim or
liability exceeds $250,000 or which materially adversely affects the
Collateral taken as a whole;
(c) any other matter which has resulted in, or might result in, a
material adverse change in the Collateral or the financial condition or
affairs of the Borrower; and
(d) upon, but in no event later than 10 days after, becoming
aware of (i) any enforcement, cleanup, removal or other governmental or
regulatory actions instituted, completed or threatened against the
Borrower or any of its subsidiaries or any of their respective
properties pursuant to any applicable Environmental Laws, (ii) all other
Environmental Claims, and (iii) any environmental or similar condition
on any real property adjoining or in the vicinity of the property of the
Borrower or any subsidiary that could reasonably be anticipated to cause
such property or any part thereof to be subject to any restrictions on
the ownership, occupancy, transferability or use of such property under
any Environmental Laws, in each case where the cost of the remedial
action(s) or the amount of the Environmental Claim(s) exceed, in the
aggregate $250,000.
10.15. ENVIRONMENTAL LAWS. The Borrower shall conduct its operations and
keep and maintain all of its property in compliance with all Environmental Laws
and, upon the written request of the Bank, the Borrower shall submit to the
Bank, at the Borrower's sole cost and expense, at reasonable intervals, a report
providing an update of the status of any environmental, health or safety
compliance, hazard or liability issue identified in any notice or report
required pursuant to Subsection (d) of the immediate preceding Section.
10.16. FURTHER ASSURANCES. Execute and deliver all instruments, and
perform such acts, as the Bank may reasonably deem necessary or desirable to
confirm and secure to the Bank all rights and remedies conferred upon them by
this Agreement and all other documents related hereto.
11. DEFAULT
11.1. EVENTS OF DEFAULT. Any one or more of the following described
events shall constitute an event of default (an "Event of Default") under this
Agreement:
(a) NON-PAYMENT. The Borrower shall fail to pay any payment of
principal or interest or any other sum referred to in this Agreement
within 20 days of when due.
1997 CREDIT AGREEMENT -- Page 20
<PAGE> 21
(b) PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Borrower
shall fail in any material respect to perform or observe any term,
covenant or agreement contained in this Agreement, in any Loan Document,
or in any document instrument or agreement evidencing or relating to any
other Indebtedness of the Borrower to the Bank, and any such failure
(exclusive of the payment of money to the Bank under this Agreement or
under any other document, instrument or agreement, which failure shall
constitute and be an immediate Event of Default if not paid when due or
when demanded to be due) shall continue for more than 30 days after
written notice from the Bank to the Borrower of the existence and
character of such failure.
(c) OTHER INDEBTEDNESS. The Borrower (i) fails to make any
payment in respect of any Indebtedness having an aggregate principal
amount (including underway committed or available amounts and including
amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $100,000.00 when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) and
such failure continues after the applicable grace or notice period, if
any, specified in the document relating thereto on the date of such
failure; or (ii) fails to perform or observe any other condition or
covenant, or any other event shall occur or condition exist,
(irrespective of whether such non-performance or non-observance shall be
waived or otherwise excused by the holder or holders of such
Indebtedness) under any agreement or instrument relating to any such
Indebtedness, if the effect of such failure, event or condition is to
cause, or to permit the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Indebtedness (or a trustee or agent
on behalf of such holder or holders or beneficiary or beneficiaries) to
cause such Indebtedness to be declared to be due and payable prior to
its stated maturity, or cash collateral in respect thereof to be
demanded.
(d) REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any
representation or warranty made by the Borrower under or in connection
with this Agreement or any financial statement given by the Borrower
shall prove to have been incorrect in any material respect when made or
given or when deemed to have been made or given.
(e) INSOLVENCY. The Borrower shall: (i) become insolvent or be
unable to pay its debts as they mature; (ii) make an assignment for the
benefit of creditors or to an agent authorized to liquidate any
substantial amount of its properties or assets; (iii) file a voluntary
petition in bankruptcy or seeking reorganization or to effect a plan or
other arrangement with creditors; (iv) file an answer admitting the
material allegations of an involuntary petition relating to bankruptcy
or reorganization or join in any such petition; (v) become or be
adjudicated a bankrupt; (vi) apply for or consent to the appointment of,
or consent that an order be made, appointing any receiver, custodian or
trustee for itself or any of its properties, assets or affairs; or (vii)
any receiver, custodian or trustee shall have been appointed for all or
a substantial part of its properties, assets or affairs and shall not be
discharged within 30 days after the date of such appointment.
(f) EXECUTION. One or more writs of execution or attachment or
any judgment lien involving in the aggregate a liability or potential
liability (not fully covered by independent third party insurance) as to
any single or related series of transactions, incidents or conditions,
of $100,000 or more, shall be issued against a the Collateral and shall
not be discharged or bonded against or released within 30 days after the
issuance or attachment of such writ or lien.
(g) IMPAIRMENT OF COLLATERAL. There shall occur any material
deterioration or impairment of all or any part of the Collateral or any
decline or depreciation in the value or market price of the Collateral
which causes the Collateral, in the sole and absolute judgment of the
Bank, to become unacceptable as to character or value.
(h) REVOCATION OR LIMITATION OF GUARANTY. Any Guaranty shall be
revoked or limited or its enforceability or validity shall be contested
by any Guarantor, by operation of law, legal proceeding or otherwise or
any individual who is a Guarantor shall die, become incompetent or
1997 CREDIT AGREEMENT -- Page 21
<PAGE> 22
insane, or is placed under a conservatorship and a new Guarantor or
substitute performance acceptable to the Bank is not provided within
thirty (30) days.
(i) SUSPENSION. The Borrower shall voluntarily suspend the
transaction of business or allow to be suspended, terminated, revoked or
expired any permit, license or approval of any governmental body
necessary to conduct the Borrower's business as now conducted.
(j) CHANGE IN OWNERSHIP. There shall occur a sale, transfer,
disposition or encumbrance (whether voluntary or involuntary), or an
agreement shall be entered into to do so, with respect to more than 10%
of the issued and outstanding capital stock of the Borrower.
11.2. REMEDIES ON DEFAULT. Upon the occurrence of any Event of Default,
the Bank may, at its sole election, without demand and upon only such notice as
may be required by law:
(a) ACCELERATION. Declare any or all of the Borrower's
indebtedness owing to the Bank, whether under this Agreement or under
any other document, instrument or agreement, immediately due and
payable, whether or not otherwise due and payable.
(b) CEASE EXTENDING CREDIT. Cease making Advances or otherwise
extending credit to or for the account of the Borrower under this
Agreement or under any other agreement now existing or hereafter entered
into between the Borrower and the Bank.
(c) TERMINATION. Terminate this Agreement as to any future
obligation of the Bank without affecting the Borrower's obligations to
the Bank or the Bank's rights and remedies under this Agreement or under
any other document, instrument or agreement.
(d) SEGREGATE COLLECTIONS. Require the Borrower to segregate all
collections and proceeds of the Collateral so that they are capable of
identification and to deliver such collections and proceeds to the Bank,
in kind, without commingling, at such times and in such manner as
required by the Bank.
(e) RECORDS OF COLLATERAL. Require the Borrower to periodically
deliver to the Bank records and schedules showing the status, condition
and location of the Collateral and such contracts or other matters which
affect the Collateral. In connection herewith, the Bank may conduct such
audits or other examination of such records, including, but not limited
to, verification of balances owing by any account debtor of the
Borrower, as the Bank, in its sole and absolute discretion, deems
necessary.
(f) NOTIFICATION OF ACCOUNT DEBTORS.
(1) Notify any or all of the Borrower's account debtors,
buyers or transferees of the Collateral or other persons of the
Bank's interest in the Collateral and the proceeds thereof and
instruct such person(s) to thereafter make any payment due the
Borrower directly to the Bank.
(2) The Borrower hereby irrevocably constitutes and
appoints the Bank as its attorney-in-fact to (i) endorse the
Borrower's name on any notes, acceptances, checks, drafts, money
orders or other evidence of payment that may come into the Bank's
possession; (ii) sign the Borrower's name on any invoice or bill
of lading relating to any of the Collateral; (iii) notify post
office authorities to change the address for delivery of mail
addressed to the Borrower to such address as the Bank may
designate and take possession of and open mail addressed to the
Borrower and remove therefrom proceeds of and payments on the
Collateral; and (iv) demand, receive and enforce payment and give
receipts, releases and satisfactions for and sue for all money
payable to the Borrower. All of the preceding may be done either
in the name of the Bank or in the name of the Borrower with the
same force and effect as the Borrower could have done had this
Security Agreement not been entered into.
1997 CREDIT AGREEMENT -- Page 22
<PAGE> 23
(g) COMPROMISE. Grant extensions, compromise claims and settle
any account for less than the amount owing thereunder, all without
notice to the Borrower or any obligor on or any Guarantor of the
Indebtedness.
(h) PROTECTION OF SECURITY INTEREST IN COLLATERAL. Make such
payments and do such acts as the Bank, in its sole judgment, considers
necessary and reasonable to protect its security interest in the
Collateral. The Borrower hereby irrevocably authorizes the Bank to pay,
purchase, contest or compromise any encumbrance, lien or claim which the
Bank, in its sole judgment, deems to be prior or superior to its
security interest. Further, the Borrower hereby agrees to pay to the
Bank, upon demand therefor, all expenses and expenditures (including
reasonable and necessary attorneys' fees) incurred in connection with
the foregoing.
(i) FORECLOSURE. Apply, set off, collect or sell, only upon such
demands or notices as are required by law, the whole or any part of the
Collateral, in such order and manner as the Bank may elect. Any such
sale may be made by way of one or more sales and may be made at a public
or private sale at the Bank's place of business, at any broker's board
or securities exchange, or elsewhere. Any such sale may be for cash or
upon credit or for future delivery as such price as the Bank may deem to
be commercially reasonable. The Bank may be the purchaser of any or all
of the Collateral at any sale and shall thereafter own such Collateral
in its own right, free of any claim of the Borrower or right of
redemption. Any deficiency which exists after the disposition or
liquidation of the Collateral shall be a continuing liability of any
obligor or guarantor of the Obligations and shall be immediately paid to
the Bank.
(j) APPLICATION OF PROCEEDS. All amounts received by the Bank as
proceeds from the disposition or liquidation of the Collateral shall be
applied as follows: first, to prepayment penalties, if any; next, to the
costs and expenses of collection, including court costs and reasonable
attorneys' fees, whether or not suit is commenced by the Bank; next, to
those costs and expenses incurred by the Bank in protecting, preserving,
enforcing, collecting, selling or disposing of the Collateral; next, to
the payment of accrued and unpaid interest on all of the Obligations;
next, to the payment of the outstanding principal balance of the
Obligations; and last, to the payment of any other indebtedness owed by
the Borrower to the Bank. Any excess Collateral or excess proceeds
existing after the disposition or liquidation of the Collateral will be
returned or paid by the Bank to the Borrower.
(k) NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the
Bank's rights set forth herein or seek such other rights or pursue such
other remedies as may be provided by law, in equity or in any other
agreement now existing or hereafter entered into between the Borrower
and the Bank, or otherwise. .
12. MISCELLANEOUS PROVISIONS
12.1. AMOUNTS PAYABLE ON DEMAND. If the Borrower fails to pay on demand
any amount so payable under this Agreement, the Bank may, at its option and
without any obligation to do so and without waiving any default occasioned by
the Borrower's failure to pay such amount, create an Advance in an amount equal
to the amount so payable, which Advance shall thereafter bear interest as a
Variable Rate Advance.
12.2. DEFAULT INTEREST RATE. The Borrower shall pay to the Bank interest
on any indebtedness or amount payable under this Agreement, from the date that
such indebtedness or amount became due or was demanded to be due until paid in
full, at the Default Interest Rate.
12.3. NOTICES. Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given either (a)
upon actual receipt or five (5) days after
1997 CREDIT AGREEMENT -- Page 23
<PAGE> 24
deposit in the United States mail, registered or certified mail, postage
prepaid, return receipt requested; or (b) upon actual receipt if sent via
reputable overnight courier. All notices shall be addressed as follows:
<TABLE>
<S> <C>
If to Bank: If to Borrower:
Sanwa Bank California Motor Cargo
San Francisco Commercial Banking Center P.O. Box 2351
444 Market Street Salt Lake City, Utah 84110
San Francisco, California 94111 Attn: Lynn H. Wheeler
Attn: Gregory M. Tallerico
</TABLE>
or such other address as any party from time to time specify in writing to all
other parties.
12.4. RELIANCE. Each warranty, representation, covenant and agreement
contained in this Agreement shall be conclusively presumed to have been relied
upon by the Bank regardless of any investigation made or information possessed
by the Bank and shall be cumulative and in addition to any other warranties,
representations, covenants or agreements which the Borrower shall now or
hereafter give, or cause to be given, to the Bank.
12.5. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
12.6. ATTORNEY'S FEES. The Borrower agrees to pay or reimburse Bank
within five Business Days after demand for (i) all costs and expenses incurred
by Bank in connection with the development, preparation, delivery,
administration and execution of any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection therewith, and the
consummation of the transactions contemplated hereby and thereby, including the
reasonable attorney fees and costs incurred by Bank with respect thereto; and
(ii) all costs and expenses incurred by the Bank in connection with the
enforcement, attempted enforcement, or preservation of any rights or remedies
(including in connection with any restructuring regarding the Obligations and
including in any insolvency proceeding or appellate proceeding) under this
Agreement, any other Loan Document, and any such other documents, including
attorney fees incurred by the Bank; and (iii) in the event of any action in
relation to this Agreement or any document, instrument or agreement executed
with respect to, evidencing or securing the Obligations, the prevailing party,
in addition to all other sums to which it may be entitled, shall be entitled to
reasonable attorneys' fees.
12.7. WAIVER. Neither the failure nor delay by the Bank in exercising
any right hereunder or under any document, instrument or agreement mentioned
herein shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder or under any document, instrument or agreement
mentioned herein preclude other or further exercise thereof or the exercise of
any other right;
1997 CREDIT AGREEMENT -- Page 24
<PAGE> 25
nor shall any waiver of any right or default hereunder or under any other
document, instrument or agreement mentioned herein constitute a waiver of any
other right or default or constitute a waiver of any other default of the same
or any other term or provision.
12.8. CONFLICTING PROVISIONS. To the extent that any of the terms or
provisions contained in this Agreement are inconsistent with those contained in
any other document, instrument or agreement executed pursuant hereto, the terms
and provisions contained herein shall control. Otherwise, such provisions shall
be considered cumulative.
12.9. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the Bank's prior
written consent. The Bank may sell, assign or grant participations in all or any
portion of its rights and benefits hereunder. The Borrower agrees that, in
connection with any such sale, grant or assignment, the Bank may deliver to the
prospective buyer, participant or assignee financial statements and other
relevant information relating to the Borrower.
12.10. AMENDMENT. This Agreement may be amended only by instrument in
writing singed by the Bank and the Borrower.
12.11. JURISDICTION. THIS AGREEMENT, ANY NOTES ISSUED HEREUNDER, AND ANY
DOCUMENTS, INSTRUMENTS OR AGREEMENTS MENTIONED OR REFERRED TO HEREIN SHALL BE
GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES, TO THE JURISDICTION OF WHOSE
COURTS THE PARTIES HEREBY SUBMIT.
12.12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and each set of counterparts signed by all the parties shall
constitute one original.
12.13. SEVERABILITY. If any provision of this Agreement shall be
unenforceable for any reason, then the remaining provisions of this Agreement
shall be enforced without regard to such provision.
12.14. HEADINGS. The headings set forth herein are solely for the
purpose of identification and have no legal significance.
12.15. ENTIRE AGREEMENT. This Agreement and the Loan Documents shall
constitute the entire and complete understanding of the parties with respect to
the transactions contemplated hereunder. All previous conversations, memoranda
and writings between the parties or pertaining to the transactions contemplated
hereunder that are not incorporated or referenced in this Agreement or the Loan
Documents are superseded hereby.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first hereinabove written.
<TABLE>
<S> <C>
SANWA BANK CALIFORNIA MOTOR CARGO
a Utah corporation
By:______________________________________ By:________________________________________
Gregory M. Tallerico, Vice President Lynn H. Wheeler, Vice President, Finance
</TABLE>
1997 CREDIT AGREEMENT -- Page 25
<PAGE> 26
EXHIBIT "A"
REQUEST FOR A TERM ADVANCE
Reference is made to that certain 1997 Credit Agreement dated as of September
______, 1997 (the "Agreement") among SANWA BANK CALIFORNIA ("Bank") and MOTOR
CARGO (the "Borrower"). Capitalized terms used herein and not defined herein
shall have the meaning given such terms in the Agreement.
Pursuant to Section 4 of the Agreement the Borrower hereby requests the Bank
create a Term Advance in the amount of $_____________________________________.
Such Term Advance is for the purchase of the equipment described as follows:
<TABLE>
<CAPTION>
======================================================================================================
Manufacturer Year & Model Manufacturer's United States
Serial No. Registry No.
======================================================================================================
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
The Borrower hereby grants the Bank a security interest in each of the
foregoing.
The Bank is to directed to pay the proceeds of the Term Advance to the seller of
the equipment as follows (check only one):
[ ] By cashier's check to:
- --------------------------------------------------------------------------------
[ ] By wire transfer to:
- --------------------------------------------------------------------------------
(wire transfer instruction attached)
Attached are (check as applicable):
[ ] UCC-1 Financing Statement describing the Equipment suitable for
filing in each state where the Equipment is to be located.
[x] Copies of purchase invoices.
[ ] Evidence that the Bank will be shown as lienholder on each
certificate of title.
MOTOR CARGO
Dated: __________________ By: ______________________________________
___________________________________________
(name/title)
1997 CREDIT AGREEMENT -- Page 26
<PAGE> 1
EXHIBIT 10.4
ADOPTION AGREEMENT #005
NONSTANDARDIZED CODE [SECTION]401(k) PROFIT SHARING PLAN
The undersigned, Motor Cargo ("Employer"), by executing this Adoption
Agreement, elects to become a participating Employer in the West One Trust
Defined Contribution Master Plan (basic plan document #01) by adopting the
accompanying Plan and Trust in full as if the Employer were a signatory to that
Agreement. The Employer makes the following elections granted under the
provisions of the Master Plan.
ARTICLE I
DEFINITIONS
1.02 TRUSTEE. The Trustee executing this Adoption Agreement is:
(Choose (a) or (b))
[ ] (a) A discretionary Trustee. See Section 10.03[A] of the Plan.
[X] (b) A nondiscretionary Trustee. See Section 10.03[B] of the Plan. (Note:
The Employer may not elect Option (b) if a Custodian executes the
Adoption Agreement.]
1.03 PLAN. The name of the Plan as adopted by the Employer is Motor
Cargo Profit Sharing Plan.
1.07 EMPLOYEE. The following Employees are not eligible to
participate in the Plan: (Choose (a) or at least one of (b) through (g))
[X] (a) No exclusions.
[ ] (b) Collective bargaining employees (as defined in Section 1.07 of the
Plan). [Note: If the Employer excludes union employees from the Plan,
the Employer must be able to provide evidence that retirement benefits
were the subject of good faith bargaining.]
[ ] (c) Nonresident aliens who do not receive any earned income (as defined
in Code [SECTION]911(d)(2)) from the Employer which constitutes United
States source income (as defined in Code [SECTION]861(a)(3)).
[ ] (d) Commission Salesmen.
[ ] (e) Any Employee compensated on a salaried basis.
[ ] (f) Any employee compensated on an hourly basis.
[ ] (g) (Specify) ______________________________________________________
____________________________________________________________________
LEASED EMPLOYEES. Any Leased Employee treated as an Employee under Section 1.31
of the Plan, is: (Choose (h) or (i))
[X] (h) Not eligible to participate in the Plan.
[ ] (i) Eligible to participate in the Plan, unless excluded by reason of an
exclusion classification elected under this Adoption Agreement Section
1.07.
RELATED EMPLOYERS. If any member of the Employer's related group (as defined in
Section 1.30 of the Plan) executes a Participation Agreement to this Adoption
Agreement, such member's Employees are eligible to participate in this Plan,
unless excluded by reason of an exclusion classification elected under this
Adoption Agreement Section 1.07. In addition: (Choose (j) or (k))
[X] (j) No other related group member's Employees are eligible to
participate in the Plan.
[ ] (k) The following nonparticipating related group member's Employees are
eligible to participate in the Plan unless excluded by reason of an
exclusion classification elected under this Adoption Agreement Section
1.07:
____________________________________________________________________
____________________________________________________________________
<PAGE> 2
1.12 COMPENSATION.
TREATMENT OF ELECTIVE CONTRIBUTIONS. (Choose (a) or (b))
[ ] (a) "Compensation" includes elective contributions made by the Employer on
the Employee's behalf.
[X] (b) "Compensation" does not include elective contributions.
MODIFICATIONS TO COMPENSATION DEFINITION. (Choose (c) or at least one of (d)
through (j))
[ ] (c) No modifications other than as elected under Options (a) or (b).
[ ] (d) The Plan excludes Compensation in excess of $__________________.
[X] (e) In lieu of the definition in Section 1.12 of the Plan, Compensation
means any earnings reportable as W-2 wages for Federal income tax
withholding purposes, subject to any other election under this Adoption
Agreement Section 1.12.
[ ] (f) The Plan excludes bonuses.
[ ] (g) The Plan excludes overtime.
[ ] (h) The Plan excludes Commissions.
[ ] (i) Compensation will not include Compensation from a related employer (as
defined in Section 1.30 of the Plan) that has not executed a Participation
Agreement in this Plan unless, pursuant to Adoption Agreement Section 1.07,
the Employees of that related employer are eligible to participate in this
Plan.
[ ] (j) (Specify) ____________________________________________________________
__________________________________________________________________________.
If, for any Plan Year, the Plan uses permitted disparity in the contribution or
allocation formula elected under Article III, any election of Options (f), (g),
(h) or (j) is ineffective for such Plan Year with respect to any Nonhighly
Compensated Employee.
SPECIAL DEFINITION FOR MATCHING CONTRIBUTIONS. "Compensation" for purposes of
any matching contribution formula under Article III means: (Choose (k) or (l)
only if applicable)
[X] (k) Compensation as defined in this Adoption Agreement Section 1.12.
[ ] (l) (Specify) ____________________________________________________________
__________________________________________________________________________.
SPECIAL DEFINITION FOR SALARY REDUCTION CONTRIBUTIONS. An Employee's salary
reduction agreement applies to his Compensation determined prior to the
reduction authorized by that salary reduction agreement, with the following
exceptions: (Choose (m) or at least one of (n) or (o), if applicable)
[X] (m) No exceptions.
[ ] (n) If the Employee makes elective contributions to another plan maintained
by the Employer, the Advisory Committee will determine the amount of the
Employee's salary reduction contribution for the withholding period:
(Choose (1) or (2))
[ ] (1) After the reduction for such period of elective contributions
to the other plan(s).
[ ] (2) Prior to the reduction for such period of elective
contributions to the other plan(s).
[ ] (o) (Specify) ____________________________________________________________
_________________________________________________________________________.
1.17 PLAN YEAR/LIMITATION YEAR.
2
<PAGE> 3
PLAN YEAR. Plan Year means: (Chose (a) or (b))
[x] (a) The 12 consecutive month period ending every ______________________.
[ ] (b) (Specify) ____________________________________________________________.
LIMITATION YEAR. The Limitation Year is: (Choose (c) or (d))
[x] (c) The Plan Year.
[ ] (d) The 12 consecutive month period ending every _________________.
1.18 EFFECTIVE DATE.
NEW PLAN. The "Effective Date" of the Plan is ______________________.
RESTATED PLAN. The restated Effective Date is January 1, 1993. This Plan is a
substitution and amendment of an existing retirement plan(s) originally
established April 1, 1985. [Note: See the Effective Date Addendum.]
1.27 HOUR OF SERVICE. The crediting method for Hours of Service is
(Choose (a) or (b))
[x] (a) The actual method.
[ ] (b) The __________________________________ equivalency method, except:
[ ] (1) No exceptions.
[ ] (2) The actual method applies for purposes of: (Choose at least one)
[ ] (i) Participation under Article II.
[ ] (ii) Vesting under Article V.
[ ] (iii) Accrual of benefits under Section 3.06.
[Note: On the blank line, insert "daily," "weekly," "semi-monthly payroll
periods" or "monthly."]
1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor
service the Plan must credit by reason of Section 1.29 of the Plan, the Plan
credits Service with the following predecessor employer(s): Bonanza Truck
Company, Inc. and R & R Trucking. Service with the designated predecessor
employer(s) applies: (Choose at least one of (a) or (b); (c) is available only
in addition to (a) or (b))
[x] (a) For purposes of participation under Article II.
[x] (b) For purposes of vesting under Article V.
[ ] (c) Except the following Service: ______________________________.
[Note: If the Plan does not credit any predecessor service under this
provision, insert "N/A" in the first blank line. The Employer may attach a
schedule to this Adoption Agreement, in the same format as this Section 1.29,
designating additional predecessor employers and the applicable service
crediting elections.]
1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the Plan
and also participates in a plan maintained by the leasing organization: (Choose
(a) or (b)) N/A.
[ ] (a) The Advisory Committee will determine the Leased Employee's allocation
of Employer contributions under Article III without taking into account the
Leased Employee's allocation, if any, under the leasing organization's plan.
[ ] (b) The Advisory Committee will reduce a Leased Employee's allocation of
Employer nonelective
<PAGE> 4
contributions (other than designated qualified nonelective
contributions) under this Plan by the Leased Employee's allocation under
the leasing organization's plan, but only to the extent that allocation
is attributable to the Leased Employee's service provided to the
Employer. The leasing organization's plan:
[ ] (1) Must be a money purchase plan which would satisfy the
definition under Section 1.31 of a safe harbor plan,
irrespective of whether the safe harbor exception applies.
[ ] (2) Must satisfy the features and, if a defined benefit plan,
the method of reduction described in an addendum to this
Adoption Agreement, numbered 1.31.
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY.
ELIGIBILITY CONDITIONS. To become a Participant in the Plan, an Employee must
satisfy the following eligibility conditions: (Choose (a) or (b) or both; (c)
is optional as an additional election) N/A
[ ] (a) Attainment of age ___________ (specify age, not exceeding 21).
[X] (b) Service requirement. (Choose one of (1) through (3))
[X] (1) One Year of Service.
[ ] (2) ___________ months (not exceeding 12) following the
Employee's Employment Commencement Date.
[ ] (3) One Hour of Service.
[ ] (c) Special requirements for non-401(k) portion of plan. (Make elections
under (1) and under (2))
(1) The requirements of this Option (c) apply to participation in:
(Choose at least one of (i) through (iii))
[ ] (i) The allocation of Employer nonelective contributions
and Participant forfeitures.
[ ] (ii) The allocation of Employer matching contributions
(including forfeitures allocated as matching contributions).
[ ] (iii) The allocation of Employer qualified nonelective
contributions.
(2) For participation in the allocations described in (1), the
eligibility conditions are: (Choose at least one of (i) through (iv))
[ ] (i) ________ (one or two) Year(s) of Service, without an
intervening Break in Service (as described in Section 2.03(A)
of the Plan) if the requirement is two Years of Service.
[ ] (ii) ________ months (not exceeding 24) following the
Employee's Employment Commencement Date.
[ ] (iii) One Hour of Service.
[ ] (iv) Attainment of age ________ (Specify age, not exceeding
21).
PLAN ENTRY DATE. "Plan Entry Date" means the Effective Date and: (Choose (d),
(e) or (f))
[ ] (d) Semi-annual Entry Dates. The first day of the Plan Year and the first
day of the seventh month of the Plan Year.
[ ] (e) The first day of the Plan Year.
4
<PAGE> 5
[X] (f) (Specify entry dates) January 1, April 1, July 1, and October 1.
TIME OF PARTICIPATION. An Employee will become a Participant (and, if
applicable, will participate in the allocations described in Option (c)(1)),
unless excluded under Adoption Agreement Section 1.07, on the Plan entry Date
(if employed on that date): (Choose (g), (h) or (i))
[X] (g) immediately following
[ ] (h) immediately preceding
[ ] (i) nearest
the date the Employee completes the eligibility conditions described in Options
(a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement
Section 2.01. [Note: The Employer must coordinate the selection of (g), (h) or
(i) with the "Plan entry Date" selection in (d), (e) or (f). Unless otherwise
excluded under Section 1.07, the Employee must become a Participant by the
earlier of: (1) the first day of the Plan Year beginning after the date the
Employee completes the age and service requirements of Code [SECTION]410(a); or
(2) 6 months after the date the Employee completes those requirements.]
Dual eligibility. The eligibility conditions of this Section 2.01 apply to:
(Choose (j) or (k))
[X] (j) All Employees of the Employer, except (Choose (1) or (2))
[X] (1) No exceptions.
[ ] (2) Employees who are Participants in the Plan as of the
Effective Date.
[ ] (k) Solely to an Employee employed by the Employer after _________. If
the Employee was employed by the Employer on or before the specified
date, the Employee will become a Participant: (Choose (1), (2) or (3))
[ ] (1) On the latest of the Effective Date, his Employment Commencement
Date or the date he attains age _____________ (not to exceed 21).
[ ] (2) Under the eligibility conditions in effect under the Plan prior
to the restated Effective Date. If the restated Plan required more
than one Year of Service to participate, the eligibility condition
under this Option (2) for participation in the Code Section 401(k)
arrangement under this Plan is one year of Service for Plan Years
beginning after December 31, 1988. [For restated plans only]
[ ] (3) Specify ____________________________________________________
________________________________________________________________
2.02 YEAR OF SERVICE - PARTICIPATION
HOURS OF SERVICE. An Employee must complete: (Choose (a) or (b))
[X] (a) 1,000 Hours of Service
[ ] (b) _________________ Hours of Service
during an eligibility computation period to receive credit for a Year of
Service. [Note: The Hours of Service requirement may not exceed 1,000.]
ELIGIBILITY COMPUTATION PERIOD. After the initial eligibility computation
period described in Section 2.02 of the Plan, the Plan measures the eligibility
computation period as: (Choose (c) or (d))
[ ] (c) The 12 consecutive month period beginning with each anniversary of an
Employee's Employment Commencement Date.
[X] (d) The Plan Year, beginning with the Plan Year which includes the first
anniversary of the Employee's Employment Commencement Date.
5
<PAGE> 6
2.03 BREAK IN SERVICE -- PARTICIPATION. The Break in Service rule
described in Section 2.03(B) of the Plan: (Choose (a) or (b))
[X] (a) Does not apply to the Employer's Plan.
[ ] (b) Applies to the Employer's Plan.
2.06 ELECTION NOT TO PARTICIPATE. The Plan: (Choose (a) or (b))
[X] (a) Does not permit an eligible Employee or a Participant to elect not
to participate.
[ ] (b) Does permit an eligible Employee or a Participant to elect not to
participate in accordance with Section 2.06 and with the following rules:
(Complete (1), (2), (3) and (4))
(1) An election is effective for a Plan Year if filed no later
than _______________________________________________________.
(2) An election not to participate must be effective for at least
____ Plan Year(s).
(3) Following a re-election to participate, the Employee or
Participant:
[ ] (i) May not again elect not to participate for any subsequent
Plan Year.
[ ] (ii) May again elect not to participate, but not earlier than
the ________ Plan Year following the Plan Year in which the
re-election first was effective.
(4) (Specify) ___________________________________________________
________________________________________________ (Insert "N/A" if
no other rules apply).
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT.
PART I. [OPTIONS (a) THROUGH (g)] AMOUNT OF EMPLOYER'S CONTRIBUTION. The
Employer's annual contribution to the Trust will equal the total amount of
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions, as determined under this Section
3.01. (Choose any combination of (a), (b), (c) and (d), or choose (e))
[X] (A) DEFERRAL CONTRIBUTIONS (CODE SECTION 401(k) ARRANGEMENT). (Choose
(1) or (2) or both)
[X] (1) Salary reduction arrangement. The Employer must
contribute the amount by which the Participants have reduced
their Compensation for the Plan Year, pursuant to their salary
reduction agreements on file with the Advisory Committee. A
reference in the Plan to salary reduction contributions is a
reference to these amounts.
[ ] (2) Cash or deferred arrangement. The Employer will
contribute on behalf of each Participant the portion of the
Participant's proportionate share of the cash or deferred
contribution which he has not elected to receive in cash. See
Section 14.02 of the Plan. The Employer's cash or deferred
contribution is the amount the Employer may from time to time
deem advisable which the Employer designates as a cash or
deferred contribution prior to making that contribution to the
Trust.
[X] (b) MATCHING CONTRIBUTIONS. The Employer will make matching contributions
in accordance with the formula(s) elected in Part II of this Adoption
Agreement Section 3.01.
[X] (c) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS. The Employer, in its
sole discretion, may contribute
6
<PAGE> 7
an amount which it designated as a qualified nonelective contribution.
[X] (d) NONELECTIVE CONTRIBUTIONS. (Choose any combination of (1) through (4).
[X] (1) Discretionary contribution. The amount (or additional
amount) the Employer may from time to time deem advisable.
[ ] (2) The amount (or additional amount) the Employer may from
time to time deem advisable, separately determined for each of
the following classifications of Participants: (Choose (i) or
(ii)).
[ ] (i) Nonhighly Compensated Employees and Highly
Compensated Employees.
[ ] (ii) (Specify classifications) __________________________
___________________________________________________________.
Under this Option (2), the Advisory Committee will allocate
the amount contributed for each Participant classification in
accordance with Part II of Adoption Agreement Section 3.04, as
if the Participants in that classification were the only
Participants in the Plan.
[ ] (3) ____% of the Compensation of all participants under the
Plan, determined for the Employer's taxable year for which it
makes the contribution. [Note: The percentage selected may not
exceed 15%.]
[ ] (4) ____% of Net Profits but not more than $_______________.
[ ] (e) FROZEN PLAN. This Plan is a frozen Plan effective _____________________
_______________________. The Employer will not contribute to the Plan
with respect to any period following the stated date.
NET PROFITS. The Employer: (Choose (f) or (g))
[X] (f) Need not have Net Profits to make its annual contribution under this
Plan.
[ ] (g) Must have current or accumulated Net Profits exceeding $___________ to
make the following contributions: (Choose at least one)
[ ] (1) Cash or deferred contributions described in Option (a)(2).
[ ] (2) Matching contributions described in Option (b), except:
___________________________________.
[ ] (3) Qualified nonelective contributions described in Option (c).
[ ] (4) Nonelective contributions described in Option (d).
The term "Net Profits" means the Employer's net income or profits for any
taxable year determined by the Employer upon the basis of its books of account
in accordance with generally accepted accounting practices consistently applied
without any deductions for Federal and state taxes upon income or for
contributions made by the Employer under this Plan or under any other employee
benefit plan the Employer maintains. The term "Net Profits" specifically
excludes _______________________________________________________________________
________________________. [Note: Enter "N/A" if no exclusions apply.]
If the Employer requires Net Profits for matching contributions and the Employer
does not have sufficient Net Profits under Option (g), it will reduce the
matching contribution under a fixed formula on a prorata basis for all
Participants. A Participant's share of the reduced contribution will bear the
same ratio as the matching contribution the Participant would have received if
Net Profits were to the total matching contribution all Participants would have
received if Net Profits were sufficient. If more than one member of a related
group (as defined in Section 1.30) execute this Adoption Agreement, each
participating member will determine Net Profits separately but will not apply
this reduction unless, after combining the separately determined Net Profits,
the aggregate Net Profits are insufficient to satisfy the matching contribution
liability. "Net Profits" includes both current and accumulated Net Profits.
7
<PAGE> 8
PART II. [OPTIONS (h) THROUGH (j)] MATCHING CONTRIBUTION FORMULA. [Note: If the
Employer elected Option (b), complete Options (h), (i) and (j).]
[X] (h) AMOUNT OF MATCHING CONTRIBUTIONS. For each Plan Year, the Employer's
matching contribution is: (Choose any combination of (1), (2), (3), (4)
and (5))
[X] (1) An amount equal to 25% of each Participant's eligible
contributions for the Plan Year.
[ ] (2) An amount equal to __________% of each Participant's first tier of
eligible contributions for the Plan Year, plus the following matching
percentage(s) for the following subsequent tiers of eligible
contributions for the Plan Year: _____________________________________
______________________________________________________________________
_________________________________________________________.
[X] (3) Discretionary formula.
[X] (i) An amount (or additional amount) equal to a matching percentage
the Employer from time to time may deem advisable of the
Participant's eligible contributions for the Plan Year.
[ ] (ii) An amount (or additional amount) equal to a matching
percentage the Employer from time to time may deem advisable of
each tier of the Participant's eligible contributions for the Plan
Year.
[ ] (4) An amount equal to the following percentage of each Participant's
eligible contributions for the Plan Year, based on the Participant's
Years of Service:
Number of Years of Service Matching Percentage
-------------------------- -------------------
---------- ----------
---------- ----------
---------- ----------
---------- ----------
---------- ----------
The Advisory Committee will apply this formula by determining Years of
Service as follows:
______________________________________________________________________
__________________________.
[ ] (5) A Participant's matching contributions may not: (Choose (i) or
(ii))
[ ] (i) Exceed ______________________________________________________
__________________________________________________________________
_____________.
[ ] (ii) Be less than _______________________________________________
__________________________________________________________________
_____________.
RELATED EMPLOYERS. If two or more related employers (as defined in
Section 1.30) contribute to this Plan, the related employers may elect
different matching contribution formulas by attaching to the Adoption
Agreement a separately completed copy of this Part II. Note: Separate
matching contribution formulas create separate current benefit
structures that must satisfy the minimum participation test of Code
Section 401(a)(26).]
[X] (i) DEFINITION OF ELIGIBLE CONTRIBUTIONS. Subject to the requirements of
Option (j), the term "eligible contributions" means: (Choose any
combination of (1) through (3))
[X] (1) Salary reduction contributions.
8
<PAGE> 9
[ ] (2) Cash or deferred contributions (including any part of the
Participant's proportionate share of the cash or deferred
contribution which the Employer defers without the Participant's
election).
[ ] (3) Participant mandatory contributions, as designated in Adoption
Agreement Section 4.01. See Section 14.04 of the Plan.
[x] (j) AMOUNT OF ELIGIBLE CONTRIBUTIONS TAKEN INTO ACCOUNT. When determining a
Participant's eligible contributions taken into account under the matching
contributions formula(s), the following rules apply: (Choose any combination
of (1) through (4))
[ ] (1) The Advisory Committee will take into account all eligible
contributions credited for the Plan Year.
[X] (2) The Advisory Committee will disregard eligible contributions
exceeding six percent (6%) of participant's eligible compensation.
[ ] (3) The Advisory Committee will treat as the first tier of eligible
contributions, an amount not exceeding: ____________________________
___________________________________________________________________.
The subsequent tiers of eligible contributions are: ________________
____________________________________________________________________
___________________________________________________________________.
[ ] (4) (Specify) ______________________________________________________
____________________________________________________________________
___________________________________________________________________.
PART III. [OPTIONS (k) AND (l)]. SPECIAL RULES FOR CODE SECTION 401(k)
ARRANGEMENT. (Choose (k) or (l), or both, as applicable)
[X] (k) SALARY REDUCTION AGREEMENTS. The following rules and restrictions apply
to an Employee's salary reduction agreement: (Make a selection under (1),
(2), (3) and (4))
(1) Limitation on amount. The Employee's salary reduction
contributions: (Choose (i) or at least one of (ii) or (iii))
[ ] (i) No maximum limitation other than as provided in the Plan.
[X] (ii) May not exceed 15% of Compensation for the Plan Year,
subject to the annual additions limitation described in Part 2
of Article III and the 402(g) limitation described in Section
14.07 of the Plan.
[ ] (iii) Based on percentages of Compensation must equal at least
______________________________________________________________.
(2) An Employee may revoke, on a prospective basis, a salary reduction
agreement: (Choose (i), (ii), (iii) or (iv))
[ ] (i) Once during any Plan Year but not later than ___________
of the Plan Year.
[X] (ii) As of any Plan Entry Date.
[ ] (iii) As of the first day of any month.
[ ] (iv) (Specify, but must be at least once per Plan Year)
_______________________________________________________________.
(3) An Employee who revokes his salary reduction agreement may file a
new salary reduction agreement with an effective date: (Choose (i),
(ii), (iii) or (iv))
9
<PAGE> 10
[ ] (i) No earlier than the first day of the next Plan Year.
[X] (ii) As of any subsequent Plan Entry Date.
[ ] (iii) As of the first day of any month subsequent to the
month in which he revoked an Agreement.
[ ] (iv) (Specify, but must be at least once per Plan Year
following the Plan Year of revocation) _________________________
___________________________________________.
(4) A Participant may increase or may decrease, on a prospective basis,
his salary reduction percentage or dollar amount: (Choose (i), (ii),
(iii) or (iv))
[ ] (i) As of the beginning of each payroll period.
[ ] (ii) As of the first day of each month.
[X] (iii) As of any Plan Entry Date.
[ ] (iv) (Specify, but must permit an increase or a decrease at
least once per Plan Year) ______________________________________
_______________________________________.
[ ] (l) CASH OR DEFERRED CONTRIBUTIONS. For each Plan Year for which the
Employer makes a designated cash or deferred contribution, a Participant may
elect to receive directly in cash not more than the following portion (or,
if less, the 402(g) limitation described in Section 14.07 of the Plan) of
his proportionate share of that cash or deferred contribution: (Choose (1)
or (2)) N/A
[ ] (1) All or any portion.
[ ] (2) ___________________________________%.
3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions in accordance with Section 14.06
and the elections under this Adoption Agreement Section 3.04.
PART I. [OPTIONS (a) THROUGH (d)]. SPECIAL ACCOUNTING ELECTIONS. (Choose
whichever elections are applicable to the Employer's Plan)
[X] (a) MATCHING CONTRIBUTIONS ACCOUNT. The Advisory Committee will allocate
matching contributions to a Participant's: (Choose (1) or (2); (3) is
available only in addition to (1))
[X] (1) Regular Matching Contributions Account.
[ ] (2) Qualified Matching Contributions Account.
[ ] (3) Except, matching contributions under Option(s) _____________ of
Adoption Agreement Section 3.01 are allocable to the Qualified
Matching Contributions Account.
[X] (b) SPECIAL ALLOCATION DATES FOR SALARY REDUCTION CONTRIBUTIONS. The
Advisory Committee will allocate salary reduction contributions as of the
Accounting Date and as of the following additional allocation dates: As of
any day contributions are made into the trust account.
[X] (c) SPECIAL ALLOCATION DATES FOR MATCHING CONTRIBUTIONS. The Advisory
Committee will allocate matching contributions as of the Accounting Date and
as of the following additional allocation dates: As of any day contributions
are made to the trust account.
[X] (d) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS -- DEFINITION OF
PARTICIPANT. For purposes of allocating the designated qualified nonelective
contribution, "Participant" means: (Choose (1), (2) or (3))
[ ] (1) All Participants.
[X] (2) Participants who are Nonhighly Compensated Employees for the
Plan Year.
10
<PAGE> 11
[ ] (3) (Specify) ______________________________________.
PART II. METHOD OF ALLOCATION - NONELECTIVE CONTRIBUTION. Subject to any
restoration allocation required under Section 5.04, the Advisory Committee
will allocate and credit each annual nonelective contribution (and Participant
forfeitures treated as nonelective contributions) to the Employer Contributions
Account of each Participant who satisfies the conditions of Section 3.06, in
accordance with the allocation method selected under this Section 3.04. If the
Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of
Compensation allocated to all Participants, "Compensation" does not include any
exclusions elected under Adoption Agreement Section 1.12 (other than the
exclusion of elective contributions), and the Advisory Committee must take into
account the Participant's Compensation for the entire Plan Year. (Choose an
allocation method under (e), (f), (g) or (h); (i) is mandatory if the Employer
elects (f), (g) or (h); (j) is optional in addition to any other election.)
[X] (e) NONINTEGRATED ALLOCATION FORMULA. (Choose (1) or (2))
[X] (1) The Advisory Committee will allocate the annual nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all
Participants for the Plan Year.
[ ] (2) The Advisory Committee will allocate the annual nonelective
contributions in the same ratio that each Participant's Compensation for the
Plan Year bears to the total Compensation of all Participants for the Plan
Year. For purposes of this Option (2), "Participant" means, in addition to a
Participant who satisfies the requirements of Section 3.06 for the Plan Year,
any other Participant entitled to a top heavy minimum allocation under Section
3.04(B), but such Participant's allocation will not exceed 3% of his
Compensation for the Plan Year.
[ ] (f) TWO-TIERED INTEGRATED ALLOCATION FORMULA - MAXIMUM DISPARITY. First, the
Advisory Committee will allocate the annual Employer nonelective
contributions in the same ratio that each Participant's Compensation plus
Excess Compensation for the Plan Year bears to the total Compensation plus
Excess Compensation of all Participants for the Plan Year. The allocation
under this paragraph, as a percentage of each Participant's Compensation
plus Excess Compensation, must not exceed the applicable percentage (5.7%,
5.4% or 4.3%) listed under the Maximum Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for the
Plan Year bears to the total Compensation of all Participants for the Plan
Year.
[ ] (g) THREE-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions in the
same ratio that each Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year. The allocation under
this paragraph, as a percentage of each Participant's Compensation may not
exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the Maximum
Disparity Table following Option (i). Solely for purposes of the allocation in
this first paragraph, "Participant" means, in addition to a Participant who
satisfies the requirements of Section 3.06 for the Plan Year: (Choose (1) or
(2))
[ ] (1) No other Participant.
[ ] (2) Any other Participant entitled to a top heavy minimum allocation
under Section 3.04(B), but such Participant's allocation under this
Option (g) will not exceed 3% of his Compensation for the Plan Year.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's Excess
Compensation for the Plan Year bears to the total Excess Compensation of all
Participants for the Plan Year. The allocation under this paragraph, as a
percentage of each Participant's Excess Compensation, may not exceed the
allocation percentage in the first paragraph.
Finally, the Advisory Committee will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for the
Plan Year bears to the total Compensation of all Participants
11
<PAGE> 12
for the Plan Year.
[ ] (h) FOUR-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory Committee
will allocate the annual Employer nonelective contributions in the same
ratio that each Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year, but not exceeding
3% of each Participant's Compensation. Solely for purposes of this first
tier allocation, a "Participant" means, in addition to any Participant who
satisfies the requirements of Section 3.06 for the Plan Year, any other
Participant entitled to a top heavy minimum allocation under Section 3.04(B)
of the Plan.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's Excess
Compensation for the Plan Year bears to the total Excess Compensation of all
Participants for the Plan Year, but not exceeding 3% of each Participant's
Excess Compensation.
As a third tier allocation, the Advisory Committee will allocate the annual
Employer contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan year bears to the total
Compensation plus Excess Compensation of all Participants for the Plan Year.
The allocation under this paragraph, as a percentage of each Participant's
Compensation plus Excess Compensation, must not exceed the applicable
percentage (2.7%, 2.4% or 1.3%) listed under the Maximum Disparity Table
following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for the
Plan Year bears to the total Compensation of all participants for the Plan
Year.
[ ] (i) EXCESS COMPENSATION. For purposes of Option (f), (g) or (h), "Excess
Compensation" means Compensation in excess of the following Integration
Level: (Choose (1) or (2))
[ ] (1) ____% (not exceeding 100%) 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. (Choose any
combination of (i) and (ii) or choose (iii))
[ ] (i) Rounded to___________________________________________
(but not exceeding the taxable wage base).
[ ] (ii) But not greater than $____________________.
[ ] (iii) Without any further adjustment or limitation.
[ ] (2) $_____________________ [Note: Not exceeding the taxable wage
base for the Plan Year in which this Adoption Agreement first is
effective.]
MAXIMUM DISPARITY TABLE. For purposes of Options (f), (g) and (h), the
applicable percentage is:
<TABLE>
<CAPTION>
Integration Level (as Applicable Percentages for Applicable Percentages
percentage of taxable wage base) Option (f) or Option (g) for Option (h)
- -------------------------------- -------------------------- ----------------------
<S> <C> <C>
100% 5.7% 2.7%
More than 80% but less than 100% 5.4% 2.4%
More than 20% (but not less than
$10,001) and not more than 80% 4.3% 1.3%
20% (or $10,000, if greater) or less 5.7% 2.7%
</TABLE>
[ ] (j) ALLOCATION OFFSET. The Advisory Committee will reduce a Participant's
allocation otherwise made
12
<PAGE> 13
under Part II of this Section 3.04 by the Participant's allocation under
the following qualified plan(s) maintained by the Employer: ____________
_________________________________________________________________.
The Advisory Committee will determine this allocation reduction:
(Choose (1) or (2))
[ ] (1) By treating the term "nonelective contribution" as including
all amounts paid or accrued by the Employer during the Plan Year
to the qualified plan(s) referenced under this Option (j). If a
Participant under this Plan also participates in that other plan,
the Advisory Committee will treat the amount the Employer
contributes for or during a Plan Year on behalf of a particular
Participant under such other plan as an amount allocated under
this Plan to that Participant's Account for that Plan Year. The
Advisory Committee will make the computation of allocation
required under the immediately preceding sentence before making
any allocation of nonelective contributions under this Section
3.04.
[ ] (2) In accordance with the formula provided in an addendum to
this Adoption Agreement, numbered 3.04(j).
TOP HEAVY MINIMUM ALLOCATION -- METHOD OF COMPLIANCE. If a Participant's
allocation under this Section 3.04 is less than the top heavy minimum
allocation to which he is entitled under Section 3.04(B): (Choose (k) or (l))
[X] (k) The Employer will make any necessary additional contribution to the
Participant's Account, as described in Section 3.04(B)(7)(a) of the Plan.
[ ] (l) The Employer will satisfy the top heavy minimum allocation under the
following plan(s) it maintains: _________________________________________
____________________________________________________________. However, the
Employer will make any necessary additional contribution to satisfy the top
heavy minimum allocation for an Employee covered only under this Plan and
not under the other plan(s) designated in this Option (l). See Section
3.04(B)(7)(b) of the Plan.
If the Employer maintains another plan, the Employer may provide in an addendum
to this Adoption Agreement, numbered Section 3.04, any modifications to the
Plan necessary to satisfy the top heavy requirements under Code Section 416.
RELATED EMPLOYERS. If two or more related employers (as defined in Section
1.30) contribute to this Plan, the Advisory Committee must allocate all
Employer nonelective contributions (and forfeitures treated as nonelective
contributions) to each Participant in the Plan, in accordance with the
elections in this Adoption Agreement Section 3.04: (Choose (m) or (n))
[X] (m) Without regard to which contributing related group member employs the
Participant.
[ ] (n) Only to the Participants directly employed by the contributing
Employer. If a Participant receives Compensation from more than one
contributing Employer, the Advisory Committee will determine the
allocations under this Adoption Agreement Section 3.04 by prorating among
the participating Employers the Participant's Compensation and, if
applicable, the Participant's Integration Level under Option (i).
3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation
required under Sections 5.04 or 9.14, the Advisory Committee will allocate a
Participant forfeiture in accordance with Section 3.04: (Choose (a) or (b); (c)
and (d) are optional in addition to (a) or (b))
[ ] (a) As an Employer nonelective contribution for the Plan Year in which the
forfeiture occurs, as if the Participant forfeiture were an additional
nonelective contribution for that Plan Year.
[X] (b) To reduce the Employer matching contributions and nonelective
contributions for the Plan Year: (Choose (1) or (2))
[ ] (1) in which the forfeiture occurs.
[X] (2) immediately following the Plan Year in which the forfeiture
occurs.
13
<PAGE> 14
[X] (c) To the extent attributable to matching contributions: (Choose (1), (2)
or (3))
[X] (1) In the manner elected under Options (a) or (b).
[ ] (2) First to reduce Employer matching contributions for the Plan
Year: (Choose (i) or (ii))
[ ] (i) in which the forfeiture occurs,
[ ] (ii) immediately following the Plan Year in which the
forfeiture occurs, then as elected in Options (a) or (b).
[ ] (3) As a discretionary matching contribution for the Plan Year in
which the forfeiture occurs, in lieu of the manner elected under
Options (a) or (b).
[ ] (d) First to reduce the Plan's ordinary and necessary administrative
expenses for the Plan Year and then will allocate any remaining forfeitures in
the manner described in Options (a), (b) or (c), whichever applies. If the
Employer elects Option (c), the forfeitures used to reduce Plan expenses:
(Choose (1) or (2))
[ ] (1) relate proportionately to forfeitures described in Option (c)
and to forfeitures described in Options (a) or (b).
[ ] (2) relate first to forfeitures described in Option _______.
ALLOCATION OF FORFEITED EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee
will allocate any forfeited excess aggregate contributions (as described in
Section 14.09): (Choose (e), (f) or (g))
[X] (e) To reduce Employer matching contributions for the Plan Year (Choose (1)
or (2))
[ ] (1) in which the forfeiture occurs.
[X] (2) immediately following the Plan Year in which the forfeiture
occurs.
[ ] (f) As Employer discretionary matching contributions for the Plan Year
in which forfeited, except the Advisory Committee will not allocate these
forfeitures to the Highly Compensated Employees who incurred the
forfeitures.
[ ] (g) In accordance with Options (a) through (d), whichever applies, except
the Advisory Committee will not allocate these forfeitures under Option (a)
or under Option (c)(3) to the Highly Compensated Employees who incurred the
forfeitures.
3.06 ACCRUAL OF BENEFIT.
COMPENSATION TAKEN INTO ACCOUNT. For the Plan Year in which the Employee first
becomes a Participant, the Advisory Committee will determine the allocation of
any cash or deferred contribution, designated qualified nonelective contribution
or nonelective contribution by taking into account: (Choose (a) or (b))
[ ] (a) The Employee's Compensation for the entire Plan Year.
[X] (b) The Employee's Compensation for the portion of the Plan Year in which
the Employee actually is a Participant in the Plan.
ACCRUAL REQUIREMENTS. Subject to the suspension of accrual requirements of
Section 3.06(E) of the Plan, to receive an allocation of cash or deferred
contributions, matching contributions, designated qualified nonelective
contributions, nonelective contributions and Participant forfeitures, if any,
for the Plan Year, a Participant must satisfy the conditions described in the
following elections: (Choose (c) or at least one of (d) through (f))
[ ] (c) SAFE HARBOR RULE. If the Participant is employed by the Employer on the
last day of the Plan Year, the Participant must complete at least one Hour
of Service for that Plan Year. If the Participant is not employed by the
Employer on the last day of the Plan Year, the Participant must complete at
least 501 Hours of Service during the Plan Year.
[X] (d) HOURS OF SERVICE CONDITION. The Participant must complete the following
minimum number of Hours of Service during the Plan Year: (Choose at least
one of (1) through (5))
14
<PAGE> 15
[X] (1) 1,000 Hours of Service.
[ ] (2) (Specify, but the number of Hours of Service may not exceed
1,000) __________.
[X] (3) No Hour of Service requirement if the Participant terminates
employment during the Plan Year on account of: (Choose (i), (ii)
or (iii))
[X] (i) Death.
[X] (ii) Disability.
[X] (iii) Attainment of Normal Retirement Age in the current Plan
Year or in a prior Plan Year.
[ ] (4) __________ Hours of Service (not exceeding 1,000) if the
Participant terminates employment with the Employer during the Plan
Year, subject to any election in Option (3).
[X] (5) No Hour of Service requirement for an allocation of employer
matching contributions made from January 1, 1993 to September 30,
1993.
[X] (e) EMPLOYMENT CONDITION. The Participant must be employed by the Employer
on the last day of the Plan Year, irrespective of whether he satisfies any
Hours of Service condition under Option (d), with the following exceptions:
(Choose (1) or at least one of (2) through (5))
[ ] (1) No exceptions.
[X] (2) Termination of employment because of death.
[X] (3) Termination of employment because of disability.
[X] (4) Termination of employment following attainment of Normal
Retirement Age.
[ ] (5) No employment condition for the following
contributions:___________________.
[X] (f) Effective beginning October 1, 1993: Participant must be employed by
the employer on the last day of the calendar quarter, irrespective of
whether he satisfies any Hours of Service condition under option (d) in
order to receive an allocation of employer matching contribution. There
shall be no exceptions to this employment condition.
SUSPENSION OF ACCRUAL REQUIREMENTS. The suspension of accrual requirements of
Section 3.06(E) of the Plan: (Choose (g), (h) or (i))
[X] (g) Applies to the Employer's Plan.
[ ] (h) Does not apply to the Employer's Plan.
[ ] (i) Applies in modified form to the Employer's Plan, as described in an
addendum to this Adoption Agreement, numbered Section 3.06(E).
SPECIAL ACCRUAL REQUIREMENTS FOR MATCHING CONTRIBUTIONS. If the Plan allocates
matching contributions on two or more allocation dates for a Plan Year, the
Advisory Committee, unless otherwise specified in Option (l), will apply any
Hours of Service condition by dividing the required Hours of Service on a
prorata basis to the allocation periods included in that Plan Year.
Furthermore, a Participant who satisfies the conditions described in this
Adoption Agreement Section 3.06 will receive an allocation of matching
contributions (and forfeitures treated as matching contributions) only if the
Participant satisfies the following additional condition(s): (Choose (j) or at
least one of (k) or (l))
[X] (j) No additional conditions.
[ ] (k) The Participant is not a Highly Compensated Employee for the Plan
Year. This Option (k) applies to: (Choose (1) or (2))
[ ] (1) All matching contributions.
[ ] (2) Matching contributions described in Option(s) __________ of
Adoption Agreement Section
15
<PAGE> 16
3.01.
[ ] (l) (Specify) ____________________________________________________________
_________________________________________________________________________.
3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section 3.15
apply, the Excess Amount attributed to this Plan equals: (Choose (a), (b) or
(c))
[ ] (a) The product of:
(i) the total Excess Amount allocated as of such date (including any
amount which the Advisory Committee would have allocated but for the
limitations of Code Section 415), times
(ii) the ratio of (1) the amount allocated to the Participant as of
such date under this Plan divided by (2) the total amount allocated as
of such date under all qualified defined contribution plans (determined
without regard to the limitations of Code Section 415).
[X] (b) The total Excess Amount.
[ ] (c) None of the Excess Amount.
3.18 DEFINED BENEFIT PLAN LIMITATION.
APPLICATION OF LIMITATION. The limitation under Section 3.18 of the Plan:
(Choose (a) or (b))
[ ] (a) Does not apply to the Employer's Plan because the Employer does not
maintain and never has maintained a defined benefit plan covering any
Participant in this Plan.
[X] (b) Applies to the Employer's Plan. To the extent necessary to satisfy the
limitation under Section 3.18, the Employer will reduce: (Choose (1) or
(2))
[ ] (1) The Participant's projected annual benefit under the defined
benefit plan under which the Participant participates.
[X] (2) Its contribution or allocation on behalf of the Participant to
the defined contribution plan under which the Participant
participates and then, if necessary, the Participant's projected
annual benefit under the defined benefit plan under which the
Participant participates.
[Note: If the Employer selects (a), the remaining options in this Section 3.18
do not apply to the Employer's Plan.]
COORDINATION WITH TOP HEAVY MINIMUM ALLOCATION. The Advisory Committee will
apply the top heavy minimum allocation provisions of Section 3.04(B) of the
Plan with the following modifications: (Choose (c) or at least one of (d) or
(e))
[X] (c) No modifications.
[ ] (d) For Non-Key Employees participating only in this Plan, the top heavy
minimum allocation is the minimum allocation described in Section 3.04(B)
determined by substituting __________% (not less than 4% for "3%,"
except: (Choose (i) or (ii))
[ ] (i) No exceptions.
[ ] (ii) Plan Years in which the top heavy ratio exceeds 90%.
[ ] (e) For Non-Key Employees also participating in the defined benefit plan,
the top heavy minimum is: (Choose (1) or (2))
[ ] (1) 5% of Compensation (as determined under Section 3.04(B) of the
Plan) irrespective of the contribution rate of any Key Employee,
except: (Choose (i) or (ii))
[ ] (i) No exceptions.
16
<PAGE> 17
[ ] (ii) Substituting "7-1/2%" for "5%" if the top heavy ratio does
not exceed 90%.
[ ] (2) 0%. [Note: The Employer may not select this Option (2) unless
the defined benefit plan satisfies the top heavy minimum benefit
requirements of Code Section 416 for these Non-Key Employees.]
ACTUARIAL ASSUMPTIONS FOR TOP HEAVY CALCULATION. To determine the top heavy
ratio, the Advisory Committee will use the following interest rate and
mortality assumptions to value accrued benefits under a defined benefit plan:
_____________________________________________________________________________
_____________________________________________________________________________
If the elections under this Section 3.18 are not appropriate to satisfy the
limitations of Section 3.18, or the top heavy requirements under Code
Section 416, the Employer must provide the appropriate provisions in an
addendum to this Adoption Agreement.
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (Choose (a) or
(b); (c) is available only with (b))
[X] (a) Does not permit Participant nondeductible contributions.
[ ] (b) Permits Participant nondeductible contributions, pursuant to Section
14.04 of the Plan.
[ ] (c) The following portion of the Participant's nondeductible contributions
for the Plan Year are mandatory contributions under Option (i)(3) of
Adoption Agreement Section 3.01: (Choose (1) or (2))
[ ] (1) The amount which is not less than: __________________________
______________________________.
[ ] (2) The amount which is not greater than: _______________________
______________________________.
ALLOCATION DATES. The Advisory Committee will allocate nondeductible
contributions for each Plan Year as of the Accounting Date and the following
additional allocation dates: (Choose (d) or (e)) N/A
[ ] (d) No other allocation dates.
[ ] (e) (Specify) ____________________________________________________________
______________________________________________________________________________.
As of an allocation date, the Advisory Committee will credit all nondeductible
contributions made for the relevant allocation period. Unless otherwise
specified in (E), a nondeductible contribution relates to an allocation period
only if actually made to the Trust no later than 30 days after that allocation
period ends.
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Mandatory Contributions Account, if any, prior to his Separation
from Service: (Choose (a) or at least one of (b) through (d))
[X] (a) No distribution options prior to Separation from Service.
[ ] (b) The same distribution options applicable to the Deferral Contributions
Account prior to the Participant's Separation from Service, as elected in
Adoption Agreement Section 6.03.
[ ] (c) Until he retires, the Participant has a continuing election to receive
all or any portion of his Mandatory Contributions Account if: (Choose (1) or
at least one of (2) through (4))
[ ] (1) No conditions.
[ ] (2) The mandatory contributions have accumulated for at least _____
Plan Years since
17
<PAGE> 18
the Plan Year for which contributed.
[ ] (3) The Participant suspends making nondeductible contributions for
a period of ___________ months.
[ ] (4) (Specify) ______________________________________________________
_______________________________________________________________.
[ ] (d) (Specify) ______________________________________________________________
___________________________________________________________________.
ARTICLE V
TERMINATION OF SERVICE--PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is:
(Choose (a) or (b))
[X] (a) Sixty-five (65) [State age, but may not exceed age 65].
[ ] (b) The later of the date the Participant attains _____________ (____) years
of age or the ______________ (____) anniversary of the first day of the
Plan Year in which the Participant commenced participation in the Plan. [The
age selected may not exceed age 65 and the anniversary selected may not
exceed the 5th.]
5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under
Section 5.02 of the Plan: (Choose (a) or choose one or both of (b) and (c))
[ ] (a) Does not apply.
[X] (b) Applies to death.
[X] (c) Applies to disability.
5.03 VESTING SCHEDULE.
DEFERRAL CONTRIBUTIONS ACCOUNT/QUALIFIED MATCHING CONTRIBUTIONS
ACCOUNT/QUALIFIED NONELECTIVE CONTRIBUTIONS ACCOUNT/MANDATORY CONTRIBUTIONS
ACCOUNT. A Participant has a 100% Nonforfeitable interest at all times in his
Deferral Contributions Account, his Qualified Matching Contributions Account,
his Qualified Nonelective Contributions Account and in his Mandatory
Contributions Account.
REGULAR MATCHING CONTRIBUTIONS ACCOUNT/EMPLOYER CONTRIBUTIONS ACCOUNT. With
respect to a Participant's Regular Matching Contributions Account and Employer
Contributions Account, the Employer elects the following vesting schedule:
(Choose (a) or (b); (c) and (d) are available only as additional options)
[ ] (a) Immediate vesting. 100% Nonforfeitable at all times. [Note: The Employer
must elect Option (a) if the eligibility conditions under Adoption Agreement
Section 2.01(c) require 2 years of service or more than 12 months of
employment.]
<PAGE> 19
[X] (b) Graduated Vesting Schedules.
TOP HEAVY SCHEDULE NON TOP HEAVY SCHEDULE
(MANDATORY) (OPTIONAL)
Years of Nonforfeitable Years of Nonforfeitable
Service Percentage Service Percentage
- -------- -------------- -------- --------------
Less than 1.......... 0% Less than 1.......... 0%
--- ---
1................ 0% 1................ 0%
--- ---
2................ 20% 2................ 0%
--- ---
3................ 40% 3................ 20%
--- ---
4................ 60% 4................ 40%
--- ---
5................ 80% 5................ 60%
--- ---
6 or more........ 100% 6................ 80%
---
7 or more........ 100%
---
[ ] (c) Special vesting election for Regular Matching Contributions Account.
In lieu of the election under Options (a) or (b), the Employer elects the
following vesting schedule for a Participant's Regular Matching
Contributions Account: (Choose (1) or (2))
[ ] (1) 100% Nonforfeitable at all times.
[ ] (2) In accordance with the vesting schedule described in addendum to
this Adoption Agreement, numbered 5.03(c). [Note: If the Employer
elects this Option (c)(2), the addendum must designate the applicable
vesting schedule(s) using the same format as used in Option (b).]
[Note: Under Options (b) and (c)(2), the Employer must complete a Top Heavy
Schedule which satisfies Code Section 416. The Employer, at its option, may
complete a Non Top Heavy Schedule. The Non Top Heavy Schedule must satisfy Code
Section 411(a)(2). Also see Section 7.05 of the Plan.]
[X] (d) The Top Heavy Schedule under Option (b) (and, if applicable, under
Option (c)(2)) applies: (Choose (1) or (2))
[ ] (1) Only in a Plan Year for which the Plan is top heavy.
[X] (2) In the Plan Year for which the Plan first is top heavy and then
in all subsequent Plan Years. [Note: The Employer may not elect Option
(d) unless it has completed a Non Top Heavy Schedule.]
MINIMUM VESTING. (Choose (e) or (f))
[X] (e) The Plan does not apply a minimum vesting schedule.
[ ] (f) A Participant's Nonforfeitable Accrued Benefit will never be less than
the lesser of $__________ or his entire Accrued Benefit, even if the
application of a graduated vesting schedule under Options (b) or (c) would
result in a smaller Nonforfeitable Accrued Benefit.
LIFE INSURANCE INVESTMENTS. The Participant's Accrued Benefit attributable to
insurance contracts purchased on his behalf under Article XI is: (Choose (g)
or (h))
[X] (g) Subject to the vesting election under Options (a), (b) or (c).
[ ] (h) 100% Nonforfeitable at all times, irrespective of the vesting
election under Options (b) or (c)(2).
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/RESTORATION
OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in Section
5.04(C) of the Plan: (Choose (a) or (b))
19
<PAGE> 20
[ ] (a) Does not apply.
[X] (b) Will apply to determine the timing of forfeitures for 0% vested
Participants. A Participant is not a 0% vested Participant if he has a
Deferral Contributions Account.
5.06 YEAR OF SERVICE -- VESTING.
VESTING COMPUTATION PERIOD. The Plan measures a Year of Service on the basis of
the following 12 consecutive month periods: (Choose (a) or (b))
[X] (a) Plan Years.
[ ] (b) Employment Years. An Employment Year is the 12 consecutive month
period measured from the Employee's Employment Commencement Date and each
successive 12 consecutive month period measured from each anniversary of that
Employment Commencement Date.
HOURS OF SERVICE. The minimum number of Hours of Service an Employee must
complete during a vesting computation period to receive credit for a Year of
Service is: (Choose (c) or (d))
[X] (c) 1,000 Hours of Service.
[ ] (d) ________ Hours of Service. [Note: The Hours of Service requirement may
not exceed 1,000.]
5.08 INCLUDED YEARS OF SERVICE -- VESTING. The Employer specifically
excludes the following Years of Service: (Choose (a) or at least one of (b)
through (e))
[X] (a) None other than as specified in Section 5.08(a) of the Plan.
[ ] (b) Any Year of Service before the Participant attained the age of _________
(____). [Note: The age selected may not exceed age 18.]
[ ] (c) Any Year of Service during the period the Employer did not maintain
this Plan or a predecessor plan.
[ ] (d) Any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of 5 or the
aggregate number of the Years of Service prior to the Break. This exception
applies only if the Participant is 0% vested in his Accrued Benefit derived
from Employer contributions at the time he has a Break in Service.
Furthermore, the aggregate number of Years of Service before a Break in
Service do not include any Years of Service not required to be taken into
account under this exception by reason of any prior Break in Service.
[ ] (e) Any Year of Service earned prior to the effective date of ERISA if the
Plan would have disregarded that Year of Service on account of an Employee's
Separation from Service under a Plan provision in effect and adopted before
January 1, 1974.
ARTICLE VI
TIME AND METHOD OF PAYMENTS OF BENEFITS
CODE SECTION 411(d)(6) PROTECTED BENEFITS. The elections under this Article VI
may not eliminate Code Section 411(d)(6) protected benefits. To the extent the
elections would eliminate a Code Section 411(d)(6) protected benefit, see
Section 13.02 of the Plan. Furthermore, if the elections liberalize the
optional forms of benefit under the Plan, the more liberal options apply on the
later of the adoption date or the Effective Date of this Adoption Agreement.
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT.
DISTRIBUTION DATE. A distribution date under the Plan means any day of the plan
year. [Note: The Employer must specify the appropriate date(s). The specified
distribution dates primarily establish annuity starting dates and the notice
and consent periods prescribed by the Plan. The Plan allows the Trustee an
administratively practicable period of time to make the actual distribution
relating to a particular distribution date.]
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<PAGE> 21
NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500. Subject to the limitations
of Section 6.01(A)(1), the distribution date for distribution of a
Nonforfeitable Accrued Benefit not exceeding $3,500 is: (Choose (a), (b), (c),
(d) or (e))
[ ] (a) _________________ of the _________________ Plan Year beginning after
the Participant's Separation from Service.
[X] (b) The next distribution date following completion of the next valuation
following the Participant's Separation from Service.
[ ] (c) _________________ of the Plan Year after the Participant incurs
_________________ Break(s) in Service (as defined in Article V).
[ ] (d) _________________ following the Participant's attainment of Normal
Retirement Age, but not earlier than _________________ days following his
Separation from Service.
[ ] (e) (Specify) ______________________________________________________
____________________________________________________________________.
NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. See the elections under Section
6.03.
DISABILITY. The distribution date, subject to Section 6.01(A)(3), is: (Choose
(f), (g) or (h))
[ ] (f) _________________ after the Participant terminates employment because
of disability.
[X] (g) The same as if the Participant had terminated employment without
disability.
[ ] (h) (Specify) ______________________________________________________
____________________________________________________________________.
HARDSHIP. (Choose (i) or (j))
[X] (i) The Plan does not permit a hardship distribution to a Participant who
has separated from Service.
[ ] (j) The Plan permits a hardship distribution to a Participant who has
separated from Service in accordance with the hardship distribution policy
stated in: (Choose (1), (2) or (3))
[ ] (1) Section 6.01(A)(4) of the Plan.
[ ] (2) Section 14.11 of the Plan.
[ ] (3) The addendum to this Adoption Agreement, numbered Section 6.01.
DEFAULT ON A LOAN. If a Participant or Beneficiary defaults on a loan made
pursuant to a loan policy adopted by the Advisory Committee pursuant to Section
9.04, the Plan: (Choose (k), (l) or (m))
[X] (k) Treats the default as a distributable event. The Trustee, at the time of
the default, will reduce the Participant's Nonforfeitable Accrued Benefit
by the lesser of the amount in default (plus accrued interest) or the Plan's
security interest in that Nonforfeitable Accrued Benefit. To the extent the
loan is attributable to the Participant's Deferral Contributions Account,
Qualified Matching Contributions Account or Qualified Nonelective
Contributions Account, the Trustee will not reduce the Participant's
Nonforfeitable Accrued Benefit unless the Participant has separated from
Service or unless the Participant has attained age 59-1/2.
[ ] (l) Does not treat the default as a distributable event. When an otherwise
distributable event first occurs pursuant to Section 6.01 or Section 6.03 of
the Plan, the Trustee will reduce the Participant's Nonforfeitable Accrued
Benefit by the lesser of the amount in default (plus accrued interest) or the
Plan's security interest in that Nonforfeitable Accrued Benefit.
21
<PAGE> 22
[ ] (m) (Specify) ____________________________________________________________
_______________________________________________________________________________
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will
apply Section 6.02 of the Plan with the following modifications: (Choose (a) or
at least one of (b), (c), (d) and (e))
[ ] (a) No modifications.
[ ] (b) Except as required under Section 6.01 of the Plan, a lump sum
distribution is not available:___________________________________________
__________________________________________________________________________
________________________________________________________________.
[X] (c) An installment distribution: (Choose (1) or at least one of (2) or (3))
[X] (1) Is not available under the Plan.
[ ] (2) May not exceed the lesser of __________________ years or the
maximum period permitted under Section 6.02.
[ ] (3) (Specify) _____________________________________________________
_____________________________________________________________________
________________________________.
[ ] (d) The Plan permits the flowing annuity options: _______________________
_________________________________________________________________________
___________________________________________________________________.
Any Participant who elects a life annuity option is subject to the
requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See Section
6.04(E). [Note: The Employer may specify additional annuity options in an
addendum to this Adoption Agreement, numbered 6.02(d).]
[ ] (e) If the Plan invests in qualifying Employer securities, as described in
Section 10.03(F), a Participant eligible to elect distribution under
Section 6.03 may elect to receive that distribution in Employer securities
only in accordance with the provisions of the addendum to this Adoption
Agreement, numbered 6.02(e).
6.03 BENEFIT PAYMENT ELECTIONS.
PARTICIPANT ELECTIONS AFTER SEPARATION FORM SERVICE. A Participant who is
eligible to make distribution elections under Section 6.03 of the Plan may
elect to commence distribution of his Nonforfeitable Accrued Benefit: (Choose
at least one of (a) through (c))
[ ] (a) As of any distribution date, but not earlier than ____________________
_______________ of the _____________________________________ Plan Year
beginning after the Participant's Separation from Service.
[X] (b) As of the following date(s): (Choose at least one of Options (1)
through (6))
[ ] (1) Any distribution date after the close of the Plan Year in which
the Participant attains Normal Retirement Age.
[X] (2) Any distribution date following his Separation from Service with
the Employer.
[ ] (3) Any distribution date in the _________________ Plan Year(s)
beginning after his Separation from Service.
[ ] (4) Any distribution date in the Plan Year after the Participant incurs
_____________________ Break(s) in Service (as defined in Article V).
22
<PAGE> 23
[ ] (5) Any distribution date following attainment of age _____
and completion of at least _____ Years of Service (as defined
in Article V.)
[ ] (6) (Specify) ________________________________________________
______________________________________________________________.
[ ] (c) (Specify) _____________________________________________________________
__________________________________________________________________________.
The distribution events described in the election(s) made under Options
(a), (b) or (c) apply equally to all Accounts maintained for the Participant
unless otherwise specified in Option (c).
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE -- REGULAR MATCHING
CONTRIBUTIONS ACCOUNT AND EMPLOYER CONTRIBUTIONS ACCOUNT. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Regular Matching Contributions Account and Employer Contributions
Account prior to his Separation from Service: (Choose (d) or at least one of
(e) through (h))
[X] (d) No distribution options prior to Separation from Service.
[ ] (e) Attainment of Specified Age. Until he retires, the Participant has a
continuing election to receive all or any portion of his Nonforfeitable
interest in these Accounts after he attains: (Choose (1) or (2))
[ ] (1) Normal Retirement Age.
[ ] (2) _____ years of age and is at least _____% vested in these
Accounts. [Note: If the percentage is less than 100%, see the
special vesting formula in Section 5.03.]
[ ] (f) After a Participant has participated in the Plan for a period of not
less than _____ years and he is 100% vested in these Accounts, until he
retires, the Participant has a continuing election to receive all or any
portion of the Accounts. [Note: The number in the blank space may not be
less than 5.]
[ ] (g) Hardship. A Participant may elect a hardship distribution prior to his
Separation from Service in accordance with the hardship distribution policy:
(Choose (1), (2) or (3); (4) is available only as an additional option)
[ ] (1) Under Section 6.01(A)(4) of the Plan.
[ ] (2) Under Section 14.11 of the Plan.
[ ] (3) Provided in the addendum to this Adoption Agreement,
numbered Section 6.03.
[ ] (4) In no event may a Participant receive a hardship
distribution before he is at least ____% vested in these
Accounts. [Note: If the percentage in the blank is less than
100%, see the special vesting formula in Section 5.03]
[ ] (h) (Specify) ____________________________________________________________
_________________________________________________________________________.
[Note: The Employer may use an addendum, number 6.03, to provide additional
language authorized by Options (b)(6), (c), (g)(3) or (h) of this Adoption
Agreement Section 6.03.]
23
<PAGE> 24
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE -- DEFERRAL CONTRIBUTIONS
ACCOUNT, QUALIFIED MATCHING CONTRIBUTIONS ACCOUNT AND QUALIFIED NONELECTIVE
CONTRIBUTIONS ACCOUNT. Subject to the restrictions of Article VI, the following
distribution options apply to a Participant's Deferral Contributions Account,
Qualified Matching Contributions Account and Qualified Nonelective Contributions
Account prior to his Separation from Service: (Choose (i) or at least one of (j)
through (l))
[ ] (i) No distribution options prior to Separation from Service.
[ ] (j) Until he retires, the Participant has a continuing election to receive
all or any portion of these Accounts after he attains: (Choose (1) or (2))
[ ] (1) The later of Normal Retirement Age or age 59-1/2.
[ ] (2) Age ________________ (at least 59-1/2).
[X] (k) Hardship. A Participant, prior to this Separation from Service, may
elect a hardship distribution from his Deferral Contributions Account in
accordance with the hardship distribution policy under Section 14.11 of the
Plan.
[ ] (l) (Specify) ______________________________________________________________
_______________________________. [Note: Option (l) may not permit in service
distributions prior to age 59-1/2 (other than hardship) and may not modify
the hardship policy described in Section 14.11.]
SALE OF TRADE OR BUSINESS/SUBSIDIARY. If the Employer sells substantially all
of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or
business or sells a subsidiary (within the meaning of Code Section 409(d)(3)),
a Participant who continues employment with the acquiring corporation is
eligible for distribution from his Deferral Contributions Account, Qualified
Matching Contributions Account and Qualified Nonelective Contributions Account:
(Choose (m) or (n))
[X] (m) Only as described in this Adoption Agreement Section 6.03 for
distributions prior to Separation from Service.
[ ] (n) As if he has a Separation from Service. After March 31, 1988, a
distribution authorized solely by reason of this Option (n) must constitute
a lump sum distribution, determined in a manner consistent with Code Section
401(k)(10) and the applicable Treasury regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The
annuity distribution requirements of Section 6.04: (Choose (a) or (b))
[X] (a) Apply only to a Participant described in Section 6.04(E) of the Plan
(relating to the profit sharing exception to the joint and survivor
requirements).
[ ] (b) Apply to all Participants.
ARTICLE IX
ADVISORY COMMITTEE -- DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other
than a distribution from a segregated Account and other than a corrective
distribution described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan)
occurs more than 90 days after the most recent valuation date, the distribution
will include interest at: (Choose (a), (b) or (c))
[X] (a) Zero (0)% per annum. [Note: The percentage may equal 0%.]
[ ] (b) The 90 day Treasury bill rate in effect at the beginning of the current
valuation period.
24
<PAGE> 25
[ ] (c) (Specify)_____________________________________________________.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. Pursuant to
Section 14.12, to determine the allocation of net income, gain or loss:
(Complete only those items, if any, which are applicable to the Employer's
Plan)
[X] (a) For salary reduction contributions, the Advisory Committee will:
(Choose (1), (2), (3), (4) or (5))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section 14.12.
[X] (3) Use the weighted average method described in Section 14.12,
based on a daily weighting period.
[ ] (4) Treat as part of the relevant Account at the beginning of the
valuation period ________% of the salary reduction contributions:
(choose (i) or (ii))
[ ] (i) made during that valuation period.
[ ] (ii) made by the following specified time: _________________
_________________________________.
[ ] (5) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(a).
[X] (b) For matching contributions, the Advisory Committee will: (Choose (1),
(2), (3) or (4)
[ ] (1) Apply Section 9.11 without modification.
[X] (2) Use the weighted average method described in Section 14.12,
based on a daily weighting period.
[ ] (3) Treat as part of the relevant Account at the beginning of the
valuation period __________% of the matching contributions allocated
during the valuation period.
[ ] (4) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(b).
[ ] (c) For Participant nondeductible contributions, the Advisory Committee
will: (Choose (1), (2), (3), (4) or (5)) N/A
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section 14.12.
[ ] (3) Use the weighted average method described in Section 14.12,
based on a _____________________ weighting period.
[ ] (4) Treat as part of the relevant Account at the beginning of the
valuation period __________% of the Participant nondeductible
contributions: (Choose (i) or (ii))
[ ] (i) made during that valuation period.
[ ] (ii) made by the following specified time: _________________
______________________________________.
[ ] (5) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(c).
25
<PAGE> 26
ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan, the
aggregate investments in qualifying Employer securities and in qualifying
Employer real property: (Choose (a) or (b))
[X] (a) May not exceed 10% of Plan assets.
[ ] (b) May not exceed _____% of Plan assets. [Note: The percentage may not
exceed 100%.]
10.14 VALUATION OF TRUST. In addition to each Accounting Date, the
Trustee must value the Trust Fund on the following valuation date(s): (Choose
(a) or (b))
[X] (a) No other mandatory valuation dates.
[ ] (b) (Specify) ______________________________________________________
____________________________________________________________________.
26
<PAGE> 27
EFFECTIVE DATE ADDENDUM
(RESTATED PLANS ONLY)
The Employer must complete this addendum only if the restated Effective
Date specified in Adoption Agreement Section 1.18 is different than the restated
effective date for at least one of the provisions listed in this addendum. In
lieu of the restated Effective Date in Adoption Agreement Section 1.18, the
following special effective dates apply: (Choose whichever elections apply)
[X] (a) COMPENSATION DEFINITION. The Compensation definition of Section 1.12
(other than the $200,000 limitation) is effective for Plan Years beginning
after December 31, 1992. [Note: May not be effective later than the first
day of the first Plan Year beginning after the Employer executes this
Adoption Agreement to restate the Plan for the Tax Reform Act of 1986, if
applicable.]
[ ] (b) ELIGIBILITY CONDITIONS. The eligibility conditions specified in
Adoption Agreement Section 2.01 are effective for Plan Years beginning
after ________________________________________.
[ ] (c) SUSPENSION OF YEARS OF SERVICE. The suspension of Years of Service rule
elected under Adoption Agreement Section 2.03 is effective for Plan Years
beginning after ________________________________________.
[ ] (d) CONTRIBUTION/ALLOCATION FORMULA. The contribution formula elected under
Adoption Agreement Section 3.01 and the method of allocation elected under
Adoption Agreement Section 3.04 is effective for Plan Years beginning after
_______________________________________.
[X] (e) ACCRUAL REQUIREMENTS. The accrual requirements of Section 3.06 are
effective for Plan Years beginning after December 31, 1992.
[ ] (f) EMPLOYMENT CONDITION. The employment condition of Section 3.06 is
effective for Plan Years beginning after
________________________________________.
[ ] (g) ELIMINATION OF NET PROFITS. The requirement for the Employer not to
have net profits to contribute to this Plan is effective for Plan Years
beginning after __________________________________. [Note: The date
specified may not be earlier than December 31, 1985.]
[ ] (h) VESTING SCHEDULE. The vesting schedule elected under Adoption Agreement
Section 5.03 is effective for Plan Years beginning after
__________________________________.
[X] (i) ALLOCATION OF EARNINGS. The special allocation provisions elected under
Adoption Agreement Section 9.11 are effective for Plan Years beginning
after December 31, 1992.
[ ] (j) (Specify) ____________________________________________________________
_____________________________________________________________.
For Plan Years prior to the special Effective Date, the terms of the
Plan prior to its restatement under this Adoption Agreement will control for
purposes of the designated provisions. A special Effective Date may not result
in the delay of a Plan provision beyond the permissible Effective Date under
any applicable law requirements.
27
<PAGE> 28
Execution PAGE
The Trustee (and Custodian, if applicable), by executing this Adoption
Agreement, accepts its position and agrees to all of the obligations,
responsibilities and duties imposed upon the Trustee (or Custodian) under the
Master Plan and Trust. The Employer hereby agrees to the provisions of this
Plan and Trust, and in witness of its agreement, the Employer by its duly
authorized officers, has executed this Adoption Agreement, and the Trustee (and
Custodian, if applicable) signified its acceptance, on this 20 day of December,
1993.
Name and EIN of Employer: Motor Cargo EIN 87-0222090
Signed: /s/ [SIG]
-------------------------------------------------------------------------
Name(s) of Trustee: West One Trust Company
Signed: /s/ [SIG]
-------------------------------------------------------------------------
Name of Custodian:
------------------------------------------------------------
Signed:
-------------------------------------------------------------------------
[Note: A Trustee is mandatory, but a Custodian is optional. See Section 10.03
of the Plan.]
PLAN NUMBER: The 3-digit plan number the Employer assigns to this Plan for
ERISA reporting purposes (Form 5500 Series) is: 002.
USE OF ADOPTION AGREEMENT. Failure to complete properly the elections in this
Adoption Agreement may result in disqualification of Employer's Plan. The
3-digit number assigned to this Adoption Agreement (see page 1) is solely for
the Master Plan Sponsor's recordkeeping purposes and does not necessarily
correspond to the plan number the Employer designated in the prior paragraph.
MASTER PLAN SPONSOR. The Master Plan Sponsor identified on the first page of
the basic plan document will notify all adopting employers of any amendment of
this Master Plan or of any abandonment or discontinuance by the Master Plan
Sponsor of its maintenance of this Master Plan. For inquiries regarding the
adoption of the Master Plan, the Master Plan Sponsor's intended meaning of any
plan provisions or the effect of the opinion letter issued to the Master Plan
Sponsor, please contact the Master Plan Sponsor at the following address and
telephone number: West One Trust Company, 107 South Main Street, Suite 303,
Salt Lake City, UT 84111.
RELIANCE ON OPINION LETTER. The Employer may not rely on the Master Plan
Sponsor's opinion letter covering this Adoption Agreement. For reliance on the
Plan's disqualification, the Employer must obtain a determination letter from
the applicable IRS Key District Office.
<PAGE> 29
- --------------------------------------------------------------------------------
WEST ONE TRUST
DEFINED CONTRIBUTION MASTER PLAN
AND
TRUST AGREEMENT
<PAGE> 30
WEST ONE TRUST
DEFINED CONTRIBUTION MASTER PLAN AND TRUST AGREEMENT
BASIC PLAN DOCUMENT #01
West One Trust, in its capacity as Master Plan Sponsor, establishes this
Master Plan intended to conform to and qualify under Section 401 and Section 501
of the Internal Revenue Code of 1986, as amended. An Employer establishes a Plan
and Trust unda this Master Plan by executing an Adoption Agreement. If the
Employer adopts this Plan as a restated Plan in substitution for, and in
amendment of, an existing plan, the provisions of this Plan, as a restated Plan,
apply solely to an Employee whose employment with the Employer terminates on or
after the restated Effective Date of the Employer's Plan. If an Employee's
employment with the Employer terminates prior to the restated Effective Date,
that Employee is entitled to benefits under the Plan as the Plan existed on the
date of the Employee's termination of employment.
ARTICLE I
DEFINITIONS
1.01 "Employer" means each employer who adopts this Plan by executing an
Adoption Agreement.
1.02 "Trustee" means the person or persons who as Trustee execute the
Employer's Adoption Agreement, or any successor in office who in writing accepts
the position of Trustee. The Employer must designate in its Adoption Agreement
whether the Trustee will administer the Trust as a discretionary Trustee or as a
nondiscretionary Trustee. If a person acts as a discretionary Trustee, the
Employer also may appoint a Custodian. See Article X. If the Master Plan Sponsor
is a bank, savings and loan, credit union or similar financial institution, a
person other than the Master Plan Sponsor (or its affiliate) may not serve as
Trustee or as Custodian of the Employer's Plan without the written consent of
the Master Plan Sponsor.
1.03 "Plan" means the retirement plan established or continued by the
Employer in the form of this Agreement, including the Adoption Agreement under
which the Employer has elected to participate in this Master Plan. The Employer
must designate the name of the Plan in its Adoption Agreement. An Employer may
execute more than one Adoption Agreement offered under this Master Plan, each of
which will constitute a separate Plan and Trust established or continued by that
Employer. The Plan and the Trust created by each adopting Employer is a separate
Plan and a separate Trust, independent from the plan and the trust of any other
employer adopting this Master Plan. All section references within the Plan are
Plan section references unless the context clearly indicates otherwise.
1.04 "Adoption Agreement" means the document executed by each Employer
adopting this Master Plan. The terms of this Master Plan as modified by the
terms of an adopting Employer's Adoption Agreement constitute a separate Plan
and Trust to be construed as a single Agreement. Each elective provision of the
Adoption Agreement corresponds by section reference to the section of the Plan
which grants the Election. Each Adoption Agreement offered under this Master
Plan is either a Nonstandardized Plan or a Standardized Plan, as identified in
the preamble to that Adoption Agreement. The provisions of this Master Plan
apply equally to Nonstandardized Plans and to Standardized Plans unless
otherwise specified.
1.05 "Plan Administrator" is the Employer unless the Employer designates
another person to hold the position of Plan Administrator. In addition to his
other duties, the Plan Administrator has full responsibility for compliance with
the reporting and disclosure rules under ERISA as respects this Agreement.
1.06 "Advisory Committee" means the Employer's Advisory Committee as from
time to time constituted.
<PAGE> 31
1.07 "Employee" means any employee (including a Self-Employed Individual)
of the Employer. The Employer must specify in its Adoption Agreement 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.
1.08 "Self-Employed Individual/Owner-Employee." "Self-Employed Individual"
means an individual who has Earned Income (or who would have had Earned Income
but for the fact that the trade or business did not have net earnings) for the
taxable year from the trade or business for which the Plan is established.
"Owner-Employee" means a Self-Employed Individual who is the sole proprietor in
the case of a sole proprietorship. If the Employer is a partnership, "Owner
Employee" means a Self-Employed Individual who is a partner and owns more than
10% of either the capital or profits interest of the partnership.
1.09 "Highly Compensated Employee" means an Employee who, during the Plan
Year or during the preceding 12-month period:
(a) is a more than 5% owner of the Employer (applying the constructive
ownership rules of Code Section 318, and applying the principles of Code
Section 318, for an unincorporated entity);
(b) has Compensation in excess of $75,000 (as adjusted by the Commissioner
of Internal Revenue for the relevant year);
(c) has Compensation in excess of $50,000 (as adjusted by the Commissioner
of Internal Revenue for the relevant year) and is part of the top-paid 20%
group of employees (based on Compensation for the relevant year); or
(d) has Compensation in excess of 50% of the dollar amount prescribed in
Code Section 415(b)(1)(A) (relating to defined benefit plans) and is an
officer of the Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in the
Plan Year but does not satisfy clause (b), (c) or (d) during the preceding
12-month period and does not satisfy clause (a) in either period, the Employee
is a Highly Compensated Employee only if he is one of the 100 most highly
compensated Employees for the Plan Year. The number of officers taken into
account under clause (d) will not exceed the greater of 3 or 10% of the total
number (after application of the Code Section 414(q) exclusions) of Employees,
but no more than 50 officers. If no Employee satisfies the Compensation
requirement in clause (d) for the relevant year, the Advisory Committee will
treat the highest paid officer as satisfying clause (d) for that year.
For purposes of this Section 1.09, "Compensation" means Compensation as
defined in Section 1.12, except any exclusions from Compensation elected in the
Employer's Adoption Agreement Section 1.12 do not apply, and Compensation must
include "elective contributions" (as defined in Section 1.12). The Advisory
Committee must make the determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of the top paid 20%
group, the top 100 paid Employees, the number of officers includible in clause
(d) and the relevant Compensation, consistent with Code Section 414(q) and
regulations issued under that Code section. The Employer may make a calendar
year election to determine the Highly Compensated Employees for the Plan Year,
as prescribed by Treasury regulations. A calendar year election must apply to
all plans and arrangements of the Employer. For purposes of applying any
nondiscrimination test required under the Plan or under the Code, in a manner
consistent with applicable Treasury regulations, the Advisory
4
<PAGE> 32
Committee will treat a Highly Compensated Employee and all family members (a
spouse, a lineal ascendant or descendant, or a spouse of a lineal ascendant or
descendant) as a single Highly Compensated Employee, but only if the Highly
Compensated Employee is a more than 5% owner or is one of the 10 Highly
Compensated Employees with the greatest Compensation for the Plan Year. This
aggregation rule applies to a family member even if that family member is a
Highly Compensated Employee without family aggregation.
The term "Highly Compensated Employee" also includes any former Employee
who separated from Service (or has a deemed Separation from Service, as
determined under Treasury regulations) prior to the Plan Year, performs no
Service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday. If the former Employee's Separation from Service occurred prior
to January 1, 1987, he is a Highly Compensated Employee only if he satisfied
clause (a) of this Section 1.09 or received Compensation in excess of $50,000
during:(1) the year of his Separation from Service (or the prior year); or (2)
any year ending after his 54th birthday.
1.10 "Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
1.11 "Beneficiary" is a person designated by a Participant who is or may
become entitled to a benefit under the Plan. A Beneficiary who becomes entitled
to a benefit under the Plan remains a Beneficiary under the Plan until the
Trustee has fully distributed his benefit to him. A Beneficiary's right to (and
the Plan Administrator's, the Advisory Committee's or a Trustee's duty to
provide to the Beneficiary) information or data concerning the Plan does not
arise until he first becomes entitled to receive a benefit under the Plan.
1.12 "Compensation" means, except as provided in the Employer's Adoption
Agreement, the Participant's Earned Income, wages, salaries, fees for
professional service and other amounts received for personal services actually
rendered in the course of employment with the Employer maintaining the plan
(including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses). The Employer must elect in its Adoption Agreement
whether to include elective contributions in the definition of Compensation.
"Elective contributions" are amounts excludible from the Employee's gross income
under Code Section 125, 402(a)(8), 402(h) or 403(b), and contributed by the
Employer, at the Employee's election, to a Code Section 401(k) arrangement, a
Simplified Employee Pension, cafeteria plan or tax-sheltered annuity. The term
"Compensation" does not include:
(a) Employer contributions (other than "elective contributions," if
includible in the definition of Compensation under Section 1.12 of the
Employer's Adoption Agreement) to a plan of deferred compensation to the
extent the contributions are not included in the gross income of the
Employee for the taxable year in which contributed, on behalf of an
Employee to a Simplified Employee Pension Plan to the extent such
contributions are excludible from the Employee's gross income, and any
distributions from a plan of deferred compensation, regardless of whether
such amounts are includible in the gross income of the Employee when
distributed.
(b) Amounts realized from the exercise of a non-qualified stock option, or
when restricted stock (or property) held by an Employee either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture.
(c) Amounts realized from the sale, exchange or other disposition of stock
acquired under a stock option described in Part II, Subchapter D, Chapter 1
of the Code.
(d) Other amounts which receive special tax benefits, such as premiums for
group term life insurance (but only to the extent that the premiums are not
includible in the gross income of the Employee), or contributions made by
an Employer (whether or not under a salary reduction agreement) towards the
purchase of an annuity contract described in Code Section 403(b)
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(whether or not the contributions are excludible from the gross income of
the Employee), other than "elective contributions," if elected in the
Employer's Adoption Agreement.
Any reference in this Plan to Compensation is a reference to the definition
in this Section 1.12, unless the Plan reference specifies a modification to this
definition. The Advisory Committee will take into account only Compensation
actually paid for the relevant period. A Compensation payment includes
Compensation by the Employer through another person under the common paymaster
provisions in Code Sections 3121 and 3306.
(A) LIMITATIONS ON COMPENSATION.
(1) COMPENSATION DOLLAR LIMITATION. For any Plan Year beginning after
December 31, 1988, the Advisory Committee must take into account only the first
$200,000 (or beginning January 1, 1990, such larger amount as the Commissioner
of Internal Revenue may prescribe) of any Participant's Compensation. For any
Plan Year beginning prior to January 1, 1989, this $200,000 limitation (but not
the family aggregation requirement described in the next paragraph) applies only
if the Plan is top heavy for such Plan Year or operates as a deemed top heavy
plan for such Plan Year.
(2) APPLICATION OF COMPENSATION LIMITATION TO CERTAIN FAMILY MEMBERS. The
$200,000 Compensation limitation applies to the combined Compensation of the
Employee and of any family member aggregated with the Employee under Section
1.09 who is either (i) the Employee's spouse; or (ii) the Employee's lineal
descendant under the age of 19. If, for a Plan Year, the combined Compensation
of the Employee and such family members who are Participants entitled to an
allocation for that Plan Year exceeds the $200,000 (or adjusted) limitation,
"Compensation" for each such Participant, for purposes of the contribution and
allocation provisions of Article III, means his Adjusted Compensation. Adjusted
Compensation is the amount which bears the same ratio to the $200,000 (or
adjusted) limitation as the affected Participant's Compensation (without regard
to the $200,000 Compensation limitation) bears to the combined Compensation of
all the affected Participants in the family unit. If the Plan uses permitted
disparity, the Advisory Committee must determine the integration level of each
affected family member Participant prior to the proration of the $200,000
Compensation limitation, but the combined integration level of the affected
Participants may not exceed $200,000 (or the adjusted limitation). The combined
Excess Compensation of the affected Participants in the family unit may not
exceed $200,000 (or the adjusted limitation) minus the affected Participants'
combined integration level (as determined under the preceding sentence). If the
combined Excess Compensation exceeds this limitation, the Advisory Committee
will prorate the Excess Compensation limitation among the affected Participants
in the family unit in proportion to each such individual's Adjusted Compensation
minus his integration level. If the Employer's Plan is a Nonstandardized Plan,
the Employer may elect to use a different method in determining the Adjusted
Compensation of the affected Participants by specifying that method in an
addendum to the Adoption Agreement, numbered Section 1.12.
(B) NONDISCRIMINATION. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.12, except: (1) the Employer may elect
to include or to exclude elective contributions, irrespective of the Employer's
election in its Adoption Agreement regarding elective contributions; and (2) the
Employer will not give effect to any elections made in the "modifications to
Compensation definition" section of Adoption Agreement Section 1.12. The
Employer's election described in clause (1) must be consistent and uniform with
respect to all Employees and all plans of the Employer for any particular Plan
Year. If the Employer's Plan is a Nonstandardized Plan, the Employer,
irrespective of clause (2), may elect to exclude from this nondiscrimination
definition of Compensation any items of Compensation excludible under Code
Section 414(s) and the applicable Treasury regulations, provided such adjusted
definition conforms to the nondiscrimination requirements of those regulations.
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1.13 "Earned Income" means net earnings from self-employment in the trade
or business with respect to which the Employer has established the Plan,
provided personal services of the individual are a material income producing
factor. The Advisory Committee will determine net earnings without regard to
items excluded from gross income and the deductions allocable to those items.
The Advisory Committee will determine net earnings after the deduction allowed
to the Self-Employed Individual for all contributions made by the Employer to a
qualified plan and, for Plan Years beginning after December 31, 1989, the
deduction allowed to the Self-Employed under Code Section 164(f) for
self-employment taxes.
1.14 "Account" means the separate account(s) which the Advisory Committee
or the Trustee maintains for a Participant under the Employer's Plan.
1.15 "Accrued Benefit" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and Employee
contributions, if any.
1.16 "Nonforfeitable" means a Participant's or Beneficiary's unconditional
claim, legally enforceable against the Plan, to the Participant's Accrued
Benefit.
1.17 "Plan Years" means the fiscal year of the Plan, the consecutive month
period specified in the Employer's Adoption Agreement. The Employer's Adoption
Agreement also must specify the "Limitation Years" applicable to the limitations
on allocations described in Article III. If the Employer maintains Paired Plans,
each Plan must have the same Plan Year.
1.18 "Effective Date" of this Plan is the date specified in the Employer's
Adoption Agreement.
1.19 "Plan Entry Dates" means the date(s) specified in Section 2.01 of the
Employer's Adoption Agreement.
1.20 "Accounting Date" is the last day of an Employer's Plan Year. Unless
otherwise specified in the Plan, the Advisory Committee will make all Plan
allocations for a particular Plan Year as of the Accounting Date of that Plan
Year.
1.21 "Trust" means the separate Trust created under the Employer's Plan.
1.22 "Trust Funds" means all property of every kind held or acquired by the
Employer's Plan, other than incidental benefit insurance contracts.
1.23 "Nontransferable Annuity" means an annuity which by its terms provides
that it may not be sold, assigned, discounted, pledged as collateral for a loan
or security for the performance of an obligation or for any purpose to any
person other than the insurance company. If the Plan distributes an annuity
contract, the contract must be a Nontransferable Annuity.
1.24 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.25 "Code" means the Internal Revenue Code of 1986, as amended.
1.26 "Service" means any period of time the Employee is in the employ of
the Employer, including any period the Employee is on an unpaid leave of absence
authorized by the Employer under a uniform, nondiscriminatory policy applicable
to all Employees. "Separation from Service" means the Employee no longer has an
employment relationship with the Employer maintaining this Plan.
1.27 "Hour of Service" means:
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<PAGE> 35
(a) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties. The Advisory Committee credits
Hours of Service under this paragraph (a) to the Employee for the
computation period in which the Employee performs the duties, irrespective
of when paid;
(b) Each Hour of Service for back pay, irrespective of mitigation of
damages, to which the Employer has agreed or for which the Employee has
received an award. The Advisory Committee credits Hours of Service under
this paragraph (b) to the Employee for the computation period(s) to which
the award or the agreement pertains rather than for the computation period
in which the award, agreement or payment is made; and
(c) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties during a
computation period, such as leave of absence, vacation, holiday, sick
leave, illness, incapacity (including disability), layoff, jury duty or
military duty. The Advisory Committee will credit no more than 501 Hours of
Service under this paragraph (c) to an Employee on account of any single
continuous period during which the Employee does not perform any duties
(whether or not such period occurs during a single computation period). The
Advisory Committee credits Hours of Service under this paragraph (c) in
accordance with the rules of paragraphs (b) and (c) of Labor Reg.
Sectionn 2530.200b-2, which the Plan, by this reference, specifically
incorporates in full within this paragraph (c).
The Advisory Committee will not credit an Hour of Service under more than
one of the above paragraphs. A computation period for purposes of this Section
1.27 is the Plan Year, Year of Service period, Break in Service period or other
period, as determined under the Plan provision for which the Advisory Committee
is measuring an Employee's Hours of Service. The Advisory Committee will resolve
any ambiguity with respect to the crediting of an Hour of Service in favor of
the Employee.
(A) METHOD OF CREDITING HOURS OF SERVICE. The Employer must elect in its
Adoption Agreement the method the Advisory Committee will use in crediting an
Employee with Hours of Service. For purposes of the Plan, "actual" method means
the determination of Hours of Service from records of hours worked and hours for
which the Employer makes payment or for which payment is due from the Employer.
If the Employer elects to apply an "equivalency" method, for each equivalency
period for which the Advisory Committee would credit the Employee with at least
one Hour of Service, the Advisory Committee will credit the Employee with: (i)
10 Hours of Service for a daily equivalency; (ii) 45 Hours of Service for a
weekly equivalency; (iii) 95 Hours of Service for a semimonthly payroll period
equivalency; and (iv) 190 Hours of Service for a monthly equivalency.
(B) MATERNITY/PATERNITY LEAVE. Solely for purposes of determining whether the
Employee incurs a Break in Service under any provision of this Plan, the
Advisory Committee must credit Hours of Service during an Employee's unpaid
absence period due to maternity or paternity leave. The Advisory Committee
considers an Employee on maternity or paternity leave if the Employee's absence
is due to the Employee's pregnancy, the birth of the Employee's child, the
placement with the Employee of an adopted child, or the care of the Employee's
child immediately following the child's birth or placement. The Advisory
Committee credits Hours of Service under this paragraph on the basis of the
number of Hours of Service the Employee would receive if he were paid during the
absence period or, if the Advisory Committee cannot determine the number of
Hours of Service the Employee would receive, on the basis of 8 hours per day
during the absence period. The Advisory Committee will credit only the number
(not exceeding 501) of Hours of Service necessary to prevent an Employee's Break
in Service. The Advisory Committee credits all Hours of Service descried in this
paragraph to the computation period in which the absence period begins or, if
the Employee does not need these Hours of
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<PAGE> 36
Service to prevent a Break in Service in the computation period in which his
absence period begins, the Advisory Committee credits these Hours of Service to
the immediately following computation period.
1.28 "Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Advisory Committee considers will be of long
continued duration. A Participant also is disabled if he incurs the permanent
loss or loss of use of a member or function of the body, or is permanently
disfigured, and incurs a Separation from Service. The Plan considers a
Participant disabled on the date the Advisory Committee determines the
Participant satisfies the definition of disability. The Advisory Committee may
require a Participant to submit to a physical examination in order to confirm
disability. The Advisory Committee will apply the provisions of this Section
1.28 in a nondiscriminatory, consistent and uniform manner. If the Employer's
Plan is a Nonstandardized Plan, the Employer may provide an alternate definition
of disability in an addendum to its Adoption Agreement, numbered Section 1.28.
1.29 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the plan
of a predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer. If the Employer does not
maintain the plan of a predecessor employer, the Plan does not credit service
with the predecessor employer, unless the Employer identifies the predecessor in
its Adoption Agreement and specifies the purposes for which the Plan will credit
service with that predecessor employer.
1.30 RELATED EMPLOYERS. A related group is a controlled group of
corporations (as defined in Code Section 414(b)), trades or businesses (whether
or not incorporated) which are under common control (as defined in Code
Section 414(c)) or an affiliated service group (as defined in Code Section
414(m) or in Code Section 414(o)). If the Employer is a member of a related
group, the term "Employer" includes the related group members for purposes of
crediting Hours of Service, determining Years of Service and Breaks in Service
under Articles II and V, applying the Participation Test and the Coverage Test
under Section 3.06(E), applying the limitations on allocations in Part 2 of
Article III, applying the top heavy rules and the minimum allocation
requirements of Article III, the definitions of Employee, Highly Compensated
Employee, Compensation and Leased Employee, and for any other purpose required
by the applicable Code section or by a Plan provision. However, an Employer may
contribute to the Plan only by being a signatory to the Execution Page of the
Adoption Agreement or to a Participation Agreement to the Employer's Adoption
Agreement. If one or more of the Employer's related group members become
Participating Employers by executing a Participation Agreement to the Employer's
Adoption Agreement, the term "Employer" includes the participating related group
members for all purposes of the Plan, and "Plan Administrator" means the
Employer that is the signatory to the Execution Page of the Adoption Agreement.
If the Employer's Plan is a Standardized Plan, all Employees of the
Employer or of any member of the Employer's related group, are eligible to
participate in the Plan, irrespective of whether the related group member
directly employing the Employee is a Participating Employer. If the Employer's
Plan is a Nonstandardized Plan, the Employer must specify in Section 1.07 of its
Adoption Agreement, whether the Employees of related group members that are not
Participating Employers are eligible to participate in the Plan. Under a
Nonstandardized Plan, the Employer may elect to exclude from the definition of
"Compensation" for allocation purposes any Compensation received from a related
employer that has not executed a Participation Agreement and whose Employees are
not eligible to participate in the Plan.
1.31 LEASED EMPLOYEES. The Plan treats a Leased Employee as an Employee of
the Employer. A Leased Employee is an individual (who otherwise is not an
Employee of the Employer) who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the Employer (or for
the Employer and any persons related to the Employer within the meaning of Code
Section 144(a)(3)) on a substantially full time basis for at least one year and
who performs services historically performed by
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<PAGE> 37
employees in the Employer's business field. If a Leased Employee is treated as
an Employee by reason of this Section 1.31 of the Plan, "Compensation" includes
Compensation from the leasing organization which is attributable to services
performed for the Employer.
(A) SAFE HARBOR PLAN EXCEPTION. The Plan does not treat a Leased Employee as an
Employee if the leasing organization covers the employee in a safe harbor plan
and, prior to application of this safe harbor plan exception, 20% or less of the
Employer's Employees (other than Highly Compensated Employees) are Leased
Employees. A safe harbor plan is a money purchase pension plan providing
immediate participation, full and immediate vesting, and a nonintegrated
contribution formula equal to at least 10% of the employee's compensation
without regard to employment by the leasing organization on a specified date.
The safe harbor plan must determine the 10% contribution on the basis of
compensation as defined in Code Section 415(c)(3) plus elective contributions
(as defined in Section 1.12).
(B) OTHER REQUIREMENTS. The Advisory Committee must apply this Section 1.31 in a
manner consistent with Code Sections 414(n) and 414(o) and the regulations
issued under those Code sections. The Employer must specify in the Adoption
Agreement the manner in which the Plan will determine the allocation of Employer
contributions and Participant forfeitures on behalf of a Participant if the
Participant is a Leased Employee covered by a plan maintained by the leasing
organization.
1.32 SPECIAL RULES FOR OWNER-EMPLOYEES. The following special provisions
and restrictions apply to Owner-Employees:
(a) If the Plan provides contributions or benefits for an
Owner-Employee or for a group of Owner-Employees who controls the trade
or business with respect to winch this Plan is established and the
Owner-Employee or Owner-Employees also control as Owner-Employees one
or more other trades or businesses, plans must exist or be established
with respect to all the controlled trades or businesses so that when
the plans are combined they form a single plan which satisfies the
requirements of Code Section 401(a) and Code Section 401(d) with
respect to the employees of the controlled trades or businesses.
(b) The Plan excludes an Owner-Employee or group of Owner-Employees if
the Owner-Employee or group of Owner-Employees controls any other trade
or business, unless the employees of the other controlled trade or
business participate in a plan which satisfies the requirements of Code
Section 401(a) and Code Section 401(d). The other qualified plan must
provide contributions and benefits which are not less favorable than
the contributions and benefits provided for the Owner-Employee or group
of Owner-Employees under this Plan, or if an Owner-Employee is covered
under another qualified plan as an Owner-Employee, then the plan
established with respect to the trade or business he does control must
provide contributions or benefits as favorable as those provided under
the most favorable plan of the trade or business he does not control.
If the exclusion of this paragraph (b) applies and the Employer's Plan
is a Standardized Plan, the Employer may not participate or continue to
participate in this Master Plan and the Employer's Plan becomes an
individually-designed plan for purposes of qualification reliance.
(c) For purposes of paragraphs (a) and (b) of this Section 1.32, an
Over-Employee or group of Owner-Employees controls a trade or business
if the Owner-Employee or Owner-Employees together (1) own the entire
interest in an unincorporated trade or business, or (2) in the case of
a partnership, own more than 50% of either the capital interest or the
profits interest in the partnership.
1.33 DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only qualified
plan maintained by the Employer, the Plan is top heavy for a Plan Year if the
top heavy ratio as of the Determination Date exceeds 60%. The top heavy ratio is
a fraction, the numerator of which is the sum of the present value of Accrued
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Benefits of all Key Employees as of the Determination Date and the denominator
of which is a similar sum determined for all Employees. The Advisory Committee
must include in the top heavy ratio, as part of the present value of Accrued
Benefits, any contribution not made as of the Determination Date but includible
under Code Section 416 and the applicable Treasury regulations, and
distributions made within the Determination Period. The Advisory Committee must
calculate the top heavy ratio by disregarding the Accrued Benefit (and
distributions, if any, of the Accrued Benefit) of any Non-Key Employee who was
formerly a Key Employee, and by disregarding the Accrued Benefit (including
distributions, if any, of the Accrued Benefit) of an individual who has not
received credit for at least one Hour of Service with the Employer during the
Determination Period. The Advisory Committee must calculate the top heavy ratio,
including the extent to which it must take into account distributions, rollovers
and transfers, in accordance with Code Section 416 and the regulations under
that Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), or maintained another such plan which now is terminated,
this Plan is top heavy only if it is part of the Required Aggregation Group, and
the top heavy ratio for the Required Aggregation Group and for the Permissive
Aggregation Group, if any, each exceeds 60%. The Advisory Committee will
calculate the top heavy ratio in the same manner as required by the first
paragraph of this Section 1.33, taking into account all plans within the
Aggregation Group. To the extent the Advisory Committee must take into account
distributions to a Participant, the Advisory Committee must include
distributions from a terminated plan which would have been part of the Required
Aggregation Group if it were in existence on the Determination Date. The
Advisory Committee will calculate the present value of accrued benefits under
defined benefit plans or simplified employee pension plans included within the
group in accordance with the terms of those plans, Code Section 416 and the
regulations under that Code section. If a Participant in a defined benefit plan
is a Non-Key Employee, the Advisory Committee will determine his accrued benefit
under the accrual method, if any, which is applicable uniformly to all defined
benefit plans maintained by the Employer or, if there is no uniform method, in
accordance with the slowest accrual rate permitted under the fractional rule
accrual method described in Code Section 411(b)(1)(C). If the Employer maintains
a defined benefit plan, the Employer must specify in Adoption Agreement Section
3.18 the actuarial assumptions (interest and mortality only) the Advisory
Committee will use to calculate the present value of benefits from a defined
benefit plan. If an aggregated plan does not have a valuation date coinciding
with the Determination Date, the Advisory Committee must value the Accrued
Benefits in the aggregated plan as of the most recent valuation date falling
within the twelve-month period ending on the Determination Date, except as Code
Section 416 and applicable Treasury regulations require for the first and second
plan year of a defined benefit plan. The Advisory Committee will calculate the
top heavy ratio with reference to the Determination Dates that fall within the
same calendar year.
(A) STANDARDIZED PLAN. If the Employer's Plan is a Standardized Plan, the Plan
operates as a deemed top heavy plan in all Plan Years, except, if the
Standardized Plan includes a Code Section 401(k) arrangement, the Employer may
elect to apply the top heavy requirements only in Plan Years for which the Plan
actually is top heavy. Under a deemed top heavy plan, the Advisory Committee
need not determine whether the Plan actually is top heavy. However, if the
Employer, in Adoption Agreement Section 3.18, elects to override the 100%
limitation, the Advisory Committee will need to determine whether a deemed top
heavy Plan's top heavy ratio for a Plan Year exceeds 90%.
(B) DEFINITIONS. For purposes of applying the provisions of this Section 1.33:
(1) "Key Employee" means, as of any Determination Date, any Employee or
former Employee (or Beneficiary of such Employee) who, for any Plan Year in
the Determination Period: (i) has Compensation in excess of 50% of the
dollar amount prescribed in Code Section 415(b)(1)(A) (relating to defined
benefit plans) and is an officer of the Employer, (ii) has Compensation in
excess of the dollar amount prescribed in Code Section 415(c)(1)(A)
(relating to defined contribution plans) and is one of the Employees owning
the ten largest
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interests in the Employer, (iii) is a more than 5% owner of the Employer,
or (iv) is a more than 1% owner of the Employer and has Compensation of
more than $150,000. The constructive ownership rules of Code Section318 (or
the principles of that section, in the case of an unincorporated Employer,)
will apply to determine ownership in the Employer. The number of officers,
taken into account under clause (i) will not exceed the greater of 3 or 10%
of the total number (after application of the Code Section 414(q)
exclusions) of Employees, but no more than 50 officers. The Advisory
Committee will make the determination of who is a Key Employee in
accordance with Code Section 416(i)(1) and the regulations under that Code
section.
(2) "Non-Key Employee" is an employee who does not meet the definition of
Key Employee.
(3) "Compensation" means Compensation as determined under Section 1.09 for
purposes of identifying Highly Compensated Employees.
(4) "Required Aggregation Group" means: (i) each qualified plan of the
Employer in which at least one Key Employee participates at any time during
the Determination Period; and (ii) any other qualified plan of the Employer
which enables a plan described in clause (i) to meet the requirements of
Code Section 401(a)(4) or of Code Section410.
(5) "Permissive Aggregation Group" is the Required Aggregation Group plus
any other qualified plans maintained by the Employer, but only if such
group would satisfy in the aggregate the requirements of Code
Section 401(a)(4) and of Code Section 410. The Advisory Committee will
determine the Permissive Aggregation Group.
(6) "Employer" means the Employer that adopts this Plan and any related
employers described in Section 1.30.
(7) "Determination Date" for any Plan Year is the Accounting Date of the
preceding Plan Year or, in the case of the first Plan Year of the Plan, the
Accounting Date of that Plan Year. The "Determination Period" is the 5 year
period ending on the Determination Date.
1.34 "Paired Plans" means the Employer has adopted two Standardized Plan
Adoption Agreements offered with this Master Plan, one Adoption Agreement being
a Paired Profit Sharing Plan and one Adoption Agreement being a Paired Pension
Plan. A Paired Profit Sharing Plan may include a Code Section 401(k)
arrangement. A Paired Pension Plan must be a money purchase pension plan or a
target benefit pension plan. Paired Plans must be the subject of a favorable
opinion letter issued by the National Office of the Internal Revenue Service.
This Master Plan does not pair any of its Standardized Plan Adoption Agreements
with Standardized Plan Adoption Agreements under a defined benefit master plan.
* * * * * * * * * * * * * * * * * * * *
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ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee becomes a Participant in the Plan in
accordance with the participation option selected by the Employer in its
Adoption Agreement. If this Plan is a restated Plan, each Employee who was a
Participant in the Plan on the day before the Effective Date continues as a
Participant in the Plan, irrespective of whether he satisfies the participation
conditions in the restated Plan, unless otherwise provided in the Employer's
Adoption Agreement.
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of an Employee's
participation in the Plan under Adoption Agreement Section 2.01, the Plan takes
into account all of his Years of Service with the Employer, except as provided
in Section 2.03. "Year of Service" means an eligibility computation period
during which the Employee completes not less than the number of Hours of Service
specified in the Employer's Adoption Agreement. The initial eligibility
computation period is the first 12 consecutive month period measured from the
Employment Commencement Date. The Plan measures succeeding eligibility
computation periods in accordance with the option selected by the Employer in
its Adoption Agreement. If the Employer elects to measure subsequent periods on
a Plan Year basis, an Employee who receives credit for the required number of
Hours of Service during the initial eligibility computation period and during
the first applicable Plan Year will receive credit for two Years of Service
under Article II. "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service for the Employer. If the Employer
elects a service condition under Adoption Agreement Section 2.01 based on
months, the Plan does not apply any Hour of Service requirement after the
completion of the first Hour of Service.
2.03 BREAK IN SERVICE-PARTICIPATION. An Employee incurs a "Break in
Service" if during any 12 consecutive month period he does not complete more
than 500 Hours of Service with the Employer. The "12 consecutive month period"
under this Section 2.03 is the same 12 consecutive month period for which the
Plan measures "Years of Service" under Section 2.02.
(A) 2-YEAR ELIGIBILITY. If the Employer elects a 2 years of service condition
for eligibility purposes under Adoption Agreement Section 2.01, the Plan treats
an Employee who incurs a one year Break in Service and who has never become a
Participant as a new Employee on the date he first performs an Hour of Service
for the Employer after the Break in Service.
(B) SUSPENSION OF YEARS OF SERVICE. The Employer must elect in its Adoption
Agreement whether a Participant will incur a suspension of Years of Service
after incurring a one year Break in Service. If this rule applies under the
Employer's Plan, the Plan disregards a Participant's Years of Service (as
defined in Section 2.02) earned prior to a Break in Service until the
Participant completes another Year of Service and the Plan suspends the
Participant's participation in the Plan. If the Participant completes a Year of
Service following his Break in Service, the Plan restores that Participant's
pre-Break Years of Service (and the Participant resumes active participation in
the Plan) retroactively to the first day of the computation period in which the
Participant earns the first post-Break Year of Service. The initial computation
period under this Section 2.03(B) is the 12 consecutive month period measured
from the date the Participant first receives credit for an Hour of Service
following the one year Break in Service period. The Plan measures any subsequent
periods, if necessary, in a manner consistent with the computation period
selection in Adoption Agreement Section 2.02. This Section 2.03(B) does not
affect a Participant's vesting credit under Article V and, during a suspension
period, the Participant's Account continues to share fully in Trust Fund
allocations under Section 9.11. Furthermore, this Section 2.03(B) will not
result in the restoration of any Year of Service disregarded under the Break in
Service rule of Section 2.03(A).
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<PAGE> 41
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment with
the Employer terminates will re-enter the Plan as a Participant on the date of
his re-employment, subject to the Break in Service rule, if applicable, under
Section 2.03(B). An Employee who satisfies the Plan's eligibility conditions but
who terminates employment with the Employer prior to becoming a Participant will
become a Participant on the later of the Plan Entry Date on which he would have
entered the Plan had he not terminated employment or the date of his
re-employment, subject to the Break in Service rule, if applicable, under
Section 2.03(B). Any Employee who terminates employment prior to satisfying the
Plan's eligibility conditions becomes a Participant in accordance with Adoption
Agreement Section 2.01.
2.05 CHANGE IN EMPLOYEE STATUS. If a Participant has not incurred a
Separation from Service but ceases to be eligible to participate in the Plan, by
reason of employment within an employment classification excluded by the
Employer under Adoption Agreement Section 1.07, the Advisory Committee must
treat the Participant as an Excluded Employee during the period such a
Participant is subject to the Adoption Agreement exclusion. The Advisory
Committee determines a Participant's sharing in the allocation of Employer
contributions and Participant forfeitures, if applicable, by disregarding his
Compensation paid by the Employer for services rendered in his capacity as an
Excluded Employee. However, during such period of exclusion, the Participant,
without regard to employment classification, continues to receive credit for
vesting under Article V for each included Year of Service and the Participant's
Account continues to share fully in Trust Fund allocations under Section 9.11.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification, he
will participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been an
Excluded Employee during his period of Service. Furthermore, the Plan takes into
account all of the Participant's included Years of Service with the Employer as
an Excluded Employee for purposes of vesting credit under Article V.
2.06 ELECTION NOT TO PARTICIPATE. If the Employer's Plan is a Standardized
Plan, the Plan does not permit an otherwise eligible Employee nor any
Participant to elect not to participate in the Plan. If the Employer's Plan is a
Nonstandardized Plan, the Employer must specify in its Adoption Agreement
whether an Employee eligible to participate, or any present Participant, may
elect not to participate in the Plan. For an election to be effective for a
particular Plan Year, the Employee or Participant must file the election in
writing with the Plan Administrator not later than the time specified in the
Employer's Adoption Agreement. The Employer may not make a contribution under
the Plan for the Employee or for the Participant for the Plan Year for which the
election is effective, nor for any succeeding Plan Year, unless the Employee or
Participant re-elects to participate in the Plan. After an Employee's or
Participant's election not to participate has been effective for at least the
minimum period prescribed by the Employer's Adoption Agreement, the Employee or
Participant may re-elect to participate in the Plan for any Plan Year and
subsequent Plan Years. An Employee or Participant may re-elect to participate in
the Plan by filing his election in writing with the Plan Administrator not later
than the time specified in the Employer's Adoption Agreement. An Employee or
Participant who re-elects to participate may again elect not to participate only
as permitted in the Employer's Adoption Agreement. If an Employee is a
Self-Employed Individual, the Employee's election (except as permitted by
Treasury regulations without creating a Code Section 401(k) arrangement with
respect to that Self-Employed Individual) must be effective no later than the
date the Employee first would become a Participant in the Plan and the election
is irrevocable. The Plan Administrator must furnish an Employee or a Participant
any form required for purposes of an election under this Section 2.06. An
election timely filed is effective for the entire Plan Year.
A Participant who elects not to participate may not receive a distribution
of his Accrued Benefit attributable either to Employer or to Participant
contributions except as provided under Article IV or under Article VI. However,
for each Plan Year for which a Participant's election not to participate is
effective, the Participant's Account, if any, continues to share in Trust Fund
allocations under Article IX. Furthermore, the Employee or
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<PAGE> 42
the Participant receives vesting credit under Article V for each included Year
of Service during the period the election not to participate is effective.
* * * * * * * * * * * * * * * * * * * *
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<PAGE> 43
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
PART 1. AMOUNT OF EMPLOYER CONTRIBUTIONS AND PLAN ALLOCATIONS: SECTIONS 3.01
THROUGH 3.06
3.01 AMOUNT. For each Plan Year, the Employer contributes to the Trust the
amount determined by application of the contribution option selected by the
Employer in its Adoption Agreement. The Employer may not make a contribution to
the Trust for any Plan Year to the extent the contribution would exceed the
Participants' Maximum Permissible Amounts.
The Employer contributes to this Plan on the condition its contribution is
not due to a mistake of fact and the Revenue Service will not disallow the
deduction for its contribution. The Trustee, upon written request from the
Employer, must return to the Employer the amount of the Employer's contribution
made by the Employer by mistake of fact or the amount of the Employer's
contribution disallowed as a deduction under Code Section404. The Trustee will
not return any portion of the Employer's contribution under the provisions of
this paragraph more than one year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then, only to
the extent of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer contribution returnable
for any losses attributable to it. The Trustee may require the Employer to
furnish it whatever evidence the Trustee deems necessary to enable the Trustee
to confirm the amount the Employer has requested be returned is properly
returnable under ERISA.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records,
determines the amount of any contributions to be made by it to the Trust under
the terms of the Plan.
3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its contribution
for each Plan Year in one or more installments without interest. The Employer
must make its contribution to the Plan within the time prescribed by the Code or
applicable Treasury regulations. Subject to the consent of the Trustee, the
Employer may make its contribution in property rather than in cash, provided the
contribution of property is not a prohibited transaction under the Code or under
ERISA.
3.04 CONTRIBUTION ALLOCATION.
(A) METHOD OF ALLOCATION. The Employer must specify in its Adoption Agreement
the manner of allocating each annual Employer contribution to this Trust.
(B) TOP HEAVY MINIMUM ALLOCATION. The Plan must comply with the provisions of
this Section 3.04(B), subject to the elections in the Employer's Adoption
Agreement.
(1) TOP HEAVY MINIMUM ALLOCATION UNDER STANDARDIZED PLAN. Subject to the
Employer's election under Section 3.04(B)(3), the top heavy minimum allocation
requirement applies to a Standardized Plan for each Plan Year, irrespective of
whether the Plan is top heavy.
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<PAGE> 44
(a) Each Participant employed by the Employer on the last day of the
Plan Year will receive a top heavy minimum allocation for that Plan
Year. The Employer may elect in Section 3.04 of its Adoption Agreement
to apply this paragraph (a) only to a Participant who is a Non-Key
Employee. (b) Subject to any overriding elections in Section 3.18 of
the Employer's Adoption Agreement, the top heavy minimum allocation is
the lesser of 3% of the Participant's Compensation for the Plan Year or
the highest contribution rate for the Plan Year made on behalf of any
Participant for the Plan Year. However, if the Employee participates in
Paired Plans, the top heavy minimum allocation is 3% of his
Compensation. If, under Adoption Agreement Section 3.04, the Employer
elects to apply paragraph (a) only to a Participant who is a Non-Key
Employee, the Advisory Committee will determine the "highest
contribution rate" described in the first sentence of this paragraph
(b) by reference only to the contribution rates of Participants who are
Key Employees for the Plan Year.
(2) TOP HEAVY MINIMUM ALLOCATION UNDER NONSTANDARDIZED PLAN. The top heavy
minimum allocation requirement applies to a Nonstandardized Plan only in Plan
Years for which the Plan is top heavy. Except as provided in the Employer's
Adoption Agreement, if the Plan is top heavy in any Plan Year:
(a) Each Non-Key Employee who is a Participant and is employed by the
Employer on the last day of the Plan Year will receive a top heavy
minimum allocation for that Plan Year, irrespective of whether he
satisfies the Hours of Service condition under Section 3.06 of the
Employer's Adoption Agreement; and
(b) The top heavy minimum allocation is the lesser of 3% of the Non-Key
Employee's Compensation for the Plan Year or the highest contribution
rate for the Plan Year made on behalf of any Key Employee. However, if
a defined benefit plan maintained by the Employer which benefits a Key
Employee depends on this Plan to satisfy the antidiscrimination rules
of Code Section 401(a)(4) or the coverage rules of Code Section 410 (or
another plan benefiting the Key Employee so depends on such defined
benefit plan), the top heavy minimum allocation is 3% of the Non-Key
Employee's Compensation regardless of the contribution rate for the Key
Employees.
(3) SPECIAL ELECTION FOR STANDARDIZED CODE SECTION 401(K) PLAN. If the
Employer's Plan is a Standardized Code Section 401(k) Plan, the Employer may
elect in Adoption Agreement Section 3.04 to apply the top heavy minimum
allocation requirements of Section 3.04(B)(1) only for Plan Years in which the
Plan actually is a top heavy plan.
(4) SPECIAL DEFINITIONS. For purposes of this Section 3.04(B), the term
"Participant" includes any Employee otherwise eligible to participate in the
Plan but who is not a Participant because of his Compensation level or because
of his failure to make elective deferrals under a Code Section 401(k)
arrangement or because of his failure to make mandatory contributions. For
purposes of subparagraph (1)(b) or (2)(b), "Compensation" means Compensation as
defined in Section 1.12, except Compensation does not include elective
contributions, irrespective of whether the Employer has elected to include these
amounts in Section 1.12 of its Adoption Agreement, any exclusion selected in
Section 1.12 of the Adoption Agreement (other than the exclusion of elective
contributions) does not apply, and any modification to the definition of
Compensation in Section 3.06 does not apply.
(5) DETERMINING CONTRIBUTION RATES. For purposes of this Section 3.04(B), a
Participant's contribution rate is the sum of all Employer contributions (not
including Employer contributions to Social Security) and forfeitures allocated
to the Participant's Account for the Plan Year divided by his Compensation for
the entire Plan Year. However, for purposes of satisfying a Participant's top
heavy minimum allocation in Plan Years beginning after December 31, 1988, the
Participant's contribution rate does not include any elective contributions
under a Code Section 401(k) arrangement nor any Employer matching contributions
allocated on the
17
<PAGE> 45
basis of those elective contributions or on the basis of employee contributions,
except a Nonstandardized Plan may include in the contribution rate any matching
contributions not necessary to satisfy the nondiscrimination requirements of
Code Section 401(k) or of Code Section 401(m).
If the Employee is a Participant in Paired Plans, the Advisory Committee
wil1 consider the Paired Plans as a single plan to determine a Participant's
contribution rate and to determine whether the Plans satisfy this top heavy
minimum allocation requirement. To determine a Participant's contribution rate
under a Nonstandardized Plan, the Advisory Committee must treat all qualified
top heavy defined contribution plans maintained by the Employer (or by any
related Employers described in Section 130) as a single plan.
(6) NO ALLOCATIONS. If, for a Plan Year, there are no allocations of
Employer contributions or forfeitures for any Participant (for purposes of
Section 3.04 (B)(1)(b)) or for any Key Employee (for purposes of Section
3.04(B)(2)(b)), the Plan does not require any top heavy minimum allocation for
the Plan Year, unless a top heavy minimum allocation applies because of the
maintenance by the Employer of more than one plan.
(7) ELECTION OF METHOD. The Employer must specify in its Adoption Agreement
the manner in which the Plan will satisfy the top heavy minimum allocation
requirement.
(a) If the Employer elects to make any necessary additional
contribution to this Plan, the Advisory Committee first will allocate
the Employer contributions (and Participant forfeitures, if any) for
the Plan Year in accordance with the provisions of Adoption Agreement
Section 3.04. The Employer then will contribute an additional amount
for the Account of any Participant entitled under this Section 3.04(B)
to a top heavy minimum allocation and whose contribution rate for the
Plan Year, under this Plan and any other plan aggregated under
paragraph (5), is less than the top heavy minimum allocation. The
additional amount is the amount necessary to increase the Participant's
contribution rate to the top heavy minimum allocation. The Advisory
Committee will allocate the additional contribution to the Account of
the Participant on whose behalf the Employer makes the contribution.
(b) If the Employer elects to guarantee the top heavy minimum
allocation under another plan, this Plan does not provide the top heavy
minimum allocation and the Advisory Committee will allocate the annual
Employer contributions (and Participant forfeitures) under the Plan
solely in accordance with the allocation method selected under Adoption
Agreement Section 3.04.
3.05 FORFEITURE ALLOCATION. The amount of a Participant's Accrued Benefit
forfeited under the Plan is a Participant forfeiture. The Advisory Committee
will allocate Participant forfeitures in the manner specified by the Employer in
its Adoption Agreement. The Advisory Committee will continue to hold the
undistributed, non-vested portion of a terminated Participant's Accrued Benefit
in his Account solely for his benefit until a forfeiture occurs at the time
specified in Section 5.09 or if applicable, until the time specified in Section
9.14. Except as provided under Section 5.04, a Participant will not share in the
allocation of a forfeiture of any portion of his Accrued Benefit.
3.06 ACCRUAL OF BENEFIT. The Advisory Committee will determine the accrual
of benefit (Employer contributions and Participant forfeitures) on the basis of
the Plan Year in accordance with the Employer's elections in its Adoption
Agreement.
(A) COMPENSATION TAKEN INTO ACCOUNT. The Employer must specify in its Adoption
Agreement the Compensation the Advisory Committee is to take into account in
allocating an Employer contribution to a Participant's Account for the Plan Year
in which the Employee first becomes a Participant. For all other Plan Years, the
Advisory Committee will take into account only the Compensation determined for
the portion of the Plan Year in which the Employee actually is a Participant.
The Advisory Committee must take into account the
18
<PAGE> 46
Employee's entire Compensation for the Plan Year to determine whether the Plan
satisfies the top heavy minimum allocation requirement of Section 3.04(B). The
Employer, in an addendum to its Adoption Agreement numbered 3.06(A), may elect
to measure Compensation for the Plan Year for allocation purposes on the basis
of a specified period other than the Plan Year.
(B) HOURS OR SERVICE REQUIREMENT. Subject to the applicable minimum allocation
requirement of Section 3.04, the Advisory Committee will not allocate any
portion of an Employer contribution for a Plan Year to any Participant's Account
if the Participant does not complete the applicable minimum Hours of Service
requirement specified in the Employer's Adoption Agreement.
(C) EMPLOYMENT REQUIREMENT. If the Employer's Plan is a Standardized Plan, a
Participant who, during a particular Plan Year, completes the accrual
requirements of Adoption Agreement Section 3.06 will share in the allocation of
Employer contributions for that Plan Year without regard to whether he is
employed by the Employer on the Accounting Date of that Plan Year. If the
Employer's Plan is a Nonstandardized Plan, the Employer must specify in its
Adoption Agreement whether the Participant will accrue a benefit if he is not
employed by the Employer on the Accounting Date of the Plan Year. If the
Employer's Plan is a money purchase plan or a target benefit plan, whether
Nonstandardized or Standardized, the Plan conditions benefit accrual on
employment with the Employer on the last day of the Plan Year for the Plan Year
in which the Employer terminates the Plan.
(D) OTHER REQUIREMENTS. If the Employer's Adoption Agreement includes options
for other requirements affecting the Participant's accrual of benefits under the
Plan, the Advisory Committee will apply this Section 3.06 in accordance with the
Employer's Adoption Agreement selections.
(E) SUSPENSION OF ACCRUAL REQUIREMENTS UNDER NONSTANDARDIZED PLAN. If the
Employer's Plan is a Nonstandardized Plan, the Employer may elect in its
Adoption Agreement to suspend the accrual requirements elected under Adoption
Agreement Section 3.06 if, for any Plan Year beginning after December 31, 1989,
the Plan fails to satisfy the Participation Test or the Coverage Test. A Plan
satisfies the Participation Test if, on each day of the Plan Year, the number of
Employees who benefit under the Plan is at least equal to the lesser of 50 or
40% of the total number of Includible Employees as of such day. A Plan satisfies
the Coverage Test if, on the last day of each quarter of the Plan Year, the
number of Nonhighly Compensated Employees who benefit under the Plan is at least
equal to 70% of the total number of Includible Nonhighly Compensated Employees
as of such day. "Includible" Employees are all Employees other than: (1) those
Employees excluded from participating in the Plan for the entire Plan Year by
reason of the collective bargaining unit exclusion or the nonresident alien
exclusion under Adoption Agreement Section 1.07 or by reason of the
participation requirements of Sections 2.01 and 2.03; and (2) any Employee who
incurs a Separation from Service during the Plan Year and fails to complete at
least 501 Hours of Service for the Plan Year. A "Nonhighly Compensated Employee"
is an Employee who is not a Highly Compensated Employee and who is not a family
member aggregated with a Highly Compensated Employee pursuant to Section 1.09 of
the Plan.
For purposes of the Participation Test and the Coverage Test, an Employee
is benefiting under the Plan on a particular date if, under Adoption Agreement
Section 3.04, he is entitled to an allocation for the Plan Year. Under the
Participation Test, when determining whether an Employee is entitled to an
allocation under Adoption Agreement Section 3.04, the Advisory Committee will
disregard any allocation required solely by reason of the top heavy minimum
allocation, unless the top heavy minimum allocation is the only allocation made
under the Plan for the Plan Year.
If this Section 3.06(E) applies for a Plan Year, the Advisory Committee
will suspend the accrual requirements for the Includible Employees who are
Participants, beginning first with the Includible Employee(s) employed with the
Employer on the last day of the Plan Year, then the Includible Employee(s)
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<PAGE> 47
who have the latest Separation from Service during the Plan Year, and continuing
to suspend in descending order the accrual requirements for each Includible
Employee who incurred an earlier Separation from Service, from the latest to the
earliest Separation from Service date, until the Plan satisfies both the
Participation Test and the Coverage Test for the Plan Year. If two or more
Includible Employees have a Separation from Service on the same day, the
Advisory Committee will suspend the accrual requirements for all such Includible
Employees, irrespective of whether the Plan can satisfy the Participation Test
and the Coverage Test by accruing benefits for fewer than all such Includible
Employees. If the Plan suspends the accrual requirements for an Includible
Employee, that Employee will share in the allocation of Employer contributions
and Participant forfeitures, if any, without regard to the number of Hours of
Service he has earned for the Plan Year and without regard to whether he is
employed by the Employer on the last day of the Plan Year. If the Employer's
Plan includes Employer matching contributions subject to Code Section 401(m),
this suspension of accrual requirements applies separately to the Code Section
401(m) portion of the Plan, and the Advisory Committee will treat an Employee as
benefiting under that portion of the Plan if he is an Eligible Employee for
purposes of the Code Section401(m) nondiscrimination test. The Employer may
modify the operation of this Section 3.06(E) by electing appropriate
modifications in Section 3.06 of its Adoption Agreement.
PART 2. LIMITATIONS ON ALLOCATIONS: SECTIONS 3.07 THROUGH 3.19
[Note: Sections 3.07 through 3.10 apply only to Participants in this Plan
who do not participate, and who have never participated, in another qualified
plan or in a welfare benefit fund (as defined in Code Section 419(e)) maintained
by the Employer.]
3.07 The amount of Annual Additions which the Advisory Committee may
allocate under this Plan on a Participant's behalf for a Limitation Year may not
exceed the Maximum Permissible Amount. If the amount the Employer otherwise
would contribute to the Participant's Account would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible Amount, the Employer
will reduce the amount of its contribution so the Annual Additions for the
Limitation Year will equal the Maximum Permissible Amount. If an allocation of
Employer contributions, pursuant to Section 3.04, would result in an Excess
Amount (other than an Excess Amount resulting from the circumstances described
in Section 3.10) to the Participant's Account, the Advisory Committee will
reallocate the Excess Amount to the remaining Participants who are eligible for
an allocation of Employer contributions for the Plan Year in which the
Limitation Year ends. The Advisory Committee will make this reallocation on the
basis of the allocation method under the Plan as if the Participant whose
Account otherwise would receive the Excess Amount is not eligible for an
allocation of Employer contributions.
3.08 Prior to the determination of the Participant's actual Compensation
for a Limitation Year, the Advisory Committee may determine the Maximum
Permissible Amount on the basis of the Participant's estimated annual
Compensation for such Limitation Year. The Advisory Committee must make this
determination on a reasonable and uniform basis for all Participants similarly
situated. The Advisory Committee must reduce any Employer contributions
(including any allocation of forfeitures) based on estimated annual Compensation
by any Excess Amounts carried over from prior years.
3.09 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the Maximum Permissible
Amount for such Limitation Year on the basis of the Participant's actual
Compensation for such Limitation Year.
3.10 If, pursuant to Section 3.09, or because of the allocation of
forfeitures, there is an Excess Amount with respect to a Participant for a
Limitation Year, the Advisory Committee will dispose of such Excess Amount as
follows:
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<PAGE> 48
(a) The Advisory Committee will return any nondeductible voluntary Employee
contributions to the Participant to the extent the return would reduce the
Excess Amount.
(b) If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan covers the Participant at the end of the Limitation
Year, then the Advisory Committee will use the Excess Amount(s) to reduce
future Employer contributions (including any allocation of forfeitures)
under the Plan for the next Limitation Year and for each succeeding
Limitation Year, as is necessary, for the Participant. If the Employer's
Plan is a profit sharing plan, the Participant may elect to limit his
Compensation for allocation purposes to the extent necessary to reduce his
allocation for the Limitation Year to the Maximum Permissible Amount and
eliminate the Excess Amount.
(c) If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan does not cover the Participant at the end of the
Limitation Year, then the Advisory Committee will hold the Excess Amount
unallocated in a suspense account. The Advisory Committee will apply the
suspense account to reduce Employer Contributions (including allocation of
forfeitures) for all remaining Participants in the next limitation Year,
and in each succeeding Limitation Year if necessary. Neither the Employer
nor any Employee may contribute to the Plan for any Limitation Year in
which the Plan is unable to allocate fully a suspense account maintained
pursuant to this paragraph (c).
(d) The Advisory Committee will not distribute any Excess Amount(s) to
Participants or to former Participants.
[Note: Sections 3.11 through 3.16 apply only to Participants who, in
addition to this Plan, participate in one or more plans (induding Paired Plans),
all of which are qualified Master or Prototype defined contribution plans or
welfare benefit funds (as defined in Code Section 419(e)) maintained by the
Employer during the Limitation Year.]
3.11 The amount of Annual Additions which the Advisory Committee may
allocate under this Plan on a Participant's behalf for a Limitation Year may not
exceed the Maximum Permissible Amount, reduced by the sum of any Annual
Additions allocated to the Participant's Accounts for the same Limitation Year
under this Plan and such other defined contribution plan. If the amount the
Employer otherwise would contribute to the Participant's Account under this Plan
would cause the Annual Additions for the Limitation Year to exceed this
limitation, the Employer will reduce the amount of its contribution so the
Annual Additions under all such plans for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of Employer contributions, pursuant
to Section 3.04, would result in an Excess Amount (other than an Excess Amount
resulting from the circumstances described in Section 3.10) to the Participant's
Account, the Advisory Committee will reallocate the Excess Amount to the
remaining Participants who are eligible for an allocation of Employer
contributions for the Plan Year in which the Limitation Year ends. The Advisory
Committee will make this reallocation on the basis of the allocation method
under the Plan as if the Participant whose Account otherwise would receive the
Excess Amount is not eligible for an allocation of Employer contributions.
3.12 Prior to the determination of the Participant's actual Compensation
for the Limitation Year, the Advisory Committee may determine the amounts
referred to in 3.11 above on the basis of the Participant's estimated annual
Compensation for such Limitation Year. The Advisory Committee will make this
determination on a reasonable and uniform basis for all Participants similarly
situated. The Advisory Committee must reduce any Employer contribution
(including allocation of forfeitures) based on estimated annual Compensation by
any Excess Amounts carried over from prior years.
3.13 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee wild determine the amounts referred to
in 3.11 on the basis of the Participant's actual Compensation for such
Limitation Year.
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<PAGE> 49
3.14 If pursuant to Section 3.13, or because of the allocation of
forfeitures, a Participant's Annual Additions under this Plan and all such other
plans result in an Excess Amount, such Excess Amount will consist of the Amounts
last allocated. The Advisory Committee will determine the Amounts last allocated
by treating the Annual Additions attributable to a welfare benefit fund as
allocated first, irrespective of the actual allocation date under the welfare
benefit fund.
3.15 The Employer must specify in its Adoption Agreement the Excess Amount
attributed to this Plan, if the Advisory Committee allocates an Excess Amount to
a Participant on an allocation date of this Plan which coincides with an
allocation date of another plan.
3.16 The Advisory Committee will dispose of any Excess Amounts attributed
to this Plan as provided in Section 3.10.
[Note: Section 3.17 applies only to Participants who, in addition to this
Plan, participate in one or more qualified plans which are qualified defined
contribution plans other than a Master or Prototype plan maintained by the
Employer during the Limitation Year.]
3.17 SPECIAL ALLOCATION LIMITATION. The amount of Annual Additions which
the Advisory Committee may allocate under this Plan on behalf of any Participant
are limited in accordance with the provisions of Section 3.11 through 3.16, as
though the other plan were a Master or Prototype plan, unless the Employer
provides other limitations in an addendum to the Adoption Agreement, numbered
Section 3.17.
3.18 DEFINED BENEFIT PLAN LIMITATION. If the Employer maintains a defined
benefit plan, or has ever maintained a defined benefit plan which the Employer
has terminated, then the sum of the defined benefit plan fraction and the
defined contribution plan fraction for any Participant for any Limitation Year
must not exceed 1.0. The Employer must provide in Adoption Agreement Section
3.18 the manner in which the Plan will satisfy this limitation. The Employer
also must provide in its Adoption Agreement Section 3.18 the manner in which the
Plan will satisfy the top heavy requirements of Code Section 416 after taking
into account the existence (or prior maintenance) of the defined benefit plan.
3.19 DEFINITIONS - ARTICLE III. For purposes of Article III, the following
terms mean: (a) "Annual Addition" - The sum of the following amounts allocated
on behalf of a Participant for a Limitation Year, of (i) all Employer
contributions; (ii) all forfeitures; and (iii) all Employee contributions.
Except to the extent provided in Treasury regulations, Annual Additions include
excess contributions described in Code Section 401(k), excess aggregate
contributions described in Code Section 401(m) and excess deferrals described in
Code Section 402(g), irrespective of whether the plan distributes or forfeits
such excess amounts. Annual Additions also include Excess Amounts reapplied to
reduce Employer contributions under Section 3.10. Amounts allocated after March
31, 1984, to an individual medical account (as defined in Code Section
415(1)(2)) included as part of a defined benefit plan maintained by the
Employer are Annual Additions.
Furthermore, Annual Additions include contributions paid or accrued after
December 31, 1985, for taxable years ending after December 31, 1985,
attributable to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit fund (as defined in Code Section 419(e)) maintained by the
Employer.
(b) "Compensation" - For purposes of applying the limitations of Part 2 of
this Article III, "Compensation" means Compensation as defined in Section
1.12, except Compensation does not include elective contributions,
irrespective of whether the Employer has elected to include these amounts
as Compensation
22
<PAGE> 50
under Section 1.12 of its Adoption Agreement, and any exclusion selected in
Section 1.12 of the Adoption Agreement (other than the exclusion of
elective contributions) does not apply.
(c) "Employer" - The Employer that adopts this Plan and any related
employers described in Section 130. Solely for purposes of applying the
limitations of Part 2 of this Article III, the Advisory Committee will
determine related employers described in Section 130 by modifying Code
Sections 414(b) and (c) in accordance with Code Section 415(h).
(d) "Excess Amount" - The excess of the Participant's Annual Additions for
the Limitation Year over the Maximum Permissible Amount.
(e) "Limitation Year" - The period selected by the Employer under Adoption
Agreement Section 1.17. All qualified plans of the Employer must use the
same Limitation Year. If the Employer amends the Limitation Year to a
different 12 consecutive month period, the new Limitation Year must begin
on a date within the Limitation Year for which the Employer makes the
amendment, creating a short Limitation Year.
(f) "Master or Prototype Plans" - A plan the form of which is the subject
of a favorable notification letter or a favorable opinion letter from the
Internal Revenue Service.
(g) - "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if
greater, one-fourth of the defined benefit dollar limitation under Code
Section 415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for
the Limitation Year. If there is a short Limitation Year because of a
change in Limitation Year, the Advisor Committee will multiply the $30,000
(or adjusted) limitation by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(h) "Defined contribution plan" - A retirement 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 the plan may allocate to such participant's account. The
Advisory Committee must treat all defined contribution plans (whether or
not terminated) maintained by the Employer as a single plan. Solely for
purposes of the limitations of Part 2 of this Article III, the Advisory
Committee will treat employee contributions made to a defined benefit plan
maintained by the Employer as a separate defined contribution plan The
Advisory Committee also will treat as a defined contribution plan an
individual medical account (as defined in Code Section 415(1)(2)) included
as part of a defined benefit plan maintained by the Employer and, for
taxable years ending after December 31, 1985, a welfare benefit fund under
Code Section 419(e) maintained by the Employer to the extent there are
post-retirement medical benefits allocated to the separate account of a key
employee (as defined in Code Section 419A(d)(3)).
(i) "Defined benefit plan" - A retirement plan which does not provide for
individual accounts for Employer contributions. The Advisory Committee must
treat all defined benefit plans (whether or not terminated) maintained by
the Employer as a single plan.
[Note: The definitions to paragraphs (j), (k) and (l) apply only if the
limitation described in Section 3.18 applies to the Employer's Plan.]
(j) "Defined benefit plan fraction" -
Projected annual benefit of the Participant under the defined benefit plan(s)
-----------------------------------------------------------------------------
23
<PAGE> 51
The lesser of (i) 125% (subject to
the "100% limitation" in paragraph (l)) of the
dollar limitation in effect under Code Section 415(b)(1)(A) for the Limitation
Year, or (ii) 140% of the Participant's average Compensation for his
high three (3) consecutive Years of Service
To determine the denominator of this fraction, the Advisory Committee will
make any adjustment required under Code Section 415(b) and will determine a
Year of Service, unless otherwise provided in an addendum to Adoption
Agreement Section 3.18, as a Plan Year in which the Employee completed at
least 1,000 Hours of Service. The "projected annual benefits" is the annual
retirement benefit (adjusted to an actuarially equivalent straight life
annuity if the plan expresses such benefit in a form other than a straight
life annuity or qualified joint and survivor annuity) of the Participant
under the terms of the defined benefit plan on the assumptions he continues
employment until his normal retirement age (or current age, if later) as
stated in the defined benefit plan, his compensation continues at the same
rate as in effect in the Limitation Year under consideration until the date
of his normal retirement age and all other relevant factors used to
determine benefits under the defined benefit plan remain constant as of the
current Limitation Year for all future Limitation Years.
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits in one or
more defined benefit plans maintained by the Employer which were in
existence on May 6, l986, the dollar limitation used in the denominator of
this fraction will not be less than the Participant's Current Accrued
Benefit. A Participant's Current Accrued Benefit is the sum of the annual
benefits under such defined benefit plans which the Participant had accrued
as of the end of the 1986 Limitation Year (the last Limitation Year
beginning before January 1, 1987), determined without regard to any change
in the terms or conditions of the Plan made after May 5, 1986, and without
regard to any cost of living adjustment occurring after May 5, 1986. This
Current Accrued Benefit rule applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code
Section 415 as in effect at the end of the 1986 Limitation Year.
(k) "Defined contribution plan fraction" -
The sum, as of the close of the Limitation Year, of the Annual Additions
to the Participant's Account under the defined contribution plan(s)
-------------------------------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year
of Service with the Employer:
(i) 125% (subject to the "100% limitation" in paragraph (l))
of the dollar limitation in effect
under Code Section 415(c)(1)(A) for the Limitation Year
(determined without regard to the special dollar
limitations for employee stock ownership plans), or
(ii) 35% of the Participant's Compensation for the Limitation Year
For purposes of determining the defined contribution plan fraction, the
Advisory Committee will not recompute Annual Additions in Limitation Years
beginning prior to January 1, 1987, to treat all Employee contributions as
Annual Additions. If the Plan satisfied Code Section 415 for Limitation
Years beginning prior to January 1, 1987, the Advisory Committee will
redetermine the defined contribution plan fraction and the defined benefit
plan fraction as of the end of the 1986 Limitation Year, in accordance
with this Section 3.19. If the sum of the redetermined fractions exceeds
1.0, the Advisory Committee will subtract permanently from the numerator of
the defined contribution plan fraction an amount equal to the product of
(1) the excess of the sum of the fractions over 1.0, times (2) the
denominator of the defined contribution plan fraction. In making the
adjustment, the Advisory Committee must disregard any accrued benefit under
the defined benefit plan which is in excess of the Current Accrued Benefit.
This Plan continues any transitional rules applicable to the determination
of the defined contribution plan fraction under the Employer's Plan as of
the end of the 1986 imitation Year.
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<PAGE> 52
(l) "100% limitation." If the 100% limitation applies, the Advisory
Committee must determine the denominator of the defined benefit plan
fraction and the denominator of the defined contribution plan fraction by
substituting 100% for 125%. If the Employer's Plan is a Standardized Plan,
the 100% limitation applies in all Limitation Years, subject to any
override provisions under Section 3.18 of the Employer's Adoption
Agreement. If the Employer overrides the 100% limitation under a
Standardized Plan, the Employer must specify in its Adoption Agreement the
manner in which the Plan satisfies the extra minimum benefit requirement of
Code Section 416(h) and the 100% limitation must continue to apply if the
Plan's top heavy ratio exceeds 90%. If the Employer's Plan is a
Nonstandardized Plan, the 100% limitation applies only if: (i) the Plan's
top heavy ratio exceeds 90%; or (ii) the Plan's top heavy ratio is greater
than 60%, and the Employer does not elect in its Adoption Agreement Section
3.18 to provide extra minimum benefits which satisfy Code Section
416(h)(2).
* * * * * * * * * * * * * * * * * * * *
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<PAGE> 53
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. This Plan does not permit
Participant nondeductible contributions unless the Employer maintains its Plan
under a Code Section401(k) Adoption Agreement. If the Employer does not maintain
its Plan under a Code Section401(k) Adoption Agreement and, prior to the
adoption of this Master Plan, the Plan accepted Participant nondeductible
contributions for a Plan Year beginning after December 31, 1986, those
contributions must satisfy the requirements of Code Section401(m). This Section
4.01 does not prohibit the Plan's acceptance of Participant nondeductible
contributions prior to the first Plan Year commencing after the Plan Year in
which the Employer adopts this Master Plan.
4.02 PARTICIPANT DEDUCTIBLE CONTRIBUTIONS. A qualified Plan may not accept
Participant deductible contributions after April 15, 1987. If the Employer's
Plan includes Participant deductible contributions ("DECs".) made prior to April
16, 1987, the Advisory Committee must maintain a separate accounting for the
Participant's Accrued Benefit attributable to DECs, including DECs which are
part of a rollover contribution described in Section 4.03. The Advisory
Committee will treat the accumulated DECs as part of the Participant's Accrued
Benefit for all purposes of the Plan, except for purposes of determining the top
heavy ratio under Section 1.33. The Advisory Committee may not use DECs to
purchase life insurance on the Participant's behalf.
4.03 PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant, with the
Employer's written consent and after filing with the Trustee the form prescribed
by the Advisory Committee, may contribute cash or other property to the Trust
other than as a voluntary contribution if the contribution is a "rollover
contribution" which the Code permits an employee to transfer either directly or
indirectly from one qualified plan to another qualified plan. Before accepting a
rollover contribution, the Trustee may require an Employee to furnish
satisfactory evidence that the proposed transfer is in fact a "rollover
contribution" which the Code permits an employee to make to a qualified plan. A
rollover contribution is not an Annual Addition under Part 2 of Article III.
The Trustee will invest the rollover contribution in a segregated
investment Account for the Participant's sole benefit unless the Trustee (or the
Named Fiduciary, in the case of a nondiscretionary Trustee designation), in its
sole discretion, agrees to invest the rollover contribution as part of the Trust
Fund. The Trustee will not have any investment responsibility with respect to a
Participant's segregated rollover Account. The Participant, however, from time
to time, may direct the Trustee in writing as to the investment of his
segregated rollover Account in property, or property interests, of any kind,
real personal or mixed; provided however, the Participant may not direct the
Trustee to make loans to his Employer. A Participant's segregated rollover
Account alone will bear any extraordinary expenses resulting from investments
made at the direction of the Participant. As of the Accounting Date (or other
valuation date) for each Plan Year, the Advisory Committee will allocate and
credit the net income (or net loss) from a Participant's segregated rollover
Account and the increase or decrease in the fair market value of the assets of a
segregated rollover Account solely to that Account. The Trustee is not liable
nor responsible for any loss resulting to any Beneficiary, nor to any
Participant, by reason of any sale or investment made or other action taken
pursuant to and in accordance with the direction of the Participant. In all
other respects, the Trustee will hold, administer and distribute a rollover
contribution in the same manner as any Employer contribution made to the Trust.
An eligible Employee, prior to satisfying the Plan's eligibility
conditions, may make a rollover contribution to the Trust to the same extent and
in the same manner as a Participant. If an Employee makes a rollover
contribution to the Trust prior to satisfying the Plan's eligibility conditions,
the Advisory Committee and Trustee must treat the Employee as a Participant for
all purposes of the Plan except the Employee is not a Participant for purposes
of sharing in Employer contributions or Participant forfeitures under the Plan
until he
26
<PAGE> 54
actually becomes a Participant in the Plan. If the Employee has a Separation
from Service prior to becoming a Participant, the Trustee will distribute his
rollover contribution Account to him as if it were an Employer contribution
Account.
4.04 PARTICIPANT CONTRIBUTION - FORFEITABILITY. A Participant's Accrued
Benefit is, at all times, 100% Nonforfeitable to the extent the value of his
Accrued Benefit is derived from his Participant contributions described in this
Article IV.
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. A Participant, by
giving prior written notice to the Trustee, may withdraw all or any part of the
value of his Accrued Benefit derived from his Participant contributions
described in this Article IV. A distribution of Participant contributions must
comply with the joint and survivor requirements described in Article VI, if
those requirements apply to the Participant. A Participant may not exercise his
right to withdraw the value of his Accrued Benefit derived from his Participant
contributions more than once during any Plan Year. The Trustee, in accordance
with the direction of the Advisory Committee, will distribute a Participant's
unwithdrawn Accrued Benefit attributable to his Participant contributions in
accordance with the provisions of Article VI applicable to the distribution of
the Participant's Nonforfeitable Accrued Benefit.
4.06 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. The Advisory Committee
must maintain a separate Account(s) in the name of each Participant to reflect
the Participant's Accrued Benefit under the Plan derived from his Participant
contributions. A Participant's Accrued Benefit derived from his Participant
contributions as of any applicable date is the balance of his separate
Participant contribution Account(s).
* * * * * * * * * * * * * * * * * * * *
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<PAGE> 55
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE. The Employer must define Normal Retirement Age
in its Adoption Agreement. A Participant's Accrued Benefit derived from Employer
contributions is 100% Nonforfeitable upon and after his attaining Normal
Retirement Age (if employed by the Employer on or after that date).
5.02 PARTICIPANT DISABILITY OR DEATH. The Employer may elect in its
Adoption Agreement to provide a Participant's Accrued Benefit derived from
Employer contributions will be 100% Nonforfeitable if the Participant's
Separation from Service is a result of his death or his disability.
5.03 VESTING SCHEDULE. Except as provided in Sections 5.01 and 5.02, for
each Year of Service, a Participant's Nonforfeitable percentage of his Accrued
Benefit derived from Employer contributions equals the percentage in the vesting
schedule completed by the Employer in its Adoption Agreement.
(A) ELECTION OF SPECIAL VESTING FORMULA. If the Trustee makes a distribution
(other than a cash-out distribution described in Section 5.04) to a
partially-vested Participant, and the Participant has not incurred a Forfeiture
Break in Service at the relevant time, the Advisory Committee will establish a
separate Account for the Participant's Accrued Benefit. At any relevant time
following the distribution, the Advisory Committee will determine the
Participant's Nonforfeitable Accrued Benefit derived from Employer contributions
in accordance with the following formula: P(AB + (R x D)) - (R x D).
To apply this formula, "P" is the Participant's current vesting percentage
at the relevant time, "AB" is the Participant's Employer-derived Accrued Benefit
at the relevant time, "R" is the ratio of "AB" to the Participant's
Employer-derived Accrued Benefit immediately following the earlier distribution
and "D" is the amount of the earlier distribution. If, under a restated Plan,
the Plan has made distribution to a partially-vested Participant prior to its
restated Effective Date and is unable to apply the cash-out provisions of
Section 5.04 of that prior distribution, this special vesting formula also
applies to that Participant's remaining Account. The Employer, in an addendum to
its Adoption Agreement, numbered Section 5.03, may elect to modify this formula
to read as follows: P(AB + D) - D.
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/RESTORATION OF
FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a partially-vested
Participant receives a cash-out distribution before he incurs a Forfeiture Break
in Service (as defined in Section 5.08), the cash-out distribution will result
in an immediate forfeiture of the nonvested portion of the Participant's Accrued
Benefit derived from Employer contributions. See Section 5.09. A
partially-vested Participant is a Participant whose Nonforfeitable Percentage
determined under Section 5.03 is less than 100%. A cash-out distribution is a
distribution of the entire present value of the Participant's Nonforfeitable
Accrued Benefit.
(A) RESTORATION AND CONDITIONS UPON RESTORATION. A partially-vested Participant
who is re-employed by the Employer after receiving a cash-out distribution of
the Nonforfeitable percentage of his Accrued Benefit may repay the Trustee the
amount of the cash-out distribution attributable to Employer contributions,
unless the Participant no longer has a right to restoration by reason of the
conditions of this Section 5.04(A). If a partially-vested Participant makes the
cash-out distribution repayment, the Advisory Committee, subject to the
conditions of this Section 5.04(A), must restore his Accrued Benefit
attributable to Employer contributions to the same dollar amount as the dollar
amount of his Accrued Benefit on the Accounting Date, or other valuation date,
immediately preceding the date of the cash-out distribution, unadjusted for any
gains or losses occurring subsequent to that Accounting Date, or other valuation
date. Restoration of the Participant's Accrued Benefit includes restoration of
all Code Section 411(d)(6) protected benefits with respect to that restored
Accrued Benefit, in
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<PAGE> 56
accordance with applicable Treasury regulations. The Advisory Committee will not
restore a re-employed Participant's Accrued Benefit under this paragraph if
(1) 5 years have elapsed since the Participant's first re-employment date
with the Employer following the cash-out distribution; or
(2) The Participant incurred a Forfeiture Break in Service (as defined in
Section 5.08). This condition also applies if the Participant makes
repayment within the Plan Year in which he incurs the Forfeiture Break in
Service and that Forfeiture Break in Service would result in a complete
forfeiture of the amount the Advisory Committee otherwise would restore
(B) TIME AND METHOD OF RESTORATION. If neither of the two conditions preventing
restoration of the Participant's Accrued Benefit applies, the Advisory Committee
will restore the Participant's Accrued Benefit as of the Plan Year Accounting
Date coincident with or immediately following the repayment. To restore the
Participant's Accrued Benefit, the Advisory Committee, to the extent necessary,
will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the Advisory
Committee would otherwise allocate under Section 3.05;
(2) Second, the amount, if any, of the Trust Fund net income or gain for
the Plan Year, and
(3) Third, the Employer contribution for the Plan Year to the extent made
under a discretionary formula.
In an addendum to its Adoption Agreement numbered 5.04(B), the Employer may
eliminate as a means of restoration any of the amounts described in clauses (1),
(2) and (3) or may change the order of priority of these amounts. To the extent
the amounts described in clauses (1), (2) and (3) are insufficient to enable the
Advisory Committee to make the required restoration, the Employer must
contribute, without regard to any requirement or condition of Section 3.01, the
additional amount necessary to enable the Advisory Committee to make the
required restoration. If, for a particular Plan Year, the Advisory Committee
must restore the Accrued Benefit of more than one re-employed Participant, then
the Advisory Committee will make the restoration allocations to each such
Participant's Account in the same proportion that a Participant's restored
amount for the Plan Year bears to the restored amount for the Plan Year of all
re-employed Participants. The Advisory Committee will not take into account any
allocation under this Section 5.04 in applying the limitation on allocations
under Part 2 of Article III.
(C) 0% VESTED PARTICIPANT. The Employer must specify in its Adoption Agreement
whether the deemed cash-out rule applies to a 0% vested Participant. A 0% vested
Participant is a Participant whose Accrued Benefit derived from Employer
contributions is entirely forfeitable at the time of his Separation from
Service. If the Participant's Account is not entitled to an allocation of
Employer contributions for the Plan Year in which he has a Separation from
Service, the Advisory Committee will apply the deemed cash-out rule as if the 0%
vested Participant received a cash-out distribution on the date of the
Participant's Separation from Service. If the Participant's Account is entitled
to an allocation of Employer contributions or Participant forfeitures for the
Plan Year in which he has a Separation from Service, the Advisory Committee will
apply the deemed cash-out rule as if the 0% vested Participant received a
cash-out distribution on the first day of the first Plan Year beginning after
his Separation from Service. For purposes of applying the restoration provisions
of this Section 5.04, the Advisory Committee will treat the 0% vested
Participant as repaying his cash-out "distribution" on the first date of his
re-employment with the Employer. If the deemed cash-out rule does not apply to
the Employer's Plan, a 0% vested Participant will not incur a forfeiture until
he incurs a Forfeiture Break in Service.
29
<PAGE> 57
5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the Advisory Committee
restores the Participant's Accrued Benefit, as described in Section 5.04, the
Trustee will invest the cash-out amount the Participant has repaid in a
segregated Account maintained solely for that Participant. The Trustee must
invest the amount in the Participant's segregated Account in Federally insured
interest bearing savings account(s) or time deposit(s) (or a combination of
both), or in other fixed income investments. Until commingled with the balance
of the Trust Fund on the date the Advisory Committee restores the Participant's
Accrued Benefit, the Participant's segregated Account 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. Unless the repayment qualifies as a rollover contribution,
the Advisory Committee will direct the Trustee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant's
segregated Account if the Advisory Committee determines either of the conditions
of Section 5.04(A) prevents restoration as of the applicable Accounting Date,
notwithstanding the Participant's repayment.
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section 5.03,
Year of Service means any 12-consecutive month period designated in the
Employer's Adoption Agreement during which an Employee completes not less than
the number of Hours of Service (not exceeding 1,000) specified in the Employer's
Adoption Agreement. A Year of Service includes any Year of Service earned prior
to the Effective Date of the Plan, except as provided in Section 5.08.
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
Participant incurs a "Break in Service" if during any vesting computation period
he does not complete more than 500 Hours of Service. If, pursuant to Section
5.06, the Plan does not require more than 500 Hours of Service to receive credit
for a Year of Service, a Participant incurs a Break in Service in a vesting
computation period in which he fails to complete a Year of Service.
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer except:
(a) For the sole purpose of determining a Participant's Nonforfeitable
percentage of his Accrued Benefit derived from Employer contributions which
accrued for his benefit prior to a Forfeiture Break in Service, the Plan
disregards any Year of Service after the Participant first incurs a
Forfeiture Break in Service. The Participant incurs a Forfeiture Break in
Service when he incurs 5 consecutive Breaks in Service.
(b) The Plan disregards any Year of Service excluded under the Employer's
Adoption Agreement.
The Plan does not apply the Break in Service rule under Code Section
411(a)(6)(B). Therefore, an Employee need not complete a Year of Service
after a Break in Service before the Plan takes into account the Employee's
otherwise includible Years of Service under this Article V.
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his Accrued
Benefit derived from Employer contributions occurs under the Plan on the earlier
of:
(a) The last day of the vesting computation period in which the Participant
first incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Advisory Committee determines the percentage of a Participant's Accrued
Benefit forfeiture, if any, under this Section 5.09 solely by reference to the
vesting schedule of Section 5.03. A Participant does not
30
<PAGE> 58
forfeit any portion of his Accrued Benefit for any other reason or cause except
as expressly provided by this Section 5.09 or as provided under Section 9.14.
31
<PAGE> 59
ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section 6.03,
the Participant or the Beneficiary elects in writing to a different time or
method of payment, the Advisory Committee will direct the Trustee to commence
distribution of a Participant's Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of the distribution to
the Participant, exceeds $3,500 and the Participant has not attained the later
of Normal Retirement Age or age 62. Furthermore, the Participant's spouse also
must consent, in writing, to any distribution, for which Section 6.04 requires
the spouse's consent. For all purposes of this Article VI, the term "annuity
starting date" means the first day of the first period for which the Plan pays
an amount as an annuity or in any other form. A distribution date under this
Article VI, unless otherwise specified within the Plan, is the date or dates the
Employer specifies in the Adoption Agreement, or as soon as administratively
practicable following that distribution date. For purposes of the consent
requirements under this Article VI, if the present value of the Participant's
Nonforfeitable Accrued Benefit, at the time of any distribution, exceeds $3,500,
the Advisory Committee must treat that present value as exceeding $3,500 for
purposes of all subsequent Plan distributions to the Participant.
(A) SEPARATION FROM SERVICE FOR A REASON OTHER THAN DEATH.
(1) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500. If
the Participant's Separation from Service is for any reason other than death,
the Advisory Committee will direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit in a lump sum, on the distribution date the
Employer specifies in the Adoption Agreement, but in no event later than the
60th day following the close of the Plan Year in which the Participant attains
Normal Retirement Age. If the Participant has attained Normal Retirement Age at
the time of his Separation from Service, the distribution under this paragraph
will occur no later than the 60th day following the close of the Plan Year in
which the Participant's Separation from Service occurs.
(2) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. If the
Participant's Separation from Service is for any reason other than death, the
Advisory Committee will direct the Trustee to commence distribution of the
Participant's Nonforfeitable Accrued Benefit in a form and at the time elected
by the Participant, pursuant to Section 6.03. In the absence of an election by
the Participant, the Advisory Committee will direct the Trustee to distribute
the Participant's Nonforfeitable Accrued Benefit in a lump sum (or, if
applicable, the normal annuity form of distribution required under Section
6.04), on the 60th day following the close of the Plan Year in which the latest
of the following events occurs: (a) the Participant attains Normal Retirement
Age; (b) the Participant attains age 62; or (c) the Participant's Separation
from Service.
(3) DISABILITY. If the Participant's Separation from Service is because of
his disability, the Advisory Committee will direct the Trustee to pay the
Participant's Nonforfeitable Accrued Benefit in lump sum, on the distribution
date the Employer specifies in the Adoption Agreement, subject to the notice and
consent requirements of this Article VI and subject to the applicable mandatory
commencement dates described in Paragraphs (1) and (2).
(4) HARDSHIP. Prior to the time at which the Participant may receive
distribution under Paragraphs (1), (2) or (3), the Participant may request a
distribution from his Nonforfeitable Accrued Benefit in an amount necessary to
satisfy a hardship, if the Employer elects in the Adoption Agreement to permit
hardship distributions. Unless the Employer elects otherwise in the Adoption
Agreement, a hardship distribution must be on account of any of the following:
(a) medical expenses; (b) the purchase (excluding mortgage payments) of the
Participant's principal residence; (c) post-secondary education tuition, for the
next semester or quarter, for the Participant or for the Participant's spouse,
children or dependents; (d) to prevent the eviction of the
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Participant from his principal residence or the foreclosure on the mortgage of
the Participant's principal residence; (e) funeral expenses of the Participant's
family member; or (f) the Participant's disability. A partially-vested
Participant may not receive a hardship distribution described in this Paragraph
(A)(4) prior to incurring a Forfeiture Break in Service, unless the hardship
distribution is a cash-out distribution (as defined in Article V). The Advisory
Committee will direct the Trustee to make the hardship distribution as soon as
administratively practicable after the Participant makes a valid request for the
hardship distribution.
(B) REQUIRED BEGINNING DATE. If any distribution commencement date described
under Paragraph (A) of this Section 6.01, either by Plan provision or by
Participant election (or nonelection), is later than the Participant's Required
Beginning Date, the Advisory Committee instead must direct the Trustee to make
distribution on the Participant's Required Beginning Date, subject to the
transitional election, if applicable, under Section 6.03(D). A Participant's
Required Beginning Date is the April 1 following the close of the calendar year
in which the Participant attains age 70 1/2. However, if the Participant, prior
to incurring a Separation from Service, attained age 70 1/2 by January 1, 1988,
and, for the five Plan Year period ending in the calendar year in which he
attained age 70 1/2 and for all subsequent years, the Participant was not a more
than 5% owner, the Required Beginning Date is the April 1 following the close of
the calendar year in which the Participant separates from Service or, if
earlier, the April 1 following the close of the calendar year in which the
Participant becomes a more than 5% owner. Furthermore, if a Participant who was
not a more than 5% owner attained age 70 1/2 during 1988 and did not incur a
Separation from Service prior to January 1, 1989, his Required Beginning Date is
April 1, 1990. A mandatory distribution at the Participant's Required Beginning
Date will be in lump sum (or, if applicable, the normal annuity form of
distribution required under Section 6.04) unless the Participant, pursuant to
the provisions of this Article VI, makes a valid election to receive an
alternative form of payment.
(C) DEATH OF THE PARTICIPANT. The Advisory Committee will direct the Trustee, in
accordance with this Section 6.01(C), to distribute to the Participant's
Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the
Trust at the time of the Participant's death. Subject to the requirements of
Section 6.04, the Advisory Committee will determine the death benefit by
reducing the Participant's Nonforfeitable Accrued Benefit by any security
interest the Plan has against that Nonforfeitable Accrued Benefit by reason of
an outstanding Participant loan.
(1) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT DOES NOT EXCEED
$3,500. The Advisory Committee, subject to the requirements of Section 6.04,
must direct the Trustee to distribute the deceased Participant's Nonforfeitable
Accrued Benefit in a single sum, as soon as administratively practicable
following the Participant's death or, if later, the date on which the Advisory
Committee receives notification of or otherwise confirms the Participant's
death.
(2) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,S00.
The Advisory Committee will direct the Trustee to distribute the deceased
Participant's Nonforfeitable Accrued Benefit at the time and in the form elected
by the Participant or, if applicable by the Beneficiary, as permitted under this
Article VI. In the absence of an election, subject to the requirements of
Section 6.04, the Advisory Committee will direct the Trustee to distribute the
Participant's undistributed Nonforfeitable Accrued Benefit in a lump sum on the
first distribution date following the close of the Plan Year in which the
Participant's death occurs or, if later, the first distribution date following
the date the Advisory Committee receives notification of or otherwise confirms
the Participant's death.
If the death benefit is payable in full to the Participant's surviving
spouse, the surviving spouse, in addition to the distribution options provided
in this Section 6.01(C), may elect distribution at any time or in any form
(other than a joint and survivor annuity) this Article VI would permit for a
Participant.
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6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to the annuity
distribution requirements, if any, prescribed by Section 6.04, and any
restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution under one, or any combination, of the following methods: (a) by
payment in a lump sum; or (b) by payment in monthly, quarterly or annual
installments over a fixed reasonable period of time, not exceeding the life
expectancy of the Participant, or the joint life and last survivor expectancy of
the Participant and his Beneficiary. The Employer may elect in its Adoption
Agreement to modify the methods of payment available under this Section 6.02.
The distribution options permitted under this Section 6.02 are available
only if the present value of the Participant Nonforfeitable Accrued Benefit, at
the time of the distribution to the Participant, exceeds $3,500. To facilitate
installment payments under this Article VI, the Advisory Committee may direct
the Trustee to segregate all or any part of the Participant's Accrued Benefit in
a separate Account. The Trustee will invest the Participant's segregated 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
Account 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. A Participant or Beneficiary
may elect to receive an installment distribution in the form of a
Nontransferable Annuity Contract. Under an installment distribution, the
Participant or Beneficiary, at any time, may elect to accelerate the payment of
all or any portion, of the Participant's unpaid Nonforfeitable Accrued Benefit,
subject to the requirements of Section 6.04.
(A) MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS. The Advisory Committee
may not direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit, nor may the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of payment which, as of the
Required Beginning Date, does not satisfy the minimum distribution requirements
under Code Section 401(a)(9) and the applicable Treasury regulations. The
minimum distribution for a calendar year equals the Participant's Nonforfeitable
Accrued Benefit as of the latest valuation date preceding the beginning of the
calendar year divided by the Participant's life expectancy or, if applicable,
the joint and last survivor expectancy of the Participant and his designated
Beneficiary (as determined under Article VIII, subject to the requirements of
the Code Section 401(a)(9) regulations). The Advisory Committee will increase
the Participant's Nonforfeitable Accrued Benefit, as determined on the relevant
valuation date, for contributions or forfeitures allocated after the valuation
date and by December 31 of the valuation calendar year, and will decrease the
valuation by distributions made after the valuation date and by December 31 of
the valuation calendar year. For purposes of this valuation, the Advisory
Committee will treat any portion of the minimum distribution for the first
distribution calendar year made after the close of that year as a distribution
occurring in that first distribution calendar year. In computing a minimum
distribution, the Advisory Committee must use the unisex life expectancy
multiples under Treas. Reg. Section 1.72-9. The Advisory Committee, only upon
the Participant's written request, will compute the minimum distribution for a
calendar year subsequent to the first calendar year for which the Plan requires
a minimum distribution by redetermining the applicable life expectancy. However,
the Advisory Committee may not redetermine the joint life and last survivor
expectancy of the Participant and a nonspouse designated Beneficiary in a manner
which takes into account any adjustment to a life expectancy other than the
Participant's life expectancy.
If the Participant's spouse is not his designated Beneficiary, a method of
payment to the Participant (whether by Participant election or by Advisory
Committee direction) may not provide more than incidental benefits to the
Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must
satisfy the minimum distribution incidental benefit ("MDIB") requirement in the
Treasury regulations issued under Code Section401(a)(9) for distributions made
on or after the Participant's Required Beginning Date and before the
Participant's death. To satisfy the MDIB requirement, the Advisory Committee
will compute the minimum distribution required by this Section 6.02(A) by
substituting the applicable MDIB divisor for the applicable life expectancy
factor, if the MDIB divisor is a lesser number. Following the Participant's
death, the Advisory
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<PAGE> 62
Committee will compute the minimum distribution required by this Section 6.02(A)
solely on the basis of the applicable life expectancy factor and will disregard
the MDIB factor. For Plan Years beginning prior to January 1, 1989, the Plan
satisfies the incidental benefits requirement if the distributions to the
Participant satisfied the MDIB requirement or if the present value of the
retirement benefits payable solely to the Participant is greater than 50% of the
present value of the total benefits payable to the Participant and his
Beneficiaries. The Advisory Committee must determine whether benefits to the
Beneficiary are incidental as of the date the Trustee is to commence payment of
the retirement benefits to the Participant, or as of any date the Trustee
redetermines the payment period to the Participant.
The minimum distribution for the first distribution calendar year is due by
the Participant's Required Beginning Date. The minimum distribution for each
subsequent distribution calendar year, including the calendar year in which the
Participant's Required Beginning Date occurs, is due by December 31 of that
year. If the Participant receives distribution in the form of a Nontransferable
Annuity Contract, the distribution satisfies this Section 6.02(A) if the
contract complies with the requirements of Code Section 401(a)(9) and the
applicable Treasury regulations.
(B) MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES. The method of
distribution to the Participant's Beneficiary must satisfy Code Section401(a)(9)
and the applicable Treasury regulations. If the Participant's death occurs after
his Required Beginning Date or, if earlier, the date the Participant commences
an irrevocable annuity pursuant to Section 6.04, the method of payment to the
Beneficiary must provide for completion of payment over a period which does not
exceed the payment period which had commenced for the Participant. If the
Participant's death occurs prior to his Required Beginning Date, and the
Participant had not commenced an irrevocable annuity pursuant to Section 6.04,
the method of payment to the Beneficiary, subject to Section 6.04, must provide
for completion of payment to the Beneficiary over a period not exceeding: (i) 5
years after the date of the Participant's death; or (ii) if the Beneficiary is a
designated Beneficiary, the designated Beneficiary's life expectancy. The
Advisory Committee may not direct payment of the Participant's Nonforfeitable
Accrued Benefit over a period described in clause (ii) unless the Trustee will
commence payment to the designated Beneficiary no later than the December 31
following the close of the calendar year in which the Participant's death
occurred or, if later, and the designated Beneficiary is the Participant's
surviving spouse, December 31 of the calendar year in which the Participant
would have attained age 70 1/2. If the Trustee will make distribution in
accordance with clause (ii), the minimum distribution for a calendar year equals
the Participant's Nonforfeitable Accrued Benefit as of the latest valuation date
preceding the beginning of the calendar year divided by the designated
Beneficiary's life expectancy. The Advisory Committee must use the unisex life
expectancy multiples under Treas. Reg. Section 1.72-9 for purposes of applying
this paragraph. The Advisory Committee, only upon the written request of the
Participant or of the Participant's surviving spouse, will recalculate the life
expectancy of the Participant's surviving spouse not more frequently than
annually, but may not recalculate the life expectancy of a nonspouse designated
Beneficiary after the Trustee commences payment to the designated Beneficiary.
The Advisory Committee will apply this paragraph by treating any amount paid to
the Participant's child, which becomes payable to the Participant's surviving
spouse upon the child's attaining the age of majority, as paid to the
Participant's surviving spouse. Upon the Beneficiary's written request, the
Advisory Committee must direct the Trustee to accelerate payment of all, or any
portion, of the Participant's unpaid Accrued Benefit, as soon as
administratively practicable following the effective date of that request.
6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than 90 days, but not later
than 30 days, before the Participant's annuity starting date, the Advisory
Committee must provide a benefit notice to a Participant who is eligible to make
an election under this Section 6.03. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features and
relative values of those options, and the Participant's right to defer
distribution until he attains the later of Normal Retirement Age or age 62.
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<PAGE> 63
If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that election.
Any election under this Section 6.03 is subject to the requirements of Section
6.02 and of Section 6.04. The Participant or Beneficiary must make an election
under this Section 6.03 by filing his election with the Advisory Committee at
any time before the Trustee otherwise would commence to pay a Participant's
Accrued Benefit in accordance with the requirements of Article VI.
(A) PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. If the present value of
a Participant's Nonforfeitable Accrued Benefit exceeds $3,500, he may elect to
have the Trustee commence distribution as of any distribution date permitted
under the Employer's Adoption Agreement Section 6.03. The Participant may
reconsider an election at any time prior to the annuity starting date and elect
to commence distribution as of any other distribution date permitted under the
Employer's Adoption Agreement Section 6.03. If the Participant is
partially-vested in his Accrued Benefit, an election under this Paragraph (A) to
distribute prior to the Participant's incurring a Forfeiture Break in Service
(as defined in Section 5.08), must be in the form of a cash-out distribution (as
defined in Article V). A Participant may not receive a cash-out distribution if,
prior to the time the Trustee actually makes the cash-out distribution, the
Participant returns to employment with the Employer. Following his attainment of
Normal Retirement Age, a Participant who has separated from Service may elect
distribution as of any distribution date, irrespective of the elections under
Adoption Agreement Section 6.03.
(B) PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE. The Employer must
specify in its Adoption Agreement the distribution election rights, if any, a
Participant has prior to his Separation from Service. A Participant must make an
election under this Section 6.03(B) on a form prescribed by the Advisory
Committee at any time during the Plan Year for which his election is to be
effective. In his written election, the Participant must specify the percentage
or dollar amount he wishes the Trustee to distribute to him. The Participant's
election relates solely to the percentage or dollar amount specified in his
election form and his right to elect to receive an amount, if any, for a
particular Plan Year greater than the dollar amount or percentage specified in
his election form terminates on the Accounting Date. The Trustee must make a
distribution to a Participant in accordance with his election under this Section
6.03(B) within the 90 day period (or as soon as administratively practicable)
after the Participant files his written election with the Trustee. The Trustee
will distribute the balance of the Participant's Accrued Benefit not distributed
pursuant to his election(s) in accordance with the other distribution provisions
of this Plan.
(C) DEATH BENEFIT ELECTIONS. If the present value of the deceased Participant's
Nonforfeitable Accrued Benefit exceeds $3,500, the Participant's Beneficiary may
elect to have the Trustee distribute the Participant's Nonforfeitable Accrued
Benefit in a form and within a period permitted under Section 6.02. The
Beneficiary's election is subject to any restrictions designated in writing by
the Participant and not revoked as of his date of death.
(D) TRANSITIONAL ELECTIONS. Notwithstanding the provisions of Sections 6.01 and
6.02, if the Participant (or Beneficiary) signed a written distribution
designation prior to January 1, 1984, the Advisory Committee must distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that
designation, subject however, to the survivor requirements, if applicable, of
Sections 6.04, 6.05 and 6.06. This Section 6.03(D) does not apply to a pre-1984
distribution designation, and the Advisory Committee will not comply with that
designation, if any of the following applies: (1) the method of distribution
would have disqualified the Plan under Code Section 401(a)(9) as in effect on
December 31, 1983; (2) the Participant did not have an Accrued Benefit as of
December 31, 1983; (3) the distribution designation does not specify the timing
and form of the distribution and the death Beneficiaries (in order of priority);
(4) the substitution of a Beneficiary modifies the payment period of the
distribution; or, (5) the Participant (or Beneficiary) modifies or revokes the
distribution designation. In the event of a revocation, the Plan must
distribute, no later than December 31 of the calendar
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<PAGE> 64
year following the year of revocation, the amount which the Participant would
have received under Section 6.02(A) if the distribution designation had not been
in effect or, if the Beneficiary revokes the distribution designation, the
amount which the Beneficiary would have received under Section 6.02(B) if the
distribution designation had not been in effect. The Advisory Committee will
apply this Section 6.03(D) to rollovers and transfers in accordance with Part J
of the Code Section401(a)(9) Treasury regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES.
(A) JOINT AND SURVIVOR ANNUITY. The Advisory Committee must direct the Trustee
to distribute a married or unmarried Participant's Nonforfeitable Accrued
Benefit in the form of a qualified joint and survivor annuity, unless the
Participant makes a valid waiver election (described in Section 6.05) within the
90 day period ending on the annuity starting date. If, as of the annuity
starting date, the Participant is married, a qualified joint and survivor
annuity is an immediate annuity which is purchasable with the Participant's
Nonforfeitable Accrued Benefit and which provides a life annuity for the
Participant and a survivor annuity payable for the remaining life of the
Participant's surviving spouse equal to 50% of the amount of the annuity payable
during the life of the Participant. If, as of the annuity starting date, the
Participant is not married, a qualified joint and survivor annuity is an
immediate life annuity for the Participant which is purchasable with the
Participant's Nonforfeitable Accrued Benefit. On or before the annuity starting
date, the Advisory Committee, without Participant or spousal consent, must
direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit in a
lump sum, in lieu of a qualified joint and survivor annuity, in accordance with
Section 6.01, if the Participant's Nonforfeitable Accrued Benefit is not greater
than $3,500. This Section 6.04(A) applies only to a Participant who has
completed at least one Hour of Service with the Employer after August 22, 1984.
(B) PRERETIREMENT SURVIVOR ANNUITY. If a married Participant dies prior to his
annuity starting date, the Advisory Committee will direct the Trustee to
distribute a portion of the Participant's Nonforfeitable Accrued Benefit to the
Participant's surviving spouse in the form of a preretirement survivor annuity,
unless the Participant has a valid waiver election (as described in Section
6.06) in effect, or unless the Participant and his spouse were not married
throughout the one year period ending on the date of his death. A preretirement
survivor annuity is an annuity which is purchasable with 50% of the
Participant's Nonforfeitable Accrued Benefit (determined as of the date of the
Participant's death) and which is payable for the life of the Participant's
surviving spouse. The Value of the preretirement survivor annuity is
attributable to Employer contributions and to Employee contributions in the same
proportion as the Participant's Nonforfeitable Accrued Benefit is attributable
to those contributions. The portion of the Participant's Nonforfeitable Accrued
Benefit not payable under this paragraph is payable to the Participant's
Beneficiary, in accordance with the other provisions of this Article VI. If the
present value of the preretirement survivor annuity does not exceed $3,500, the
Advisory Committee, on or before the annuity starting date, must direct the
Trustee to make a lump sum distribution to the Participant's surviving spouse,
in lieu of a preretirement survivor annuity. This Section 6.04(B) applies only
to a Participant who dies after August 22, 1984, and either (i) completes at
least one Hour of Service with the Employer after August 22, 1984, or (ii)
separated from Service with at least 10 Years of Service (as defined in Section
5.06) and completed at least one Hour of Service with the Employer in a Plan
Year beginning after December 31, 1975.
(C) SURVIVING SPOUSE ELECTIONS. If the present value of the preretirement
survivor annuity exceeds $3,500, the Participant's surviving spouse may elect to
have the Trustee commence payment of the preretirement survivor annuity at any
time following the date of the Participant's death, but not later than the
mandatory distribution periods described in Section 6.02, and may elect any of
the forms of payment described in Section 6.02, in lieu of the preretirement
survivor annuity. In the absence of an election by the surviving spouse, the
Advisory Committee must direct the Trustee to distribute the preretirement
survivor annuity on the first distribution date following the close of the Plan
Year in which the latest of the following events occurs: (i) the Participant's
death; (ii) the date the Advisory Committee receives notification of or
otherwise confirms the Participant's
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<PAGE> 65
death; (iii) the date the Participant would have attained Normal Retirement Age;
or (iv) the date the Participant would have attained age 62.
(D) SPECIAL RULES. If the Participant has in effect a valid waiver election
regarding the qualified joint and survivor annuity or the preretirement survivor
annuity, the Advisory Committee must direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with Sections 6.01,
6.02 and 6.03. The Advisory Committee will reduce the Participant's
Nonforfeitable Accrued Benefit by any security interest (pursuant to any offset
rights authorized by Section 10.03[E]) held by the Plan by reason of a
Participant loan to determine the value of the Participant's Nonforfeitable
Accrued Benefit distributable in the form of a qualified joint and survivor
annuity or preretirement survivor annuity, provided any post-August 18, 1985,
loan satisfied the spousal consent requirement described in Section 10.03[E] of
the Plan. For purposes of applying this Article VI, the Advisory Committee
treats a former spouse as the Participant's spouse or surviving spouse to the
extent provided under a qualified domestic relations order described in Section
6.07. The provisions of this Section 6.04, and of Sections 6.05 and 6.06, apply
separately to the portion of the Participant's Nonforfeitable Accrued Benefit
subject to the qualified domestic relations order and to the portion of the
Participant's Nonforfeitable Accrued Benefit not subject to that order.
(E) PROFIT SHARING PLAN ELECTION. If this Plan is a profit sharing plan, the
Employer must elect the extent to which the preceding provisions of Section 6.04
apply. If the Employer elects to apply this Section 6.04 only to a Participant
described in this Section 6.04(E), the preceding provisions of this Section 6.04
apply only to the following Participants: (1) a Participant as respects whom the
Plan is a direct or indirect transferee from a plan subject to the Code
Section 417 requirements and the Plan received the transfer after December 31,
1984, unless the transfer is an elective transfer described in Section 13.06;
(2) a Participant who elects a life annuity distribution (if Section 6.02 or
Section 13.02 of the Plan requires the Plan to provide a life annuity
distribution option); and (3) a Participant whose benefits under a defined
benefit plan maintained by the Employer are offset by benefits provided under
this Plan. If the Employer elects to apply this Section 6.04 to all
Participants, the preceding provisions of this Section 6.04 apply to all
Participants described in the first two paragraphs of this Section 6.04, without
regard to the limitations of this Section 6.04(E). Sections 6.05 and 6.06 only
apply to Participants to whom the preceding provisions of this Section 6.04
apply.
6.05 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY. Not earlier
than 90 days, but not later than 30 days, before the Participant's annuity
starting date, the Advisory Committee must provide the Participant a written
explanation of the terms and conditions of the qualified joint and survivor
annuity, the Participant's right to make, and the effect of, an election to
waive the joint and survivor form of benefit, the rights of the Participant's
spouse regarding the waiver election and the Participant's right to make, and
the effect of, a revocation of a waiver election. The Plan does not limit the
number of times the Participant may revoke a waiver of the qualified joint and
survivor annuity or make a new waiver during the election period.
A married Participant's waiver election is not valid unless (a) the
Participant's spouse (to whom the survivor annuity is payable under the
qualified joint and survivor annuity), after the Participant has received the
written explanation described in this Section 6.05, has consented in writing to
the waiver election, the spouse's consent acknowledges the effect of the
election, and a notary public or the Plan Administrator (or his representative)
witnesses the spouse's consent, (b) the spouse consents to the alternate form of
payment designated by the Participant or to any change in that designated form
of payment, and (c) unless the spouse is the Participant's sole primary
Beneficiary, the spouse consents to the Participant's Beneficiary designation or
to any change in the Participant's Beneficiary designation. The spouse's consent
to a waiver of the qualified joint and survivor annuity is irrevocable, unless
the Participant revokes the waiver election. The spouse may execute a blanket
consent to any form of payment designation or to any Beneficiary designation
made by the Participant, if the spouse acknowledges the right to limit that
consent to a specific designation but, in writing, waives that right.
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<PAGE> 66
The consent requirements of this Section 6.05 apply to a former spouse of the
Participant, to the extent required under a qualified domestic relations order
described in Section 6.07.
The Advisory Committee will accept as valid a waiver election which does
not satisfy the spousal consent requirements if the Advisory Committee
establishes the Participant does not have a spouse, the Advisory Committee is
not able to locate the Participant's spouse, the Participant is legally
separated or has been abandoned (within the meaning of State law) and the
Participant has a court order to that effect, or other circumstances exist under
which the Secretary of the Treasury will excuse the consent requirement. If the
Participant's spouse is legally incompetent to give consent, the spouse's legal
guardian (even if the guardian is the Participant) may give consent.
6.06 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. The Advisory
Committee must provide a written explanation of the preretirement survivor
annuity to each married Participant, within the following period which ends
last: (1) the period beginning on the first day of the Plan Year in which the
Participant attains age 32 and ending on the last day of the Plan Year in which
the Participant attains age 34; (2) a reasonable period after an Employee
becomes a Participant; (3) a reasonable period after the joint and survivor
rules become applicable to the Participant; or (4) a reasonable period after a
fully subsidized preretirement survivor annuity no longer satisfies the
requirements for a fully subsidized benefit. A reasonable period described in
clauses (2), (3) and (4) is the period beginning one year before and ending one
year after the applicable event. If the Participant separates from Service
before attaining age 35, clauses (1), (2), (3) and (4) do not apply and the
Advisory Committee must provide the written explanation within the period
beginning one year before and ending one year after the Separation from Service.
The written explanation must describe, in a manner consistent with Treasury
regulations, the terms and conditions of the preretirement survivor annuity
comparable to the explanation of the qualified joint and survivor annuity
required under Section 6.05. The Plan does not limit the number of times the
Participant may revoke a waiver of the preretirement survivor annuity or make a
new waiver during the election period.
A Participant's waiver election of the preretirement survivor annuity is
not valid unless (a) the Participant makes the waiver election no earlier than
the first day of the Plan Year in which he attains age 35 and (b) the
Participant's spouse (to whom the preretirement survivor annuity is payable)
satisfies the consent requirements described in Section 6.05, except the spouse
need not consent to the form of benefit payable to the designated Beneficiary.
The spouse's consent to the waiver of the preretirement survivor annuity is
irrevocable, unless the Participant revokes the waiver election. Irrespective of
the time of election requirement described in clause (a), if the Participant
separates from Service prior to the first day of the Plan Year in which he
attains age 35, the Advisory Committee will accept a waiver election as respects
the Participant's Accrued Benefit attributable to his Service prior to his
Separation from Service. Furthermore, if a Participant who has not separated
from Service makes a valid waiver election, except for the timing requirement of
clause (a), the Advisory Committee will accept that election as valid, but only
until the first day of the Plan Year in which the Participant attains age 35. A
waiver election described in this paragraph is not valid unless made after the
Participant has received the written explanation described in this Section 6.06.
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in
this Plan prevents the Trustee, in accordance with the direction of the Advisory
Committee, 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 age 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
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to the Participant's attainment of earliest retirement age. The Employer, in an
addendum to its Adoption Agreement numbered 6.07, may elect to limit
distribution to an alternate payee only when the Participant has attained his
earliest retirement age under the Plan. Nothing in this Section 6.07 gives 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 otherwise permitted under the Plan.
The Advisory Committee must establish reasonable procedures to determine
the qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Advisory Committee 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 Advisory Committee must determine the qualified status of the order and must
notify the Participant and each alternate payee, in writing, of its
determination. The Advisory Committee 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 Advisory Committee is making its determination of
the qualified status of the domestic relations order, the Advisory Committee
must make a separate accounting of the amounts payable. If the Advisory
Committee 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
Advisory Committee will direct the Trustee to distribute the payable amounts in
accordance with the order. If the Advisory Committee does not make its
determination of the qualified status of the order within the 18-month
determination period, the Advisory Committee 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 Advisory
Committee later determines the order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the Advisory Committee 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
6.07 by separate benefit checks or other separate distribution to the alternate
payee(s).
* * * * * * * * * * * * * * * * * * * *
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ARTICLE VII
EMPLOYER ADMINISTRATIVE PROVISION
7.01 INFORMATION TO COMMITTEE. The Employer must supply current information
to the Advisory Committee as to the name, date of birth, date of employment,
annual compensation, leaves of absence, Years of Service and date of termination
of employment of each Employee who is, or who will be eligible to become, a
Participant under the Plan, together with any other information which the
Advisory Committee considers necessary. The Employer's records as to the current
information the Employer furnishes to the Advisory Committee are conclusive as
to all persons.
7.02 NO LIABILITY. The Employer assumes no obligation or responsibility to
any of its Employees, Participants or Beneficiaries for any act of, or failure
to act, on the part of its Advisory Committee (unless the Employer is the
Advisory Committee), the Trustee, the Custodian, if any, or the Plan
Administrator (unless the Employer is the Plan Administrator).
7.03 INDEMNITY OF CERTAIN FIDUCIARIES. The Employer indemnifies and saves
harmless the Plan Administrator and the members of the Advisory Committee, and
each of them, from and against any and all loss resulting from liability to
which the Plan Administrator and the Advisory Committee, or the members of the
Advisory Committee, may be subjected by reason of any act or conduct (except
willful misconduct or gross negligence) in their official capacities in the
administration of this Trust or Plan or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 7.03 do not relieve the Plan
Administrator or any Advisory Committee member from any liability he may have
under ERISA for breach of a fiduciary duty. Furthermore, the Plan Administrator
and the Advisory Committee members and the Employer may execute a letter
agreement further delineating the indemnification agreement of this Section
7.03, provided the letter agreement must be consistent with and does not violate
ERISA. The indemnification provisions of this Section 7.03 extend to the Trustee
(or to a Custodian, if any) solely to the extent provided by a letter agreement
executed by the Trustee (or Custodian) and the Employer.
7.04 EMPLOYER DIRECTION OF INVESTMENT. The Employer has the right to direct
the Trustee with respect to the investment and re-investment of assets
comprising the Trust Fund only if the Trustee consents in writing to permit such
direction. If the Trustee consents to Employer direction of investment, the
Trustee and the Employer must execute a letter agreement as a part of this Plan
containing such conditions, limitations and other provisions they deem
appropriate before the Trustee will follow any Employer direction as respects
the investment or re-investment of any part of the Trust Fund.
7.05 AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves the right
to amend the vesting schedule at any time, the Advisory Committee will not apply
the amended vesting schedule to reduce the Nonforfeitable percentage of any
Participant's Accrued Benefit derived from Employer contributions (determined as
of the later of the date the Employer adopts the amendment, or the date the
amendment becomes effective) to a percentage less than the Nonforfeitable
percentage computed under the Plan without regard to the amendment. An amended
vesting schedule will apply to a Participant only if the Participant receives
credit for at least one Hour of Service after the new schedule becomes
effective.
If the Employer makes a permissible amendment to the vesting schedule, each
Participant having at least 3 Years of Service with the Employer may elect to
have the percentage of his Nonforfeitable Accrued Benefit computed under the
Plan without regard to the amendment. For Plan Years beginning prior to January
1, 1989, the election described in the preceding sentence applies only to
Participants having at least 5 Years of Service with the Employer. The
Participant must file his election with the Advisory Committee within 60 days of
the latest of (a) the Employer's adoption of the amendment; (b) the effective
date of the amendment; or (c) his
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receipt of a copy of the amendment. The Advisory Committee, as soon as
practicable, must forward a true copy of any amendment to the vesting schedule
to each affected Participant, together with an explanation of the effect of the
amendment, the appropriate form upon which the Participant may make an election
to remain under the vesting schedule provided under the Plan prior to the
amendment and notice of the time within which the Participant must make an
election to remain under the prior vesting schedule. The election described in
this Section 7.05 does not apply to a Participant if the amended vesting
schedule provides for vesting at least as rapid at all times as the vesting
schedule in effect prior to the amendment. For purposes of this Section 7.05, an
amendment to the vesting schedule includes any Plan amendment which directly or
indirectly affects the computation of the Nonforfeitable percentage of an
Employee's rights to his Employer derived Accrued Benefit. Furthermore, the
Advisory Committee must treat any shift in the vesting schedule, due to a change
in the Plan's top heavy status, as an amendment to the vesting schedule for
purposes of this Section 7.05.
* * * * * * * * * * * * * * * * * * * *
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ARTICLE VIII
PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee will pay his Nonforfeitable Accrued Benefit (including any life
insurance proceeds payable to the Participant's Account) in the event of his
death and the Participant may designate the form and method of payment. The
Advisory Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Advisory
Committee, the form effectively revokes all designations filed prior to that
date by the same Participant.
(A) COORDINATION WITH SURVIVOR REQUIREMENTS. If the joint and survivor
requirements of Article VI apply to the Participant, this Section 8.01 does not
impose any special spousal consent requirements on the Participant's Beneficiary
designation. However, in the absence of spousal consent (as required by Article
VI) to the Participant's Beneficiary designation: (1) any waiver of the joint
and survivor annuity or of the preretirement survivor annuity is not valid; and
(2) if the Participant dies prior to his annuity starting date, the
Participant's Beneficiary designation will apply only to the portion of the
death benefit which is not payable as a preretirement survivor annuity.
Regarding clause (2), if the Participant's surviving spouse is a primary
Beneficiary under the Participant's Beneficiary designation, the Trustee will
satisfy the spouse's interest in the Participant's death benefit first from the
portion which is payable as a preretirement survivor annuity.
(B) PROFIT SHARING PLAN EXCEPTION. If the Plan is a profit sharing plan, the
Beneficiary designation of a married Exempt Participant is not valid unless the
Participant's spouse consents (in a manner described in Section 6.05) to the
Beneficiary designation. An "Exempt Participant" is a Participant who is not
subject to the joint and survivor requirements of Article VI. The spousal
consent requirement in this paragraph does not apply if the Exempt Participant
and his spouse are not married throughout the one year period ending on the date
of the Participant's death, or if the Participant's spouse is the Participant's
sole primary Beneficiary.
8.02 NO BENEFICIARY DESIGNATION/DEATH OF BENEFICIARY. If a Participant
fails to name a Beneficiary in accordance with Section 8.01, or if the
Beneficiary named by a Participant predeceases him, then the Trustee will pay
the Participant's Nonforfeitable Accrued Benefit in accordance with Section 6.02
in the following order of priority, unless the Employer specifies a different
order of priority in an addendum to its Adoption Agreement, to:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted children, in
equal shares;
(c) The Participant's surviving parents, in equal shares; or
(d) The Participant's estate.
If the Beneficiary does not predecease the Participant, but dies prior to
distribution of the Participant's entire Nonforfeitable Accrued Benefit, the
Trustee will pay the remaining Nonforfeitable Accrued Benefit to the
Beneficiary's estate unless the Participant's Beneficiary designation provides
otherwise or unless the Employer provides otherwise in its Adoption Agreement.
If the Plan is a profit sharing plan, and the Plan includes Exempt Participants,
the Employer may not specify a different order of priority in the Adoption
Agreement unless the Participant's surviving spouse will be first in the
different order of priority. The Advisory Committee will direct the Trustee as
to the method and to whom the Trustee will make payment under this Section 8.02.
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8.03 PERSONAL DATA TO COMMITTEE. Each Participant and each Beneficiary of a
deceased Participant must furnish to the Advisory Committee such evidence, data
or information as the Advisory Committee considers necessary or desirable for
the purpose of administering the Plan. The provisions of this Plan are effective
for the benefit of each Participant upon the condition precedent that each
Participant will furnish promptly full, true and complete evidence, data and
Information when requested by the Advisory Committee, provided the Advisory
Committee advises each Participant of the effect of his failure to comply with
its request.
8.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of a
deceased Participant must file with the Advisory Committee from time to time, in
writing, his post office address and any change of post office address. Any
communication, statement or notice addressed to a Participant, or Beneficiary,
at his last post office address filed with the Advisory Committee, or as shown
on the records of the Employer, binds the Participant, or Beneficiary, for all
purposes of this Plan.
8.05 ASSIGNMENT OR ALIENATION. Subject to Code Section414(p) relating to
qualified domestic relations orders, neither a Participant nor a Beneficiary may
anticipate, assign or alienate (either at law or in equity) any benefit provided
under the Plan, and the Trustee will not recognize any such anticipation,
assignment or alienation. Furthermore, a benefit under the Plan is not subject
to attachment, garnishment, levy, execution or other legal or equitable process.
8.06 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the time
prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by ERISA to be furnished without charge.
8.07 LITIGATION AGAINST THE TRUST. A court of competent jurisdiction may
authorize any appropriate equitable relief to redress violations of ERISA or to
enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
8.08 INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary
may examine copies of the Plan description, latest annual report any bargaining
agreement, this Plan and Trust, contract or any other instrument under which the
Plan was established or is operated. The Plan Administrator will maintain all of
the items listed in this Section 8.08 in his office, or in such other place or
places as he may designate from time to time in order to comply with the
regulations issued under ERISA, for examination during reasonable business
hours. Upon the written request of a Participant or Beneficiary the Plan
Administrator must furnish him with a copy of any item listed in this Section
8.08. The Plan Administrator may make a reasonable charge to the requesting
person for the copy so furnished.
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. A Participant or a
Beneficiary ("Claimant") may file with the Advisory Committee a written claim
for benefits, if the Participant or Beneficiary determines the distribution
procedures of the Plan have not provided him his proper Nonforfeitable Accrued
Benefit. The Advisory Committee must render a decision on the claim within 60
days of the Claimant's written claim for benefits. The Plan Administrator must
provide adequate notice in writing to the Claimant whose claim for benefits
under the Plan the Advisory Committee has denied. The Plan Administrator's
notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the Advisory
Committee based its denial;
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(c) A description of any additional material and information needed for the
Claimant to perfect his claim and an explanation of why the material or
information is needed; and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee within 75 days
after receipt of the Plan Administrator's notice of denial of benefits. The
Plan Administrator's notice must further advise the Claimant that his
failure to appeal the action to the Advisory Committee in writing within
the 75-day period will render the Advisory Committee's determination final,
binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he, or his duly authorized representative, feels are pertinent. The Claimant, or
his duly authorized representative, may review pertinent Plan documents. The
Advisory Committee will re-examine all facts related to the appeal and make a
final determination as to whether the denial of benefits is justified under the
circumstances. The Advisory Committee must advise the Claimant of its decision
within 60 days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the 60-day limit unfeasible, but in no event may the Advisory Committee render a
decision respecting a denial for a claim for benefits later than 120 days after
its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the
name of each member of the Advisory Committee and the name and address of the
Advisory Committee member to whom the Claimant may forward his appeal.
8.10 PARTICIPANT DIRECTION OF INVESTMENT. A Participant has the right to
direct the Trustee with respect to the investment or re-investment of the assets
comprising the Participant's individual Account only if the Trustee consents in
writing to permit such direction. If the Trustee consents to Participant
direction of investment, the Trustee win accept direction from each Participant
on a written election form (or other written agreement), as a part of this Plan,
containing such conditions, limitations and other provisions the parties deem
appropriate. The Trustee or, with the Trustee's consent, the Advisory Committee,
may establish written procedures, incorporated specifically as part of this
Plan, relating to Participant direction of investment under this Section 8.10.
The Trustee will maintain a segregated investment Account to the extent a
Participant's Account is subject to Participant self-direction. The Trustee is
not liable for any loss, nor is the Trustee liable for any breach, resulting
from a Participant's direction of the investment of any part of his directed
Account.
The Advisory Committee, to the extent provided in a written loan policy
adopted under Section 9.04, will treat a loan made to a Participant as a
Participant direction of investment under this Section 8.10. To the extent of
the loan outstanding at any time, the borrowing Participant's Account alone
shares in any interest paid on the loan, and it alone bears any expense or loss
it incurs in connection with the loan. The Trustee may retain any principal or
interest paid on the borrowing Participant's loan in an interest bearing
segregated Account on behalf of the borrowing Participant until the Trustee (or
the Named Fiduciary, in the case of a nondiscretionary Trustee) deems it
appropriate to add the amount paid to the Participant's separate Account under
the Plan.
If the Trustee consents to Participant direction of investment of his
Account, the Plan treats any post-December 31, 1981, investment by a
Participant's directed Account in collectibles (as defined by Code
Section 408(m)) as a deemed distribution to the Participant for Federal income
tax purposes.
* * * * * * * * * * * * * * * * * * * *
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ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.01 MEMBERS' COMPENSATION, EXPENSES. The Employer must appoint an Advisory
Committee to administer the Plan, the members of which may or may not be
Participants in the Plan, or which may be the Plan Administrator acting alone.
In the absence of an Advisory Committee appointment, the Plan Administrator
assumes the powers, duties and responsibilities of the Advisory Committee. The
members of the Advisory Committee will serve without compensation for services
as such, but the Employer will pay all expenses of the Advisory Committee,
except to the extent the Trust properly pays for such expenses, pursuant to
Article X.
9.02 TERM. Each member of the Advisory Committee serves until the
appointment of his successor.
9.03 POWERS. In case of a vacancy in the membership of the Advisory
Committee, the remaining members of the Advisory Committee may exercise any and
all of the powers, authority, duties and discretion conferred upon the Advisory
Committee pending the filling of the vacancy.
9.04 GENERAL. The Advisory Committee has the following powers and duties:
(a) To select a Secretary, who need not be a member of the Advisory
Committee;
(b) To determine the rights of eligibility of an Employee to participate in
the Plan, the value of a Participant's Accrued Benefit and the
Nonforfeitable percentage of each Participant's Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the proper
and efficient administration of the Plan provided the rules are not
inconsistent with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the rules and
regulations it adopts, including interpretation of the Plan documents and
documents related to the Plan's operation;
(e) To direct the Trustee as respects the crediting and distribution of the
Trust;
(f) To review and render decisions respecting a claim for (or denial of a
claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may require
for tax or other purposes;
(h) To engage the service of agents whom it may deem advisable to assist it
with the performance of its duties;
(i) To engage the services of an Investment Manager or Managers (as defined
in ERISA Section 3(38)), each of whom will have full power and authority to
manage, acquire or dispose (or direct the Trustee with respect to
acquisition or disposition) of any Plan asset under its control;
(j) To establish, in its sole discretion, a nondiscriminatory policy (see
Section 9.04(A)) which the Trustee must observe in making loans, if any, to
Participants and Beneficiaries; and
(k) To establish and maintain a funding standard account and to make
credits and charges to the account to the extent required by and in
accordance with the provisions of the Code.
The Advisory Committee must exercise all of its powers, duties and
discretion under the Plan in a uniform and nondiscriminatory manner.
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(A) LOAN POLICY. If the Advisory Committee adopts a loan policy, pursuant to
paragraph (j), the loan policy must be a written document and must include: (1)
the identity of the person or positions authorized to administer the participant
loan program; (2) a procedure for applying for the loan; (3) the criteria for
approving or denying a loan; (4) the limitations, if any, on the types and
amounts of loans available; (5) the procedure for determining a reasonable rate
of interest; (6) the types of collateral which may secure the loan; and (7) the
events constituting default and the steps the Plan will take to preserve plan
assets in the event of default. This Section 9.04 specifically incorporates a
written loan policy as part of the Employer's Plan.
9.05 FUNDING POLICY. The Advisory Committee will review, not less often
than annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs so
investment policy can be coordinated with Plan financial requirements.
9.06 MANNER OF ACTION. The decision of a majority of the members appointed
and qualified controls.
9.07 AUTHORIZED REPRESENTATIVE. The Advisory Committee may authorize any
one of its members, or its Secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters or
other documents. The Advisory Committee must evidence this authority by an
instrument signed by all members and filed with the Trustee.
9.08 INTERESTED MEMBER. No member of the Advisory Committee may decide or
determine any matter concerning the distribution, nature or method of settlement
of his own benefits under the Plan, except in exercising an election available
to that member in his capacity as a Participant, unless the Plan Administrator
is acting alone in the capacity of the Advisory Committee.
9.09 INDIVIDUAL ACCOUNTS. The Advisory Committee will maintain, or direct
the Trustee to maintain, a separate Account, or multiple Accounts, in the name
of each Participant to reflect the Participant's Accrued Benefit under the Plan.
If a Participant re-enters the Plan subsequent to his having a Forfeiture Break
in Service, the Advisory Committee, or the Trustee, must maintain a separate
Account for the Participant's pre-Forfeiture Break in Service Accrued Benefit
and a separate Account for his post-Forfeiture Break in Service Accrued Benefit,
unless the Participant's entire Accrued Benefit under the Plan is 100%
Nonforfeitable.
The Advisory Committee will make its allocations, or request the Trustee to
make its allocations, to the Accounts of the Participants in accordance with the
provisions of Section 9.11. The Advisory Committee may direct the Trustee to
maintain a temporary segregated investment Account in the name of a Participant
to prevent a distortion of income, gain or loss allocations under Section 9.11.
The Advisory Committee must maintain records of its activities.
9.10 VALUE OF PARTICIPANTS ACCRUED BENEFIT. The value of each Participant's
Accrued Benefit consists of that proportion of the net worth (at fair market
value) of the Employer's Trust Fund which the net credit balance in his Account
(exclusive of the cash value of incidental benefit insurance contracts) bears to
the total net credit balance in the Accounts (exclusive of the cash value of the
incidental benefit insurance contracts) of all Participants plus the cash
surrender value of any incidental benefit insurance contracts held by the
Trustee on the Participant's life.
For purposes of a distribution under the Plan, the value of a Participant's
Accrued Benefit is its value as of the valuation date immediately preceding the
date of the distribution. Any distribution (other than a distribution from a
segregated Account) made to a Participant (or to his Beneficiary) more than 90
days after the most recent valuation date may include interest on the amount of
the distribution as an expense of the Trust Fund.
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The interest, if any, accrues from such valuation date to the date of the
distribution at the rate established in the Employer's Adoption Agreement.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. A "valuation
date" under this Plan is each Accounting Date and each interim valuation date
determined under Section 10.14. As of each valuation date the Advisory Committee
must adjust Accounts to reflect net income, gain or loss since the last
valuation date. The valuation period is the period beginning the day after the
last valuation date and ending on the current valuation date.
(A) TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply to
all Participant Accounts other than segregated investment Accounts. The Advisory
Committee first will adjust the Participant Accounts, as those Accounts stood at
the beginning of the current valuation period, by reducing the Accounts for any
forfeitures arising under Section 5.09 or under Section 9.14, for amounts
charged during the valuation period to the Accounts in accordance with Section
9.13 (relating to distributions) and Section 11.01 (relating to insurance
premiums), and for the cash value of incidental benefit insurance contracts. The
Advisory Committee then, subject to the restoration allocation requirements of
Section 5.04 or of Section 9.14, will allocate the net income, gain or loss pro
rata to the adjusted Participant Accounts. The allocable net income, gain or
loss is the net income (or net loss), including the increase or decrease in the
fair market value of assets, since the last valuation date.
(B) SEGREGATED INVESTMENT ACCOUNTS. A segregated investment Account receives all
income it earns and bears all expense or loss it incurs. The Advisory Committee
will adopt uniform and nondiscriminatory procedures for determining income or
loss of a segregated investment Account in a manner which reasonably reflects
investment directions relating to pooled investments and investment directions
occurring during a valuation period. As of the valuation date, the Advisory
Committee must reduce a segregated Account for any forfeiture arising under
Section 5.09 after the Advisory Committee has made all other allocations,
changes or adjustments to the Account for the Plan Year.
(C) ADDITIONAL RULES. An Excess Amount or suspense account described in Part 2
of Article III does not share in the allocation of net income, gain or loss
described in this Section 9.11. If the Employer maintains its Plan under a Code
Section 401(k) Adoption Agreement, the Employer may specify in its Adoption
Agreement alternate valuation provisions authorized by that Adoption Agreement.
This Section 9.11 applies solely to the allocation of net income, gain or loss
of the Trust. The Advisory Committee will allocate the Employer contributions
and Participant forfeitures, if any, in accordance with Article III.
9.12 INDIVIDUAL STATEMENT. As soon as practicable after the Accounting Date
of each Plan Year, but within the time prescribed by ERISA and the regulations
under ERISA, the Plan Administrator will deliver to each Participant (and to
each Beneficiary) a statement reflecting the condition of his Accrued Benefit in
the Trust as of that date and such other information ERISA requires be furnished
the Participant or Beneficiary. No Participant, except a member of the Advisory
Committee, has the right to inspect the records reflecting the Account of any
other Participant.
9.13 ACCOUNT CHARGED. The Advisory Committee will charge a Participant's
Account for all distributions made from that Account to the Participant, to his
Beneficiary or to an alternate payee. The Advisory Committee also will charge a
Participant's Account for any administrative expenses incurred by the Plan
directly related to that Account.
9.14 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either the
Trustee or the Advisory Committee to search for, or to ascertain the whereabouts
of, any Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Article VI the Advisory
Committee,
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by certified or registered mail addressed to his last known address of record
with the Advisory Committee or the Employer, must notify any Participant, or
Beneficiary, that he is entitled to a distribution under this Plan. The notice
must quote the provisions of this Section 9.14 and otherwise must comply with
the notice requirements of Article VI. If the Participant, or Beneficiary, fails
to claim his distributive share or make his whereabouts known in writing to the
Advisory Committee within 6 months from the date of mailing of the notice, the
Advisory Committee will treat the Participant's or Beneficiary's unclaimed
payable Accrued Benefit as forfeited and will reallocate the unclaimed payable
Accrued Benefit in accordance with Section 3.05. A forfeiture under this
paragraph will occur at the end of the notice period or, if later, the earliest
date applicable Treasury regulations would permit the forfeiture. Pending
forfeiture, the Advisory Committee, following the expiration of the notice
period, may direct the Trustee to segregate the Nonforfeitable Accrued Benefit
in a segregated Account and to invest that segregated Account in Federally
insured interest bearing savings accounts or time deposits (or in a combination
of both), or in other fixed income investments.
If a Participant or Beneficiary who has incurred a forfeiture of his
Accrued Benefit under the provisions of the first paragraph of this Section 9.14
makes a claim, at any time, for his forfeited Accrued Benefit, the Advisory
Committee must restore the Participant's or Beneficiary's forfeited Accrued
Benefit to the same dollar amount as the dollar amount of the Accrued Benefit
forfeited, unadjusted for any gains or losses occurring subsequent to the date
of the forfeiture. The Advisory Committee will make the restoration during the
Plan Year in which the Participant or Beneficiary makes the claim, first from
the amount, if any, of Participant forfeitures the Advisory Committee otherwise
would allocate for the Plan Year, then from the amount, if any, of the Trust
Fund net income or gain for the Plan Year and then from the amount, or
additional amount, the Employer contributes to enable the Advisory Committee to
make the required restoration. The Advisory Committee must direct the Trustee to
distribute the Participant's or Beneficiary's restored Accrued Benefit to him
not later than 60 days after the close of the Plan Year in which the Advisory
Committee restores the forfeited Accrued Benefit. The forfeiture provisions of
this Section 9.14 apply solely to the Participant's or to the Beneficiary's
Accrued Benefit derived from Employer contributions.
* * * * * * * * * * * * * * * * * * * * *
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ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
10.01 ACCEPTANCE. The Trustee accepts the Trust created under the Plan and
agrees to perform the obligations imposed. The Trustee must provide bond for the
faithful performance of its duties under the Trust to the extent required by
ERISA.
10.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to the Employer
for the funds contributed to it by the Employer, but does not have any duty to
see that the contributions received comply with the provisions of the Plan. The
Trustee is not obliged to collect any contributions from the Employer, nor is
obliged to see that funds deposited with it are deposited according to the
provisions of the Plan.
10.03 INVESTMENT POWERS.
[A] DISCRETIONARY TRUSTEE DESIGNATION. If the Employer, in Adoption Agreement
Section 1.02, designates the Trustee to administer the Trust as a discretionary
Trustee, then the Trustee has full discretion and authority with regard to the
investment of the Trust Fund, except with respect to a Plan asset under the
control or direction of a properly appointed Investment Manager or with respect
to a Plan asset properly subject to Employer, Participant or Advisory Committee
direction of investment. The Trustee must coordinate its investment policy with
Plan financial needs as communicated to it by the Advisory Committee. The
Trustee is authorized and empowered, but not by way of limitation, with the
following powers, rights and duties:
(a) To invest any part or all of the Trust Fund in any common or preferred
stocks, open-end or closed-end mutual funds, put and call options traded on
a national exchange, United States retirement plan bonds, corporate bonds,
debentures, convertible debentures, commercial paper, U.S. Treasury bills,
U.S. Treasury notes and other direct or indirect obligations of the United
States Government or its agencies, improved or unimproved real estate
situated in the United States, limited partnerships, insurance contracts of
any type, mortgages, notes or other property of any kind, real or personal,
to buy or sell options on common stock on a nationally recognized exchange
with or without holding the underlying common stock, to buy and sell
commodities, commodity options and contracts for the future delivery of
commodities, and to make any other investments the Trustee deems
appropriate, as a prudent man would do under like circumstances with due
regard for the purposes of this Plan. Any investment made or retained by
the Trustee in good faith is proper but must be of a kind constituting a
diversification considered by law suitable for trust investments.
(b) To retain in cash so much of the Trust Fund as it may deem advisable to
satisfy liquidity needs of the Plan and to deposit any cash held in the
Trust Fund in a bank account at reasonable interest.
(c) To invest, if the Trustee is a bank or similar financial institution
supervised by the United States or by a State, in any type of deposit of
the Trustee (or of a bank related to the Trustee within the meaning of Code
Section 414(b)) at a reasonable rate of interest or in a common trust fund,
as described in Code Section 584, or in a collective investment fund, the
provisions of which govern the investment of such assets and which the Plan
incorporates by this reference, which the Trustee (or its affiliate, as
defined in Code Section 1504) maintains exclusively for the collective
investment of money contributed by the bank (or the affiliate) in its
capacity as trustee and which conforms to the rules of the Comptroller of
the Currency.
(d) To manage, sell, contract to sell, grant options to purchase, convey,
exchange, transfer, abandon, improve, repair, insure, lease for any term
even though commencing in the future or extending beyond the term of the
Trust, and otherwise deal with all property, real or personal, in such
manner, for such considerations and on such terms and conditions as the
Trustee decides.
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(e) To credit and distribute the Trust as directed by the Advisory
Committee. The Trustee is not obliged to inquire as to whether any payee or
distributee is entitled to any payment or whether the distribution is
proper or within the terms of the Plan, or as to the manner of making any
payment or distribution. The Trustee is accountable only to the Advisory
Committee for any payment or distribution made by it in good faith on the
order or direction of the Advisory Committee.
(f) To borrow money, to assume indebtedness, extend mortgages and encumber
by mortgage or pledge.
(g) To compromise, contest, arbitrate or abandon claims and demands, in its
discretion.
(h) To have with respect to the Trust all of the rights of an individual
owner, including the power to give proxies, to participate in any voting
trusts, mergers, consolidations or liquidations, and to exercise or sell
stock subscriptions or conversion rights.
(i) To lease for oil, gas and other mineral purposes and to create mineral
severances by grant or reservation; to pool or unitize interests in oil,
gas and other minerals; and to enter into operating agreements and to
execute division and transfer orders.
(j) To hold any securities or other property in the name of the Trustee or
its nominee, with depositories or agent depositories or in another form as
it may deem best, with or without disclosing the trust relationship.
(k) To perform any and all other acts in its judgment necessary or
appropriate for the proper and advantageous management, investment and
distribution of the Trust.
(1) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make payment or
delivery of the funds or property until final adjudication is made by a
court of competent jurisdiction.
(m) To file all tax returns required of the Trustee.
(n) To furnish to the Employer, the Plan Administrator and the Advisory
Committee an annual statement of account showing the condition of the Trust
Fund and all investments, receipts, disbursements and other transactions
effected by the Trustee during the Plan Year covered by the statement and
also stating the assets of the Trust held at the end of the Plan Year,
which accounts are conclusive on all persons, including the Employer, the
Plan Administrator and the Advisory Committee, except as to any act or
transaction concerning which the Employer, the Plan Administrator or the
Advisory Committee files with the Trustee written exceptions or objections
within 90 days after the receipt of the accounts or for which ERISA
authorizes a longer period within which to object.
(o) To begin, maintain or defend any litigation necessary in connection
with the administration of the Plan, except that the Trustee is not obliged
or required to do so unless indemnified to its satisfaction.
[B] NONDISCRETIONARY TRUSTEE DESIGNATION/APPOINTMENT OF CUSTODIAN. If the
Employer, in its Adoption Agreement Section 1.02, designates the Trustee to
administer the Trust as a nondiscretionary Trustee, then the Trustee will not
have any discretion or authority with regard to the investment of the Trust
Fund, but must act solely as a directed trustee of the funds contributed to it.
A nondiscretionary Trustee, as directed trustee of the funds held by it under
the Employer's Plan, is authorized and empowered, by way of limitation, with the
following powers, rights and duties, each of which the nondiscretionary Trustee
exercises solely as directed trustee in accordance with the written direction of
the Named Fiduciary (except to the extent a Plan asset is
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subject to the control and management of a properly appointed Investment Manager
or subject to Advisory Committee or Participant direction of investment):
(a) To invest any part or all of the Trust Fund in any common or preferred
stocks, open-end or closed-end mutual funds, put and call options traded on
a national exchange, United States retirement plan bonds, corporate bonds,
debentures, convertible debentures, commercial paper, U.S. Treasury bills,
U.S. Treasury notes and other direct or indirect obligations of the United
States Government or its agencies, improved or unimproved real estate
situated in the United States, limited partnerships, insurance contracts of
any type, mortgages, notes or other property of any kind, real or personal
to buy or sell options on common stock on a nationally recognized options
exchange with or without holding the underlying common stock, to buy and
sell commodities, commodity options and contracts for the future delivery
of commodities, and to make any other investments the Named Fiduciary deems
appropriate.
(b) To retain in cash so much of the Trust Fund as the Named Fiduciary may
direct in writing to satisfy liquidity needs of the Plan and to deposit any
cash held in the Trust Fund in a bank account at reasonable interest,
including, specific authority to invest in any type of deposit of the
Trustee (or of a bank related to the Trustee within the meaning of Code
Section 414(b)) at a reasonable rate of interest.
(c) To sell, contract to sell, grant options to purchase, convey, exchange,
transfer, abandon, improve, repair, insure, lease for any term even though
commencing in the future or extending beyond the term of the Trust, and
otherwise deal with all property, real or personal in such manner, for such
considerations and on such terms and conditions as the Named Fiduciary
directs in writing.
(d) To credit and distribute the Trust as directed by the Advisory
Committee. The Trustee is not obliged to inquire as to whether any payee or
distributee is entitled to any payment or whether the distribution is
proper or within the terms of the Plan, or as to the manner of making any
payment or distribution. The Trustee is accountable only to the Advisory
Committee for any payment or distribution made by it in good faith on the
order or direction of the Advisory Committee.
(e) To borrow money, to assume indebtedness, extend mortgages and encumber
by mortgage or pledge.
(f) To have with respect to the Trust all of the rights of an individual
owner, including the power to give proxies, to participate in any voting
trusts, mergers, consolidations or liquidations, and to exercise or sell
stock subscriptions or conversion rights, provided the exercise of any such
powers is in accordance with and at the written direction of the Named
Fiduciary.
(g) To lease for oil, gas and other mineral purposes and to create mineral
severances by grant or reservation; to pool or unitize interests in oil gas
and other minerals; and to enter into operating agreements and to execute
division and transfer orders, provided the exercise of any such powers is
in accordance with and at the written direction of the Named Fiduciary.
(h) To hold any securities or other property in the name of the
nondiscretionary Trustee or its nominee, with depositories or agent
depositories or in another form as the Named Fiduciary may deem best, with
or without disclosing the custodial relationship.
(i) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make payment or
delivery of the funds or property until a court of competent jurisdiction
makes final adjudication.
(j) To file all tax returns required of the Trustee.
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(k) To furnish to the Named Fiduciary, the Employer, the Plan Administrator
and the Advisory Committee an annual statement of account showing the
condition of the Trust Fund and all investments, receipts, disbursements
and other transactions effected by the nondiscretionary Trustee during the
Plan Year covered by the statement and also stating the assets of the Trust
held at the end of the Plan Year, which accounts are conclusive on all
persons, including the Named Fiduciary, the Employer, the Plan
Administrator and the Advisory Committee, except as to any act or
transaction concerning which the Named Fiduciary, the Employer, the Plan
Administrator or the Advisory Committee files with the nondiscretionary
Trustee written exceptions or objections within 90 days after the receipt
of the accounts or for which ERISA authorizes a longer period within which
to object.
(1) To begin, maintain or defend any litigation necessary in connection
with the administration of the Plan, except that the Trustee is not obliged
or required to do so unless indemnified to its satisfaction.
APPOINTMENT OF CUSTODIAN. The Employer may appoint a Custodian under the
Plan, the acceptance by the Custodian indicated on the execution page of the
Employer's Adoption Agreement. If the Employer appoints a Custodian, the
Employer's Plan must have a discretionary Trustee, as described in Section
10.03[A]. A Custodian has the same powers, rights and duties as a
nondiscretionary Trustee, as described in this Section 10.03[B]. The Custodian
accepts the terms of the Plan and Trust by executing the Employer's Adoption
Agreement. Any reference in the Plan to a Trustee also is a reference to a
Custodian where the context of the Plan dictates. A limitation of the Trustee's
liability by Plan provision also acts as a limitation of the Custodian's
liability. Any action taken by the Custodian at the discretionary Trustee's
direction satisfies any provision in the Plan referring to the Trustee's taking
that action.
MODIFICATION OF POWERS/LIMITED RESPONSIBILITY. The Employer and the
Custodian or nondiscretionary Trustee, by letter agreement, may limit the powers
of the Custodian or nondiscretionary Trustee to any combination of powers listed
within this Section 10.03[B]. If there is a Custodian or a nondiscretionary
Trustee under the Employer's Plan, then the Employer, in adopting this Plan
acknowledges the Custodian or nondiscretionary Trustee has no discretion with
respect to the investment or re-investment of the Trust Fund and that the
Custodian or nondiscretionary Trustee is acting solely as custodian or as
directed trustee with respect to the assets comprising the Trust Fund.
[C] LIMITATION OF POWERS OF CERTAIN CUSTODIANS. If a Custodian is a bank which,
under its governing state law, does not possess trust powers, then paragraphs
(a), (c), (e), (f), (g) of Section 10.03[B], Section 10.16, and Article XI do
not apply to that bank and that bank only has the power and authority to
exercise the remaining powers, rights and duties under Section 10.03[B].
[D] NAMED FIDUCIARY/LIMITATION OF LIABILITY OF NONDISCRETIONARY TRUSTEE OR
CUSTODIAN. Under a nondiscretionary Trustee designation, the Named Fiduciary
under the Employer's Plan has the sole responsibility for the management and
control of the Employer's Trust Fund, except with respect to a Plan asset under
the control or direction of a properly appointed Investment Manager or with
respect to a Plan asset properly subject to Participant or Advisory Committee
direction of investment. If the Employer appoints a Custodian, the Named
Fiduciary is the discretionary Trustee. Under a nondiscretionary Trustee
designation, unless the Employer designates in writing another person or persons
to serve as Named Fiduciary, the Named Fiduciary under the Plan is the president
of a corporate Employer, the managing partner of a partnership Employer or the
sole proprietor, as appropriate. The Named Fiduciary will exercise its
management and control of the Trust Fund through its written direction to the
nondiscretionary Trustee or to the Custodian, whichever applies to the
Employer's Plan.
The nondiscretionary Trustee or Custodian has no duty to review or to make
recommendations regarding investments made at the written direction of the Named
Fiduciary. The nondiscretionary Trustee or Custodian
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must retain any investment obtained at the written direction of the Named
Fiduciary until further directed in writing by the Named Fiduciary to dispose of
such investment. The nondiscretionary Trustee or Custodian is not liable in any
manner or for any reason for making, retaining or disposing of any investment
pursuant to any written direction described in this paragraph. Furthermore, the
Employer agrees to indemnify and to hold the nondiscretionary Trustee or
Custodian harmless from any damages, costs or expenses, including reasonable
counsel fees, which the nondiscretionary Trustee or Custodian may incur as a
result of any claim asserted against the nondiscretionary Trustee, the Custodian
or the Trust arising out of the nondiscretionary Trustee's or Custodian's
compliance with any written direction described in this paragraph.
[E] PARTICIPANT LOANS. This Section 10.03[E] specifically authorizes the Trustee
to make loans on a nondiscriminatory basis to a Participant or to a Beneficiary
in accordance with the loan policy established by the Advisory Committee,
provided: (1) the loan policy satisfies the requirements of Section 9.04; (2)
loans are available to all Participants and Beneficiaries on a reasonably
equivalent basis and are not available in a greater amount for Highly
Compensated Employees than for other Employees; (3) any loan is adequately
secured and bears a reasonable rate of interest; (4) the loan provides for
repayment within a specified time; (5) the default provisions of the note
prohibit offset of the Participant's Nonforfeitable Accrued Benefit prior to the
time the Trustee otherwise would distribute the Participant's Nonforfeitable
Accrued Benefit; (6) the amount of the loan does not exceed (at the time the
Plan extends the loan) the present value of the Participant's Nonforfeitable
Accrued Benefit; and (7) the loan otherwise conforms to the exemption provided
by Code Section 4975(d)(1). If the joint and survivor requirements of Article VI
apply to the Participant, the Participant may not pledge any portion of his
Accrued Benefit as security for a loan made after August 18, 1985, unless,
within the 90 day period ending on the date the pledge becomes effective, the
Participant's spouse, if any, consents (in a manner described in Section 6.05
other than the requirement relating to the consent of a subsequent spouse) to
the security or, by separate consent, to an increase in the amount of security.
If the Employer is an unincorporated trade or business, a Participant who is an
Owner-Employee may not receive a loan from the Plan, unless he has obtained a
prohibited transaction exemption from the Department of Labor. If the Employer
is an "S Corporation," a Participant who is a shareholder-employee (an employee
or an officer) who, at any time during the Employer's taxable year, owns more
than 5%, either directly or by attribution under Code Section 318(a)(1), of the
Employer's outstanding stock may not receive a loan from the Plan, unless he has
obtained a prohibited transaction exemption from the Department of Labor. If the
Employer is not an unincorporated trade or business nor an "S Corporation," this
Section 10.03[E] does not impose any restrictions on the class of Participants
eligible for a loan from the Plan.
[F] INVESTMENT IN QUALIFYING EMPLOYER SECURITIES AND QUALIFYING EMPLOYER REAL
PROPERTY. The investment options in this Section 10.03[F] include the ability to
invest in qualifying Employer securities or qualifying Employer real property,
as defined in and as limited by ERISA. If the Employer's Plan is a
Nonstandardized profit sharing plan, it may elect in its Adoption Agreement to
permit the aggregate investments in qualifying Employer securities and in
qualifying Employer real property to exceed 10% of the value of Plan assets.
10.04 RECORDS AND STATEMENTS. The records of the Trustee pertaining to the
Plan must be open to the inspection of the Plan Administrator, the Advisory
Committee and the Employer at all reasonable times and may be audited from time
to time by any person or persons as the Employer, Plan Administrator or Advisory
Committee may specify in writing. The Trustee must furnish the Plan
Administrator or Advisory Committee with whatever information relating to the
Trust Fund the Plan Administrator or Advisory Committee considers necessary.
10.05 FEES AND EXPENSES FROM FUND. A Trustee or Custodian will receive
reasonable annual compensation as may be agreed upon from time to time between
the Employer and the Trustee or Custodian. No person who is receiving full pay
from the Employer may receive compensation for services as Trustee or as
Custodian. The Trustee will pay from the Trust Fund all fees and expenses
reasonably incurred by the Plan, to
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the extent such fees and expenses are for the ordinary and necessary
administration and operation of the Plan, unless the Employer pays such fees and
expenses. Any fee or expense paid, directly or indirectly, by the Employer is
not an Employer contribution to the Plan, provided the fee or expense relates to
the ordinary and necessary administration of the Fund.
10.06 PARTIES TO LITIGATION. Except as otherwise provided by ERISA, no
Participant or Beneficiary is a necessary party or is required to receive notice
of process in any court proceeding involving the Plan, the Trust Fund or any
fiduciary of the Plan. Any final judgment entered in any proceeding will be
conclusive upon the Employer, the Plan Administrator, the Advisory Committee,
the Trustee, Custodian, Participants and Beneficiaries.
10.07 PROFESSIONAL AGENTS. The Trustee may employ and pay from the Trust
Fund reasonable compensation to agents, attorneys, accountants and other persons
to advise the Trustee as in its opinion may be necessary. The Trustee may
delegate to any agent, attorney, accountant or other person selected by it any
non-Trustee power or duty vested in it by the Plan, and the Trustee may act or
refrain from acting on the advice or opinion of any agent, attorney, accountant
or other person so selected.
10.08 DISTRIBUTION OF CASH OR PROPERTY. The Trustee may make distribution
under the Plan in cash or property, or partly in each, at its fair market value
as determined by the Trustee. For purposes of a distribution to a Participant or
to a Participant's designated Beneficiary or surviving spouse, "property"
includes a Nontransferable Annuity Contract, provided the contract satisfies the
requirements of this Plan.
10.09 DISTRIBUTION DIRECTIONS. If no one claims a payment or distribution
made from the Trust, the Trustee must promptly notify the Advisory Committee and
then dispose of the payment in accordance with the subsequent direction of the
Advisory Committee.
10.10 THIRD PARTY/MULTIPLE TRUSTEES. No person dealing with the Trustee is
obligated to see to the proper application of any money paid or property
delivered to the Trustee, or to inquire whether the Trustee has acted pursuant
to any of the terms of the Plan. Each person dealing with the Trustee may act
upon any notice, request or representation in writing by the Trustee, or by the
Trustee's duly authorized agent, and is not liable to any person in so acting.
The certificate of the Trustee that it is acting in accordance with the Plan
will be conclusive in favor of any person relying on the certificate. If more
than two persons act as Trustee, a decision of the majority of such persons
controls with respect to any decision regarding the administration or investment
of the Trust Fund or of any portion of the Trust Fund with respect to which such
persons act as Trustee. However, the signature of only one Trustee is necessary
to effect any transaction on behalf of the Trust.
10.11 RESIGNATION. The Trustee or Custodian may resign its position at any
time by giving 30 days' written notice in advance to the Employer and to the
Advisory Committee. If the Employer fails to appoint a successor Trustee within
60 days of its receipt of the Trustee's written notice of resignation, the
Trustee will treat the Employer as having appointed itself as Trustee and as
having filed its acceptance of appointment with the former Trustee. The
Employer, in its sole discretion, may replace a Custodian. If the Employer does
not replace a Custodian, the discretionary Trustee will assume possession of
Plan assets held by the former Custodian.
10.12 REMOVAL. The Employer, by giving 30 days' written notice in advance
to the Trustee, may remove any Trustee or Custodian. In the event of the
resignation or removal of a Trustee, the Employer must appoint a successor
Trustee if it intends to continue the Plan. If two or more persons hold the
position of Trustee, in the event of the removal of one such person, during any
period the selection of a replacement is
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pending, or during any period such person is unable to serve for any reason, the
remaining person or persons will act as the Trustee.
10.13 INTERIM DUTIES AND SUCCESSOR TRUSTEE. Each successor Trustee succeeds
to the title to the Trust vested in his predecessor by accepting in writing his
appointment as successor Trustee and by filing the acceptance with the former
Trustee and the Advisory Committee without the signing or filing of any further
statement. The resigning or removed Trustee, upon receipt of acceptance in
writing of the Trust by the successor Trustee, must execute all documents and do
all acts necessary to vest the title of record in any successor Trustee. Each
successor Trustee has and enjoys all of the powers, both discretionary and
ministerial conferred under this Agreement upon his predecessor. A successor
Trustee is not personally liable for any act or failure to act of any
predecessor Trustee, except as required under ERISA. With the approval of the
Employer and the Advisory Committee, a successor Trustee, with respect to the
Plan, may accept the account rendered and the property delivered to it by a
predecessor Trustee without incurring any liability or responsibility for so
doing.
10.14 VALUATION OF TRUST. The Trustee must value the Trust Fund as of each
Accounting Date to determine fair market value of each Participant's Accrued
Benefit in the Trust. The Trustee also must value the Trust Fund on such other
valuation dates as directed in writing by the Advisory Committee or as required
by the Employer's Adoption Agreement.
10.15 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER, ANCILLARY TRUSTEE OR
INDEPENDENT FIDUCIARY APPOINTED. The Trustee is not liable for the acts or
omissions of any Investment Manager the Advisory Committee may appoint, nor is
the Trustee under any obligation to invest or otherwise manage any asset of the
Plan which is subject to the management of a properly appointed Investment
Manager. The Advisory Committee, the Trustee and any properly appointed
Investment Manager may execute a letter agreement as a part of this Plan
delineating the duties, responsibilities and liabilities of the Investment
Manager with respect to any part of the Trust Fund under the control of the
Investment Manager.
The limitation on liability described in this Section 10.15 also applies to
the acts or omissions of any ancillary trustee or independent fiduciary properly
appointed under Section 10.17 of the Plan. However, if a discretionary Trustee,
pursuant to the delegation described in Section 10.17 of the Plan, appoints an
ancillary trustee, the discretionary Trustee is responsible for the periodic
review of the ancillary trustee's actions and must exercise its delegated
authority in accordance with the terms of the Plan and in a manner consistent
with ERISA. The Employer, the discretionary Trustee and an ancillary trustee may
execute a letter agreement as a part of this Plan delineating any
indemnification agreement between the parties.
10.16 INVESTMENT IN GROUP TRUST FUND. The Employer, by adopting this Plan,
specifically authorizes the Trustee to invest all or any portion of the assets
comprising the Trust Fund in any group trust fund which at the time of the
investment provides for the pooling of the assets of plans qualified under
Code Section 401(a). This authorization applies solely to a group trust fund
exempt from taxation under Code Section 501(a) and the trust agreement of which
satisfies the requirements of Revenue Ruling 81-100. The provisions of the group
trust fund agreement, as amended from time to time, are by this reference
incorporated within this Plan and Trust. The provisions of the group trust fund
will govern any investment of Plan assets in that fund. The Employer must
specify in an attachment to its adoption agreement the group trust fund(s) to
which this authorization applies. If the Trustee is acting as a nondiscretionary
Trustee, the investment in the group trust fund is available only in accordance
with a proper direction, by the Named Fiduciary, in accordance with Section
10.03[B]. Pursuant to paragraph (c) of Section 10.03[A] of the Plan, a Trustee
has the authority to invest in certain common trust funds and collective
investment funds without the need for the authorizing addendum described in this
Section 10.16.
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Furthermore, at the Employer's direction, the Trustee, for collective
investment purposes, may combine into one trust fund the Trust created under
this Plan with the Trust created under any other qualified retirement plan the
Employer maintains. However, the Trustee must maintain separate records of
account for the assets of each Trust in order to reflect properly each
Participant's Accrued Benefit under the plan(s) in which he is a Participant.
10.17 APPOINTMENT OF ANCILLARY TRUSTEE OR INDEPENDENT FIDUCIARY. The
Employer, in writing, may appoint any person in any State to act as ancillary
trustee with respect to a designated portion of the Trust Fund, subject to the
consent required under Section 1.02 if the Master Plan Sponsor is a financial
institution. An ancillary trustee must acknowledge in writing its acceptance of
the terms and conditions of its appointment as ancillary trustee and its
fiduciary status under ERISA. The ancillary trustee has the rights, powers,
duties and discretion as the Employer may delegate, subject to any limitations
or directions specified in the instrument evidencing appointment of the
ancillary trustee and to the terms of the Plan or of ERISA. The investment
powers delegated to the ancillary trustee may include any investment powers
available under Section 10.03 of the Plan including the right to invest any
portion of the assets of the Trust Fund in a common trust fund, as described in
Code Section 584, or in any collective investment fund, the provisions of which
govern the investment of such assets and which the Plan incorporates by this
reference, but only if the ancillary trustee is a bank or similar financial
institution supervised by the United States or by a State and the ancillary
trustee (or its affiliate, as defined in Code Section 1504) maintains the common
trust fund or collective investment fund exclusively for the collective
investment of money contributed by the ancillary trustee (or its affiliate) in a
trustee capacity and which conforms to the rules of the Comptroller of the
Currency. The Employer also may appoint as an ancillary trustee, the trustee of
any group trust fund designated for investment pursuant to the provisions of
Section 10.16 of the Plan.
The ancillary trustee may resign its position at any time by providing at
least 30 days' advance written notice to the Employer, unless the Employer
waives this notice requirement. The Employer, in writing, may remove an
ancillary trustee at any time. In the event of resignation or removal the
Employer may appoint another ancillary trustee, return the assets to the control
and management of the Trustee or receive such assets in the capacity of
ancillary trustee. The Employer may delegate its responsibilities under this
Section 10.17 to a discretionary Trustee under the Plan, but not to a
nondiscretionary Trustee or to a Custodian, subject to the acceptance by the
discretionary Trustee of that delegation.
If the U.S. Department of Labor ("the Department") requires engagement of
an independent fiduciary to have control or management of all or a portion of
the Trust Fund, the Employer will appoint such independent fiduciary, as
directed by the Department. The independent fiduciary will have the duties,
responsibilities and powers prescribed by the Department and will exercise those
duties, responsibilities and powers in accordance with the terms, restrictions
and conditions established by the Department and, to the extent not inconsistent
with ERISA, the terms of the Plan. The independent fiduciary must accept its
appointment in writing and must acknowledge its Status as a fiduciary of the
Plan.
* * * * * * * * * * * * * * * * * * * *
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ARTICLE XI
PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY
11.01 INSURANCE BENEFIT. The Employer may elect to provide incidental life
insurance benefits for insurable Participants who consent to life insurance
benefits by signing the appropriate insurance company application form. The
Trustee will not purchase any incidental life insurance benefit for any
Participant prior to an allocation to the Participant's Account. At an insured
Participant's written direction, the Trustee will use all or any portion of the
Participant's nondeductible voluntary contributions, if any, to pay insurance
premiums covering the Participant's life. This Section 11.01 also authorizes the
purchase of life insurance, for the benefit of the Participant, on the life of a
family member of the Participant or on any person in whom the Participant has an
insurable interest. However, if the policy is on the joint lives of the
Participant and another person, the Trustee may not maintain that policy if that
other person predeceases the Participant.
The Employer will direct the Trustee as to the insurance company and
insurance agent through which the Trustee is to purchase the insurance
contracts, the amount of the coverage and the applicable dividend plan. Each
application for a policy, and the policies themselves, must designate the
Trustee as sole owner, with the right reserved to the Trustee to exercise any
right or option contained in the policies, subject to the terms and provisions
of this Agreement. The Trustee must be the named beneficiary for the Account of
the insured Participant. Proceeds of insurance contracts paid to the
Participant's Account under this Article XI are subject to the distribution
requirements of Article V and of Article VI. The Trustee will not retain any
such proceeds for the benefit of the Trust.
The Trustee will charge the premiums on any incidental benefit insurance
contract covering the life of a Participant against the Account of that
Participant. The Trustee will hold all incidental benefit insurance contracts
issued under the Plan as assets of the Trust created under the Plan.
(A) INCIDENTAL INSURANCE BENEFITS. The aggregate of life insurance premiums paid
for the benefit of a Participant, at all times, may not exceed the following
percentages of the aggregate of the Employer's contributions allocated to any
Participant's Account: (i) 49% in the case of the purchase of ordinary life
insurance contracts; or (ii) 25% in the case of the purchase of term life
insurance or universal life insurance contracts. If the Trustee purchases a
combination of ordinary life insurance contract(s) and term life insurance or
universal life insurance contract(s), then the sum of one-half of the premiums
paid for the ordinary life insurance contract(s) and the premiums paid for the
term life insurance or universal life insurance contract(s) may not exceed 25%
of the Employer contributions allocated to any Participant's Account.
(B) EXCEPTION FOR CERTAIN PROFIT SHARING PLANS. If the Employer's Plan is a
profit sharing plan, the incidental insurance benefits requirement does not
apply to the Plan if the Plan purchases life insurance benefits only from
Employer contributions accumulated in the Participant's Account for at least two
years (measured from the allocation date).
11.02 LIMITATION ON LIFE INSURANCE PROTECTION. The Trustee will not
continue any life insurance protection for any Participant beyond his annuity
starting date (as defined in Article VI). If the Trustee holds any incidental
benefit insurance contract(s) for the benefit of a Participant when he
terminates his employment (other than by reason of death), the Trustee must
proceed as follows:
(a) If the entire cash value of the contract(s) is vested in the
terminating Participant, or if the contract(s) will have no cash value at
the end of the policy year in which termination of employment occurs, the
Trustee will transfer the contract(s) to the Participant endorsed so as to
vest in the transferee all right, title and interest to the contract(s),
free and clear of the Trust; subject however, to restrictions as to
surrender or payment of benefits as the issuing insurance company may
permit and as the Advisory Committee directs;
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(b) If only part of the cash value of the contract(s) is vested in the
terminating Participant, the Trustee, to the extent the Participant's
interest in the cash value of the contract(s) is not vested, may adjust the
Participant's interest in the value of his Account attributable to Trust
assets other than incidental benefit insurance contracts and proceed as in
(a), or the Trustee must effect a loan from the issuing insurance company
on the sole security of the contract(s) for an amount equal to the
difference between the cash value of the contract(s) at the end of the
policy year in which termination of employment occurs and the amount of the
cash value that is vested in the terminating Participant, and the Trustee
must transfer the contract(s) endorsed so as to vest in the transferee all
right, title and interest to the contract(s), free and clear of the Trust;
subject however, to the restrictions as to surrender or payment of benefits
as the issuing insurance company may permit and the Advisory Committee
directs;
(c) If no part of the cash value of the contract(s) is vested in the
terminating Participant, the Trustee must surrender the contract(s) for
cash proceeds as may be available.
In accordance with the written direction of the Advisory Committee, the
Trustee will make any transfer of contract(s) under this Section 11.02 on the
Participant's annuity starting date (or as soon as administratively practicable
after that date). The Trustee may not transfer any contract under this Section
11.02 which contains a method of payment not specifically authorized by Article
VI or which fails to comply with the joint and survivor annuity requirements, if
applicable, of Article VI. In this regard, the Trustee either must convert such
a contract to cash and distribute the cash instead of the contract, or before
making the transfer, require the issuing company to delete the unauthorized
method of payment option from the contract.
11.03 DEFINITIONS. For purposes of this Article XI:
(a) "Policy" means an ordinary life insurance contract or a term life
insurance contract issued by an insurer on the life of a Participant.
(b) "Issuing insurance company" is any life insurance company which has
issued a policy upon application by the Trustee under the terms of this
Agreement.
(c) "Contract" or "Contracts" means a policy of insurance. In the event of
any conflict between the provisions of this Plan and the terms of any
contract or policy of insurance issued in accordance with this Article XI,
the provisions of the Plan control.
(d) "Insurable Participant" means a Participant to whom an insurance
company, upon an application being submitted in accordance with the Plan,
will issue insurance coverage, either as a standard risk or as a risk in an
extra mortality classification.
11.04 DIVIDEND PLAN. The dividend plan is premium reduction unless the
Advisory Committee directs the Trustee to the contrary. The Trustee must use all
dividends for a contract to purchase insurance benefits or additional insurance
benefits for the Participant on whose life the insurance company has issued the
contract. Furthermore, the Trustee must arrange, where possible, for all
policies issued on the lives of Participants under the Plan to have the same
premium due date and all ordinary life insurance contracts to contain guaranteed
cash values with as uniform basic options as are possible to obtain. The term
"dividends" includes policy dividends, refunds of premiums and other credits.
11.05 INSURANCE COMPANY NOT A PARTY TO AGREEMENT. No insurance company,
solely in its capacity as an issuing insurance company, is a party to this
Agreement nor is the company responsible for its validity.
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11.06 INSURANCE COMPANY NOT RESPONSIBLE FOR TRUSTEE'S ACTIONS. No insurance
company, solely in its capacity as an issuing insurance company, need examine
the terms of this Agreement nor is responsible for any action taken by the
Trustee.
11.07 INSURANCE COMPANY RELIANCE ON TRUSTEE'S SIGNATURE. For the purpose of
making application to an insurance company and in the exercise of any right or
option contained in any policy, the insurance company may rely upon the
signature of the Trustee and is saved harmless and completely discharged in
acting at the direction and authorization of the Trustee.
11.08 ACQUITTANCE. An insurance company is discharged from all liability
for any amount paid to the Trustee or paid in accordance with the direction of
the Trustee, and is not obliged to see to the distribution or further
application of any moneys it so pays.
11.09 DUTIES OF INSURANCE COMPANY. Each insurance company must keep such
records, make such identification of contracts, funds and accounts within funds,
and supply such information as may be necessary for the proper administration of
the Plan under which it is carrying insurance benefits.
Note: The provisions of this Article XI are not applicable, and the Plan
may not invest in insurance contracts, if a Custodian signatory to the Adoption
Agreement is a bank which has not acquired trust powers from its governing state
banking authority.
* * * * * * * * * * * * * * * * * * * *
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ARTICLE XII
MISCELLANEOUS
12.01 EVIDENCE. Anyone required to give evidence under the terms of the
Plan may do so by certificate, affidavit, document or other information which
the person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed, made or presented by the proper party or parties. The
Advisory Committee and the Trustee are fully protected in acting and relying
upon any evidence described under the immediately preceding sentence.
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor the
Advisory Committee has any obligation or responsibility with respect to any
action required by the Plan to be taken by the Employer, any Participant or
eligible Employee, or for the failure of any of the above persons to act or make
any payment or contribution, or to otherwise provide any benefit contemplated
under this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory Committee to collect any contribution required under the Plan, or to
determine the correctness of the amount of any Employer contribution. Neither
the Trustee nor the Advisory Committee need inquire into or be responsible for
any action or failure to act on the part of the others, or on the part of any
other person who has any responsibility regarding the management, administration
or operation of the Plan, whether by the express terms of the Plan or by a
separate agreement authorized by the Plan or by the applicable provisions of
ERISA. Any action required of a corporate Employer must be by its Board of
Directors or its designate.
12.03 FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee, the
Plan Administrator and the Employer in no way guarantee the Trust Fund from loss
or depreciation. The Employer does not guarantee the payment of any money which
may be or becomes due to any person from the Trust Fund. The liability of the
Advisory Committee and the Trustee to make any payment from the Trust Fund at
any time and all times is limited to the then available assets of the Trust.
12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan may
waive the notice, unless the Code or Treasury regulations prescribe the notice
or ERISA specifically or impliedly prohibits such a waiver.
12.05 SUCCESSORS. The Plan is binding upon all persons entitled to benefits
under the Plan, their respective heirs and legal representatives, upon the
Employer, its successors and assigns, and upon the Trustee, the Advisory
Committee, the Plan Administrator and their successors.
12.06 WORD USAGE. Words used in the masculine also apply to the feminine
where applicable, and wherever the context of the Employer's Plan dictates, the
plural includes the singular and the singular includes the plural.
12.07 STATE LAW. The law of the state of the Employer's principal place of
business (unless otherwise designated in an addendum to the Employer's Adoption
Agreement) will determine all questions arising with respect to the provisions
of this Agreement except to the extent superseded by Federal law.
12.08 EMPLOYER'S RIGHT TO PARTICIPATE. If the Employer's Plan fails to
qualify or to maintain qualification or if the Employer makes any amendment or
modification to a provision of this Plan (other than a proper completion of an
elective provision under the Adoption Agreement or the attachment of an addendum
authorized by the Plan or by the Adoption Agreement), the Employer may no longer
participate under this Master Plan. The Employer also may not participate (or
continue to participate) in this Master Plan if the Trustee or Custodian (or a
change in the Trustee or Custodian) does not satisfy the requirements of Section
1.02 of the Plan. If the Employer is not entitled to participate under this
Master Plan, the Employer's Plan is an
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individually-designed plan and the reliance procedures specified in the
applicable Adoption Agreement no longer will apply.
12.09 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with
respect to the establishment of the Trust, or any modification or amendment to
the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Employer, or
Employee of the Employer, or against the Trustee, or its agents or employees, or
against the Plan Administrator, except as expressly provided by the Plan, the
Trust, ERISA or by a separate agreement.
* * * * * * * * * * * * * * * * * * * *
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ARTICLE XIII
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 EXCLUSIVE BENEFIT. Except as provided under Article III, the Employer
has no beneficial interest in any asset of the Trust and no part of any asset in
the Trust may ever revert to or be repaid to an Employer, either directly or
indirectly, nor, prior to the satisfaction of all liabilities with respect to
the Participants and their Beneficiaries under the Plan, may any part of the
corpus or income of the Trust Fund, or any asset of the Trust, be (at any time)
used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their Beneficiaries. However, if the Commissioner of Internal
Revenue, upon the Employer's request for initial approval of this Plan,
determines the Trust, created under the Plan is not a qualified trust exempt
from Federal income tax, then (and only then) the Trustee, upon written notice
from the Employer, will return the Employer's contributions (and increment
attributable to the contributions) to the Employer. The Trustee must make the
return of the Employer contribution under this Section 13.01 within one year of
a final disposition of the Employer's request for initial approval of the Plan.
The Employer's Plan and Trust will terminate upon the Trustee's return of the
Employer's contributions.
13.02 AMENDMENT BY EMPLOYER. The Employer has the right at any time and
from time to time:
(a) To amend the elective provisions of the Adoption Agreement in any
manner it deems necessary or advisable in order to qualify (or maintain
qualification of) this Plan and the Trust created under it under the
provisions of Code Section 401(a);
(b) To amend the Plan to allow the Plan to operate under a waiver of the
minimum funding requirement; and
(c) To amend this Agreement in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than the
part which is required to pay taxes and administration expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries or estates. No amendment may cause or permit any portion
of the Trust Fund to revert to or become a property of the Employer. The
Employer also may not make any amendment which affects the rights, duties or
responsibilities of the Trustee, the Plan Administrator or the Advisory
Committee without the written consent of the affected Trustee, the Plan
Administrator or the affected member of the Advisory Committee. The Employer
must make all amendments in writing. Each amendment must state the date to which
it is either retroactively or prospectively effective. See Section 12.08 for the
effect of certain amendments adopted by the Employer.
(A) CODE SECTION 411(d)(6) PROTECTED BENEFITS. An amendment (including the
adoption of this Plan as a restatement of an existing plan) may not decrease a
Participant's Accrued Benefit, except to the extent permitted under Code
Section 412(c)(8), and may not reduce or eliminate Code Section 411(d)(6)
protected benefits determined immediately prior to the adoption date (or, if
later, the effective date) of the amendment. An amendment reduces or eliminates
Code Section 411(d)(6) protected benefits if the amendment has the effect of
either (1) eliminating or reducing an early retirement benefit or a
retirement-type subsidy (as defined in Treasury regulations), or (2) except as
provided by Treasury regulations, eliminating an optional form of benefit. The
Advisory Committee must disregard an amendment to the extent application of the
amendment would fail to satisfy this paragraph. If the Advisory Committee must
disregard an amendment because the amendment would violate clause (1) or clause
(2), the Advisory Committee must maintain a schedule of the early retirement
option or other optional forms of benefit the Plan must continue for the
affected Participants.
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13.03 AMENDMENT BY MASTER PLAN SPONSOR. The Master Plan Sponsor (or PPD, as
agent of the Master Plan Sponsor), without the Employer's consent, may amend the
Plan and Trust, from time to time, in order to conform the Plan and Trust to any
requirement for qualification of the Plan and Trust under the Internal Revenue
Code. The Master Plan Sponsor may not amend the Plan in any manner which would
modify any election made by the Employer under the Plan without the Employer's
written consent. Furthermore, the Master Plan Sponsor may not amend the Plan in
any manner which would violate the proscription of Section 13.02. A Trustee does
not have the power to amend the Plan or Trust.
13.04 DISCONTINUANCE. The Employer has the right, at any time, to suspend
or discontinue its contributions under the Plan, and to terminate, at any time,
this Plan and the Trust created under this Agreement. The Plan will terminate
upon the first to occur of the following:
(a) The date terminated by action of the Employer;
(b) The dissolution or merger of the Employer, unless the successor makes
provision to continue the Plan, in which event the successor must
substitute itself as the Employer under this Plan. Any termination of the
Plan resulting from this paragraph (b) is not effective until compliance
with any applicable notice requirements under ERISA.
13.05 FULL VESTING ON TERMINATION. Upon either full or partial termination
of the Plan, or, if applicable, upon complete discontinuance of profit sharing
plan contributions to the Plan, an affected Participant's right to his Accrued
Benefit is 100% Nonforfeitable, irrespective of the Nonforfeitable percentage
which otherwise would apply under Article V.
13.06 MERGER/DIRECT TRANSFER. The Trustee may not consent to, or be a party
to, any merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation
or transfer, the surviving Plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger or consolidation or transfer. The
Trustee possesses the specific authority to enter into merger agreements or
direct transfer of assets agreements with the trustees of other retirement plans
described in Code Section 401(a), including an elective transfer, and to accept
the direct transfer of plan assets, or to transfer plan assets, as a party to
any such agreement.
The Trustee may accept a direct transfer of plan assets on behalf of an
Employee prior to the date the Employee satisfies the Plan's eligibility
conditions. If the Trustee accepts such a direct transfer of plan assets, the
Advisory Committee and Trustee must treat the Employee as a Participant for all
purposes of the Plan except the Employee is not a Participant for purposes of
sharing in Employer contributions or Participant forfeitures under the Plan
until he actually becomes a Participant in the Plan.
(A) ELECTIVE TRANSFERS. The Trustee, after August 9, 1988, may not consent to,
or be a party to a merger, consolidation or transfer of assets with a defined
benefit plan, except with respect to an elective transfer, or unless the
transferred benefits are in the form of paid-up individual annuity contracts
guaranteeing the payment of the transferred benefits in accordance with the
terms of the transferor plan and in a manner consistent with the Code and with
ERISA. The Trustee will hold, administer and distribute the transferred assets
as a part of the Trust Fund and the Trustee must maintain a separate Employer
contribution Account for the benefit of the Employee on whose behalf the Trustee
accepted the transfer in order to reflect the value of the transferred assets.
Unless a transfer of assets to this Plan is an elective transfer, the Plan will
preserve all Code Section411(d)(6) protected benefits with respect to those
transferred assets, in the manner described in Section 13.02. A transfer is an
elective transfer if: (1) the transfer satisfies the first paragraph of this
Section 13.06; (2) the transfer is voluntary, under a fully informed election by
the Participant; (3) the Participant has an alternative that retains
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his Code Section 411(d)(6) protected benefits (including an option to leave his
benefit in the transferor plan, if that plan is not terminating); (4) the
transfer satisfies the applicable spousal consent requirements of the Code; (5)
the transferor plan satisfies the joint and survivor notice requirements of the
Code, if the Participant's transferred benefit is subject to those requirements;
(6) the Participant has a right to immediate distribution from the transferor
plan, in lieu of the elective transfer, (7) the transferred benefit is at least
the greater of the single sum distribution provided by the transferor plan for
which the Participant is eligible or the present value of the Participant's
accrued benefit under the transferor plan payable at that plan's normal
retirement age; (8) the Participant has a 100% Nonforfeitable interest in the
transferred benefit; and (9) the transfer otherwise satisfies applicable
Treasury regulations. An elective transfer may occur between qualified plans of
any type. Any direct transfer of assets from a defined benefit plan after August
9, 1988, which does not satisfy the requirements of this paragraph will render
the Employer's Plan individually designed. See Section 12.08.
(B) DISTRIBUTION RESTRICTIONS UNDER CODE SECTION 401(K). If the Plan receives a
direct transfer (by merger or otherwise) of elective contributions (or amounts
treated as elective contributions) under a Plan with a Code Section 401(k)
arrangement, the distribution restrictions of Code Sections 401(k)(2) and (10)
continue to apply to those transferred elective contributions.
13.07 TERMINATION.
(A) PROCEDURE. Upon termination of the Plan, the distribution provisions of
Article VI remain operative, with the following exceptions:
(1) if the present value of the Participant's Nonforfeitable Accrued
Benefit does not exceed $3,500, the Advisory Committee will direct the
Trustee to distribute the Participant's Nonforfeitable Accrued Benefit to
him in lump sum as soon as administratively practicable after the Plan
terminates; and
(2) if the present value of the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500, the Participant or the Beneficiary, in addition to
the distribution events permitted under Article VI, may elect to have the
Trustee commence distribution of his Nonforfeitable Accrued Benefit as soon
as administratively practicable after the Plan terminates.
To liquidate the Trust, the Advisory Committee will purchase a deferred
annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500 and the Participant does not elect an immediate
distribution pursuant to Paragraph (2).
If the Employer's Plan is a profit sharing plan, in lieu of the preceding
provisions of this Section 13.07 and the distribution provisions of Article VI,
the Advisory Committee will direct the Trustee to distribute each Participant's
Nonforfeitable Accrued Benefit, in lump sum, as soon as administratively
practicable after the termination of the Plan, irrespective of the present value
of the Participant's Nonforfeitable Accrued Benefit and whether the Participant
consents to that distribution. This paragraph does not apply if: (1) the Plan
provides an annuity option; or (2) as of the period between the Plan termination
date and the final distribution of assets, the Employer maintains any other
defined contribution plan (other than an ESOP). The Employer, in an addendum to
its Adoption Agreement numbered 13.07, may elect not to have this paragraph
apply.
The Trust will continue until the Trustee in accordance with the direction
of the Advisory Committee has distributed all of the benefits under the Plan. On
each valuation date, the Advisory Committee will credit any part of a
Participant's Accrued Benefit retained in the Trust with its proportionate share
of the Trust's income, expenses, gains and losses, both realized and unrealized.
Upon termination of the Plan, the amount, if any, in a suspense account under
Article III will revert to the Employer, subject to the conditions of the
Treasury
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regulations permitting such a reversion. A resolution or amendment to freeze all
future benefit accrual but otherwise to continue maintenance of this Plan, is
not a termination for purposes of this Section 13.07.
(B) DISTRIBUTION RESTRICTIONS UNDER CODE SECTION 401(K). If the Employer's Plan
includes a Code Section 401(k) arrangement or if transferred assets described in
Section 13.06 are subject to the distribution restrictions of Code Sections
401(k)(2) and (10), the special distribution provisions of this Section 13.07
are subject to the restrictions of this paragraph. The portion of the
Participant's Nonforfeitable Accrued Benefit attributable to elective
contributions (or to amounts treated under the Code Section 401(k) arrangement
as elective contributions) is not distributable on account of Plan termination,
as described in this Section 13.07, unless: (a) the Participant otherwise is
entitled under the Plan to a distribution of that portion of his Nonforfeitable
Accrued Benefit; or (b) the Plan termination occurs without the establishment of
a successor plan. A successor plan under clause (b) is a defined contribution
plan (other than an ESOP) maintained by the Employer (or by a related employer)
at the time of the termination of the Plan or within the period ending twelve
months after the final distribution of assets. A distribution made after March
31, 1988, pursuant to clause (b), must be part of a lump sum distribution to the
Participant of his Nonforfeitable Accrued Benefit.
* * * * * * * * * * * * * * * * * * * *
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ARTICLE XIV
CODE SECTION 401(K) AND CODE SECTION 401(M) ARRANGEMENTS
14.01 APPLICATION. This Article XIV applies to an Employer's Plan only if
the Employer is maintaining its Plan under a Code Section 401(k) Adoption
Agreement.
14.02 CODE Section 401(k) ARRANGEMENT. The Employer will elect in Section
3.01 of its Adoption Agreement the terms of the Code Section 401(k) arrangement,
if any, under the Plan. If the Employer's Plan is a Standardized Plan, the Code
Section 401(k) arrangement must be a salary reduction arrangement. If the
Employer's Plan is a Nonstandardized Plan, the Code Section 401(k) arrangement
may be a salary reduction arrangement or a cash or deferred arrangement.
(A) SALARY REDUCTION ARRANGEMENT. If the Employer elects a salary reduction
arrangement, any Employee eligible to participate in the Plan may file a salary
reduction agreement with the Advisory Committee. The salary reduction agreement
may not be effective earlier than the following date which occurs last: (i) the
Employee's Plan Entry Date (or, in the case of a reemployed Employee, his
reparticipation date under Article II); (ii) the execution date of the
Employee's salary reduction agreement; (iii) the date the Employer adopts the
Code Section 401(k) arrangement by executing the Adoption Agreement; or (iv)
the effective date of the Code Section 401(k) arrangement, as specified in the
Employer's Adoption Agreement. Regarding clause (i), an Employee subject to the
Break in Service rule of Section 2.03(B) of the Plan may not enter into a salary
reduction agreement until the Employee has completed a sufficient number of
Hours of Service to receive credit for a Year of Service (as defined in Section
2.02) following his reemployment commencement date. A salary reduction agreement
must specify the amount of Compensation (as defined in Section 1.12) or
percentage of Compensation the Employee wishes to defer. The salary reduction
agreement will apply only to Compensation which becomes currently available to
the Employee after the effective date of the salary reduction agreement. The
Employer will apply a reduction election to all Compensation (and to increases
in such Compensation) unless the Employee specifies in his salary reduction
agreement to limit the election to certain Compensation. The Employer will
specify in Adoption Agreement Section 3.01 the rules and restrictions applicable
to the Employees salary reduction agreements.
(B) CASH OR DEFERRED ARRANGEMENT. If the Employer elects a cash or deferred
arrangement, a Participant may elect to make a cash election against his
proportionate share of the Employer's Cash or Deferred Contribution, in
accordance with the Employer's elections in Adoption Agreement Section 3.01. A
Participant's proportionate share of the Employer's Cash or Deferred
Contribution is the percentage of the total Cash or Deferred Contribution which
bears the same ratio that the Participant's Compensation for the Plan Year bears
to the total Compensation of all Participants for the Plan Year. For purposes of
determining each Participant's proportionate share of the Cash or Deferred
Contribution, a Participant's Compensation is his Compensation as determined
under Section 1.12 of the Plan (as modified by Section 3.06 for allocation
purposes), excluding any effect the proportionate share may have on the
Participant's Compensation for the Plan Year. The Advisory Committee will
determine the proportionate share prior to the Employer's actual contribution to
the Trust, to provide the Participants the opportunity to file cash elections.
The Employer will pay directly to the Participant the portion of his
proportionate share the Participant has elected to receive in cash.
(C) ELECTION NOT TO PARTICIPATE. A Participant's or Employee's election not to
participate, pursuant to Section 2.06, includes his right to enter into a salary
reduction agreement or to share in the allocation of a Cash or Deferred
Contribution, unless the Participant or Employee limits the effect of the
election to the non-401(k) portions of the Plan.
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14.03 DEFINITIONS. For purposes of this Article XIV:
(a) "Highly Compensated Employee" means an Eligible Employee who satisfies
the definition in Section 1.09 of the Plan. Family members aggregated as a
single Employee under Section 1.09 constitute a single Highly Compensated
Employee, whether a particular family member is a Highly Compensated
Employee or a Nonhighly Compensated Employee without the application of
family aggregation.
(b) "Nonhighly Compensated Employee" means an Eligible Employee who is not
a Highly Compensated Employee and who is not a family member treated as a
Highly Compensated Employee.
(c) "Eligible Employee" means, for purposes of the ADP test described in
Section 14.08, an Employee who is eligible to enter into a salary reduction
agreement for the Plan Year, irrespective of whether he actually enters
into such an agreement, and a Participant who is eligible for an allocation
of the Employer's Cash or Deferred Contribution for the Plan Year. For
purposes of the ACP test described in Section 14.09, an "Eligible Employee"
means a Participant who is eligible to receive an allocation of matching
contributions (or would be eligible if he made the type of contributions
necessary to receive an allocation of matching contributions) and a
Participant who is eligible to make nondeductible contributions,
irrespective of whether he actually makes nondeductible contributions. An
Employee continues to be an Eligible Employee during a period the Plan
suspends the Employee's right to make elective deferrals or nondeductible
contributions following a hardship distribution.
(d) "Highly Compensated Group" means the group of Eligible Employees who
are Highly Compensated Employees for the Plan Year.
(e) "Nonhighly Compensated Group" means the group of Eligible Employees who
are Nonhighly Compensated Employees for the Plan Year.
(f) "Compensation" means, except as specifically provided in this Article
XIV, Compensation as defined for nondiscrimination purposes in Section
1.12(B) of the Plan. To compute an Employee's ADP or ACP, the Advisory
Committee may limit Compensation taken into account to Compensation
received only for the portion of the Plan Year in which the Employee was an
Eligible Employee and only for the portion of the Plan Year in which the
Plan or the Code Section 401(k) arrangement was in effect.
(g) "Deferral contributions" are Salary Reduction Contributions and Cash or
Deferred Contributions the Employer contributes to the Trust on behalf of
an Eligible Employee, irrespective of whether, in the case of Cash or
Deferred Contributions, the contribution is at the election of the
Employee. For Salary Reduction Contributions, the terms "deferral
contributions" and "elective deferrals" have the same meaning.
(h) "Elective deferrals" are all Salary Reduction Contributions and that
portion of any Cash or Deferred Contribution which the Employer contributes
to the Trust at the election of an Eligible Employee. Any portion of a Cash
or Deferred Contribution contributed to the Trust because of the Employee's
failure to make a cash election is an elective deferral. However, any
portion of a Cash or Deferred Contribution over which the Employee does not
have a cash election is not an elective deferral. Elective deferrals do not
include amounts which have become currently available to the Employee prior
to the election nor amounts designated as nondeductible contributions at
the time of deferral or contribution.
(i) "Matching contributions" are contributions made by the Employer on
account of elective deferrals under a Code Section 401(k) arrangement or on
account of employee contributions. Matching contributions also include
Participant forfeitures allocated on account of such elective deferrals or
employee contributions.
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(j) "Nonelective contributions" are contributions made by the Employer
which are not subject to a deferral election by an Employee and which are
not matching contributions.
(k) "Qualified matching contributions" are matching contributions which are
100% Nonforfeitable at all times and which are subject to the distribution
restrictions described in paragraph (m). Matching contributions are not
100% Nonforfeitable at all times if the Employee has a 100% Nonforfeitable
interest because of his Years of Service taken into account under a vesting
schedule. Any matching contributions allocated to a Participant's Qualified
Matching Contributions Account under the Plan automatically satisfy the
definition of qualified matching contributions.
(1) "Qualified nonelective contributions" are nonelective contributions
which are 100% Nonforfeitable at all times and which are subject to the
distribution restrictions described in paragraph (m). Nonelective
contributions are not 100% Nonforfeitable at all times if the Employee has
a 100% Nonforfeitable interest because of his Years of Service taken into
account under a vesting schedule. Any nonelective contributions allocated
to a Participant's Qualified Nonelective Contributions Account under the
Plan automatically satisfy the definition of qualified nonelective
contributions.
(m) "Distribution restrictions" means the Employee may not receive a
distribution of the specified contributions (nor earnings on those
contributions) except in the event of (1) the Participant's death,
disability, termination of employment or attainment of age 59 1/2, (2)
financial hardship satisfying the requirements of Code Section 401(k) and
the applicable Treasury regulations, (3) a plan termination, without
establishment of a successor defined contribution plan (other than an
ESOP), (4) a sale of substantially all of the assets (within the meaning of
Code Section 409(d)(2)) used in a trade or business, but only to an
employee who continues employment with the corporation acquiring those
assets, or (5) a sale by a corporation of its interest in a subsidiary
(within the meaning of Code Section 409(d)(3)), but only to an employee who
continues employment with the subsidiary. For Plan Years beginning after
December 31, 1988, a distribution on account of financial hardship, as
described in clause (2), may not include earnings on elective deferrals
credited as of a date later than December 31, 1988, and may not include
qualified matching contributions and qualified nonelective contributions,
nor any earnings on such contributions, credited after December 31, 1988. A
plan does not violate the distribution restrictions if, instead of the
December 31, 1988, date in the preceding sentence the plan specifies a date
not later than the end of the last Plan Year ending before July 1, 1989. A
distribution described in clauses (3), (4) or (5), if made after March 31,
1988, must be a lump sum distribution, as required under Code Section
401(k)(10).
(n) "Employee contributions" are contributions made by a Participant on an
after-tax basis, whether voluntary or mandatory, and designated, at the
time of contribution, as an employee (or nondeductible) contribution.
Elective deferrals and deferral contributions are not employee
contributions. Participant nondeductible contributions, made pursuant to
Section 4.01 of the Plan, are employee contributions.
14.04 MATCHING CONTRIBUTIONS/EMPLOYEE CONTRIBUTIONS. The Employer may elect
in Adoption Agreement Section 3.01 to provide matching contributions. The
Employer also may elect in Adoption Agreement Section 4.01 to permit or to
require a Participant to make nondeductible contributions.
(A) MANDATORY CONTRIBUTIONS. Any Participant nondeductible contributions
eligible for matching contributions are mandatory contributions. The Advisory
Committee will maintain a separate accounting, pursuant to Section 4.06 of the
Plan, to reflect the Participant's Accrued Benefit derived from his mandatory
contributions. The Employer, under Adoption Agreement Section 4.05, may
prescribe special distribution restrictions which will apply to the Mandatory
Contributions Account prior to the Participant's Separation from Service.
Following his Separation from Service, the general distribution provisions of
Article VI apply to the distribution of the Participant's Mandatory
Contributions Account.
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14.05 TIME OF PAYMENT OF CONTRIBUTIONS. The Employer must make Salary
Reduction Contributions to the Trust within an administratively reasonable
period of time after withholding the corresponding Compensation from the
Participant. Furthermore, the Employer must make Salary Reduction Contributions,
Cash or Deferred Contributions, Employer matching contributions (including
qualified Employer matching contributions) and qualified Employer nonelective
contributions no later than the time prescribed by the Code or by applicable
Treasury regulations. Salary Reduction Contributions and Cash or Deferred
Contributions are Employer contributions for all purposes under this Plan,
except to the extent the Code or Treasury regulations prohibit the use of these
contributions to satisfy the qualification requirements of the Code.
14.06 SPECIAL ALLOCATION PROVISIONS - DEFERRAL CONTRIBUTIONS. MATCHING
CONTRIBUTIONS AND QUALIFIED NONELECTIVE CONTRIBUTIONS. To make allocations under
the Plan, the Advisory Committee must establish a Deferral Contributions
Account, a Qualified Matching Contributions Account, a Regular Matching
Contributions Account, a Qualified Nonelective Contributions Account and an
Employer Contributions Account for each Participant.
(A) DEFERRAL CONTRIBUTIONS. The Advisory Committee will allocate to each
Participant's Deferral Contributions Account the amount of Deferral
Contributions the Employer makes to the Trust on behalf of the Participant. The
Advisory Committee will make this allocation as of the last day of each Plan
Year unless, in Adoption Agreement Section 3.04, the Employer elects more
frequent allocation dates for salary reduction contributions.
(B) MATCHING CONTRIBUTIONS. The Employer must specify in its Adoption Agreement
whether the Advisory Committee will allocate matching contributions to the
Qualified Matching Contributions Account or to the Regular Matching
Contributions Account of each Participant. The Advisory Committee will make this
allocation as of the last day of each Plan Year unless, in Adoption Agreement
Section 3.04, the Employer elects more frequent allocation dates for matching
contributions.
(1) To the extent the Employer makes matching contributions under a fixed
matching contribution formula, the Advisory Committee will allocate the
matching contribution to the Account of the Participant on whose behalf the
Employer makes that contribution. A fixed matching contribution formula is
a formula under which the Employer contributes a certain percentage or
dollar amount on behalf of a Participant based on that Participant's
deferral contributions or nondeductible contributions eligible for a match,
as specified in Section 3.01 of the Employer's Adoption Agreement. The
Employer may contribute on a Participant's behalf under a specific matching
contribution formula only if the Participant satisfies the accrual
requirements for matching contributions specified in Section 3.06 of the
Employer's Adoption Agreement and only to the extent the matching
contribution does not exceed the Participant's annual additions limitation
in Part 2 of Article III.
(2) To the extent the Employer makes matching contributions under a
discretionary formula, the Advisory Committee will allocate the
discretionary matching contributions to the Account of each Participant who
satisfies the accrual requirements for matching contributions specified in
Section 3.06 of the Employer's Adoption Agreement. The allocation of
discretionary matching contributions to a Participant's Account is in the
same proportion that each Participant's eligible contributions bear to the
total eligible contributions of all Participants. If the discretionary
formula is a tiered formula, the Advisory Committee will make this
allocation separately with respect to each tier of eligible contributions,
allocating in such manner the amount of the matching contributions made
with respect to that tier. Eligible contributions are the Participant's
deferral contributions or nondeductible contributions eligible for an
allocation of matching contributions, as specified in Section 3.01 of the
Employer's Adoption Agreement.
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If the matching contribution formula applies both to deferral contributions
and to Participant nondeductible contributions, the matching contributions apply
first to deferral contributions. Furthermore, the matching contribution formula
does not apply to deferral contributions that are excess deferrals under Section
14.07. For this purpose: (a) excess deferrals relate first to deferral
contributions for the Plan Year not otherwise eligible for a matching
contribution; and (2) if the Plan Year is not a calendar year, the excess
deferrals for a Plan Year are the last elective deferrals made for a calendar
year. Under a Standardized Plan, an Employee forfeits any matching contribution
attributable to an excess contribution or to an excess aggregate contribution,
unless distributed pursuant to Sections 14.08 or 14.09. Under a Nonstandardized
Plan, this forfeiture rule applies only if specified in Adoption Agreement
Section 3.06. The provisions of Section 3.05 govern the treatment of any
forfeiture described in this paragraph, and the Advisory Committee will compute
a Participant's ACP under 14.09 by disregarding the forfeiture.
(C) QUALIFIED NONELECTIVE CONTRIBUTIONS. If the Employer, at the time of
contribution, designates a contribution to be a qualified nonelective
contribution for the Plan Year, the Advisory Committee will allocate that
qualified nonelective contribution to the Qualified Nonelective Contributions
Account of each Participant eligible for an allocation of that designated
contribution, as specified in Section 3.04 of the Employer's Adoption Agreement.
The Advisory Committee will make the allocation to each eligible Participant's
Account in the same ratio that the Participant's Compensation for the Plan Year
bears to the total Compensation of all eligible Participants for the Plan Year.
The Advisory Committee will determine a Participant's Compensation in accordance
with the general definition of Compensation under Section 1.12 of the Plan, as
modified by the Employer in Sections 1.12 and 3.06 of its Adoption Agreement.
(D) NONELECTIVE CONTRIBUTIONS. To the extent the Employer makes nonelective
contributions for the Plan Year which, at the time of contribution, it does not
designate as qualified nonelective contributions, the Advisory Committee will
allocate those contributions in accordance with the elections under Section 3.04
of the Employer's Adoption Agreement. For purposes of the special
nondiscrimination tests described in Sections 14.08 and 14.09, the Advisory
Committee may treat nonelective contributions allocated under this paragraph as
qualified nonelective contributions, if the contributions otherwise satisfy the
definition of qualified nonelective contributions.
14.07 ANNUAL ELECTIVE DEFERRAL LIMITATION.
(A) ANNUAL ELECTIVE DEFERRAL LIMITATION. An Employee's elective deferrals for a
calendar year beginning after December 31, 1986, may not exceed the 402(g)
limitation. The 402(g) limitation is the greater of $7,000 or the adjusted
amount determined by the Secretary of the Treasury. If, pursuant to a salary
reduction agreement or pursuant to a cash or deferral election, the Employer
determines the Employee's elective deferrals to the Plan for a calendar year
would exceed the 402(g) limitation, the Employer will suspend the Employee's
salary reduction agreement, if any, until the following January 1 and pay in
cash the portion of a cash or deferral election which would result in the
Employee's elective deferrals for the calendar year exceeding the 402(g)
limitation. If the Advisory Committee determines an Employee's elective
deferrals already contributed to the Plan for a calendar year exceed the 402(g)
limitation, the Advisory Committee will distribute the amount in excess of the
402(g) limitation (the "excess deferral"), as adjusted for allocable income, no
later than April 15 of the following calendar year. If the Advisory Committee
distributes the excess deferral by the appropriate April 15, it may make the
distribution irrespective of any other provision under this Plan or under the
Code. The Advisory Committee will reduce the amount of excess deferrals for a
calendar year distributable to the Employee by the amount of excess
contributions (as determined in Section 14.08), if any, previously distributed
to the Employee for the Plan Year beginning in that calendar year.
If an Employee participates in another plan under which he makes elective
deferrals pursuant to a Code Section 401(k) arrangement, elective deferrals
under a Simplified Employee Pension, or salary reduction contributions
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to a tax-sheltered annuity, irrespective of whether the Employer maintains the
other plan, he may provide the Advisory Committee a written claim for excess
deferrals made for a calendar year. The Employee must submit the claim no later
than the March 1 following the close of the particular calendar year and the
claim must specify the amount of the Employee's elective deferrals under this
Plan which are excess deferrals. If the Advisory Committee receives a timely
claim, it will distribute the excess deferral (as adjusted for allocable income)
the Employee has assigned to this Plan, in accordance with the distribution
procedure described in the immediately preceding paragraph.
(B) ALLOCABLE INCOME. For purposes of making a distribution of excess deferrals
pursuant to this Section 14.07, allocable income means net income or net loss
allocable to the excess deferrals for the calendar year in which the Employee
made the excess deferral, determined in a manner which is uniform,
nondiscriminatory and reasonably reflective of the manner used by the Plan to
allocate income to Participants' Accounts.
14.08 ACTUAL DEFERRAL PERCENTAGE ("ADP") TEST. For each Plan Year, the
Advisory Committee must determine whether the Plan's Code Section 401(k)
arrangement satisfies either of the following ADP tests:
(i) The average ADP for the Highly Compensated Group does not exceed
1.25 times the average ADP of the Nonhighly Compensated Group; or
(ii) The average ADP for the Highly Compensated Group does not exceed
the average ADP for the Nonhighly Compensated Group by more than two
percentage points (or the lesser percentage permitted by the multiple use
limitation in Section 14.10) and the average ADP for the Highly Compensated
Group is not more than twice the average ADP for the Nonhighly Compensated
Group.
(A) CALCULATION OF ADP. The average ADP for a group is the average of the
separate ADPs calculated for each Eligible Employee who is a member of that
group. An Eligible Employee's ADP for a Plan Year is the ratio of the Eligible
Employee's deferral contributions for the Plan Year to the Employee's
Compensation for the Plan Year. For aggregated family members treated as a
single Highly Compensated Employee, the ADP of the family unit is the ADP
determined by combining the deferral contributions and Compensation of all
aggregated family members. A Nonhighly Compensated Employee's ADP does not
include elective deferrals made to this Plan or to any other Plan maintained by
the Employer, to the extent such elective deferrals exceed the 402(g) limitation
described in Section 14.07(A).
The Advisory Committee, in a manner consistent with Treasury regulations,
may determine the ADPs of the Eligible Employees by taking into account
qualified nonelective contributions or qualified matching contributions, or
both, made to this Plan or to any other qualified Plan maintained by the
Employer. The Advisory Committee may not include qualified nonelective
contributions in the ADP test unless the allocation of nonelective contributions
is nondiscriminatory when the Advisory Committee takes into account all
nonelective contributions (including the qualified nonelective contributions)
and also when the Advisory Committee takes into account only the nonelective
contributions not used in either the ADP test described in this Section 14.08 or
the ACP test described in Section 14.09. For Plan Years beginning after December
31, 1989, the Advisory Committee may not include in the ADP test any qualified
nonelective contributions or qualified matching contributions under another
qualified plan unless that plan has the same plan year as this Plan. The
Advisory Committee must maintain records to demonstrate compliance with the ADP
test, including the extent to which the Plan used qualified nonelective
contributions or qualified matching contributions to satisfy the test.
For Plan Years beginning prior to January 1, 1992, the Advisory Committee
may elect to apply a separate ADP test to each component group under the Plan.
Each component group separately must satisfy the
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commonality requirement of the Code Section 401(k) regulations and the minimum
coverage requirements of Code Section 410(b). A component group consists of all
the allocations and other benefits, rights and features provided that group of
Employees. An Employee may not be part of more than one component group. The
correction rules described in this Section 14.08 apply separately to each
component group.
(B) SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To determine the
ADP of any Highly Compensated Employee, the deferral contributions taken into
account must include any elective deferrals made by the Highly Compensated
Employee under any other Code Section 401(k) arrangement maintained by the
Employer, unless the elective deferrals are to an ESOP. If the plans containing
the Code Section 401(k) arrangements have different plan years, the Advisory
Committee will determine the combined deferral contributions on the basis of the
plan years ending in the same calendar year.
(C) AGGREGATION OF CERTAIN CODE SECTION 401(K) ARRANGEMENTS. If the Employer
treats two plans as a unit for coverage or nondiscrimination purposes, the
Employer must combine the Code Section 401(k) arrangements under such plans to
determine whether either plan satisfies the ADP test. This aggregation rule
applies to the ADP determination for all Eligible Employees, irrespective of
whether an Eligible Employee is a Highly Compensated Employee or a Nonhighly
Compensated Employee. For Plan Years beginning after December 31, 1989, an
aggregation of Code Section 401(k) arrangements under this paragraph does not
apply to plans which have different plan years and, for Plan Years beginning
after December 31, 1988, the Advisory Committee may not aggregate an ESOP (or
the ESOP portion of a plan) with a non-ESOP plan (or non-ESOP portion of a
plan).
(D) CHARACTERIZATION OF EXCESS CONTRIBUTIONS. If, pursuant to this Section
14.08, the Advisory Committee has elected to include qualified matching
contributions in the average ADP, the Advisory Committee will treat excess
contributions as attributable proportionately to deferral contributions and to
qualified matching contributions allocated on the basis of those deferral
contributions. If the total amount of a Highly Compensated Employee's excess
contributions for the Plan Year exceeds his deferral contributions or qualified
matching contributions for the Plan Year, the Advisory Committee will treat the
remaining portion of his excess contributions as attributable to qualified
nonelective contributions. The Advisory Committee will reduce the amount of
excess contributions for a Plan Year distributable to a Highly Compensated
Employee by the amount of excess deferrals (as determined in Section 14.07), if
any, previously distributed to that Employee for the Employee's taxable year
ending in that Plan Year.
(E) DISTRIBUTION OF EXCESS CONTRIBUTIONS. If the Advisory Committee determines
the Plan fails to satisfy the ADP test for a Plan Year, it must distribute the
excess contributions, as adjusted for allocable income, during the next Plan
Year. However, the Employer will incur an excise tax equal to 10% of the amount
of excess contributions for a Plan Year not distributed to the appropriate
Highly Compensated Employees during the first 2 1/2 months of that next Plan
Year. The excess contributions are the amount of deferral contributions made by
the Highly Compensated Employees which causes the Plan to fail to satisfy the
ADP test. The Advisory Committee will distribute to each Highly Compensated
Employee his respective share of the excess contributions. The Advisory
Committee will determine the respective shares of excess contributions by
starting with the Highly Compensated Employee(s) who has the greatest ADP,
reducing his ADP (but not below the next highest ADP), then, if necessary,
reducing the ADP of the Highly Compensated Employee(s) at the next highest ADP
level (including the ADP of the Highly Compensated Employee(s) whose ADP the
Advisory Committee already has reduced), and continuing in this manner until the
average ADP for the Highly Compensated Group satisfies the ADP test. If the
Highly Compensated Employee is part of an aggregated family group, the Advisory
Committee, in accordance with the applicable Treasury regulations, will
determine each aggregated family member's allocable share of the excess
contributions assigned to the family unit.
(F) ALLOCABLE INCOME. To determine the amount of the corrective distribution
required under this Section 14.08, the Advisory Committee must calculate the
allocable income for the Plan Year in which the excess
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contributions arose. "Allocable income" means net income or net loss. To
calculate allocable income for the Plan Year, the Advisory Committee will use a
uniform and nondiscriminatory method which reasonably reflects the manner used
by the Plan to allocate income to Participants' Accounts.
14.09 NONDISCRIMINATION RULES FOR EMPLOYER MATCHING CONTRIBUTIONS/
PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. For Plan Years beginning after December
31, 1986, the Advisory Committee must determine whether the annual Employer
matching contributions (other than qualified matching contributions used in the
ADP under Section 14.08), if any, and the Employee contributions, if any,
satisfy either of the following average contribution percentage ("ACP") tests:
(i) The ACP for the Highly Compensated Group does not exceed 1.25 times
the ACP of the Nonhighly Compensated Group; or
(ii) The ACP for the Highly Compensated Group does not exceed the ACP
for the Nonhighly Compensated Group by more than two percentage points (or
the lesser percentage permitted by the multiple use limitation in Section
14.10) and the ACP for the Highly Compensated Group is not more than twice
the ACP for the Nonhighly Compensated Group.
(A) CALCULATION OF ACP. The average contribution percentage for a group is the
average of the separate contribution percentages calculated for each Eligible
Employee who is a member of that group. An Eligible Employee's contribution
percentage for a Plan Year is the ratio of the Eligible Employee's aggregate
contributions for the Plan Year to the Employee's Compensation for the Plan
Year. "Aggregate contributions" are Employer matching contributions (other than
qualified matching contributions used in the ADP test under Section 14.08) and
employee contributions (as defined in Section 14.03). For aggregated family
members treated as a single Highly Compensated Employee, the contribution
percentage of the family unit is the contribution percentage determined by
combining the aggregate contributions and Compensation of all aggregated family
members.
The Advisory Committee, in a manner consistent with Treasury regulations,
may determine the contribution percentages of the Eligible Employees by taking
into account qualified nonelective contributions (other than qualified
nonelective contributions used in the ADP test under Section 14.08) or elective
deferrals, or both, made to this Plan or to any other qualified Plan maintained
by the Employer. The Advisory Committee may not include qualified nonelective
contributions in the ACP test unless the allocation of nonelective contributions
is nondiscriminatory when the Advisory Committee takes into account all
nonelective contributions (including the qualified nonelective contributions)
and also when the Advisory Committee takes into account only the nonelective
contributions not used in either the ADP test described in Section 14.08 or the
ACP test described in this Section 14.09. The Advisory Committee may not include
elective deferrals in the ACP test, unless the Plan which includes the elective
deferrals satisfies the ADP test both with and without the elective deferrals
included in this ACP test. For Plan Years beginning after December 31, 1989, the
Advisory Committee may not include in the ACP test any qualified nonelective
contributions or elective deferrals under another qualified plan unless that
plan has the same plan year as this Plan. The Advisory Committee must maintain
records to demonstrate compliance with the ACP test, including the extent to
which the Plan used qualified nonelective contributions or elective deferrals to
satisfy the test. For Plan Years beginning prior to January 1, 1992, the
component group testing rule permitted under Section 14.08(A) also applies to
the ACP test under this Section 14.09.
(B) SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To determine the
contribution percentage of any Highly Compensated Employee, the aggregate
contributions taken into account must include any matching contributions (other
than qualified matching contributions used in the ADP test) and any Employee
contributions made on his behalf to any other plan maintained by the Employer,
unless the other plan is an
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ESOP. If the plans have different plan years, the Advisory Committee will
determine the combined aggregate contributions on the basis of the plan years
ending in the same calendar year.
(C) AGGREGATION OF CERTAIN PLANS. If the Employer treats two plans as a unit for
coverage or nondiscrimination purposes, the Employer must combine the plans to
determine whether either plan satisfies the ACP test. This aggregation rule
applies to the contribution percentage determination for all Eligible Employees,
irrespective of whether an Eligible Employee is a Highly Compensated Employee or
a Nonhighly Compensated Employee. For Plan Years beginning after December 31,
1989, an aggregation of plans under this paragraph does not apply to plans which
have different plan years and, for Plan Years beginning after December 31, 1988,
the Advisory Committee may not aggregate an ESOP (or the ESOP portion of a plan)
with a non-ESOP plan (or non-ESOP portion of a plan).
(D) DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee will
determine excess aggregate contributions after determining excess deferrals
under Section 14.07 and excess contributions under Section 14.08. If the
Advisory Committee determines the Plan fails to satisfy the ACP test for a Plan
Year, it must distribute the excess aggregate contributions, as adjusted for
allocable income, during the next Plan Year. However, the Employer will incur an
excise tax equal to 10% of the amount of excess aggregate contributions for a
Plan Year not distributed to the appropriate Highly Compensated Employees during
the first 2 1/2 months of that next Plan Year. The excess aggregate
contributions are the amount of aggregate contributions allocated on behalf of
the Highly Compensated Employees which causes the Plan to fail to satisfy the
ACP test. The Advisory Committee will distribute to each Highly Compensated
Employee his respective share of the excess aggregate contributions. The
Advisory Committee will determine the respective shares of excess aggregate
contributions by starting with the Highly Compensated Employee(s) who has the
greatest contribution percentage, reducing his contribution percentage (but not
below the next highest contribution percentage), then, if necessary, reducing
the contribution percentage of the Highly Compensated Employee(s) at the next
highest contribution percentage level (including the contribution percentage of
the Highly Compensated Employee(s) whose contribution percentage the Advisory
Committee already has reduced), and continuing in this manner until the ACP for
the Highly Compensated Group satisfies the ACP test. If the Highly Compensated
Employee is part of an aggregated family group, the Advisory Committee, in
accordance with the applicable Treasury regulations, will determine each
aggregated family member's allocable share of the excess aggregate contributions
assigned to the family unit.
(E) ALLOCABLE INCOME. To determine the amount of the corrective distribution
required under this Section 14.09, the Advisory Committee must calculate the
allocable income for the Plan Year in which the excess aggregate contributions
arose. "Allocable incomes" means net income or net loss. The Advisory Committee
will determine allocable income in the same manner as described in Section
14.08(F) for excess contributions.
(F) CHARACTERIZATION OF EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee
will treat a Highly Compensated Employee's allocable share of excess aggregate
contributions in the following priority: (1) first as attributable to his
Employee contributions which are voluntary contributions, if any; (2) then as
matching contributions allocable with respect to excess contributions determined
under the ADP test described in Section 14.08; (3) then on a pro rata basis to
matching contributions and to the deferral contributions relating to those
matching contributions which the Advisory Committee has included in the ACP
test; (4) then on a pro rata basis to Employee contributions which are mandatory
contributions, if any, and to the matching contributions allocated on the basis
of those mandatory contributions; and (5) last to qualified nonelective
contributions used in the ACP test. To the extent the Highly Compensated
Employee's excess aggregate contributions are attributable to matching
contributions, and he is not 100% vested in his Accrued Benefit attributable to
matching contributions, the Advisory Committee will distribute only the vested
portion and forfeit the nonvested portion. The vested portion of the Highly
Compensated Employee's excess aggregate contributions attributable to Employer
matching contributions is the total amount of such excess aggregate
contributions (as
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adjusted for allocable income) multiplied by his vested percentage (determined
as of the last day of the Plan Year for which the Employer made the matching
contribution). The Employer will specify in Adoption Agreement Section 3.05 the
manner in which the Plan will allocate forfeited excess aggregate contributions.
14.10 MULTIPLE USE LIMITATION. For Plan Years beginning after December 31,
1988, if at least one Highly Compensated Employee is includible in the ADP test
under Section 14.08 and in the ACP test under Section 14.09, the sum of the
Highly Compensated Group's ADP and ACP may not exceed the multiple use
limitation.
The multiple use limitation is the sum of (i) and (ii):
(i) 125% of the greater of: (a) the ADP of the Nonhighly Compensated
Group under the Code Section 401(k) arrangement; or (b) the ACP of the
Nonhighly Compensated Group for the Plan Year beginning with or within the
Plan Year of the Code Section 401(k) arrangement.
(ii) 2% plus the lesser of (i)(a) or (i)(b), but no more than twice
the lesser of (i)(a) or (i)(b).
The Advisory Committee, in lieu of determining the multiple use limitation
as the sum of (i) and (ii), may elect to determine the multiple use limitation
as the sum of (iii) and (iv):
(iii) 125% of the lesser of: (a) the ADP of the Nonhighly Compensated
Group under the Code Section 401(k) arrangement; or (b) the ACP of the
Nonhighly Compensated Group for the Plan Year beginning with or within the
Plan Year of the Code Section 401(k) arrangement.
(iv) 2% plus the greater of (iii)(a) or (iii)(b), but no more than
twice the greater of (iii)(a) or (iii)(b).
The Advisory Committee will determine whether the Plan satisfies the
multiple use limitation after applying the ADP test under Section 14.08 and the
ACP test under Section 14.09 and after making any corrective distributions
required by those Sections. If, after applying this Section 14.10, the Advisory
Committee determines the Plan has failed to satisfy the multiple use limitation,
the Advisory Committee will correct the failure by treating the excess amount as
excess contributions under Section 14.08 or as excess aggregate contributions
under Section 14.09, as it determines in its sole discretion. This Section 14.10
does not apply unless, prior to application of the multiple use limitation, the
ADP and the ACP of the Highly Compensated Group each exceeds 125% of the
respective percentages for the Nonhighly Compensated Group.
14.11 DISTRIBUTION RESTRICTIONS. The Employer must elect in Section 6.03
the Adoption Agreement the distribution events permitted under the Plan. The
distribution events applicable to the Participant's Deferral Contributions
Account, Qualified Nonelective Contributions Account and Qualified Matching
Contributions Account must satisfy the distribution restrictions described in
paragraph (m) of Section 14.03.
(A) HARDSHIP DISTRIBUTIONS FROM DEFERRAL CONTRIBUTIONS ACCOUNT. The Employer
must elect in Adoption Agreement Section 6.03 whether a Participant may receive
hardship distributions from his Deferral Contributions Account prior to the
Participant's Separation from Service. Hardship distributions from the Deferral
Contributions Account must satisfy the requirements of this Section 14.11. A
hardship distribution option may not apply to the Participant's Qualified
Nonelective Contributions Account or Qualified Matching Contributions Account,
except as provided in paragraph (3).
(1) DEFINITION OF HARDSHIP. A hardship distribution under this Section
14.11 must be on account of one or more of the following immediate and heavy
financial needs: (1) medical care described in Code Section 213(d)
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incurred by the Participant, by the Participant's spouse, or by any of the
Participant's dependents, or necessary to obtain such medical care; (2) the
purchase (excluding mortgage payments) of a principal residence for the
Participant; (3) the payment of post-secondary education tuition and related
educational fees, for the next 12-month period, for the Participant, for the
Participant's spouse, or for any of the Participant's dependents (as defined in
Code Section 152); (4) to prevent the eviction of the Participant from his
principal residence or the foreclosure on the mortgage of the Participant's
principal residence; or (5) any need prescribed by the Revenue Service in a
revenue ruling, notice or other document of general applicability which
satisfies the safe harbor definition of hardship.
(2) RESTRICTIONS. The following restrictions apply to a Participant who
receives a hardship distribution: (a) the Participant may not make elective
deferrals or employee contributions to the Plan for the 12-month period
following the date of his hardship distribution; (b) the distribution is not in
excess of the amount of the immediate and heavy financial need (including any
amounts necessary to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from the distribution); (c) the Participant
must have obtained all distributions, other than hardship distributions, and all
nontaxable loans (determined at the time of the loan) currently available under
this Plan and all other qualified plans maintained by the Employer; and (d) the
Participant agrees to limit elective deferrals under this Plan and under any
other qualified Plan maintained by the Employer, for the Participant's taxable
year immediately following the taxable year of the hardship distribution, to the
402(g) limitation (as described in Section 14.07), reduced by the amount of the
Participant's elective deferrals made in the taxable year of the hardship
distribution. The suspension of elective deferrals and employee contributions
described in clause (a) also must apply to all other qualified plans and to all
nonqualified plans of deferred compensation maintained by the Employer, other
than any mandatory employee contribution portion of a defined benefit plan,
including stock option, stock purchase and other similar plans, but not
including health or welfare benefit plans (other than the cash or deferred
arrangement portion of a cafeteria plan).
(3) EARNINGS. For Plan Years beginning after December 31, 1988, a hardship
distribution under this Section 14.11 may not include earnings on an Employee's
elective deferrals credited after December 31, 1988. Qualified matching
contributions and qualified nonelective contributions, and any earnings on such
contributions, credited as of December 31, 1988, are subject to the hardship
withdrawal only if the Employer specifies in an addendum to this Section 14.11.
The addendum may modify the December 31, 1988, date for purposes of determining
credited amounts provided the date is not later than the end of the last Plan
Year ending before July 1, 1989.
(B) DISTRIBUTIONS AFTER SEPARATION FROM SERVICE. Following the Participant's
Separation from Service, the distribution events applicable to the Participant
apply equally to all of the Participant's Accounts, except as elected in Section
6.03 of the Employer's Adoption Agreement.
(C) CORRECTION OF ANNUAL ADDITIONS LIMITATION. If, as a result of a reasonable
error in determining the amount of elective deferrals an Employee may make
without violating the limitations of Part 2 of Article III, an Excess Amount
results, the Advisory Committee will return the Excess Amount (as adjusted for
allocable income) attributable to the elective deferrals. The Advisory Committee
will make this distribution before taking any corrective steps pursuant to
Section 3.10 or to Section 3.16. The Advisory Committee will disregard any
elective deferrals returned under this Section 14.11(C) for purposes of Sections
14.07, 14.08 and 14.09.
14.12 SPECIAL ALLOCATION RULES. If the Code Section 401(k) arrangement
provides for salary reduction contributions, if the Plan accepts Employee
contributions, pursuant to Adoption Agreement Section 4.01, or if the Plan
allocates matching contributions as of any date other than the last day of the
Plan Year, the Employer must elect in Adoption Agreement 9.11 whether any
special allocation provisions will apply under Section 9.11 of the Plan. For
purposes of the elections:
77
<PAGE> 105
(a) A "segregated Account" direction means the Advisory Committee will
establish a segregated Account for the applicable contributions made on the
Participant's behalf during the Plan Year. The Trustee must invest the
segregated Account in Federally insured interest bearing savings account(s)
or time deposits, or a combination of both, or in any other fixed income
investments, unless otherwise specified in the Employer's Adoption
Agreement. As of the last day of each Plan Year (or, if earlier, an
allocation date coinciding with a valuation date described in Section
9.11), the Advisory Committee will reallocate the segregated Account to the
Participant's appropriate Account, in accordance with Section 3.04 or
Section 4.06, whichever applies to the contributions.
(b) A "weighted average allocation" method will treat a weighted portion of
the applicable contributions as if includible in the Participant's Account
as of the beginning of the valuation period. The weighted portion is a
fraction, the numerator of which is the number of months in the valuation
period, excluding each month in the valuation period which begins prior to
the contribution date of the applicable contributions, and the denominator
of which is the number of months in the valuation period. The Employer may
elect in its Adoption Agreement to substitute a weighting period other than
months for purposes of this weighted average allocation.
78
<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
July 29, 1994
---------------------
(Date)
845 West Center Street, Salt Lake City, Salt Lake County, Utah
-----------------------------------------------------------
(Address of Maker)
FOR VALUE RECEIVED, MOTOR CARGO ("Maker") promises, jointly and severally if
more than one, to pay to the order of General Electric Capital Corporation or
any subsequent holder hereof (each a "Payee") at its office located at 8480 East
Orchard Road Suite 5000, Englewood, CO 80111 or at such other place as Payee or
the holder hereof may designate, the principal sum of One Million Eight Hundred
Sixty-Two Thousand Three Hundred and 48/100 Dollars ($1,862,300.48), with
interest on the unpaid principal balance, from the date hereof through and
including the dates of payment, at a fixed, simple interest rate of Seven and
25/100 percent (7.25%) per annum, to be paid in lawful money of the United
States in Fifty-Nine (59) consecutive monthly installments of principal and
interest of Thirty-Seven Thousand One Hundred Ninety-One and 62/100 Dollars
($37,191.62) each ("Periodic Installment") and a final installment which shall
be in the amount of the total outstanding principal and interest. The first
Periodic Installment shall be due and payable on September 10, 1994 and the
following Periodic Installments and the final installment shall be due and
payable on the same day of each succeeding period (each, a "Payment Date").
All payments shall be applied first to interest and then to principal. The
acceptance by Payee of any payment which is less than payment in full of all
amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time. Interest shall be calculated on the basis of a 365 day year (366 day leap
year). The payment of any Periodic Installment after its due date shall result
in a corresponding decrease in the portion of the Periodic Installment credited
to the remaining unpaid principal balance. The payment of any Periodic
Installment prior to its due date shall result in a corresponding increase in
the portion of the Periodic Installment credited to the remaining unpaid
principal balance.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "Security
Agreement.")
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of five percent (5%) of the
amount of said installment or other sum, but not exceeding any lawful maximum.
If (i) Maker fails to make payment of any amount due hereunder within ten (10)
days
<PAGE> 2
after the same becomes due and payable: or (ii) Maker is in default, or
fails to perform, under any term or condition contained in any Security
Agreement, then the entire principal sum remaining unpaid, together with all
accrued interest thereon and any other sum payable under this Note or any
Security Agreement, at the election of Payee, shall immediately become due and
payable, with interest thereon at the lesser of eighteen percent (18%) per annum
or the highest rate not prohibited by applicable law from the date of such
accelerated maturity until paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
<TABLE>
<S> <C> <C>
Prior to the first annual anniversary date of this Note: zero percent (0%)
Thereafter and prior to the second annual anniversary date of this Note: zero percent (0%)
Thereafter and prior to the third annual anniversary date of this Note: zero percent (0%)
Thereafter and prior to the fourth annual anniversary date of this Note: zero percent (0%)
Thereafter and prior to the fifth annual anniversary date of this Note: zero percent (0%)
</TABLE>
and zero percent (0%) thereafter, plus all other sums due hereunder
or under any Security Agreement.
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or any Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or refunded
to Maker, at the option of the Payee, and (d) the effective rate of interest
shall be automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
this Note or any Security Agreement which are made for the purpose of
determining whether such rate exceeds the maximum lawful contract rate, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full stated
term of the indebtedness evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise by Payee in connection with
such indebtedness; provided, however, that if any applicable state law is
amended or the law of the United States of America preempts any applicable state
law, so that it becomes lawful for the Payee to receive a greater interest per
annum rate than is presently
3
<PAGE> 3
allowed, the Maker agrees that, on the effective date of such amendment or
preemption, as the case may be, the lawful maximum hereunder shall be increased
to the maximum interest per annum rate allowed by the amended state law or the
law of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and the Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waives
presentment, demand for payment, notice of nonpayment, protest, notice of
dishonor, and all other notices in connection herewith, as well as filing of
suit (if permitted by law) and diligence in collecting this Note or enforcing
any of the security hereof, and agrees to pay (if permitted by law) all expenses
incurred in collection, including Payee's actual attorneys' fees. Maker and each
Obligor agrees that fees not in excess of twenty percent (20%) of the amount
then due shall be deemed reasonable.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
This Note and any Security Agreement constitute the entire agreement of the
Maker and the Payee with respect to the subject matter hereof and supersedes all
prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee.
3
<PAGE> 4
Any such waiver, consent, modification or change shall be effective only in the
specific instance and for the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.
MOTOR CARGO
/s/ Lou Holdener By: /s/ Lynn H. Wheeler
(Witness (Signature)
LOU HOLDENER LYNN WHEELER, V.P. FINANCE
(Print Name) Print name (and title, if applicable)
- -------------------------------- 87-0222090
(Address) (Federal tax identification number)
<PAGE> 1
EXHIBIT 10.14
PROMISSORY NOTE
----------------------
(Date)
845 West Center Street, Salt Lake City, Salt Lake County, Utah
------------------------------------------------------------------------
(Address of Maker)
FOR VALUE RECEIVED, MOTOR CARGO ("Maker") promises, jointly and severally if
more than one, to pay to the order of General Electric Capital Corporation or
any subsequent holder hereof (each, a "Payee") at its office located at 8480
East Orchard Road, Suite 5000, Englewood, CO 80111 or at such other place as
Payee or the holder hereof may designate, the principal sum of One Million One
Hundred Seventy-Eight Thousand One Hundred Thirteen and No/100 Dollars
($1,178,113.00), with interest on the unpaid principal balance, from the date
hereof through and including the dates of payment, at a fixed, simple interest
rate of Seven and 25/100 percent (7.25%) per annum, to be paid in lawful money
of the United States, in Fifty-Nine (59) consecutive monthly installments of
principal and interest of Twenty-Three Thousand Four Hundred Sixty-Seven and
26/100 Dollars ($23,467.26) each ("Periodic Installment") and a final
installment which shall be in the amount of the total outstanding principal and
interest. The first Periodic Installment shall be due and payable on
_____________ and the following Periodic Installments and the final installment
shall be due and payable on the same day of each succeeding period (each, a
"Payment Date").
All payments shall be applied first to interest and then to principal. The
acceptance by Payee of any payment which is less than payment in full of all
amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time. Interest shall be calculated on the basis of a 365 day year (366 day leap
year). The payment of any Periodic Installment after its due date shall result
in a corresponding decrease in the portion of the Periodic Installment credited
to the remaining unpaid principal balance. The payment of any Periodic
Installment prior to its due date shall result in a corresponding increase in
the portion of the Periodic Installment credited to the remaining unpaid
principal balance.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "Security
Agreement.")
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of five percent (5%) of the
amount of said installment or other sum, but not exceeding any lawful
<PAGE> 2
maximum. If (i) Maker fails to make payment of any amount due hereunder within
ten (10) days after the same becomes due and payable; or (ii) Maker is in
default, or fails to perform, under any term or condition contained in any
Security Agreement, then the entire principal sum remaining unpaid, together
with all accrued interest thereon and any other sum payable under this Note or
any Security Agreement, at the election of Payee, shall immediately become due
and payable, with interest thereon at the lesser of eighteen percent (18%) per
annum or the highest rate not prohibited by applicable law from the date of such
accelerated maturity until paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
<TABLE>
<S> <C> <C>
Prior to the first annual anniversary date of this Note: zero percent (0%)
Thereafter and prior to the second annual anniversary date of this Note: zero percent (0%)
Thereafter and prior to the third annual anniversary date of this Note: zero percent (0%)
Thereafter and prior to the fourth annual anniversary date of this Note: zero percent (0%)
Thereafter and prior to the fifth annual anniversary date of this Note: zero percent (0%)
</TABLE>
and zero percent (0%) thereafter, plus all other sums due hereunder or
under any Security Agreement.
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or any Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter liable for the
payment hereof shall be obligated to pay the amount of such interest to the
extent that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or refunded
to Maker, at the option of the Payee, and (d) the effective rate of interest
shall be automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
this Note or any Security Agreement which are made for the purpose of
determining whether such rate exceeds the maximum lawful contract rate, shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the full stated
term of the indebtedness evidenced hereby, all interest at any time contracted
for, charged or received from Maker or otherwise by Payee in connection with
such
2
<PAGE> 3
indebtedness; provided, however, that if any applicable state law is amended or
the law of the Untied States of America preempts any applicable state law, so
that it becomes lawful for the Payee to receive a greater interest per annum
rate than is presently allowed, the Maker agrees that, on the effective date of
such amendment or preemption, as the case may be, the lawful maximum hereunder
shall be increased to the maximum interest per annum rate allowed by the amended
state law or the law of the United States of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and that Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waives
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agrees to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual attorneys'
fees. Maker and each Obligor agrees that fees not in excess of twenty percent
(20%) of the amount then due shall be deemed reasonable.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING OT THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supersedes all
prior understandings, agreements and representations, express or implied.
3
<PAGE> 4
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.
MOTOR CARGO
________________________________ By: /s/ Lynn H. Wheeler
(Witness) (Signature)
/s/ Steve Wynn V.P. Finance
(Print name) Print name (and title, if applicable)
845 W. Center, No. Salt Lake, UT 84054 87-0222090
(Address) (Federal tax identification number)
<PAGE> 1
EXHIBIT 10.15
LEASE PLAN
INSTALLMENT PROMISSORY NOTE
Variable Rate (30 Days)
Date: May 7, 1996
For value received, the undersigned promises to pay to the order of
LEASE PLAN, U.S.A., INC. (together with any holder hereof, called "Holder") with
offices located in Atlanta, Georgia, the principal sum of US One Million One
Hundred and Seventy-One Thousand Dollars and No Cents (US$ 1,171,000.00) at the
offices of Holder, at Atlanta, Georgia, or at any other place designated by
Holder, in lawful money of the United States, together with interest, said
principal sum being payable in Sixty (60) monthly installments equal to those
amounts set forth in the Exhibit A attached hereto and made a part hereof, the
first such installment being due on the Tenth day of June, 1996, and succeeding
installments being due on the same date of each successive month thereafter,
with a final installment of US Twenty-Three Thousand Two Hundred And Forty-Nine
Dollars and Seventy-Four Cents (US$ 23,249.74), due on the Tenth day of May,
2001, and said interest on the unpaid principal balance being due with each
installment of principal at a fluctuating rate equal to the sum of One And
80/100 percent 1.80 %) per annum and the One Month London Interbank Offered Rate
(LIBOR), changes in the floating rate to take place on the first day of each
month based on LIBOR published on the 15th day of the preceding month. If the
15th day of the preceding month is not a Banking Day, then such rate shall be
that published on the first Banking Day immediately preceding such 15th day.
"One Month London Interbank Offered Rate" shall mean the rate quoted for a term
of 30 days as published daily in The Wall Street Journal. A Banking Day shall
mean a day on which banks and foreign exchange markets are open for the
transaction of business required for this Note in London, New York and Atlanta,
as relevant to the determination to be made or the action to be taken. All
interest shall be computed on the basis of a year of 360 days and the number of
days actually elapsed. As of the date of this Note, the interest rate is Seven &
27/100 percent (7.27%) per annum, after this date, the rate of interest will
fluctuate with changes in LIBOR as set forth above.
This Note is secured pursuant to a certain Security Agreement between
Holder and the undersigned dated August 12, 1992, and the Schedules thereto (the
"Security Agreement") as well as by any other property of the undersigned in
which Holder is or shall be granted a security interest.
On the occurrence of any "Default" under the Security Agreement, the
entire unpaid balance evidenced by this Note, together with all earned interest
thereon, and together with all other Liabilities, at the option of Holder and
without notice to undersigned shall become due and payable and may be collected
forthwith, plus all costs of collection, reasonable attorney's fees if collected
by or through an attorney. It is further agreed that failure of Holder to
exercise this option, or indulgence granted from time to time, shall in no event
be considered as a waiver of such option or stop Holder from exercising such
option. The undersigned and all endorsers waive presentment, notice of dishonor,
and protest. The undersigned shall pay a late charge with
<PAGE> 2
respect to each installment not paid when due equal to five percent (5%) of the
amount of such installment, but not less than Five Dollars ($5.00) nor more than
Forty-Five Dollars ($45.00). Installments of principal and interest not paid
when due or such Liabilities otherwise maturing under the above option shall
thereafter bear interest at the rate of eighteen percent (18%) per annum. The
outstanding principal balance of this Note, together with all earned interest
thereon, may be prepaid in whole upon any scheduled installment date after the
first anniversary of the date hereof, and a penalty shall be due and payable at
the time of prepayment equal to one half of one percent of the amount being
prepaid for each year remaining in the original term of this Note or fraction
thereof. THE UNDERSIGNED HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF THE
COURT OF THE STATE OF GEORGIA AND THE FEDERAL DISTRICT COURT FOR THE NORTHERN
DISTRICT OF GEORGIA, ATLANTA DIVISION, FOR THE PURPOSES OF ANY SUIT, ACTION OR
OTHER PROCEEDING ARISING OUT OF ITS OBLIGATIONS HEREUNDER, AND EXPRESSLY WAIVES
ANY OBJECTIONS IT MAY HAVE AS TO VENUE IN ANY SUCH COURTS. THE UNDERSIGNED
HEREBY EXPRESSLY WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT
TO THIS AGREEMENT. THE RIGHTS AND PRIVILEGES OF HOLDER HEREUNDER SHALL INURE TO
THE BENEFIT OF ITS SUCCESSORS AND ASSIGNS. This Note shall be governed by and
construed and enforced in accordance with the laws of the State of Georgia.
In no event shall the amount of interest (including late charges) due or
payable hereunder exceed the maximum rate of interest allowed by applicable law,
and in the event any such payment is inadvertently paid by the undersigned or
inadvertently received by the Holder, then such excess sum shall be credited as
a payment of principal, unless the undersigned shall notify the Holder, in
writing, that the undersigned elects to have such excess sum returned to it
forthwith. It is the express intent hereof that the undersigned not pay and the
Holder not receive, directly or indirectly, in any manner whatsoever, interest
in excess of that which may be lawfully paid by the undersigned under applicable
law.
The undersigned authorizes and directs Lease Plan U.S.A., Inc., to pay
the proceeds of the loan represented by this Note as indicated.
PAYEES: MOTOR CARGO INC. AMOUNT: $1,171,000.00
------------------------------- -------------------------------
------------------------------- -------------------------------
------------------------------- -------------------------------
------------------------------- -------------------------------
If more than one party shall execute this Note, the term "undersigned"
as used herein shall mean all parties signing this Note and each of them, who
shall be jointly and severally obligated hereunder.
2
<PAGE> 3
GIVEN UNDER THE HAND AND SEAL OF THE UNDERSIGNED.
[CORPORATE SEAL]
MOTOR CARGO, INC.
Attest: /s/ By: /s/
---------------------------- ----------------------------------
Lynn H. Wheeler
Title: Vice President - Finance
Address:
P.O. BOX 2351
SALT LAKE CITY, UT 84110
3
<PAGE> 1
EXHIBIT 10.16
PROMISSORY NOTE
Principal and Interest - Equal Installment Payments
Fixed Interest Rate
August 16, 1993 San Francisco, California
FOR VALUE RECEIVED, the undersigned (the "Borrower") hereby promises to pay to
the order of SANWA BANK CALIFORNIA (the "Bank"), at its San Francisco Office or
at such other place or to such other parties as the holder of this Note may from
time to time designate in writing, the principal sum of One Million Sixty-One
Thousand Six Hundred Sixty-Six & 86/100 Dollars ($1,061,666.86) with interest
thereon as set forth below.
Interest shall accrue and principal and interest shall be payable as follows:
1. INTEREST. Interest shall accrue on the outstanding principal balance under
this Note at a fixed rate equal to 8.290%. Interest shall be calculated on the
basis of 360 days per year but charged on the actual number of days elapsed.
2. REPAYMENT. Unless sooner due in accordance with the terms of this Note, the
Borrower hereby promises and agrees to pay principal and interest in 83 monthly
installments of $16,701.18 per installment, commencing on September 15, 1993 and
continuing on the 15th day of each month thereafter.
On August 15, 2000 the Borrower hereby promises and agrees to pay to the Bank in
full the aggregate unpaid principal balance then outstanding, together with all
accrued and unpaid interest thereon. If interest is not paid as it becomes due,
without waiving any Event of Default occasioned by such non-payment, the Bank
may, at its option but without any obligation to do so, add such unpaid interest
to principal and it shall thereafter become and be treated as part of the
principal and shall thereafter bear like interest.
The acceptance by the holder of any payment under this Note after the date that
such payment is due shall not constitute a waiver of the right to require prompt
payment when due of future or succeeding payments or to declare a default as
herein provided for any failure to so pay. The acceptance by the holder of the
payment of a portion of any installment at any time that such installment is due
and payable in its entirety shall neither cure nor excuse the default caused by
failure to pay the whole of such installment and shall not constitute a waiver
of the holder's rights to require full payment when due of all future or
succeeding installments. At the Bank's option, any partial payments may first be
applied to pay any later fees or other fees then due and unpaid, and then to
accrued interest then due and unpaid and the remainder thereof (if any) shall be
applied to reduce principal.
3. LATE FEE. If any payment of principal or interest, or any portion thereof,
under this Note is not paid within ten (10) calendar days after it is due, a
late payment charge equal to five percent (5%) of such past due payment may be
assessed and shall be immediately payable.
<PAGE> 2
4. FIXED RATE PREPAYMENT FEE. The Borrower understands that the Bank expects to
incur or has incurred certain financial obligations in order to offer the
Borrower a fixed rate on interest under this Term Loan facility and in the event
the Borrower makes any prepayment (a "Prepayment") of amounts accruing interest
at a fixed rate, the Bank may incur certain costs and expense which are a direct
result of such prepayment. Because such expense are difficult to determine at
the time of occurrence, this provision sets forth a formula for determining the
extent of Bank's damages resulting from any prepayment, which formula is agreed
to reasonably approximate the Bank's actual damages as they can best be
determined as of the date hereof.
A. DEFINITIONS. For purposes of this section, the following
definitions shall apply:
(i) AMOUNT PREPAID. Shall mean the dollar amount of each
Prepayment.
(ii) AVERAGE PREPAYMENT TERM ("APT"). Shall mean, as of the date
of Prepayment (the "Determination Date"), the dollar amount of
each principal repayment remaining to be made (without regard to
any previous Prepayment (each a "Scheduled Payment" or "$") times
the number of years and/or fraction thereof from the Determination
Date until the date each such Scheduled Payment was to be paid
("Y") divided by the total of the Scheduled Payments ("P").
(greek Sigma)($Xy)
APT = --------------------
P
(iii) FUNDING DATE. Shall mean the date on which the amount
prepaid was funded by the Bank or the date on which such amount
began to accrue interest at the fixed rate, whichever is later.
(iv) FUNDING INDEX. Shall be the rate determined by the Bank to
approximate its cost of funds as of the Funding Date.
(v) LOST OPPORTUNITY RATE. Shall mean the amount, expressed as an
interest rate, by which the Funding Index exceeds the Redeployment
Index.
(vi) REDEPLOYMENT INDEX. Shall mean the rate, determined by the
Bank, at which the Bank could issue a certificate of deposit
approximately equal in amount to the respective Amount Prepaid for
a term approximately equal to the respective Average Prepayment
Term adjusted for all applicable assessments and reserve
requirements, provided that the Redeployment Index shall not be
less than the rate at which U.S. Treasury Notes are offered for
purchase at 10:00 a.m., Los Angeles time, as quoted on Telerate,
page 5 or such other, similar quotation source as of any relevant
Determination Date for a period approximately equal to the Average
Prepayment Term.
2
<PAGE> 3
B. TERMS OF PREPAYMENT.
(i) The Borrower may make one or more Prepayments at any time
provided that the amount of any such Prepayment shall be applied
to required (scheduled) payments of principal in the inverse order
of maturity under the terms of this Term Loan facility.
(ii) In the event the Borrower makes a Prepayment, the Borrower
shall pay within ten (10) days after written notice as to the
amount thereof and as compensation for the damages the Bank is
reasonably expected to incur, a prepayment fee (the "Prepayment
Fee") equal to (a) the Amount Prepaid times (b) the Lost
Opportunity Rate times (c) the Average Prepayment Term.
(iii) In the event any index or rate described herein cannot be
determined on any Determination Date, the Bank shall make a good
faith estimate of such index or rate which estimate shall be
binding upon the parties. Absent manifest error, all calculations
made by the Bank as to any index, rate or time period described
herein or the amount of any Prepayment Fee shall be conclusive and
binding upon all parties.
5. REIMBURSEMENT OF FIXED RATE COSTS. The Borrower shall, upon the Bank's
request, promptly pay to and reimburse the Bank for all costs incurred and
payments made by the Bank by reason of any future assessment, reserve, deposit
or similar requirements or any surcharge, tax or fee imposed upon the Bank or as
a result of the Bank's compliance with any directive or requirement of any
regulatory authority pertaining or relating to funds used by the Bank in quoting
and determining the fixed rate of interest of this Note.
6. TERMS AND CONDITIONS INCORPORATED BY REFERENCE. This Note shall be subject to
all the terms and conditions set forth in the following described credit
agreement between the Bank and the Borrower (the "Prior Agreement"): That
certain Line of Credit Agreement dated September 8, 1992. The Borrower hereby
re-confirms all representations and warranties and re-affirms all covenants and
agreements set forth in the Prior Agreement as if such representations,
warranties, covenants and agreements were set forth in and made a part of this
Note. To the extent the Borrower has granted the Bank a security interest in any
collateral to secure the obligations under the Prior Agreement (whether such
grant is contained in the Prior Agreement or in a separate document), the
Borrower hereby grants to the Bank a security interest in such collateral to
additionally secure all of the obligations of the Borrower to the Bank pursuant
to this Note.
7. EVENTS OF DEFAULT. Any one or more of the following described events shall
constitute an Event of Default under this Note:
A. The Borrower shall fail to pay any amount under this Note when due.
3
<PAGE> 4
B. There shall occur a default under any other indebtedness owed by the
Borrower (or any one or more of them) to the Bank or under any agreement
securing, guarantying or relating to such other indebtedness or the
indebtedness evidenced by this Note.
C. Any representation or warranty made by the Borrower under or in
connection with this Note or any financial statement given by the
Borrower or any guarantor of this Note shall prove to have been
incorrect in any material respect when made or given or when deemed to
have been made or given.
D. The Borrower or any guarantor of this Note shall: (i) become
insolvent or be unable to pay its debts as they mature; (ii) make an
assignment for the benefit of creditors or to an agent authorized to
liquidate any substantial amount of its properties or assets; (iii) file
a voluntary petition in bankruptcy or seeking reorganization or to
effect a plan or other arrangement with creditors; (iv) file an answer
admitting the material allegations of an involuntary petition relating
to bankruptcy or reorganization or join in any such petition; (v) become
or be adjudicated a bankrupt; or (vi) apply for or consent to the
appointment of, or consent that an order be made, appointing any
receiver, custodian or trustee for itself or any of its properties,
assets or businesses.
E. Any guaranty of this Note shall be revoked or limited or its
enforceability or validity shall be contested by any guarantor, by
operation of law, legal proceeding or otherwise or any guarantor who is
a natural person shall die.
F. The Borrower shall voluntarily suspend the transaction of business or
allow to be suspended, terminated, revoked or expired any permit,
license or approval of any governmental body necessary to conduct the
Borrower's business as now conducted, or any Borrower who is a natural
person shall die.
Upon the occurrence of any Event of Default described above, the holder of this
Note, at its election, may declare the entire balance of principal and interest
thereon immediately due and payable, together with all costs of collection,
including, but not limited to, reasonable attorneys' fees and all expenses
incurred in connection with the protection of, or realization on, the security
for this Note. Interest thereafter on the unpaid principal balance, accrued
interest and costs incurred shall be payable at a rate which is 3% per annum in
excess of the rate otherwise charged according to the terms of this Note.
8. ASSUMPTION. This Note is not assumable without the express prior written
consent of the holder.
9. ATTORNEYS' FEES. In the event that an action is institute to enforce or
collect this Note, or any portion hereof, or attorneys are engaged in connection
with the protection of or realization on any security for this Note, the
Borrower promises to pay all costs in connection therewith, including but not
limited to reasonable attorneys' fees, court costs and such other sums as the
court, may establish.
10. DISPUTE RESOLUTION.
4
<PAGE> 5
A. DISPUTES. It is understood and agreed that, upon the request of any
party to this Note, any dispute, claim or controversy of any kind,
whether in contract or in tort, statutory or common law, legal or
equitable, now existing or hereinafter arising between the parties in
any way arising out of, pertaining to or in connection with : (i) this
Note, or any related agreements, documents or instruments, (ii) all past
and present loans, credits, accounts, deposit accounts (whether demand
deposits or time deposits), safe deposit boxes, safekeeping agreements,
guarantees, letters of credit, goods or services, or other transactions,
contract or agreements of any kind, (iii) any incidents, omissions,
acts, practices, or occurrences causing injury to any party whereby
another party or its agents, employees or representatives may be liable,
in whole or in part, or (iv) any aspect of the past or present
relationships of the parties, shall be resolved through a two-step
dispute resolution process administered by the Judicial Arbitration &
Mediation Services, inc. ("JAMS") as follows:
B. STEP I - MEDIATION. At the request of any party to the dispute, claim
or controversy, the matter shall be referred to the nearest office of
JAMS for mediation, which is an informal, non-binding conference or
conferences between the parties in which a retired judge or justice from
the JAMS panel will seek to guide the parties to a resolution of the
case.
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL PROPERTY).
Should any dispute, claim or controversy remain unresolved at the
conclusion of the Step I Mediation Phase, then (subject to the
restriction at the end of this subparagraph) all such remaining matters
shall be resolved by final and binding arbitration before a different
judicial panelist, unless the parties shall agree to have the mediator
panelist act as arbitrator. The hearing shall be conducted at a location
determined by the arbitrator in Los Angeles, California (or such other
city as may be agreed upon by the parties) and shall be administered by
and in accordance with the then existing Rules of Practice and Procedure
of JAMS and judgment upon any award rendered by the arbitrator may be
entered by any State of Federal Court having jurisdiction thereof. The
arbitrator shall determine which is the prevailing party and shall
include in the award that party's reasonable attorneys' fees and costs.
This subparagraph shall apply only if, at the time of the submission of
the matter to JAMS, the dispute or issues involved do not arise out of
any transaction which is secured by real property collateral of, if so
secured, all parties consent to such submission.
As soon as practicable after selection of the arbitrator, the
arbitrator, or the arbitrator's designated representative, shall
determine a reasonable estimate of anticipated fees and costs of the
arbitrator, and render a statement to each party setting forth that
party's pro-rata share of said fees and costs. Thereafter, each party
shall, within 10 days of receipt of said statement, deposit said sum
with the arbitrator. Failure of any party to make such a deposit shall
result in a forfeiture by the non-depositing party of the right to
prosecute or defend the claim which is the subject of the arbitration,
but shall not otherwise serve to abate, stay or suspend the arbitration
proceedings.
5
<PAGE> 6
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required or
agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on order of Reference conducted by a retired
judge or justice from the panel of JAMS appointed pursuant to the
provisions of Section 638(1) of the California Code of Civil Procedure,
or any amendment, addition or successor section thereto, to hear the
case and report a statement of decision thereon. The parties intend this
general reference agreement to be specifically enforceable in accordance
with said section. If the parties are unable to agree upon a member of
the JAMS panel to act as referee, then one shall be appointed by the
Presiding Judge of the county wherein the hearing is to be held. The
parties shall pay in advance, to the referee, the estimated reasonable
fees and costs of the reference, as may be specified in advance by the
referee. The parties shall initially share equally, by paying their
proportionate amount of the estimated fees and costs of the reference.
Failure of any party to make such a fee deposit shall result in a
forfeiture by the non-depositing party of the right to prosecute or
defend any cause of action which is the subject of the reference, but
shall not otherwise serve to abate, stay or suspend the reference
proceeding.
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision of, or
the exercise of any rights under any portion of this Dispute Resolution
provision, shall limit the right of any party to exercise self help
remedies such as set off, foreclosure against any real or personal
property collateral, or the obtaining of provisions or ancillary
remedies, such as injunctive relief or the appointment of a receiver,
from any court having jurisdiction before, during or after the pendency
of any arbitration. At the Bank's option, foreclosure under a deed of
trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage, or by judicial foreclosure.
The institution and maintenance of an action for provisional remedies,
pursuit of provisional or ancillary remedies or exercise of self help
remedies shall not constitute a waiver of the right of any party to
submit the controversy or claim to arbitration.
11. WAIVER. The liability of the undersigned is joint and several. The makers,
endorses and/or guarantors hereof do hereby severally waive presentment, demand,
protest and notice of protest, dishonor and nonpayment. Such parties expressly
consent to the extension of time for the performance of any obligation hereunder
and the release of any party liable for the obligation. The release of any party
liable hereon shall not operate to release any other party liable hereon.
12. LOAN FEES. Loan fee in the amount of $2,654.17 shall be collected upon the
execution of this Promissory Note.
13. SEVERABILITY. Every provision hereof is intended to be several. If any
provision of this Note is determined by a court of competent jurisdiction to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall not affect the other provisions hereof, which shall
remain binding and enforceable.
6
<PAGE> 7
14. JURISDICTION. This Note is made in the State of California, and it is
mutually agreed that California law shall apply to the interpretation of the
terms and conditions of this Note.
15. ENTIRE AGREEMENT. This Note and all documents, instrument and agreements
mentioned herein constitute the entire and complete understanding of the parties
with respect to the transactions contemplated hereunder. All previous
conversations, memoranda and writings between the parties pertaining to the
transactions contemplated hereunder not incorporated or referenced in this Note
or in such documents, instruments and agreements are superseded hereby.
BORROWER:
MOTOR CARGO
BY: /s/
------------------------------------------
Lynn H. Wheeler, Vice President - Finance
Address:
P.O. Box 2351
Salt Lake City, UT 94110
DO NOT DESTROY
<PAGE> 1
EXHIBIT 10.18
MANAGEMENT CONTRACT
THIS CONTRACT made this 1st day of October 1997, between FHF
Transportation, Inc., a California Corporation (FHF), and UTE Trucking and
Leasing Company, L.L.C., a Utah Limited liability Company, (the Owner).
WITNESSETH that,
WHEREAS, the Owner has owned and operated certain Motor Truck Equipment
personally or has had others manage such Equipment on his behalf as more
specifically described in Exhibit A, and by reference made a part hereof, (the
Equipment); and
Whereas, the Owner is desirous of availing itself of the benefits and
advantages of FHF's experience and services;
NOW THEREFORE, in consideration of the mutual covenants and promises of
the parties hereto, it is mutually agreed as follows:
1. Upon inspection and acceptance of Equipment by FHF pursuant to the
attached Exhibit A, the Owner does hereby engage FHF and FHF does
hereby agree to manage and the operate the Equipment on behalf of
the Owner upon the terms and conditions hereinafter set forth.
2. The Equipment shall be operated by FHF exclusively with the Owner
unless specifically agreed otherwise in writing by the Owner.
FHF shall act as agent for the Owner for the purpose of operating
the Equipment with the Owner and managing the Equipment within the
cost provisions described below. FHF shall not authorize the
Equipment to be used for any illegal purposes. The Equipment shall
not be put to any improper usage's or any application for which it
was not designed. FHF shall observe in the use of the Equipment all
municipal, county, state and federal regulations, ordinances and
statutes now in force or which may hereafter be in force. In
managing the Equipment, FHF shall use its best efforts to keep said
Equipment under optimum employment to obtain the highest feasible
revenues, having regard for proper repairs and maintenance of said
Equipment which shall be performed at the expense of the Owner.
3. The term of this Contract shall be until September 30, 1999 unless
terminated earlier as provided elsewhere in this Contract.
4. FHF shall be compensated for performance of its services at the rate
of fifty seven cents ($.57) per mile point to point as dispatched by
owner for solo and fifty eight
<PAGE> 2
cents ($.58) for sleeper team trips. FHF shall submit all necessary
trip documents to the Owner and the Owner shall pay the compensation
to FHF Transportation Inc.
The construction of FHF's compensation for services as described
hereunder is meant to provide an incentive to FHF to economically operate the
Equipment. It should not be construed to mean the FHF assumes risk of loss as to
the operation or maintence of the Equipment. All such risk of loss remains with
the Owner except as provided elsewhere in this contract.
5. All Taxes, Licenses, and Registration; federal, state or local, are
the responsibility of the Owner.
6. Motor Cargo Shall obtain a written insurance policy in the Owner's
name covering said equipment for fire, theft, collision and
liability. However, FHF will be responsible to Motor Cargo or Owner
for the first one thousand ($1,000). Per occurrence to any
equipment and the first one thousand ($1,000) Per occurence for
damage to third parties resulting from FHF's negligence.
7. During the term of this Contract, the Owner shall keep said
Equipment in good mechanical condition and be responsible for all
maintenance and repairs. The Equipment shall pass all federal, state
and local inspections. The Owner shall have a right to inspect the
Equipment to assure proper maintenance. FHF must keep the Equipment
in good appearance during the duration of the Contract. All oil
filters and replacement parts shall be of a good quality that meets
or exceeds the manufacture's specifications.
8. All drivers hired by FHF must be licensed by required federal,
state, and local licensing agencies. All salaries and employee tax
and insurance will be paid by and shall be the responsibility of
FHF. FHF shall be responsible for correct filing of payroll reports
and other documents and payments of all payroll taxes. Such
employees shall be deemed to be the employees of FHF for all legal
purposes. FHF agrees to hold Motor Cargo harmless from any
liability, cost and expenses arising from any contract or relation
between FHF and the driver. FHF shall use its best efforts to see
that drivers hired by FHF operated the Equipment in a pursuant to
the rules and regulations of the Department of Transportation.
9. In the event FHF shall take any action set forth below, the FHF
shall be deemed to be in default under its contract. Those events
are defined as:
(1) Any act of insolvency on the part of FHF.
(2) Any material act or omission on the part of FHF which
constitutes failure to perform its services in a
reasonable and prudent fashion.
Failure to reform pursuant to Owner or its lessee's operation and
procedures policies shall be deemed to be material if evidenced by at least two
written notices of such failure to perform.
<PAGE> 3
In the event of default by FHF as set forth above, the owner may upon
ten (10) days written notice request return of the Equipment and FHF shall
deliver to the owner at an address to be specified by Owner.
The remedies set forth above are in addition to any other remedies the
Owner has or may have as defined by the laws of the State of Utah. An election
by the Owner to retake possession of the Equipment and to receive any or all
accounts receivable shall not be deemed to waive any other rights the Owner may
have in the event of default. Further any action by the Owner to assert any of
his remedies shall not release the Owner from any obligation or liability
incurred pursuant to the terms of the contract prior to its termination.
10. Owner warrants to FHF that there are no past due amounts owned to
any lending institution, management group or any claims or liens
form any third party arising from the prior use of the Equipment by
Owner including, but not limited to, amounts due prior drivers,
repair work, insurance or suppliers. Owner agrees to hold FHF
harmless from any such claims.
11. This Contract may not be assigned by either party without the
written consent of the other party, with such permission not to be
unreasonably withheld.
12. The waiver of any single breach of any terms, conditions or
provisions of this Contract by any party shall not be deemed a
waiver of such terms in respect to further breaches or violations.
13. FHF and the Owner specifically agree this Contract shall be binding
upon FHF, its successors and assigns, and the Owner, his heirs,
successors, agents, guardian or personal representatives.
14. Should any section, sentence, clause or phrase of this Contract be
held to be illegal, such determination of illegality as to such
section, sentence, clause or phrase shall not affect the validity
or binding force and effect of the remaining portions of this
contract.
15. This Contract and the Exhibits hereto constitute the entire
agreement and understanding between the parties and shall not be
modified, altered, changed or amended in any respect unless in
writing and signed by both parties.
16. This Contract is intended by the parties to create the relationship
of the Owner and Independent Contractor and not an
Employer-Employee relationship. Neither FHF nor its employees are
to be considered employees of the Owner at any time under any
circumstances or for any purposes.
17. In the event of default of either party hereto in the performance
of the provisions of this Contract, such defaulting party agrees to
pay all cost incurred, including reasonable attorney's fees
incurred in the enforcement of the terms of this Contract
<PAGE> 4
or the correction of any condition caused by the breach of any
provision or obligation herein contained and set forth. The
provisions hereof shall be construed under the laws of the State of
Utah, and any actions hereunder shall be brought in the courts of
said State.
IN WITNESS WHEREOF, the parties hereto have executed this Contract as
set forth above.
FHF Transportation Inc. UTE Trucking and Leasing Company, L.L.C.
/s/ /s/
- ---------------------------------- ------------------------------------
Felix Flowers Steven E. Wynn
- ---------------------------------- ------------------------------------
(Printed Name) (Printed Name)
10/2/97 10/1/97
- ---------------------------------- ------------------------------------
Date Date
<PAGE> 1
EXHIBIT 23.1
CONSENT
We have issued our report dated October 24, 1997, accompanying the consolidated
financial statements of Motor Cargo Industries, Inc., contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus and to the
use of our name as it appears under the captions "Selected Consolidated
Financial Data" and "Experts".
/s/ GRANT THORNTON LLP
Salt Lake City, Utah
November 7, 1997
<PAGE> 1
EXHIBIT 23.3
October 30, 1997
Board of Directors
Motor Cargo Industries, Inc.
P.O. Box 2351
North Salt Lake City, UT 84110
Gentlemen:
I consent to the listing of my name in the Registration Statement of
Motor Cargo Industries, Inc. (No. 333-37211 filed with the Securities and
Exchange Commission on October 6, 1997) as a future Director of Motor Cargo
Industries, Inc. I am willing to become a director of the company effective
immediately after the closing of the offering.
Very truly yours,
/s/ Robert Anderson
-----------------------------
Robert Anderson
<PAGE> 1
EXHIBIT 23.4
October 31, 1997
Board of Directors
Motor Cargo Industries, Inc.
P.O. Box 2351
North Salt Lake City, UT 84110
Gentlemen:
I consent to the listing of my name in the Registration Statement of
Motor Cargo Industries, Inc. (No. 333-37211 filed with the Securities and
Exchange Commission on October 6, 1997) as a future Director of Motor Cargo
Industries, Inc. I am willing to become a director of the company effective
immediately after the closing of the offering.
Very truly yours,
/s/ James Clayburn LaForce, Jr.
----------------------------------
James Clayburn LaForce, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR MOTOR CARGO INDUSTRIES, INC. FOR THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,766
<SECURITIES> 0
<RECEIVABLES> 13,296
<ALLOWANCES> (530)
<INVENTORY> 444
<CURRENT-ASSETS> 22,563
<PP&E> 75,478
<DEPRECIATION> (35,642)
<TOTAL-ASSETS> 62,888
<CURRENT-LIABILITIES> (14,711)
<BONDS> 0
0
0
<COMMON> (1)
<OTHER-SE> (29,889)
<TOTAL-LIABILITY-AND-EQUITY> (62,888)
<SALES> 0
<TOTAL-REVENUES> (27,446)
<CGS> 0
<TOTAL-COSTS> 69,654
<OTHER-EXPENSES> 113
<LOSS-PROVISION> 158
<INTEREST-EXPENSE> 222
<INCOME-PRETAX> 7,132
<INCOME-TAX> 2,824
<INCOME-CONTINUING> 4,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,308
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
