<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1998
REGISTRATION NO. 333-41121
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST CONSULTING GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8742 95-3539020
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
------------------------
111 WEST OCEAN BOULEVARD
4TH FLOOR
LONG BEACH, CA 90802
(562) 624-5200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
LUTHER J. NUSSBAUM
EXECUTIVE VICE PRESIDENT
FIRST CONSULTING GROUP, INC.
111 WEST OCEAN BOULEVARD
4TH FLOOR
LONG BEACH, CA 90802
(562) 624-5200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN C. MENDELSON, Esq. BROOKS STOUGH, Esq.
PATRICK A. POHLEN, Esq. JEFFREY P. HIGGINS, Esq.
Cooley Godward LLP Gunderson Dettmer Stough Villeneuve
Five Palo Alto Square Franklin & Hachigian, LLP
3000 El Camino Real 155 Constitution Drive
Palo Alto, CA 94306-2155 Menlo Park, CA 94025
(650) 843-5000 (650) 321-2400
</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, as amended (the "Securities Act"), 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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 22, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
3,312,384 SHARES
[LOGO]
COMMON STOCK
Of the 3,312,384 shares of Common Stock offered hereby, 2,500,000 shares are
being sold by the Company and 812,384 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company has applied to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol FCGI.
----------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total (3).................. $ $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $875,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 496,858 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
----------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
UBS SECURITIES
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING INTO STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
--------------
First Consulting Group-Registered Trademark-, FCG-Registered Trademark-,
KITE-Registered Trademark- and the logo appearing on the front cover of this
Prospectus are registered trademarks of the Company. This Prospectus also
includes trademarks of companies other than the Company.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THE COMPANY
First Consulting Group, Inc. ("FCG" or the "Company") provides information
technology and other consulting services to payors, providers and other
healthcare organizations in North America and Europe. The Company provided its
services to over 360 clients in the year ended December 31, 1997. The Company's
services are designed to increase its clients' operations effectiveness in order
to reduce cost, improve customer service and enhance the quality of patient
care. The Company's services address the increasing need of its clients for
healthcare-specific information technology expertise to objectively evaluate,
select, implement and manage an optimal set of information systems and
infrastructures. The Company's consultants provide this expertise through
multi-disciplinary teams specifically formed to provide a unique solution for
each client. The Company believes that its success is attributable to its strong
relationships with industry leading clients, the healthcare, technology and
consulting expertise of the Company's consultants, and the depth and breadth of
its consulting services.
Pressure from employers, government agencies and consumers has caused payors
and providers to attempt to reduce cost, improve customer service and increase
the quality of patient care. Payors have utilized a variety of managed care and
risk-shifting mechanisms to control costs. Providers have responded by improving
their ability to manage reimbursement, administrative and care management
functions. Additionally, both payors and providers are consolidating into larger
entities such as integrated delivery networks ("IDNs") in order to reduce costs,
improve efficiency and provide patient care across a continuum. Many of the
existing information systems used by payor and provider organizations were
developed to serve a specific function or to operate within a single entity,
such as a health maintenance organization, hospital or physician group. New or
existing information systems must be installed or upgraded and integrated to
provide the financial, administrative and clinical data needed by healthcare
organizations. Additionally, these systems must also address the increasing
needs of users to have clinical decision support tools, integrated patient and
financial information, managed care contracting and information networking.
Payor and provider organizations have found it increasingly difficult to
develop, implement and manage comprehensive information technology strategies
and systems. Many healthcare organizations lack the human and technical
resources necessary to effectively evaluate, select, implement and manage an
optimal set of information and communication systems, networks and applications.
The Company believes that the increasing pressures on payors and providers to
decrease costs, improve customer service and enhance the quality of patient
care, combined with the complexity of a consolidating industry and the lack of
internal technical expertise, have created an opportunity for companies
specializing in providing comprehensive information technology solutions to
healthcare organizations.
FCG's objective is to be a leading provider of information technology and
other consulting services to the healthcare industry. The Company's four
principal services are consulting, software implementation, network and
application integration and co-management services. The Company's consulting
services primarily consist of strategic planning, operations effectiveness,
procurement and contracting and other services. The Company also provides
implementation services for packaged software products, which include project
management, installation, interface programming, testing and training services.
The Company's network and application integration services include designing and
developing comprehensive system architectures, infrastructures, interfaces,
databases, applications and networks to address the need for information
integration and dissemination throughout a healthcare organization. The Company
also provides co-management services including interim staffing primarily for
senior-level information technology positions as well as support staff on a
temporary or permanent basis. The Company's services and consultants are
supported by internal research, training and a centralized information system
which provides real-time access to current industry and technology information
and project methodologies, experiences, models and tools. These programs include
the Company's Emerging Practices Group, Professional Development Programs,
Scottsdale Institute, Knowledge and Information Technology Exchange ("KITE") and
Practice Guilds.
The Company was incorporated in California in October 1980 and will be
reincorporated in Delaware prior to the effectiveness of this offering. The
Company's principal executive offices are located at 111 West Ocean Boulevard,
4th Floor, Long Beach, California 90802, and its telephone number is (562)
624-5200.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............ 2,500,000 shares
Common Stock offered by the Selling
Stockholders................................... 812,384 shares
Common Stock to be outstanding after the
offering....................................... 14,542,664 shares (1)
Use of proceeds................................ For working capital and general corporate
purposes
Proposed Nasdaq National Market symbol......... FCGI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue.................................................... $ 19,050 $ 30,046 $ 47,744 $ 65,822 $ 91,570
Cost of services............................................... 10,721 16,869 26,518 40,718 53,526
--------- --------- --------- --------- ---------
Gross profit................................................. 8,329 13,177 21,226 25,104 38,044
General and administrative expenses............................ 6,995 9,871 17,517 23,670 31,669
Compensation expenses related to stock issuances (2)........... -- -- 385 588 6,060
--------- --------- --------- --------- ---------
Income from operations....................................... 1,334 3,306 3,324 846 315
Interest income (expense), net................................. 46 (77) (36) 3 (68)
Other income, net.............................................. 77 32 18 44 119
--------- --------- --------- --------- ---------
Income before income taxes................................... 1,457 3,261 3,306 893 366
Provision for income taxes..................................... 591 1,577 1,423 500 1,900
--------- --------- --------- --------- ---------
Net income (loss)............................................ $ 866 $ 1,684 $ 1,883 $ 393 $ (1,534)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted net income (loss) per share (3)(4)........... $ 0.06 $ 0.15 $ 0.19 $ 0.04 $ (0.14)
Shares used in computing basic and diluted net income (loss)
per share.................................................... 13,894 11,178 9,761 11,118 11,134
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
ACTUAL PRO FORMA (5) AS ADJUSTED(6)
--------- --------------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 2,950 $ 2,950 $ 27,650
Total assets.......................................................... 34,425 34,425 59,125
Long-term debt........................................................ 262 262 262
Total stockholders' equity............................................ 5,462 15,427 40,127
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding at December 31, 1997. Excludes
(i) 797,084 shares of Common Stock issuable upon the exercise of stock
options outstanding under the Company's 1997 Equity Incentive Plan with a
weighted average exercise price of $5.57 per share, (ii) 84,000 shares of
Common Stock issuable upon exercise of stock options outstanding under the
Company's 1997 Non-Employee Directors' Stock Option Plan with a weighted
average exercise price of $4.89 per share, and (iii) 148,316 shares of
Common Stock issuable upon the exercise of non-qualified stock options with
a weighted average exercise price of $5.42 per share. See "Capitalization,"
"Management--1997 Equity Incentive Plan," "--1997 Non-Employee Directors'
Stock Option Plan," and Note H of Notes to Financial Statements.
(2) In connection with the Company's Associate 401(k) and Stock Ownership Plan
("ASOP") and certain non-qualified stock options granted to the Company's
vice presidents, the Company recognized a non-recurring compensation expense
in its consolidated statements of operations. The primary component of this
expense relates to the fair market value of 568,000 shares allocated to the
Company's employees under the ASOP. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes H and I
of Notes to Financial Statements.
(3) Excluding compensation expenses related to stock issuances, basic and
diluted net income per share would be $0.22, $0.08 and $0.33, and net income
would be $2.1 million, $839,000 and $3.7 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
(4) See Note A-9 of Notes to Financial Statements for an explanation of the
computation of basic and diluted net income (loss) per share.
(5) Reflects the elimination of the Company's obligation to repurchase shares
of Common Stock at either the fair market value of such shares as determined
by an independent valuation firm or the original issuance price plus a
growth factor relating to such shares. See Note A-12 of Notes to Financial
Statements.
(6) As adjusted to reflect the sale of 2,500,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $11.00
per share and the receipt of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
------------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION INCLUDED IN THIS PROSPECTUS
ASSUMES: (I) A 4 FOR 1 STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND TO BE
DISTRIBUTED TO THE COMPANY'S STOCKHOLDERS PRIOR TO EFFECTIVENESS OF THIS
OFFERING; (II) THE REINCORPORATION OF THE COMPANY IN THE STATE OF DELAWARE TO BE
EFFECTED PRIOR TO EFFECTIVENESS OF THIS OFFERING; (III) A CHANGE IN THE
COMPANY'S TAX ACCOUNTING METHOD FROM CASH TO ACCRUAL BASIS ACCOUNTING; (IV) THE
AMENDMENT OF THE COMPANY'S EXISTING AMENDED AND RESTATED RESTRICTED STOCK
AGREEMENTS TO REFLECT, AMONG OTHER THINGS, THE ELIMINATION OF THE COMPANY'S
OBLIGATION TO REPURCHASE SHARES OF COMMON STOCK; AND (V) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. AS USED IN THIS PROSPECTUS, UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERMS "FIRST CONSULTING GROUP, INC.," "FCG" AND
"COMPANY" REFER TO THE COMPANY AND ITS SUBSIDIARIES. AS USED IN THIS PROSPECTUS,
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMMON STOCK" REFERS TO THE
COMMON STOCK OF THE COMPANY, PAR VALUE $.001.
4
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" ON PAGE 12 OF THIS
PROSPECTUS.
POTENTIAL INABILITY TO ATTRACT AND RETAIN EMPLOYEES. In order to provide and
expand its services, the Company will be required to retain existing personnel
and attract and retain a significant number of additional personnel with
expertise in addressing healthcare, information technology and consulting
issues. The Company has historically experienced rates of employee turnover
above industry averages as a result of its dependence on lateral hiring of its
consultants, the travel demands imposed on its consultants, and the loss of
employees to competitors, clients and others. The rate of turnover for the
Company's employees, including its vice presidents, in the years ended December
31, 1995, 1996 and 1997 was 32.3%, 30.3% and 21.2%, respectively. The turnover
rate of the Company's vice presidents in the years ended December 31, 1995, 1996
and 1997 was 6.8%, 2.6% and 6.6%, respectively. The Company's vice presidents
are instrumental in marketing the Company's services to new and existing
clients. Any prolonged continuation of or increase in general employee or vice
president turnover rates could have a material adverse effect on the Company's
business, financial condition and results of operations. Competition for such
personnel in the healthcare, information technology and consulting industries is
intense, and many of the companies with which the Company competes for qualified
personnel have substantially greater financial and other resources than the
Company. There can be no assurance that the Company will be able to recruit or
retain a sufficient number of qualified personnel to effectively serve existing
or new clients or to expand the Company's services. The failure to recruit and
retain a sufficient number of qualified personnel could impair the Company's
ability to maintain and expand its healthcare consulting and information
technology services and could have a material adverse effect on the Company's
business, financial condition and results of operations. Many of the Company's
consultants develop and maintain strong business relationships with the
Company's clients, and the Company depends on these relationships to generate
additional assignments with existing clients and engagements with new clients.
The loss of one or more such consultants could lead to erosion of the Company's
client base and a decrease in the Company's revenue. In addition, the decision
of one or more of the Company's consultants to join a competitor or otherwise
compete directly or indirectly with the Company may result in a loss of clients
and a corresponding loss of revenue or reduce the Company's ability to
successfully compete for additional assignments with existing clients and
engagements with new clients. A decision by a significant number of the
Company's consultants to compete directly with the Company would have a material
adverse affect on the Company's business, financial condition and results of
operations.
VARIABILITY OF QUARTERLY OPERATING RESULTS. A substantial portion of the
Company's expenses, particularly personnel and related costs, depreciation,
office rent and occupancy costs, are relatively fixed. Certain variable costs
are assignment-specific and are billed as incurred. The Company's quarterly
operating results may vary significantly in the future depending on a number of
factors, many of which are outside the control of the Company. These factors may
include: the reduction in size, delay in commencement, interruption or
termination of one or more significant engagements or assignments; fluctuations
in consultant hiring and utilization; the loss of personnel; the loss of one or
more significant clients; the unpredictability of engaging new clients and
additional assignments from existing clients; increased competition; write-offs
of client billings; consolidation of, and subsequent reduction in the number of,
healthcare providers; pricing pressure; the number, timing and contractual terms
of significant client engagements; market demand for the Company's services;
delays or increased expenses incurred in connection with existing assignments;
changes in pricing policies by the Company or its competitors; changes in the
Company's business strategies; variability in the number of business days within
a quarter; and international currency fluctuations. Due to the foregoing
factors, quarterly revenue and operating results are not predictable with any
significant degree of accuracy. In particular, the timing between initial client
contract and fulfillment of the criteria necessary for revenue recognition can
be lengthy and unpredictable, and revenue in any given quarter can be materially
adversely affected as a result of such
5
<PAGE>
unpredictability. Business practices of clients, such as deferring commitments
on new assignments until after the end of fiscal periods, could require the
Company to maintain a significant number of under-utilized consultants which
could have a material adverse effect on the Company's business, financial
condition and results of operations. During the second and third quarters of
1996, the Company experienced a significant decrease in the utilization of
billable personnel. This decrease in utilization was primarily attributable to
the increased hiring of consultants and a failure by the Company to assign
underutilized consultants located in the central United States to projects
outside such region. The Company believes that this failure to re-assign
underutilized consultants was attributable to certain incentive programs which
have since been discontinued. This decrease in utilization, as well as certain
infrastructure upgrades, resulted in a decrease in net income in the second and
third quarters of 1996. There can be no assurance that such a decrease in
utilization or net income will not occur in the future.
The Company has experienced and will continue to experience variability in
the number of billable days in any quarter. The Company typically experiences a
lower number of billable days in the second and fourth quarters of every year.
The Company requires attendance at an annual meeting of all of its employees in
the second quarter of every year and encourages its employees to take vacation
during the December holidays. Variability in the number of billable days may
also result from other factors such as vacation days, sick time, paid and unpaid
leave and holidays, all of which could produce variability in the Company's
revenue and costs. In the event of any downturn in potential clients' businesses
or the economy in general, planned utilization of the Company's services may be
deferred or canceled, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Based on the
preceding factors, the Company may experience a shortfall in revenue or earnings
from expected levels or otherwise fail to meet expectations of securities
analysts or the market in general, which could have a material adverse effect on
the market price of the Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Selected Quarterly Results of
Operations."
DEPENDENCE ON EXISTING CLIENT BASE; RISKS IN CLIENT ENGAGEMENTS. The
Company's success is dependent on obtaining additional engagements from its
existing client base. For the year ended December 31, 1997, a substantial
portion of the Company's revenue was derived from services provided to its
existing clients. Any material failure on the part of the Company to generate
additional revenues from its existing clients would have a material adverse
effect on the Company's business, financial condition and results of operations.
Many of the Company's engagements provide benefits to clients' businesses
which are difficult to quantify. The Company's failure to meet client
expectations in the performance of its services may damage the Company's
reputation in the healthcare industry and adversely affect its ability to
attract new clients. If a client is not satisfied with the Company's services,
the Company will generally expend additional human and other resources at its
own expense to ensure client satisfaction. Such expenditures will typically
result in a lower operating margin for such engagement and could have a material
adverse impact on the Company's business, financial condition and results of
operations. In addition, the Company's clients may generally terminate an
engagement at any time without penalty. A decision by a client to terminate an
engagement or withhold payment for the Company's services could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Certain of the Company's services are billed on a fixed-price basis, and any
assignment delays or expenditures of time beyond that projected for the
assignment could result in write-offs of client billings which would adversely
affect the Company's profit margins on such engagements. Any significant amount
of such write-offs could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may be
required to hire new consultants in anticipation of providing services for a new
client or engagement. There can be no assurance that, if the Company were unable
to secure such client or engagement or upon termination of such engagement, the
Company would be able to redeploy its consultants on a timely basis, or at all.
The Company's inability to redeploy consultants could have a material adverse
effect on employee utilization, billing rates and overall profit margins.
6
<PAGE>
The Company's services to its clients often involve the implementation and
integration of complex information systems and software programming, some of
which are critical to the clients' operations. In the course of providing its
services, the Company will often recommend the products of a particular software
or hardware vendor. If the recommended product does not perform as expected or
contains defects or if the Company implements a product requested by the client
which does not perform well, the Company's reputation could be damaged, and the
Company could be subject to liability for any damages caused by the provision of
its services. The Company's engagement letters with its clients attempt to limit
the Company's exposure to potential liability claims, but such provisions may
not be effective. A successful liability claim brought against the Company may
adversely affect the Company's reputation in the healthcare industry and could
have a material adverse effect on the Company's business, financial condition
and results of operations. Although the Company maintains liability insurance,
there can be no assurance that such insurance would provide adequate coverage
for successful claims against the Company.
UNPREDICTABLE MARKETING AND ENGAGEMENT CYCLES. The Company markets its
services primarily through ongoing client relationships. There can be no
assurance that the significant non-billable time and resources invested in
building client relationships will result in additional assignments from
existing clients. As part of building such relationships, the Company's
consultants typically expend substantial time and resources identifying
strategic or business issues and objectives, gathering information, preparing
engagement proposals and negotiating contracts. Any failure by the Company to
procure an engagement after expending significant non-billable time and
resources on marketing efforts could have a material adverse effect on the
Company's quarterly results as well as its business, financial condition and
results of operations. The delivery of consulting and information technology
services requires a significant commitment of resources by the Company and by
the client. The length of time required to complete an assignment may depend on
many factors outside the control of the Company, including the state of the
clients' existing information systems, changes or the anticipation of changes in
the regulatory environment affecting healthcare organizations, consolidation in
the healthcare industry in general, budgetary constraints and the client's
ability to commit the personnel and other resources necessary to complete
elements of the assignment for which the client is responsible. The failure of
the Company to deliver its services on a timely basis or within anticipated
budgets could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--Sales
and Marketing."
COMPETITION IN THE HEALTHCARE INFORMATION TECHNOLOGY INDUSTRY. The market
for healthcare information technology consulting is intensely competitive,
rapidly evolving and highly fragmented. The Company has competitors that provide
some or all of the services provided by the Company. The Company competes for
strategic consulting services and co-management services with international
consulting firms, regional and specialty consulting firms and the consulting
groups of international accounting firms such as KPMG Peat Marwick LLP, Ernst &
Young LLP, Deloitte & Touche LLP, Coopers & Lybrand L.L.P. and Andersen
Consulting. In its implementation and integration services, the Company competes
with information system vendors such as HBO & Company, Inc., Shared Medical
Systems Corporation and Integrated Systems Solution Corporation, a division of
International Business Machines Corporation; service groups of computer
equipment companies; systems integration companies such as Electronic Data
Systems Corporation, Perot Systems Corporation, CAP Gemini America, Inc. and
Computer Sciences Corporation; clients' internal information management
departments and other healthcare consulting firms such as DAOU Systems Inc.,
Superior Consultant Holdings Corporation and Diamond Technology Partners
Incorporated. Many of the Company's competitors have significantly greater
financial, human and marketing resources than the Company. As a result, such
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer demands, or to devote greater resources to the
development, promotion, sale and support of their products and services than the
Company. In addition, as healthcare organizations become larger and more
complex, the Company's larger competitors may be better able to serve the needs
of such organizations. There can be no assurance that the Company will be able
to attract and retain the personnel or to dedicate the financial resources
necessary to serve these resulting organizations.
7
<PAGE>
The Company believes that it competes primarily on the basis of the quality
of its services; however, its clients may become increasingly price-sensitive as
competitive pricing pressures increase. Large information technology companies
have, in the past, offered strategic planning services at a substantial discount
as an incentive to utilize their implementation services, and software and
hardware vendors may provide discounted implementation services for their
products. These competitors may in the future discount such services more
frequently or offer such services at no charge. There can be no assurance that
the Company will be able to compete for price-sensitive clients on the basis of
its current pricing or cost structure, or that the Company will be able to lower
its prices or costs in order to compete effectively. Furthermore, many of the
Company's competitors have long-standing business relationships with key
personnel at healthcare organizations which could prevent or delay the Company
from expanding its client base. There can be no assurance that the Company will
be able to compete effectively with current and future competitors or that
competitive pressures faced by the Company will not cause the Company's revenue
or operating margins to decline or otherwise materially adversely affect its
business, financial condition and results of operations. See "Business--
Competition."
POTENTIAL INABILITY TO MANAGE GROWTH. The Company currently is experiencing
a period of rapid growth which has placed, and will continue to place,
significant and increasing demands on the Company's management personnel and on
its operational, technical, financial, human and other resources. For the year
ended December 31, 1997, the Company's revenue increased to $91.6 million, or
39.1%, from $65.8 million for the year ended December 31, 1996. During this
period, the total number of the Company's employees increased from 462 to 591,
including an increase in the number of the Company's consultants from 348 to
457. This growth has resulted in new and increased responsibilities for
management personnel and has placed significant demands on the Company's
management, operating and financial systems. The Company will be required to
continue to develop and improve its operational, financial and other internal
systems in order to accommodate an increased number of employees, client
engagements and assignments and the increased size of the Company's operations,
workforce and facilities. There can be no assurance, however, that the Company
will be able to improve its operational, financial and other internal systems,
maintain the Company's corporate culture, attract and retain qualified
consultants or effectively manage an increasingly large and
geographically-dispersed workforce. Any failure to develop and improve the
Company's systems or to hire and retain qualified personnel to manage its
operations could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has in the past
changed, and may in the future change, the organizational structure of its
services and business strategy. There can be no assurance that any such
reorganization would not result in operational inefficiencies and delays in
delivering the Company's services. Such inefficiencies and disruption in the
Company's business could have a material adverse effect on the Company's
business, financial condition and results of operations. Furthermore, any future
unexpected shortfall in revenue without a corresponding and timely reduction in
staffing and other expenses or redeployment of employees to other client
assignments, or any staffing increase that is unaccompanied by a corresponding
increase in the number of clients could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Business Strategy."
RISKS ASSOCIATED WITH CONSOLIDATION IN THE HEALTHCARE INDUSTRY. The Company
derives substantially all of its revenue from clients in the healthcare
industry. As a result, the Company's business, financial condition and results
of operations are influenced by conditions affecting this industry, particularly
current trends towards consolidation among healthcare organizations. Many
healthcare providers and payors are consolidating to create larger healthcare
organizations. Such consolidation may reduce the number of existing and
potential clients for the Company's services. In addition, these resulting
organizations could have greater bargaining power, which could erode the current
pricing structure for the Company's services. The reduction in the size of the
Company's target market or the failure of the Company to maintain adequate price
levels could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS OF REGULATORY AND TECHNOLOGICAL CHANGE. The healthcare industry is
also subject to regulatory and technological changes that may affect the
procurement practices and operations of healthcare organizations.
8
<PAGE>
During the past several years, the healthcare industry has been subject to an
increase in governmental regulation and reform proposals. These reforms, if
enacted, could increase governmental involvement in the healthcare industry,
lower reimbursement rates or otherwise change the operating environment of the
Company's clients. Healthcare organizations may react to these proposals and the
uncertainty surrounding them by curtailing or deferring investments, including
those for the Company's services. The Company cannot predict with any certainty
what impact, if any, such legislative reforms could have on its business,
financial condition and results of operations. In addition, technological change
in the network and application markets has created high demand for consulting,
implementation and integration services in order to meet increasingly complex
information needs. If the pace of technological change were to diminish, the
Company's revenue could decrease as a result of decreased demand for its
services. Any material decrease in demand would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Industry Background" and "--Business Strategy."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company intends to
expand its international consulting services, which will require a significant
amount of management's attention and the Company's human and financial
resources. The Company may establish additional international operations and
hire additional personnel. There can be no assurance that the Company will be
able to successfully recruit and retain the necessary number of highly skilled
consultants in each country in which it intends to conduct its operations. Any
inability to recruit and retain such employees could impair the Company's
ability to expand internationally and may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that the Company will be able to establish
international market demand for its services. The Company's international
business may be subject to a variety of risks, including the difficulty of
tailoring its services to individual countries' healthcare market needs,
currency fluctuations, potentially longer payment cycles, potential difficulties
in collecting international accounts receivable, the enforcement of contractual
obligations and intellectual property rights, potentially adverse tax
consequences, increased costs associated with maintaining international
marketing efforts, costs of localizing services in international markets,
adverse changes in regulatory requirements and possible economic downturns
outside of the United States. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international
operations and, consequently, on its business, financial condition and results
of operations. See "Business-- Business Strategy."
RISKS ASSOCIATED WITH ACQUISITIONS. The Company intends to grow, in part,
through acquisitions of complementary businesses or technologies and
professional practices with healthcare and information technology expertise. For
example, on January 13, 1998, the Company completed the acquisition of a small
healthcare consulting firm in the United Kingdom. All acquisitions involve a
number of risks that could materially adversely affect the Company's operating
results, including the diversion of management's attention, the assimilation of
acquired operations and personnel, the operating results of the acquired
business, the amortization of acquired intangible assets and the potential loss
of key employees. The Company's ability to expand successfully through
acquisitions depends on many factors, including the successful identification
and acquisition of technologies, businesses and personnel; management's ability
to integrate such technologies, businesses or personnel effectively; and
management's ability to maintain the corporate culture of the Company. There can
be no assurance that the Company will be successful in acquiring or integrating
such technologies, businesses or personnel, or that such acquisitions will
enhance the Company's business. Any failure by the Company to acquire or
successfully integrate desirable technologies, businesses or personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations. Moreover, future acquisitions by the Company may
result in the issuances of equity securities which may be dilutive to existing
stockholders or the incurrence of indebtedness and amortization expenses related
to goodwill and other intangible assets which could adversely affect the
Company's business, financial condition and results of operations. See "Use of
Proceeds" and "Business--Business Strategy."
DEPENDENCE ON KEY EMPLOYEES. The Company's performance has depended and will
continue to depend upon the continued service of its senior management and
certain other key employees of the Company, including certain consulting and
technical personnel. The loss of the services of certain of these key employees
9
<PAGE>
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company has not entered into long-term
employment contracts with any of its employees and does not maintain key
employee life insurance. See "Business--Business Strategy," "--Service
Delivery," and "--Sales and Marketing."
LIMITED PROTECTION OF PROPRIETARY INFORMATION AND PROCEDURES. The Company's
ability to compete effectively depends on its ability to protect its proprietary
information, including its proprietary methodologies, research, tools, software
code and other information. The Company relies primarily on a combination of
copyright and trade secret laws and confidentiality procedures to protect its
intellectual property rights. The Company requests that its consultants and
employees sign confidentiality agreements and generally limits access to and
distribution of its research, methodologies and software codes. There can be no
assurance that the steps taken by the Company to protect its proprietary
information will be adequate to prevent its misappropriation. In addition, the
laws of certain countries do not protect or enforce proprietary rights to the
same extent as do the laws of the United States. The Company is currently
expanding the provision of its services to clients in targeted international
regions. There can be no assurance that the Company's proprietary information
will be protected to the same extent as provided under the laws of the United
States, if at all, in those countries in which the Company currently operates or
may operate in the future. The unauthorized use of the Company's intellectual
property could have a material adverse effect on the Company's business,
financial condition or results of operations. There can be no assurance that
third parties will not assert infringement claims against the Company in the
future or that any such claims will not result in protracted and costly
litigation, regardless of the merits of such claims. See "Business--Limited
Protection of Proprietary Information and Procedures."
CONTROL BY EXISTING STOCKHOLDERS AND MANAGEMENT. Upon completion of this
offering, the Company's existing stockholders will beneficially own
approximately 11,230,280 shares, or 77.2%, of the outstanding shares of Common
Stock (74.7% if the Underwriters' over-allotment option is exercised in full).
In particular, upon completion of this offering, James A. Reep, Chairman of the
Board, Chief Executive Officer and President of the Company, will own
approximately 19.8% of the outstanding shares of Common Stock (19.1% if the
Underwriters' over-allotment option is exercised in full). As a result, the
Company's existing stockholders, if acting together, will be able to exercise
control over or significantly influence matters requiring stockholder approval,
including the election of directors, mergers, consolidations and sales of all or
substantially all of the assets of the Company. This stockholder control may
delay or prevent transactions resulting in a change in control of the Company
unless the terms are approved by such stockholders. See "Principal and Selling
Stockholders."
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS. The primary purpose of
this offering is to increase the Company's equity capital. The anticipated net
proceeds to the Company from this offering have not been designated for any
specific purpose. Therefore, the Board of Directors of the Company will have
broad discretion with respect to the use of the net proceeds of this offering.
See "Use of Proceeds."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK 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 be sustained.
The initial public offering price will be determined by negotiation between the
Company and the representatives of the Underwriters based on several factors,
including prevailing market and economic conditions, revenue and earnings of the
Company, market valuations of other companies engaged in activities similar to
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's management
and other factors deemed relevant. In addition, the stock market historically
has experienced volatility which has affected the market price of securities of
many companies and which has sometimes been unrelated to the operating
performance of such companies. The trading price of the Common Stock could also
be subject to significant fluctuations in response to variations in quarterly
results of operations, announcements of acquisitions by the Company or its
competitors, general trends in the industry and overall market conditions and
other factors. The market price may also be affected by movements in prices of
equity securities in general. Finally, although the Company has sought approval
for the Common Stock to be quoted on the Nasdaq National Market, there can be no
assurance that an active trading market will develop or be sustained subsequent
to this offering. See "Underwriting."
10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market after the offering hereby could adversely affect the
market price of the Common Stock. Upon completion of this offering, the Company
will have outstanding 14,542,664 shares of Common Stock, assuming no exercise of
the Underwriters' over-allotment option, and no exercise of outstanding options
granted under the Company's stock option plans after December 31, 1997. Of such
outstanding shares, the 3,312,384 shares sold in this offering will be available
for immediate sale in the public market. The holders of the remaining 11,230,280
shares have entered into agreements ("Lock-Up Agreements") agreeing not to sell
such shares for a period of 540 days following the date of this Prospectus
without the prior written consent of Hambrecht & Quist LLC; provided, however,
that at the end of the first 180 day period following the date of this
Prospectus, 10% of such shares will become eligible for sale; at the end of the
second 180 day period following the date of this Prospectus, an additional 10%
of such shares will become eligible for sale; and the remaining shares will
become eligible for sale 540 days after the date of this Prospectus. In
addition, as of December 31, 1997, there were options outstanding to purchase an
aggregate of 1,029,400 shares of Common Stock under the Company's stock option
plans, none of which will be eligible for sale within 180 days following the
offering. Following this offering, the Company intends to file a registration
statement covering the shares reserved for issuance under the Company's stock
option plans and the shares issued upon exercise of such options. See "Shares
Eligible for Future Sale."
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS.
Certain provisions of Delaware law applicable to the Company could delay or make
more difficult a merger, tender offer or proxy contest involving the Company,
including Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. In addition,
the Board of Directors of the Company may issue shares of Preferred Stock
without stockholder approval on such terms as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. In addition, the Company's Certificate of
Incorporation and Bylaws provide for a classified board of directors, eliminate
the right of stockholders to act by written consent without a meeting, require
advanced stockholder notice to nominate directors and raise matters at the
annual stockholders meeting, eliminate cumulative voting in the election of
directors and allow for the removal of directors only for cause and with a
two-thirds vote of the Company's outstanding shares. All of the foregoing could
have the effect of delaying, deferring or preventing a change in control of the
Company and could limit the price that certain investors might be willing to pay
in the future for shares of Common Stock. See "Management--Board Composition"
and "Description of Capital Stock--Delaware Law and Certain Charter Provisions."
DILUTION; ABSENCE OF DIVIDENDS. The initial public offering price will be
substantially higher than the pro forma net tangible book value per share of
Common Stock. Assuming an initial public offering price of $11.00 per share,
investors purchasing shares of Common Stock in this offering will incur
immediate, substantial dilution of $8.24 per share in the pro forma net tangible
book value of Common Stock. Additional dilution will occur upon the exercise of
outstanding options. The Company has never declared or paid any cash dividends
and does not anticipate paying cash dividends in the foreseeable future. The
Company's revolving line of credit prohibits the Company from paying dividends
in cash, stock or other property. See "Dividend Policy" and "Dilution."
YEAR 2000. Many experts believe that the world's information systems are not
equipped to process the computer change-over to the year 2000, and that the
solution will require a large amount of time and resources. If these predictions
are accurate, the Company's clients may have to reallocate a significant portion
of their consulting and information systems budget away from the Company's
services to address this problem. Such reallocation could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's current time and billing systems are not year 2000
compliant. The Company has purchased an upgrade to these systems that will
render them year 2000 compliant. The Company expects to begin deployment of this
upgrade by June 1998. There can be no assurance that such deployment will begin
as planned or, if begun, will be completed in a timely and cost-effective
manner.
11
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements, including, without
limitation, statements containing the words "believes," "anticipates," "expects"
and words of similar import. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others: the importance of attracting and retaining personnel, variability
of operating results, potential inability to maintain business relationships,
significant investment of resources in marketing, competition in the healthcare
consulting and information technology industry, management of the Company's
growth, consolidation and cost pressures in the healthcare industry, regulatory
and technological change in the healthcare and information technology
industries, expansion into international consulting, integration of acquired
businesses and personnel, dependence on key employees, limited protection of
proprietary information, control by existing stockholders and management and
other factors referenced in this Prospectus. Certain of these factors are
discussed in more detail elsewhere in this Prospectus, including, without
limitation, under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $11.00 per share are estimated to be $24,700,000 ($29,782,857 if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and estimated offering expenses payable by the Company.
The Company intends to use the net proceeds of this offering primarily for
working capital and general corporate purposes. The Company may apply an
undetermined portion of the net proceeds from this offering towards the
acquisition of complementary businesses or technologies and professional
practices with healthcare and information technology expertise. Pending
application of the net proceeds of the offering as described above, the Company
intends to invest such proceeds in short-term, investment-grade,
interest-bearing financial instruments.
The Company expects that its existing capital resources, including the net
proceeds of this offering and interest thereon and its borrowing capacity under
its existing credit facility, will be sufficient to satisfy the requirements of
its current and planned operations for at least the next twelve months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never paid a cash dividend on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company's
revolving line of credit prohibits the Company from paying dividends in cash,
stock or other property. The Company has obtained a waiver of such dividend
restriction in order to effect a 4-for-1 stock split in the form of a stock
dividend to be distributed to the Company's stockholders prior to effectiveness
of this offering.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis, (ii) on a pro forma basis to reflect
the elimination of the Company's obligation to repurchase shares of its Common
Stock, and (iii) as adjusted to give effect to the receipt by the Company of the
estimated net proceeds from the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share, after
deducting the underwriting discounts and estimated offering expenses payable by
the Company. This 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 the Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion.......................................... $ 262 $ 262 $ 262
Put obligation related to Common Stock........................................ 9,965 -- --
--------- ----------- -----------
Stockholders' equity (1):
Preferred stock, $.001 par value; 10,000,000 shares authorized; no shares
issued and outstanding, actual, pro forma and as adjusted................. -- -- --
Common stock, $.001 par value; 50,000,000 shares authorized; 12,042,664
shares issued and outstanding, actual and pro forma; 14,542,664 shares
issued and outstanding, as adjusted....................................... 12 12 15
Additional paid-in capital.................................................. 20,822 20,822 45,519
Retained earnings........................................................... 4,215 4,215 4,215
Deferred compensation (2)................................................... (3,635) (3,635) (3,635)
Unearned ASOP shares (3).................................................... (853) (853) (853)
Notes receivable--stockholders (4).......................................... (5,134) (5,134) (5,134)
Put obligations related to Common Stock (5)................................. (9,965) -- --
--------- ----------- -----------
Total stockholders' equity................................................ 5,462 15,427 40,127
--------- ----------- -----------
Total capitalization.................................................... $ 15,689 $ 15,689 $ 40,389
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding at December 31, 1997. Excludes (i)
797,084 shares of Common Stock issuable upon exercise of stock options
outstanding under the Company's 1997 Equity Incentive Plan with a weighted
average exercise price of $5.57 per share, (ii) 84,000 shares of Common
Stock issuable upon exercise of stock options outstanding under the
Company's 1997 Non-Employee Directors' Stock Option Plan with a weighted
average exercise price of $4.89 per share, and (iii) 148,316 shares of
Common Stock issuable upon the exercise of non-qualified stock options with
a weighted average exercise price of $5.42 per share. See "Capitalization,"
"Management--1997 Equity Incentive Plan," "--1997 Non-Employee Directors'
Stock Option Plan," and Note H of Notes to Financial Statements.
(2) Reflects the unamortized balance of deferred compensation relating to the
grant of stock options at below market prices. See Notes A and H of Notes to
the Financial Statements.
(3) Reflects the original cost of unallocated shares held by the ASOP. See Note
I of Notes to the Financial Statements.
(4) Certain of the Company's stockholders have purchased shares of Common Stock
using promissory notes payable over a maximum of ten years. See "Certain
Transactions" and Note D of Notes to the Financial Statements.
(5) The actual amount reflects the obligation of the Company to repurchase
shares of Common Stock at either the fair market value of such shares as
determined by an independent valuation firm or the original issuance price
plus a growth factor relating to such shares. See Notes H and I of Notes to
the Financial Statements.
14
<PAGE>
DILUTION
As of December 31, 1997, the Company had a pro forma net tangible book value
of approximately $15.4 million, or $1.28 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of total tangible assets
less total liabilities and excluding the obligation of the Company to repurchase
shares of its Common Stock, divided by the number of shares of Common Stock
outstanding. Without taking into account any other changes in the pro forma net
tangible book value after December 31, 1997 other than to give effect to the
receipt by the Company of the estimated net proceeds from the sale of the
2,500,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $11.00 per share, the pro forma net tangible
book value of the Company as of December 31, 1997 would have been approximately
$40.1 million, or $2.76 per share. This represents an immediate increase in the
pro forma net tangible book value of $1.48 per share to existing stockholders
and an immediate dilution of $8.24 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $ 11.00
Pro forma net tangible book value per share before the offering....... $ 1.28
Increase per share attributable to new investors (1).................. 1.48
---------
Pro forma net tangible book value per share after the offering.......... 2.76
---------
Dilution per share to new investors..................................... $ 8.24
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES
PURCHASED (1) TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 12,042,664 83% $ 20,834,000 43% $ 1.73
New investors................................. 2,500,000 17% 27,500,000 57% 11.00
-- --
------------ -------------
Total..................................... 14,542,664 100% 48,334,000 100%
-- --
-- --
------------ -------------
------------ -------------
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding at December 31, 1997. Excludes (i)
797,084 shares of Common Stock issuable upon exercise of stock options
outstanding under the Company's 1997 Equity Incentive Plan with a weighted
average exercise price of $5.57 per share, (ii) 84,000 shares of Common
Stock issuable upon exercise of stock options outstanding under the
Company's 1997 Non-Employee Directors' Stock Option Plan with a weighted
average exercise price of $4.89 per share, and (iii) 148,316 shares of
Common Stock issuable upon the exercise of non-qualified stock options with
a weighted average exercise price of $5.42 per share. See "Capitalization,"
"Management--1997 Equity Incentive Plan," "--1997 Non-Employee Directors'
Stock Option Plan," and Note H of Notes to Financial Statements.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and Notes thereto included elsewhere in this Prospectus. The
consolidated statements of operations data for the years ended December 31,
1994, 1995, 1996 and 1997 and the consolidated balance sheet data at December
31, 1995, 1996 and 1997 are derived from the Company's consolidated financial
statements that have been audited by Grant Thornton LLP, independent certified
public accountants, included elsewhere in this Prospectus. The consolidated
balance sheet data as of December 31, 1994 is derived from the Company's audited
consolidated balance sheet not included in this Prospectus. The selected
financial data as of December 31, 1993 and for the year then ended is derived
from unaudited consolidated financial data not included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue................................................ $ 19,050 $ 30,046 $ 47,744 $ 65,822 $ 91,570
Cost of services........................................... 10,721 16,869 26,518 40,718 53,526
--------- --------- --------- --------- ---------
Gross profit............................................. 8,329 13,177 21,226 25,104 38,044
General and administrative expenses........................ 6,995 9,871 17,517 23,670 31,669
Compensation expenses related to stock issuances (1)....... -- -- 385 588 6,060
--------- --------- --------- --------- ---------
Income from operations................................... 1,334 3,306 3,324 846 315
Interest income (expense), net............................. 46 (77) (36) 3 (68)
Other income, net.......................................... 77 32 18 44 119
--------- --------- --------- --------- ---------
Income before income taxes............................... 1,457 3,261 3,306 893 366
Provision for income taxes................................. 591 1,577 1,423 500 1,900
--------- --------- --------- --------- ---------
Net income (loss)........................................ $ 866 $ 1,684 $ 1,883 $ 393 $ (1,534)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted net income (loss) per share (2)(3)....... $ 0.06 $ 0.15 $ 0.19 $ 0.04 $ (0.14)
Shares used in computing basic and diluted net income per
share.................................................... 13,894 11,178 9,761 11,118 11,134
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 1,675 $ 1,335 $ 2,075 $ 214 $ 2,950
Total assets............................................... 7,950 11,203 20,648 22,812 34,425
Long-term debt............................................. 643 1,550 3,362 2,692 262
Total stockholders' equity................................. 1,558 1,710 1,612 3,040 5,462
</TABLE>
- ------------------------------
(1) In connection with the ASOP and certain non-qualified stock options granted
to the Company's vice presidents, the Company recognized a non-recurring
compensation expense in its consolidated statement of operations. The
primary component of this expense relates to the fair market value of
568,000 shares allocated to the Company's employees under the ASOP. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes H and I of Notes to Financial Statements.
(2) Excluding compensation expenses relating to stock issuances, basic and
diluted net income per share would be $0.22, $0.08 and $0.33, and net income
would be $2.1 million, $839,000 and $3.7 million for the years ended
December 31, 1995, 1996 and 1997, respectively.
(3) See Note A-9 of Notes to Financial Statements for an explanation of the
computation of basic and diluted net income per share.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO CONTAINED ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE
HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE HEREIN. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 12 OF THIS PROSPECTUS.
OVERVIEW
FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations in North America and Europe. The
Company provided its services to over 360 clients in the year ended December 31,
1997. The Company's services are designed to increase its clients' operations
effectiveness in order to reduce cost, improve customer service and enhance the
quality of patient care. The Company's services address the increasing need of
its clients for healthcare-specific information technology expertise to
objectively evaluate, select, implement and manage an optimal set of information
systems and infrastructures. The Company's consultants provide this expertise
through multi-disciplinary teams specifically formed to provide a unique
solution for each client. The Company believes that its success is attributable
to its strong relationships with industry-leading clients, the healthcare,
technology and consulting expertise of the Company's consultants, and the depth
and breadth of its consulting services.
The Company generates substantially all of its revenue from fees for
professional services. The Company typically bills for its services on an
hourly, fixed-fee or fixed-fee per month basis as specified by the agreement
with a particular client. The Company establishes standard hourly rates for each
level of consultant based on several factors including industry and
assignment-related experience, technical expertise, skills and knowledge. For
services billed on an hourly basis, fees are determined by multiplying the
amount of time expended on each assignment by the hourly rate for the
consultant(s) assigned to the engagement. Fixed fees are established on a
per-assignment or monthly basis and are based on several factors such as the
size, scope, complexity and duration of an assignment and the number of
consultants required to complete the assignment. Actual hourly or fixed fees for
an assignment may vary from the standard or historical rates charged by the
Company. For services billed on an hourly basis, the Company recognizes revenue
as services are performed. For services billed on a fixed fee basis, the Company
recognizes revenue using the percentage of completion method based on the amount
of time completed on each assignment versus the projected number of hours
required to complete such assignment. Revenue is recorded as incurred at
assignment rates net of unplanned adjustments for specific engagements.
Unplanned adjustments to revenue are booked at the time they are known. The
Company may obtain payment in advance of providing services. These advances are
recorded as deferred revenue and reflected as a liability on the Company's
balance sheet.
Cost of services primarily consists of the salaries, bonuses and related
benefits of consultants, subcontractor expenses, and the costs of the Company's
supplemental executive retirement plan. General and administrative expenses
primarily consist of the costs attributable to office space occupancy;
investments in the Company's information systems, research and practice support
and quality initiatives; salaries and expenses for executive management,
financial accounting and administrative personnel; recruiting fees and
professional development; and marketing, legal and other professional services.
In connection with the Company's Associate 401(k) and Stock Ownership Plan
("ASOP") and certain non-qualified stock options granted to the Company's vice
presidents, the Company recognizes a compensation expense on its consolidated
statement of operations. The non-recurring portion of this compensation expense
is reflected in the Company's consolidated statements of operations as
compensation expenses related to stock
17
<PAGE>
issuances and, for the year ended December 31, 1997, amounted to a non-cash
charge of $5.5 million. The non-recurring portion of this expense primarily
consists of (i) a compensation expense equal to the fair market value of a
one-time allocation of 568,000 shares of Common Stock to employees pursuant to a
modification of the ASOP; and (ii) a compensation expense equal to the excess of
the average fair market value of the allocated shares of the Common Stock under
the ASOP above the cost (plus interest) of shares of the Common Stock required
to match employee contributions. The non-recurring portion of the compensation
expense related to the ASOP is non-deductible for income tax reporting purposes.
Beginning in 1998, the Company plans to grant all stock options at the fair
market value and, in connection with the Company's ASOP, to match employee
401(k) contributions with shares of Common Stock based on the fair market value
of the shares at the time matching contributions are made.
The Company's most significant expenses are its human resource and related
salary and benefit expenses. Approximately 77% of the Company's employees are
consultants, and the salaries and benefits of such consultants are recognized in
the Company's cost of services. Non-billable employee salaries and benefits are
recognized as a component of general and administrative expenses. The Company's
cost of services as a percentage of revenue is directly related to its
consultant utilization, which is the ratio of total billable hours to available
hours in a given month. The Company manages consultant utilization by monitoring
assignment requirements and timetables, available and required skills, and
available consultant hours per week and per month. The number of consultants
staffed on an assignment will vary according to the size, complexity, duration
and demands of the assignment. Assignment terminations, completions and
scheduling delays may result in periods in which consultants are not optimally
utilized. An unanticipated termination of a significant assignment or an overall
lengthening of the sales cycle could result in a higher than expected number of
unassigned consultants and could cause the Company to experience lower margins.
In addition, the opening of new offices, expansion into new markets, and the
hiring of consultants in advance of client assignments have resulted and may
continue to result in periods of lower consultant utilization. During the second
and third quarters of 1996, the Company experienced a significant decrease in
the utilization of billable personnel. This decrease in utilization was
primarily attributable to the increased hiring of consultants and a failure by
the Company to assign underutilized consultants located in the central United
States to projects outside such region. The Company believes that this failure
to re-assign underutilized consultants was attributable to certain incentive
programs which have since been discontinued. This decrease in utilization, as
well as certain infrastructure upgrades, resulted in a decrease in net income in
the second and third quarters of 1996. There can be no assurance that such a
decrease in utilization or net income will not occur in the future.
The Company's effective tax rate has varied from period to period due to
differences between book and tax deductions associated with certain
non-deductible operating expenses, including certain compensation expenses
related to the ASOP.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET REVENUE. The Company's net revenue increased to $91.6 million, or
39.1%, for the year ended December 31, 1997 from $65.8 million for the year
ended December 31, 1996. This increase was primarily attributable to an increase
in revenue from the Company's implementation and integration services and an
increase in consultant utilization.
COST OF SERVICES. Cost of services increased to $53.5 million, or 31.5%,
for the year ended December 31, 1997 from $40.7 million for the year ended
December 31, 1996. The increase was primarily attributable to an increase in the
number of consultants. Cost of services as a percentage of revenue decreased to
58.5% for the year ended December 31, 1997 from 61.9% for the year ended
December 31, 1996. This decrease was primarily attributable to increased
utilization rates for the Company's consultants during the year ended December
31, 1997. The Company believes that the increase in utilization rates was
primarily attributable to the discontinuation of certain incentive programs and
the resulting reallocation of billable resources to projects across geographic
regions.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $31.7 million, or 33.8%, for the year ended December 31, 1997 from
$23.7 million for the year ended December 31, 1996. This
18
<PAGE>
increase was primarily attributable to the Company's relocation to a larger
corporate facility, expanded marketing initiatives, expansion into the United
Kingdom, and continued efforts to enhance and improve the Company's internal
infrastructure including upgrades to its management information systems. General
and administrative expenses as a percentage of revenue decreased to 35.2% for
the year ended December 31, 1997 from 36.0% for the year ended December 31,
1996.
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances increased to $5.5 million for the year ended December
31, 1997 from $588,000 for the year ended December 31, 1996. This increase was
primarily attributable to a one-time allocation of 568,000 shares of Common
Stock to employees pursuant to a modification of the ASOP and a non-recurring
compensation expense resulting from the difference between estimated average
fair market value and cost of the allocated ASOP shares.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
NET REVENUE. The Company's net revenue increased to $65.8 million, or
37.9%, for the year ended December 31, 1996 from $47.7 million for the year
ended December 31, 1995. This increase was primarily attributable to an increase
in revenue from implementation and integration services and the expansion of
such services to IDNs and health plans.
COST OF SERVICES. Cost of services increased to $40.7 million, or 53.5%,
for the year ended December 31, 1996 from $26.5 million for the year ended
December 31, 1995. This increase was primarily attributable to an increase in
the number of consultants. Cost of services as a percentage of revenue increased
to 61.9% for the year ended December 31, 1996 from 55.5% for the year ended
December 31, 1995. This increase was primarily attributable to a significant
decrease in utilization rates for consultants located in the central United
States. The Company believes that this decrease in utilization was attributable
to certain incentive programs which have since been discontinued.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $23.7 million, or 35.1%, for the year ended December 31, 1996 from
$17.5 million for the year ended December 31, 1995. This increase was primarily
attributable to an increase in the number of non-billable employees and expenses
relating to the improvement of the Company's infrastructure. General and
administrative expenses as a percentage of revenue decreased to 36.0% for the
year ended December 31, 1996 from 36.7% for the year ended December 31, 1995.
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances increased to $588,000, or 52.7%, for the year ended
December 31, 1996 from $385,000 for the year ended December 31, 1995. This
increase was primarily attributable to stock options granted below fair market
value in 1996.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
NET REVENUE. The Company's net revenue increased to $47.7 million, or
58.9%, for the year ended December 31, 1995 from $30.0 million for the year
ended December 31, 1994. This increase was primarily attributable to an increase
in the number of new assignments and consultants and an increase in the
Company's focus on working with IDNs and health plans.
COST OF SERVICES. Cost of services increased to $26.5 million, or 57.2%,
for the year ended December 31, 1995 from $16.9 million for the year ended
December 31, 1994. The increase was primarily attributable to an increase in the
number of consultants. Cost of services as a percentage of revenue remained
relatively constant at 55.5% for the year ended December 31, 1995 from 56.1% for
the year ended December 31, 1994.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $17.5 million, or 77.5%, for the year ended December 31, 1995 from
$9.9 million for the year ended December 31, 1994. This increase was primarily
attributable to an increase in the number of non-billable employees, increased
recruiting and training expenses, continued geographical expansion and
investments in internal information technology
19
<PAGE>
systems. General and administrative expenses as a percentage of revenue
increased to 36.7% for the year ended December 31, 1995 from 32.8% for the year
ended December 31, 1994.
COMPENSATION EXPENSES RELATED TO STOCK ISSUANCES. Compensation expenses
related to stock issuances was $385,000 for the year ended December 31, 1995.
There was no corresponding expense in the prior period. This expense was
primarily attributable to stock options granted below fair market value in 1995.
20
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of operations
data for the eight quarters ended December 31, 1997, as well as such data
expressed as a percentage of the Company's net revenue for the periods
indicated. This data has been derived from unaudited financial statements that,
in the opinion of the Company's management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of such
information when read in conjunction with the Company's annual audited
consolidated financial statements and the notes thereto. The operating results
for any quarter are not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $ 15,422 $ 15,440 $ 17,400 $ 17,560 $ 20,155 $ 21,673 $ 24,477 $ 25,265
Cost of services.......... 9,341 9,894 10,925 10,558 12,066 12,659 14,098 14,703
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............ 6,081 5,546 6,475 7,002 8,089 9,014 10,379 10,562
General and administrative
expenses................ 5,305 5,552 6,806 6,007 6,752 7,404 8,648 8,865
Compensation expenses
related to stock
issuances............... 128 127 127 206 523 523 815 4,199
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations.............. 648 (133) (458) 789 814 1,087 916 (2,502)
Interest income (expense),
net..................... 1 (11) (6) 19 (21) (27) (11) (9)
Other income, net......... 9 12 13 11 91 10 9 9
Provision (benefit) for
income taxes............ 369 (74) (254) 459 490 593 507 310
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)......... $ 289 $ (58) $ (197) $ 360 $ 394 $ 477 $ 407 $ (2,812)
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
PERCENTAGE OF NET REVENUE
--------------------------------------------------------------------------------------
Net revenue............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services.......... 60.6 64.1 62.8 60.1 59.9 58.4 57.6 58.2
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............ 39.4 35.9 37.2 39.9 40.1 41.6 42.4 41.8
General and administrative
expenses................ 34.4 36.0 39.1 34.2 33.5 34.2 35.3 35.1
Compensation expenses
related to stock
issuances............... 0.8 0.8 0.8 1.2 2.6 2.4 3.3 16.6
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations.............. 4.2 (0.9) (2.7) 4.5 4.0 5.0 3.8 (9.9)
Interest income (expense),
net..................... -- (0.1) -- 0.1 (0.1) (0.1) -- --
Other income, net......... 0.1 0.1 0.1 0.1 0.5 0.1 -- --
Provision (benefit) for
income taxes............ 2.4 (0.5) (1.5) 2.6 2.4 2.7 2.1 1.2
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)......... 1.9% (0.4)% (1.1)% 2.1% 2.0% 2.3% 1.7% (11.1)%
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
21
<PAGE>
A substantial portion of the Company's expenses, particularly personnel and
related costs, depreciation, office rent and occupancy costs, are relatively
fixed. Certain variable costs are assignment-specific and are billed as
incurred. The Company's quarterly operating results may vary significantly in
the future depending on a number of factors, many of which are outside the
control of the Company. These factors may include: the reduction in size, delay
in commencement, interruption or termination of one or more significant
engagements or assignments; fluctuations in consultant hiring and utilization;
the loss of personnel; the loss of one or more significant clients; the
unpredictability of engaging new clients and additional assignments from
existing clients; increased competition; write-offs of client billings;
consolidation of, and subsequent reduction in the number of, healthcare
providers; pricing pressure; the number, timing and contractual terms of
significant client engagements; market demand for the Company's services; delays
or increased expenses incurred in connection with existing assignments; changes
in pricing policies by the Company or its competitors; changes in the Company's
business strategies; variability in the number of business days within a
quarter; and international currency fluctuations. Due to the foregoing factors,
quarterly revenue and operating results are not predictable with any significant
degree of accuracy. In particular, the timing between initial client contract
and fulfillment of the criteria necessary for revenue recognition can be lengthy
and unpredictable, and revenue in any given quarter can be materially adversely
affected as a result of such unpredictability. Business practices of clients,
such as deferring commitments on new assignments until after the end of fiscal
periods, could require the Company to maintain a significant number of
under-utilized consultants which could have a material adverse effect on the
Company's business, financial condition and results of operations. During the
second and third quarters of 1996, the Company experienced a significant
decrease in the utilization of billable personnel. Such underutilization was
primarily attributable to the increased hiring of consultants and a failure by
the Company to assign underutilized consultants located in the central United
States to projects outside such region. The Company believes that this failure
to re-assign underutilized consultants was attributable to certain incentive
programs which have since been discontinued. This decrease in utilization, as
well as certain infrastructure upgrades, resulted in a decrease in net income in
the second and third quarters of 1996. There can be no assurance that such a
decrease in utilization or net income will not occur in the future.
The Company has experienced and will continue to experience variability in
the number of billable days in any quarter. The Company typically experiences a
lower number of billable days in the second and fourth quarters of every year.
The Company requires attendance at an annual meeting of all of its employees in
the second quarter of every year and encourages its employees to take vacation
during the December holidays. Variability in the number of billable days may
also result from other factors such as vacation days, sick time, paid and unpaid
leave and holidays, all of which could produce variability in the Company's
revenue and costs. In the event of any downturn in potential clients' businesses
or the economy in general, planned utilization of the Company's services may be
deferred or canceled, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Based on the
preceding factors, the Company may experience a shortfall in revenue or earnings
from expected levels or otherwise fail to meet expectations of securities
analysts or the market in general, which could have a material adverse effect on
the market price of the Common Stock. See "Risk Factors--Variability of
Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1997, the Company generated cash flow
from operations of $8.0 million, of which approximately $2.5 million was
generated from depreciation of assets. The Company generated cash flow from
operations of $2.2 million and $779,000 for the years ended December 31, 1996
and 1995, respectively. During the year ended December 31, 1997, the Company
used cash flow of $3.4 million to purchase property and equipment. Purchase of
property and equipment has used cash flow of $3.6 million and $1.9 million for
the years ended December 31, 1996 and 1995, respectively. During the year ended
December 31, 1997 the Company used cash flow of $529,000 for financing
activities. Financing activities used cash flow of $439,000 and provided cash
flow of $1.9 million for the years ended December 31, 1996 and 1995,
respectively.
22
<PAGE>
The Company has a revolving line of credit which allows the Company to
borrow up to $6.0 million at an interest rate of the prevailing prime rate. The
revolving line of credit expires on December 1, 1998. There was a balance of
$2.0 million under the line of credit at December 31, 1997. The Company has two
term loan facilities ("Term Loan A" and "Term Loan B"). Term Loan A is a
$305,000 facility under which approximately $284,000 was outstanding as of
December 31, 1997. Term Loan A expires on July 1, 2003. Term Loan B is a $4.0
million facility under which approximately $674,000 was outstanding as of
December 31, 1997. A portion of the proceeds from Term Loan B were used to
finance the purchase of shares by the ASOP. Term Loan B expires on December 4,
2001. Term Loan A and Term Loan B bear interest at a rate per annum equal to the
prevailing prime rate plus 0.5%. All borrowings under the Company's credit
facilities are secured by the Company's accounts receivable and other rights to
payment, general intangibles and equipment. The line of credit agreement
provides that the Company must satisfy certain financial and other covenants
regarding tangible net worth, debt ratio and profitability, capital
expenditures, merger or transfer of assets, additional indebtedness, dividends,
distributions and pledge of assets.
As a result of this offering, the Company's tax accounting method will
change from cash to accrual basis accounting, requiring the Company to pay a
deferred tax liability of approximately $6.1 million as of December 31, 1997.
The Company expects this tax liability to be paid over a period not exceeding
four years.
Prior to the consummation of this offering, the existing stockholders of the
Company, including the ASOP, had the ability to require the Company to
repurchase their shares upon the occurrence of certain conditions which were
outside the control of the Company. As such, the Company historically reflected
the estimated obligations related to these repurchase obligations in its
financial statements. In connection with this offering and as of the date upon
which this offering is consummated, the Company will no longer be obligated to
repurchase any shares of its capital stock from stockholders of the Company.
Consequently, the Company does not anticipate any payment with respect to such
obligations.
The Company believes that its existing capital resources, including the net
proceeds of this offering and interest thereon and its borrowing capacity under
its existing credit facility, will be sufficient to satisfy the requirements of
its current and planned operations for at least the next twelve months.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER
SHARE, which supersedes APB Opinion 15. SFAS 128 replaces the presentation of
primary earnings per share ("EPS") with "Basic EPS" which includes no dilution
and is based on weighted average common shares outstanding for the period.
Companies with complex capital structures, including the Company, will also be
required to present "Diluted EPS" that reflects the potential dilution of
securities such as employee stock options to purchase Common Stock. The Company
has adopted SFAS 128; such adoption did not have a material effect on the
Company's net income (loss) per share.
23
<PAGE>
BUSINESS
OVERVIEW
FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations in North America and Europe. The
Company provided its services to over 360 clients in the year ended December 31,
1997. The Company's services are designed to increase its clients' operations
effectiveness in order to reduce cost, improve customer service and enhance the
quality of patient care. The Company's services address the increasing need of
its clients for healthcare-specific information technology expertise to
objectively evaluate, select, implement and manage an optimal set of information
systems and infrastructures. The Company's consultants provide this expertise
through multi-disciplinary teams specifically formed to provide a unique
solution for each client. The Company believes that its success is attributable
to its strong relationships with industry leading clients, the healthcare,
technology and consulting expertise of the Company's consultants, and the depth
and breadth of its consulting services.
INDUSTRY BACKGROUND
The healthcare industry has undergone dramatic change in recent years.
Payors and providers are experiencing increased pressure from employers,
government agencies and consumers to reduce cost, improve customer service and
increase the quality of patient care. These market forces have caused payors to
utilize a variety of managed care mechanisms to control cost such as preferred
provider organizations, capitation, utilization review, guidelines of care and
demand management. In order to implement these mechanisms, payors have invested
in information systems that enable their personnel to more effectively manage
increasingly complex benefit structures, support care management and improve
customer service. In addition, payors have managed costs by shifting the
financial risk for care, administrative functions and responsibility for quality
initiatives to providers. In response to the shift of these responsibilities
from payors, providers have sought to improve their ability to manage
reimbursement, administrative and care management functions. Specifically,
providers have sought to improve their ability to administer an increasing
number of reimbursement methodologies, manage care delivery, measure cost,
manage administrative functions and track quality measures across patient
populations. The shift in financial risk for care and other responsibilities has
caused providers to upgrade their existing information systems and invest in new
information systems. Both payors and providers have invested and will continue
to invest in information systems to improve their financial, administrative and
clinical processes.
In order to reduce costs, improve efficiency, and provide care across a
continuum, providers such as hospitals, acute and ambulatory care centers,
physician practices and clinical laboratories are consolidating to form larger
healthcare organizations. Physicians are also forming larger group practices
and, in many cases, affiliating with practice management organizations that
assist them in managing their practices more efficiently. In certain markets,
institutional and physician providers are combining to form IDNs that provide a
broad spectrum of clinical services across a geographic region. Providers are
also combining with payors to more effectively reduce costs, manage care and
implement risk sharing programs. In addition, payors are consolidating with
other payors to achieve administrative efficiencies, increase geographic
coverage and better manage medical expenses.
Many of the existing information systems used by payor and provider
organizations were developed to serve a specific function and to operate within
a single entity, such as a hospital or physician group. The information systems
of these larger, consolidated organizations must connect and function across a
dispersed set of geographic locations, facilities and operations. New and
existing information systems must be installed or upgraded and integrated with
existing and new information technology platforms to provide financial,
administrative and clinical data to users within constituent organizations.
These new or upgraded systems must address increasing needs of users to have
clinical decision support tools, integrated patient and financial information,
managed care contracting and information networking. This trend has created
substantial and increasing demand for information technology and related
services. Industry sources project the market for healthcare
24
<PAGE>
information technology in the United States to be $17.3 billion in 1997 and
project the market to grow to $27.9 billion in 2002. Industry sources also
estimate the market for healthcare information services in the United States to
be $5.6 billion in 1997, growing to $11.6 billion in 2002.
Payor and provider organizations have found it increasingly difficult to
develop, implement and manage comprehensive information technology strategies
and systems. Many healthcare organizations lack the human and technical
resources necessary to effectively evaluate, select, implement and manage an
optimal set of information technology and communication systems, networks and
applications. Many of these organizations also lack the human resources
necessary to manage such implementations or to train other personnel within the
organization to maximize the value of the new system, network or application.
These same organizations often require a significant amount of administrative or
clinical process improvement which may be difficult to achieve using internal
resources. The Company believes that the increasing pressures on payors and
providers to decrease costs, improve customer service and enhance the quality of
patient care, combined with the complexity of a consolidating industry and the
lack of internal technical expertise, have created an opportunity for companies
specializing in providing comprehensive information technology solutions to
healthcare organizations.
FCG SOLUTION
FCG provides information technology and other consulting services to payors,
providers and other healthcare organizations. The Company's services are
designed to increase its clients' operations effectiveness in order to reduce
cost, improve customer service and enhance the quality of patient care.
Operations effectiveness offers a means to improve the financial, administrative
and clinical processes within a client organization. The Company's services
address the increasing need for healthcare-specific information technology
expertise to objectively evaluate, select, implement and manage an optimal set
of systems, networks and applications. The Company's services are provided by
the Company's 457 consultants, who collectively have extensive expertise in key
healthcare financial, administrative and clinical processes, information
technologies and applications. The Company provides this expertise to clients by
assembling multi-disciplinary teams which provide comprehensive services across
its four principal services: consulting, software implementation, network and
application integration and co-management services. The Company's services and
consultants are supported by internal research and a centralized information
system which provides real-time access to current industry and technology
information and project methodologies, experiences, models and tools. The
Company believes that its healthcare industry focus, information technology
expertise, experienced consultants, and research and practice support enable its
clients to reduce cost, improve customer service and enhance the quality of
patient care.
BUSINESS STRATEGY
The Company's objective is to be a leading provider of information
technology and other consulting services to the healthcare industry. Key
elements of the Company's strategy include:
RECRUIT AND RETAIN EXPERIENCED PROFESSIONALS. The Company seeks to recruit
and retain the most experienced healthcare, information technology and
consulting professionals. The Company recruits and retains these professionals
by offering a combination of a growing healthcare consulting practice, industry
leading clients, intellectually challenging client engagements and professional
interaction and growth. The Company supports its consultants through internal
research, training and a collaborative, professional environment designed to
promote teamwork. The Company believes that this environment encourages the
formation of new services and geographic expansion.
EXPAND RELATIONSHIPS WITH EXISTING CLIENTS. The Company generates a
substantial portion of its revenue from existing clients and client referrals
and markets its services primarily through its vice presidents. The Company's
vice presidents develop strong relationships with senior-level information
management and other decision-making personnel at leading healthcare
organizations and are therefore positioned to market additional strategic and
information technology consulting services to the Company's existing clients.
The Company
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maintains these relationships by successfully completing assignments and meeting
client expectations. In particular, the Company believes that by successfully
completing strategic plans for new and existing clients, its vice presidents
will have significant opportunities to offer other services to these clients,
including implementation and integration services. The Company has demonstrated
that this strategy leads to additional assignments with its existing clients and
referrals to new clients. In providing its services, the Company attains an
in-depth understanding of its client's processes and internal information
technology and business strategies. Through this understanding, the Company
plans to provide operations effectiveness services to a greater portion of its
client base. Operations effectiveness services involve assessing, designing and
improving financial, administrative and clinical processes.
DEVELOP STRONG RELATIONSHIPS WITH INDUSTRY LEADING CLIENTS. As the
healthcare industry continues to consolidate into a fewer number of larger
provider and payor organizations, the Company has developed and will continue to
develop strong relationships with IDNs, health plans and leading academic
medical centers. The Company focuses its business development efforts toward
these organizations due to the high demand for expertise in completing large,
enterprise-level information technology and operations effectiveness
engagements. The Company also believes that these healthcare organizations can
serve as references for new clients, including those in targeted geographic or
other markets.
EXPAND SERVICES OFFERED TO HEALTHCARE ORGANIZATIONS. The Company regularly
evaluates the technological trends, products and needs in the healthcare
industry and, based on such evaluations, expands its services to meet changing
information technology, financial, administrative and clinical needs. The
Company believes that a significant opportunity exists for companies that
provide highly specialized resources that enable healthcare organizations to
rapidly integrate new operations and technologies, manage information, and
design and reengineer processes. The Company intends to hire additional
professionals and to selectively pursue acquisitions that complement the
Company's existing core competencies in information technology planning,
integration and implementation, and enterprise-level operations effectiveness
consulting. The Company also expects to offer new services such as packaged
research regarding information technology applications and related processes.
EXPAND INTERNATIONALLY IN TARGETED REGIONS. The Company plans to expand its
service capabilities in targeted geographic regions such as the United Kingdom,
Ireland, Germany, Canada and Mexico. The Company believes there is a significant
demand for its services in these countries, particularly in the areas of
implementation and operations effectiveness. The Company plans to capitalize on
its significant, proven skills in packaged software implementation by continuing
to form strategic alliances with systems vendors in selected international
markets. The Company intends to expand internationally by recruiting experienced
consultants within a region and through the acquisition of complementary
professional practices in targeted geographic regions.
SERVICES
The Company provides information technology and other consulting services to
the healthcare industry. The Company's four principal services consist of
consulting, software implementation, network and application integration and
co-management services. The Company typically is engaged on an
assignment-by-assignment basis and assembles client teams from one or more
services to match the expertise and service offerings with the overall
objectives required by each client and engagement. Many client engagements
involve multiple assignments. The Company may assemble several client teams to
serve the needs of a single client. The Company provides its services at the
client site to senior-level management and other personnel within the client
organization.
CONSULTING SERVICES
The Company's consulting services primarily consist of strategic planning,
operations effectiveness, procurement and contracting, and other services.
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The Company's strategic planning services involve the development of
strategic plans for healthcare organizations encompassing one or more of the
following areas: the decision to purchase and implement large-scale clinical,
patient information or financial applications; the installation and integration
of comprehensive communications, network and other information technology
systems; systems and information architectures; and organizational and
governance structures for information technology departments. The Company
believes that its strategic planning services will continue to be the core of
the Company's business as it provides a foundation for the introduction of the
Company's other services to clients and allows the Company to develop
multi-level relationships with its clients. The Company typically provides its
strategic planning services on a fixed-fee basis.
The goal of each strategic plan is to enable the client to maximize the
value of its information technology investments and improve operations
effectiveness. To ensure that each plan addresses the strategic goals,
priorities and needs of the client, the Company's strategic planning process
involves the participation of several senior-level management personnel,
clinicians, physicians and other user groups within the client organization. The
Company collects information regarding the client's business strategies,
information technology applications and systems, the capabilities of the
client's in-house technical staff and the operational needs of user groups. The
Company then identifies several information and infrastructure needs which must
be addressed in order to implement the client's business strategies. The Company
also develops a series of prioritized recommendations or assignments to be
completed by the client during the next three to five years. These
recommendations may include such items as the installation of packaged software
applications or communication networks, or the use of clinical repositories or
outcomes systems. The strategic plan delivered to the client describes the
recommendations in detail and typically includes specific information technology
alternatives, internal staffing recommendations and implementation schedules and
budgets. The Company also assists the client in building consensus with respect
to a particular strategic objective or assignment.
The Company's operations effectiveness services enhance its clients'
performance through financial, administrative and clinical process improvement.
The Company believes that information technology is the most important element
in implementing a successful business process redesign. Through its historic
information technology expertise and its emerging enterprise-level operations
effectiveness services, the Company provides the full set of skills required to
address the increased pressures facing its clients to reduce cost, improve
customer service and improve and measure quality of patient care. These services
are closely integrated with the Company's implementation and integration
services to ensure that clients receive maximum benefit from new systems
installations.
The Company provides information technology procurement and contracting
services that assist its clients with rapidly identifying, selecting and
contracting for the optimal information technology applications, networks and
systems. The Company's procurement and contracting consultants operate
independently of hardware and software vendors and accordingly provide objective
assessments and recommendations with respect to information technology
alternatives and pricing. Using these services, a client can efficiently
identify and select an appropriate vendor-based alternative, balance competing
interests within the client organization and, in many instances, negotiate price
discounts and other terms which may be difficult to achieve without the
Company's involvement. The Company does not purchase and resell hardware or
software to its clients. The Company's procurement and contracting services
support the Company's strategic planning, implementation and integration
services by assisting clients in selecting and contracting with vendors who will
provide the applications, networks or systems to be installed at the client
site. The Company's procurement and contracting services are often provided as
part of a client's larger information technology, networking or operational
initiatives which may involve the provision of the Company's other services. The
Company typically provides its procurement and contracting services on a
per-hour basis.
The Company's consultants typically assess the technical capabilities,
specifications and design philosophy of existing products and assist clients in
all stages of procurement such as system requirement assessment and definition,
procurement planning and management, requests for proposals, vendor evaluation
and selection and contract negotiation. The Company's procurement and
contracting services include such areas as clinical,
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patient, financial and managed care systems, claims processing, outcomes
systems, local area networks, wide area networks, voice and video systems,
electronic messaging, call centers, Internet and web technologies and
telemedicine.
The Company also provides general information management consulting services
to its existing clients on an as-needed basis in connection with industry trends
and developments, product introductions or changing regulatory requirements. The
Company's general consulting services typically are provided directly to senior-
level client personnel and involve small-scale, short duration assignments that
are important in maintaining strong client relationships.
SOFTWARE IMPLEMENTATION SERVICES
The Company provides implementation services for packaged software products
utilized by healthcare organizations. These services include project management,
installation, interface programming, testing and training services. In providing
these services, the Company draws on proven methodologies and its extensive
expertise in healthcare processes and information technology to ensure that each
implementation is completed efficiently with minimal disruption to clients'
operations. The Company's implementation specialists emphasize administrative
and clinical process improvement and user training, including technical support
staff training, in each engagement. The Company typically provides its
implementation services on a fixed-fee per month or per-hour basis.
Through its implementation services, the Company believes that it enables
its clients to maximize the value of each application investment. The Company
typically assembles a dedicated, on-site, multi-disciplinary team of consultants
to perform each implementation engagement. This team determines implementation
schedules and budgets with the client. The Company's implementation specialists
may also provide project management, quality assurance or an interface mapping
and programming function through which the Company efficiently installs the
application and ensures that, once installed, the application will communicate
with other applications and networks used by the client. This interface mapping
and programming function often requires that the Company develop a considerable
amount of additional software code. Training of client personnel involves all
aspects of the complete system. The Company has extensive expertise in
implementing applications from vendors such as AMISYS Managed Care Systems,
Inc., Cerner Corporation, HBO & Company, IDX Systems Corp., Medic Computer
Systems, Inc., MedicaLogic, Inc., Meditech, Inc., PHAMIS Inc., PeopleSoft, Inc.
and Shared Medical Systems Corporation. The Company believes that its expertise
with and independence from application vendors provides clients with an
objective, reliable resource to implement these applications.
NETWORK AND APPLICATION INTEGRATION SERVICES
The Company designs and develops comprehensive system architectures,
infrastructures, interfaces, databases, applications and networks to address the
need for information integration and dissemination throughout a healthcare
organization. The Company's network and application integration services
emphasize scalable architectures and systems that can accommodate an increasing
array of functions and features to address a client's emerging information
needs. The Company often identifies specific technology and service alternatives
for each clinical and operational site within the client organization in the
course of each integration plan and engagement. The Company's integration
services typically involve the Company's procurement and contracting and
implementation services in order to assist the client in acquiring the needed
hardware and software and, in some cases, to install the acquired software as
part of the integration plan. The Company typically provides its network and
application integration services on a fixed fee, per-hour, or fixed-fee per
month basis as negotiated in individual client contracts.
The Company's network and application integration services are typically
provided to consolidated healthcare organizations, including IDNs and health
plans. Application integration assignments include the implementation of master
patient indices, computer-based patient record systems, managed care and medical
management systems, physician practice management systems, clinical decision
support and data repositories,
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<PAGE>
and data warehouses. Network integration assignments include the development of
information, technology and communication architectures and Internet, intranet
and desktop messaging systems. Network and application integration engagements
involve planning, designing and managing the installation and implementation of
hardware and software technologies. These engagements also involve comprehensive
site visits and user interviews, application programming and training across
multiple levels of a client organization. Often the Company prepares a detailed
mapping of physical, technical and operational elements of the integrated
applications or networks.
CO-MANAGEMENT SERVICES
The Company provides interim staffing for healthcare organizations primarily
for senior-level information technology positions such as Chief Information
Officers, Directors of Information Systems and information technology department
managers. The Company also provides information technology department
outsourcing on a temporary or permanent basis as determined by the client. The
Company's co-management services emphasize the importance of existing management
and other information technology personnel. Accordingly, the Company's personnel
work with existing information technology staff to address strategic business,
information and technology needs. The Company typically provides its
co-management services on a fixed-fee per month basis.
SERVICE DELIVERY
The Company's services are provided by 457 consultants who collectively have
expertise in key healthcare financial, administrative and clinical processes,
information technologies and applications. The Company believes that its
healthcare industry focus, information technology expertise, experienced
consultants, and research and practice support enable its clients to reduce
cost, improve customer service and enhance the quality of patient care.
To ensure client satisfaction, the Company typically assigns a Client
Service Executive to each client team. The Client Service Executive's primary
responsibility is to establish and maintain long-term relationships with
clients. The Client Service Executive regularly communicates with the client to
ensure client satisfaction and is also responsible for billing decisions on each
assignment. For client engagements with multiple independent assignments, the
Company assigns a Delivery Service Executive to each assignment. A Delivery
Service Executive has specific technology, process or service line expertise and
is responsible for supervising the daily functions of the client team and for
ensuring that the team's progress is consistent with the client's objectives and
schedule. The Company measures every client's satisfaction through a client
satisfaction survey completed at the conclusion of each assignment.
The Company employs consultants whose individual expertise combines
healthcare, information technology and consulting skills. The Company's
consultants have developed healthcare-specific expertise in key areas such as
financial, administrative and clinical processes, care management, clinical
decision support, health plan operations, medical and utilization management,
outcomes and performance management, physician practice management, ambulatory
care and privacy and confidentiality protection. The Company's consultants also
have expertise in implementing, integrating and developing a wide range of
information technology and management systems. These systems include packaged
software applications, client/server and object-oriented computing technologies,
data repositories and data warehousing, electronic commerce and electronic data
imaging, networking, web technologies, telemedicine, document management,
security and disaster recovery. The Company has expanded its recruiting efforts
to ensure that it continues to attract and retain the breadth and depth of
skills and expertise necessary to compete successfully in the healthcare
consulting industry. The Company recruits and retains its consultants by
offering a combination of a growing healthcare consulting practice, industry
leading clients, intellectually challenging client engagements and professional
interaction and growth.
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RESEARCH AND PRACTICE SUPPORT
The Company's services and consultants are supported by internal research,
training and a centralized information system which provides real-time access to
current industry and technology information and project methodologies,
experiences, models and tools. The Company's principal research and practice
support initiatives include the Emerging Practices Group, Professional
Development Programs, Scottsdale Institute, KITE and Practice Guilds.
EMERGING PRACTICES GROUP. The Emerging Practices Group performs industry
research and collects, packages and distributes knowledge regarding emerging
trends in the healthcare industry. Examples of topics that the Emerging
Practices Group has researched are information management practices in emerging
IDNs, process design and redesign for cross continuum care management, impact of
government legislation, physician integration, Internet and intranet in
healthcare, and use of hand-held computing devices. The Company documents
research findings, conducts internal and client workshops on these topics, and
makes the research available for use in its client engagements.
PROFESSIONAL DEVELOPMENT AND INCENTIVE PROGRAMS. The Company has instituted
several professional development and incentive programs to encourage employee
retention and to provide support for the professional growth of all employees.
The Company provides training to its employees through an annual four-day
educational retreat, as well as ongoing classroom education, computer-based
training and external seminars. The Company has programs to educate all new
employees about the history, culture and practices of FCG. All employees are
required to establish an annual professional development plan for knowledge
acquisition, skill development, leadership assessment and training, project
management and relationship management. In addition to such programs, the
Company encourages equity participation by all employees. All vice presidents
must purchase a multiple of their annual salary in Common Stock through the 1994
Restricted Stock Plan, which provides for a ten-year vesting schedule of such
stock. See "Management--1994 Restricted Stock Plan and Agreements". All other
employees are eligible to participate in the ASOP, which matches 50% of employee
contributions with a contribution of Common Stock by the Company. See
"Management--Associate 401(k) and Stock Ownership Plan."
SCOTTSDALE INSTITUTE. The Company's Scottsdale Institute is a membership
organization composed of more than 30 healthcare organizations across the United
States, typically represented by their Chief Executive Officers, Chief Operating
Officers or Chief Information Officers. Membership is by invitation only. The
Scottsdale Institute provides its members with a cost-sharing vehicle for
information exchange, problem-solving and learning related to improving
operations effectiveness through information management. The Emerging Practices
Group performs guided research projects in collaboration with three to five of
the Scottsdale Institute's member organizations that share common
characteristics and information management needs. The Emerging Practices Group
delivers research reports and tools to member organizations in areas such as
management techniques, organizational models, benchmarking and best practices,
methodologies, plans, and vendor information. This research enables the Company
to develop practical, applied solutions to problems of leading healthcare
organizations and to anticipate service needs of the broader market.
KNOWLEDGE AND INFORMATION TECHNOLOGY EXCHANGE. The Company's personnel have
access to the Company's internal research and to current industry and technology
information and project methodologies, experiences, models and tools through
KITE. KITE currently houses over 5,000 documents that include industry
information, service methodologies and tools, benchmarks and best practice
information and other documentation to support the Company's services and
consultants. KITE is updated on a continuous basis with information resulting
from each engagement, by the Emerging Practices Group, and by the Practice
Guilds. The Company believes that this resource allows its consultants to
utilize engagement-specific information which improves the quality and content
of services delivered to clients while reducing cost of delivery.
PRACTICE GUILDS. The Company has created an internal Practice Guild
structure for purposes of information exchange, retention, and continuous
employee education. The Company has the following Practice Guilds:
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Clinical Informatics, Operations Effectiveness, Health Plans, Healthcare
Delivery, and Administrative Support. Each consultant in the Company is a member
of one or more Practice Guilds. The Practice Guilds share information concerning
best practices, tools, methodologies, and latest developments in area of
expertise. This information sharing is accomplished by a combination of periodic
meetings, e-mail, bulletin boards, teleconference, voicemail, and through KITE.
The Practice Guilds also provide an interest group for professionals to share
experiences and foster better working relationships and teamwork, which in turn
support client service and productivity.
CLIENTS
In 1997, the Company provided services to over 360 clients consisting of
providers, payors and other healthcare organizations in North America and
Europe. The Company's clients include leading IDNs, health plans, acute care
centers, academic medical centers and other organizations. A representative
listing of the Company's clients which, in the aggregate, accounted for 43% of
the Company's revenues in 1997, is provided below:
<TABLE>
<CAPTION>
ACUTE CARE CENTERS, PHYSICIAN
INTEGRATED DELIVERY NETWORKS ORGANIZATIONS AND CLINICS
- --------------------------------------- -------------------------------------------
Allina Health System Carle Clinic
<S> <C>
Atlantic Health System Children's Hospital (Boston)
Baylor Health Care System Children's Hospital (Columbus)
Catholic Healthcare West Lahey Hitchcock Clinic
Erlanger Health System MedPartners, Inc.
Henry Ford Health System Mount Sinai Medical Center (New York)
Inova Health Systems Northwest Hospital (Seattle)
Partner's Health Care System PhyCor/Straub Clinic and Hospital
Sentara Health Care System Rehabilitation Institute (Chicago)
Unity Health System St. Luke's Episcopal Hospital (Houston)
<CAPTION>
HEALTH PLANS ACADEMIC MEDICAL CENTERS
- --------------------------------------- -------------------------------------------
<S> <C>
Aetna Health Plans Loyola University Medical Center
Blue Cross Blue Shield (Michigan) Northwestern Memorial Hospital
Blue Cross Blue Shield (Tennessee) UCSF/Stanford Health Care
Great West Life University of Alabama Medical Center
Health Partners (Alabama) University of Massachusetts Medical Center
Humana HealthPlan University of Miami School of Medicine
Kaiser Permanente University of Missouri Hospitals and Clinic
Mercy Health System (Michigan) University of Pennsylvania Medical Center
University of Texas M.D. Anderson Cancer
PacifiCare Health Systems Center
Rocky Mountain Healthcare Corporation University Medical Center, Tucson
Sloans Lake Managed Care Vanderbilt University Medical Center
</TABLE>
On December 31, 1996, the Company entered into a collaborative agreement for
a period of three years with Premier, Inc. ("Premier"), a leading healthcare
industry association of approximately 2,000 hospitals and healthcare delivery
organizations. Under the agreement, the Company and Premier agree to collaborate
in marketing information management consulting services to Premier member
organizations. Premier members constitute approximately 33% of the nation's
non-federal government owned hospitals. The firm also has an exclusive agreement
with Voluntary Hospitals of America, Inc. ("VHA"), an association of
approximately 1,500 hospitals and healthcare delivery organizations. Under the
agreement, which terminates in May, 1998, the Company acts as the exclusive
consulting delivery arm for information management consulting services sold by
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VHA to its member organizations. These agreements provide the Company with
potential assignments, particularly with small and mid-sized healthcare provider
organizations.
SALES AND MARKETING
The Company generates a substantial portion of its revenue from existing
clients and client referrals and markets its services primarily through its vice
presidents. The Company's vice presidents develop strong relationships with
senior-level information management and other decision-making personnel at
leading healthcare organizations, and are therefore positioned to market
additional strategic and information technology consulting services to the
Company's existing clients. The Company maintains these relationships by
successfully completing assignments and meeting clients' expectations. In
particular, the Company believes that by successfully completing strategic plans
for new and existing clients, its vice presidents will have significant
opportunities to offer implementation and integration services to these clients.
The Company has demonstrated that this strategy leads to expanded opportunities
with its clients and referrals to new clients. In providing its services, the
Company attains an in-depth understanding of its client's processes and internal
information technology and business strategies. Through this understanding, the
Company plans to provide operations effectiveness services to a greater portion
of its client base. Operations effectiveness services involve assessing,
designing and improving financial, administrative and clinical process. The
Company's vice presidents and practice directors allocate a significant portion
of their time to business development and related activities. The Company also
employs six specialists who are responsible for new business development with
targeted clients.
The Company is frequently engaged to provide multiple services throughout
several phases of a client's information technology system lifecycle, including
planning, procurement and contracting, implementation, integration and
management. As a result of this involvement, the Company's personnel often
develop an in-depth understanding of the client's systems and capabilities and
develop strong relationships with personnel within the client organization.
These relationships provide the Company with significant opportunities to
undertake additional assignments for each client.
In addition to generating assignments from existing clients, the Company
attracts new clients through its targeted marketing activities. The Company's
marketing activities include public speaking, publishing, press releases and
trade show participation. The Company also maintains research reports and "white
papers" on its web site, along with other Company and industry information. The
Company's marketing staff produces a number of sales support tools including
presentations, article reprints, descriptions of the Company's services and case
studies.
INTERNATIONAL OPERATIONS
The Company has provided its consulting, implementation and integration
services to clients in Canada, Germany, Ireland, Mexico and the United Kingdom,
and maintains offices in Dublin, Ireland and London and Macclesfield, United
Kingdom. On January 13, 1998, the Company completed the acquisition of a small
healthcare consulting firm in the United Kingdom. The Company believes that
select international acquisitions will enhance its ability to effectively serve
clients in targeted international markets.
The Company intends to expand its international consulting services, which
will require a significant amount of management's attention and the Company's
human and financial resources. The Company may establish additional
international operations and hire additional personnel. There can be no
assurance that the Company will be able to successfully recruit and retain the
necessary number of highly skilled consultants in each country in which it
intends to conduct its operations. Any inability to recruit and retain such
employees could impair the Company's ability to expand internationally and may
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there can be no assurance that the
Company will be able to establish international market demand for its services.
The Company's international business may be subject to a variety of risks,
including the difficulty of tailoring its services to individual
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countries' healthcare market needs, currency fluctuations, potentially longer
payment cycles, potential difficulties in collecting international accounts
receivable, the enforcement of contractual obligations and intellectual property
rights, potentially adverse tax consequences, increased costs associated with
maintaining international marketing efforts, costs of localizing services in
international markets, adverse changes in regulatory requirements and possible
economic downturns outside of the United States. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on its business, financial condition
and results of operations.
COMPETITION
The market for healthcare information technology consulting is intensely
competitive, rapidly evolving and highly fragmented. The Company has competitors
that provide some or all of the services provided by the Company. The Company
competes for strategic consulting services and co-management services with
international consulting firms, regional and specialty consulting firms and the
consulting groups of international accounting firms such as KPMG Peat Marwick
LLP, Ernst & Young LLP, Deloitte & Touche LLP, Coopers & Lybrand L.L.P. and
Andersen Consulting. In its implementation and integration services, the Company
competes with information system vendors such as HBO & Company, Inc., Shared
Medical Systems Corporation and Integrated Systems Solution Corporation, a
division of International Business Machines Corporation; service groups of
computer equipment companies; systems integration companies such as Electronic
Data Systems Corporation, Perot Systems Corporation, CAP Gemini America, Inc.
and Computer Sciences Corporation; clients' internal information management
departments; and other healthcare consulting firms such as DAOU Systems, Inc.,
Superior Consultant Holdings Corporation and Diamond Technology Partners
Incorporated. Many of the Company's competitors have significantly greater
financial, human and marketing resources than the Company. As a result, such
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer demands, or to devote greater resources to the
development, promotion, sale and support of their products and services than the
Company. In addition, as healthcare organizations become larger and more
complex, the Company's larger competitors may be better able to serve the needs
of such organizations. There can be no assurance that the Company will be able
to attract and retain the personnel or to dedicate the financial resources
necessary to serve these resulting organizations.
The Company believes that it competes primarily on the basis of the quality
of its services; however, its clients may become increasingly price-sensitive as
competitive pricing pressures increase. Large information technology companies
have, in the past, offered strategic planning services at a substantial discount
as an incentive to utilize their implementation services, and software and
hardware vendors may provide discounted implementation services for their
products. These competitors may in the future discount such services more
frequently or offer such services at no charge. There can be no assurance that
the Company will be able to compete for price-sensitive clients on the basis of
its current pricing or cost structure, or that the Company will be able to lower
its prices or costs in order to compete effectively. Furthermore, many of the
Company's competitors have long-standing business relationships with key
personnel at healthcare organizations which could prevent or delay the Company
from expanding its client base. While the Company believes that it has been able
to compete successfully on the basis of the quality and range of its services
and the accumulated expertise of its consultants, there can be no assurance that
the Company will be able to compete effectively with current and future
competitors or that competitive pressures faced by the Company will not cause
the Company's revenue or operating margins to decline or otherwise materially
adversely affect its business, financial condition and results of operations.
LIMITED PROTECTION OF PROPRIETARY INFORMATION AND PROCEDURES
The Company's ability to compete effectively depends on its ability to
protect its proprietary information, including its proprietary methodologies,
research, tools, software code and other information. The Company relies
primarily on a combination of copyright and trade secret laws and
confidentiality procedures to protect its intellectual property rights. The
Company requests that its consultants and employees sign confidentiality
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<PAGE>
agreements and generally limits access to and distribution of its research,
methodologies and software codes. There can be no assurance that the steps taken
by the Company to protect its proprietary information will be adequate to
prevent its misappropriation. In addition, the laws of certain countries do not
protect or enforce proprietary rights to the same extent as do the laws of the
United States. The unauthorized use of the Company's intellectual property could
have a material adverse effect on the Company's business, financial condition or
results of operations. The Company believes that its systems and procedures and
other proprietary rights do not infringe upon the proprietary rights of third
parties. There can be no assurance, that third parties will not assert
infringement claims against the Company in the future or that any such claims
will not result in protracted and costly litigation, regardless of the merits of
such claims.
EMPLOYEES
As of December 31, 1997, the Company had 591 employees, 49 of whom were vice
presidents. The Company's vice presidents are stockholders of the Company and
are responsible for new business development, client relationships, company
leadership, service delivery and the long-term strategy of the Company. The
Company believes that its relationship with its employees is good.
FACILITIES
The Company's headquarters is located in approximately 24,000 square feet of
leased office space in Long Beach, California. The Company also leases an
aggregate of approximately 83,000 square feet of office space in the following
cities: Oakland, California; Morristown, New Jersey; Bethesda and Baltimore,
Maryland; New York City, New York; Tampa, Florida; Detroit and Okemos, Michigan;
Houston and Dallas, Texas; Boston, Massachusetts; Pittsburgh, Pennsylvania;
Chicago, Illinois; Atlanta, Georgia; Seattle, Washington; Denver, Colorado;
Dublin, Ireland; and London and Macclesfield, United Kingdom. The Company
believes these facilities are adequate to meet its needs for the next twelve
months.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in claims or litigation that
arise in the normal course of business. As of the date of this Prospectus, the
Company is not a party to any legal proceedings which, if decided adversely to
the Company, would have a material adverse effect on the Company's business,
financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- --------------------------------------------------------------------------
<S> <C> <C>
James A. Reep....................... 46 Chairman of the Board, Chief Executive Officer and President
Steven Heck......................... 50 Executive Vice President, Practice and Director
Luther J. Nussbaum.................. 50 Executive Vice President, Worldwide Practice Support and Director
Thomas A. Reep...................... 42 Vice President, Finance and Chief Financial Officer
Richard N. Kramer................... 44 Vice President and Managing Director, East Region
Roy A. Ziegler...................... 35 Vice President and Managing Director, West Region
Don M. Tompkins..................... 54 Vice President and Managing Director, Implementation Services
Michael R. Gorsage.................. 46 Vice President and Managing Director, Network Integration Services
Frank I. Mueller.................... 49 Vice President and Managing Director, International
Erica L. Drazen..................... 51 Vice President and Managing Director, Emerging Practices
Roy W. Walters...................... 51 Vice President and Managing Director, Quality Improvement
Paula K. Cowan...................... 55 Vice President, Human Resources
Stanley R. Nelson (1)(2)............ 71 Director
Steven Lazarus (1).................. 66 Director
Stephen E. Olson (1)(2)............. 56 Director
Scott S. Parker..................... 62 Director
Jack O. Vance (2)................... 73 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
JAMES A. REEP co-founded the Company in 1980 and has served as Chairman of
the Board since December 1987 and Chief Executive Officer and President since
March 1991. Mr. Reep is a member of the Board of Directors of New Era of
Networks, Inc., which develops packaged solutions for application integration.
Mr. Reep also serves as a director of First Consulting Group (UK) Ltd., First
Consulting Group (Ireland) Ltd., and the Scottsdale Institute, subsidiaries of
the Company, and several non-profit organizations. From 1977 to 1980, Mr. Reep
was a consultant at Arthur Andersen. Mr. Reep is the brother of Thomas A. Reep,
Chief Financial Officer of the Company. Mr. Reep received a B.A. from California
State University, Long Beach and an M.B.A. from the University of Chicago.
STEVEN HECK has served the Company as Executive Vice President, Practice
since April 1995 and as a director since April 1997. Mr. Heck served as Vice
President, Practice from April 1991 to March 1995. From 1990 to 1991, Mr. Heck
served as Chief Information Officer of Evangelical Health Systems. Mr. Heck
served the Company as Vice President, Midwest Region from May 1987 to December
1989. Prior to joining the Company, Mr. Heck was the Managing Partner of the
Great Lakes Health Care Practice at Price Waterhouse LLP from 1985 to 1987.
LUTHER J. NUSSBAUM has served the Company as Executive Vice President,
Worldwide Practice Support since April 1995 and has been a director since
November 1997. Prior to joining the Company Mr. Nussbaum was the President of
Nussbaum & Associates, a strategic and information consulting firm, from 1993 to
1995. From 1989 to 1993, Mr. Nussbaum served as President and Chief Executive
Officer of Evernet Systems, Inc., a national network systems integration
company. From 1986 to 1989, Mr. Nussbaum was the President and Chief Operating
Officer of Ashton-Tate Corp., a microcomputer software development company. Mr.
Nussbaum serves as a director of First Consulting Group (UK) Ltd. and First
Consulting Group (Ireland) Ltd., subsidiaries of the Company, and four private
entrepreneurial companies. Mr. Nussbaum received a B.A. from Rhodes College and
an M.B.A. from Stanford University.
35
<PAGE>
THOMAS A. REEP has served the Company as Vice President, Finance and Chief
Financial Officer since May 1980. Prior to joining the Company, Mr. Reep was an
accountant with Ernst & Young from 1977 to 1980. Mr. Reep is a certified public
accountant in the State of California. Mr. Reep serves as a director of a
non-profit organization. Mr. Reep is the brother of James A. Reep, Chairman,
Chief Executive Officer and President of the Company. Mr. Reep received a B.S.
and an M.B.A. from California State University, Long Beach.
RICHARD N. KRAMER has served the Company as Vice President and Managing
Director, East Region since July 1995. Mr. Kramer served as Vice President, East
Region from January 1995 to June 1995. Prior to joining the Company, Mr. Kramer
was the National Partner for the Healthcare Information Technology Practice at
KPMG Peat Marwick LLP from 1994 to 1995 and served in other capacities from 1983
to 1993. Mr. Kramer received a B.A. from The Johns Hopkins University and an
M.B.A. from Columbia University Graduate School of Business.
ROY A. ZIEGLER has served the Company as Vice President and Managing
Director, West Region since January 1996. Mr. Ziegler served as Vice President
of Managed Care from November 1993 to December 1995. Prior to joining the
Company, Mr. Ziegler was the Practice Director of the Health Management
Initiative in the Pacific Region at Andersen Consulting from 1992 to 1993 and
served in other capacities from 1984 to 1991. Mr. Ziegler received a B.S. from
Pepperdine University.
DON M. TOMPKINS has served the Company as Vice President and Managing
Director, Implementation Services since January 1994. Mr. Tompkins served as
Vice President from April 1993 to December 1996. Prior to joining the Company,
Mr. Tompkins was a General Manager of Network Computing Tools for Texas
Instruments Incorporated from 1990 to 1996. Mr. Tompkins received a B.S. from
Chaminade University of Honolulu.
MICHAEL R. GORSAGE has served the Company as a Vice President and Managing
Director, Network Integration Services since May 1991. Prior to joining the
Company, Mr. Gorsage was the National Director of Communications Technologies
Consulting Services at Price Waterhouse LLP from 1989 to 1991 and served in
other capacities from 1984 to 1987. Mr. Gorsage received a B.S. from Northeast
Louisiana University and an M.B.A. from the University of Tampa.
FRANK I. MUELLER has served the Company as Vice President and Managing
Director, International since January 1997. Mr. Mueller served as Vice President
from January 1988 to December 1996 and joined the Company as a Practice Director
in November 1986. Prior to joining the Company, Mr. Mueller was the President of
Health Serv, a clinical decision support systems company, from 1981 to 1985. Mr.
Mueller received a B.A. from the University of Southern California and an M.A.
from California State University, Long Beach.
ERICA L. DRAZEN has served the Company as Vice President and Managing
Director, Emerging Practices since September 1995, and served as a director from
April 1997 to December 1997. Prior to joining the Company, Ms. Drazen was the
Vice President and Director of the Healthcare Information Systems Practice at
Arthur D. Little, Inc. from 1990 to 1995 and served in other capacities from
1969 to 1989. Ms. Drazen received a B.S. from Tufts University, an M.S. from
Massachusetts Institute of Technology and an Sc.D. from the Harvard School of
Public Health.
ROY W. WALTERS has served the Company as Vice President and Managing
Director, Quality Improvement since June 1996 and served as a director from
April 1997 to December 1997. Mr. Walters served as Vice President from March
1992 to May 1996. Prior to joining the Company, Mr. Walters was a consultant in
the Healthcare Group at Andersen Consulting from 1975 to February 1992. Mr.
Walters received a B.A. from Cornell University and an M.H.A. from Duke
University.
PAULA K. COWAN has served the Company as Vice President, Human Resources
since March 1996. Prior to joining the Company, Ms. Cowan was a consultant for
Meek and Associates, a strategic compensation and performance management
consulting firm, from 1992 to 1996 and served as Vice President of Human
Resources for Ashton-Tate Corp. from 1986 to 1992. Ms. Cowan received a B.A. and
an M.A. from California State University, Long Beach.
36
<PAGE>
STANLEY R. NELSON has served the Company as a director since April 1997.
From 1993 to August 1997, Mr. Nelson was the President of the Center for
Clinical Integration, Inc., the predecessor of the Scottsdale Institute, a
subsidiary of the Company. Since 1988, Mr. Nelson has been an independent
healthcare consultant to various organizations. Prior to 1988, Mr. Nelson served
as the President and Chief Executive Officer of the Henry Ford Healthcare Corp.
in Detroit, Michigan and, prior to that, the Abbott-Northwestern Hospital in
Minneapolis, Minnesota. Mr. Nelson currently serves as a director of the
Scottsdale Institute, a subsidiary of the Company. Mr. Nelson received a B.S.
and an M.H.A. from the University of Minnesota.
STEVEN LAZARUS has served the Company as a director since April 1997. Since
1986, Mr. Lazarus has served as a senior principal of various venture capital
funds associated with ARCH Venture, including President and Chief Executive
Officer of ARCH Development Corporation and Managing Director of ARCH Venture
Partners. From 1986 to 1994, Mr. Lazarus served as the Associate Dean of the
Graduate School of Business of the University of Chicago. He currently serves as
a director of Amgen Inc., a biotechnology company, Primark Corporation, an
information services company, Illinois Superconductor Corporation, which
develops radio frequency equipment for the wireless communication industry, and
New Era of Networks, Inc., which develops packaged solutions for application
integration. Mr. Lazarus received a B.A. from Dartmouth College and an M.B.A.
from the Harvard University Graduate School of Business.
STEPHEN E. OLSON has served the Company as a director since April 1997.
Since 1988, Mr. Olson has served as Chairman of the Board of The Olson Company,
a developer of landmark residential communities within urban environments. Since
1992, Mr. Olson has also served as Chairman of the Board of Flowline, Inc., a
high-technology company specializing in intelligent sensors and controls. Mr.
Olson serves as a director of several private companies. Mr. Olson received a
B.A. from the University of Redlands and an M.B.A. from Pepperdine University.
SCOTT S. PARKER has served the Company as a director since November 1997. He
has served as the President and Chief Executive Officer of Intermountain Health
Care since 1975. Mr. Parker serves as a director of First Security Corporation
MMI Companies, Inc., a community and commercial bank, and Questar Corporation, a
natural gas and energy services holding company. Mr. Parker received a B.A. from
the University of Utah and an M.H.A. from the University of Minnesota.
JACK O. VANCE has served the Company as a director since April 1997. Mr.
Vance is the Managing Director of Management Research, Inc., a management
consulting firm. From 1973 to 1989, Mr. Vance was the Managing Partner of the
Los Angeles office of McKinsey & Company and served on the Executive Committee
of the firm's Board of Directors from 1962 to 1989. Mr. Vance serves as a
director of International Rectifier Corporation, a supplier of power
semiconductor components, Semtech Corporation, a manufacturer of analog
semiconductor products, and several private companies. Mr. Vance received a B.S.
from the University of Louisville and an M.B.A. from the Wharton School of the
University of Pennsylvania.
BOARD COMPOSITION
The Company currently has authorized 8 directors. In accordance with the
terms of the Company's Certificate of Incorporation, the terms of office of the
Board of Directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 1999; Class II, whose
term will expire at the annual meeting of stockholders to be held in 2000; and
Class III, whose term will expire at the annual meeting of stockholders to be
held in 2001. The Class I directors are Stephen Olson and Steven Heck, the Class
II directors are Stanley R. Nelson, Luther J. Nussbaum and Jack O. Vance and the
Class III directors are Scott S. Parker, Steven Lazarus and James A. Reep. At
each annual meeting of stockholders after the initial classification, the
successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the Company's Certificate of Incorporation
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the
37
<PAGE>
directors. This classification of the Board of Directors may have the effect of
delaying or preventing changes in control or management of the Company. Although
directors of the Company may be removed for cause by the affirmative vote of the
holders of a majority of the Common Stock, the Company's Certificate of
Incorporation provides that holders of two-thirds of the Common Stock must vote
to approve the removal of a director without cause.
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of the Company and consults with, and reviews the services
provided by, the Company's independent auditors. The Compensation Committee of
the Board of Directors reviews and recommends to the Board of Directors the
compensation and benefits of all officers of the Company and reviews general
policy relating to compensation and benefits of employees of the Company. The
Compensation Committee also administers the issuance of stock options and other
awards under the Company's stock plans.
DIRECTOR COMPENSATION
The Company currently provides annual cash compensation in the amount of
$10,000 to directors for services in such capacity. Directors are also
reimbursed for certain expenses in connection with attendance at Board of
Directors and committee meetings. Directors receive automatic grants of
nonstatutory stock options under the 1997 Non-Employee Directors' Stock Option
Plan and are eligible for grants of nonstatutory stock options under the 1997
Equity Incentive Plan. Currently, each non-employee director is required to
purchase and hold shares with an aggregate fair market value equal to the annual
fees paid to the directors under the Non-Employee Director Restricted Stock
Plan. See "--1997 Equity Incentive Plan," "--1997 Non-Employee Directors' Stock
Option Plan," and "--Non-Employee Director Restricted Stock Plan and
Agreements."
EXECUTIVE COMPENSATION
The following table sets forth certain information for the year ended
December 31, 1997, regarding the compensation of the Company's Chief Executive
Officer and each of the four most highly compensated executive officers of the
Company whose salary and bonus for such year were in excess of $100,000 on an
annualized basis (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
James A. Reep
Chief Executive Officer and President.................................... $ 370,000 $ 120,435 $ 47,634(2)(3)
Steven Heck
Executive Vice President, Practice....................................... 335,000 109,043 171,425(3)(4)
Luther J. Nussbaum
Executive Vice President, Worldwide Practice Support..................... 315,000 127,533 49,009(3)
Don M. Tompkins
Vice President and Managing Director, Implementation Services............ 315,000 110,250 57,328(3)
Richard W. Kramer
Vice President and Managing Director, East Region........................ 315,000 99,225 44,560(3)
Roy A. Ziegler
Vice President and Managing Director, West Region........................ 315,000 99,725 51,111(3)
</TABLE>
- ------------------------
(1) In accordance with Securities and Exchange Commission (the "Commission")
rules, other annual compensation in the form of perquisites and other
personal benefits has been omitted where the aggregate amount
38
<PAGE>
of such perquisites and other personal benefits constitutes less than the
lesser of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officer for the fiscal year.
(2) Reflects a premium of $28,674 paid by the Company for a life insurance
policy of which Mr. Reep is the beneficiary.
(3) Includes imputed interest on interest-free loans by the Company to each of
the Named Executive Officers (except Mr. Reep) for the purchase of shares of
Common Stock under the 1994 Restricted Stock Plan, as amended; supplemental
executive retirement plan contributions made on behalf of each of the Named
Executive Officers (except Mr. Reep); and an allocation of 1,000 shares to
each of the Named Executive Officers' accounts under the ASOP at an
aggregate valuation of $7,443 per Named Executive Officer. Also includes the
Company's 50% matching contribution of Common Stock under the ASOP for the
account of Messrs. Reep, Heck, Nussbaum, Tompkins, Kramer and Ziegler with
an estimated valuation of $11,517, $11,347, $11,517, $10,620, $11,202 and
$11,517, respectively. See "Certain Transactions," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and
"Management--Associate 401(k) and Stock Ownership Plan" and "--Supplemental
Executive Retirement Plan.".
(4) Includes $90,700 in relocation expenses paid by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to Named Executive Officers for the year
ended December 31, 1997.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the fiscal year ended December 31, 1997. No Named Executive Officer held options
at December 31, 1997.
<TABLE>
<CAPTION>
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) (1)
- ------------------------------------------------------------------------------------- ----------- --------------
<S> <C> <C>
James A. Reep........................................................................ -- --
Steven Heck.......................................................................... 47,272 493,047
Luther J. Nussbaum................................................................... -- --
Don M. Tompkins...................................................................... -- --
Richard N. Kramer.................................................................... 123,920 1,292,486
Roy A. Ziegler....................................................................... -- --
</TABLE>
- ------------------------
(1) Value realized is based on an assumed initial public offering price of
$11.00 per share of Common Stock, although at the time of grant the fair
market value of the Common Stock was determined by the Board of Directors to
be $4.76 per share. Amounts reflected are based on the assumed value minus
the exercise price multiplied by the number of shares acquired on exercise
and do not indicate that the optionee sold such stock.
1997 EQUITY INCENTIVE PLAN
The Company's 1997 Equity Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors on August 22, 1997, and was approved by the Company's
stockholders on January 15, 1998. There are currently 1,600,000 shares of Common
Stock authorized for issuance under the Incentive Plan. The Incentive Plan
provides for the grant of incentive stock options to employees (including
officers and employee-directors) and nonstatutory stock options, restricted
stock purchase awards, stock appreciation rights and stock bonuses ("stock
awards") to employees, directors and consultants. Incentive stock options
granted under the Incentive Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Nonstatutory stock options granted under the Incentive
Plan are intended
39
<PAGE>
not to qualify as incentive stock options under the Code. The Incentive Plan is
administered by the Board of Directors or a committee appointed by the Board
which determines recipients and types of stock awards to be granted, including
the exercise price, number of shares subject to the stock award and the
exercisability thereof.
The term of the stock options granted under the Incentive Plan generally may
not exceed 10 years. The exercise price of options granted under the Incentive
Plan is determined by the Board of Directors, provided that the exercise price
for an incentive stock option cannot be less than 100% of the fair market value
of the Common Stock on the date of the option grant, and the exercise price for
a nonstatutory stock option cannot be less than 85% of the fair market value of
the Common Stock on the date of the option grant. Options granted under the
Incentive Plan vest at a rate of 20% on the first anniversary of the option
grant and 1/60th every month thereafter. No stock option may be transferred by
the optionee other than by will or the laws of descent or distribution, provided
that a nonstatutory stock option granted after the Company becomes publicly
traded may be transferable if so provided in the option agreement, and provided
further that an optionee may designate a beneficiary who may exercise the option
following the optionee's death. Generally, an optionee whose employment or other
service relationship with the Company and its affiliates terminates for any
reason (other than by death or permanent and total disability) may exercise his
or her option in the three-month period following such termination (unless such
option expires sooner by its terms). Options generally may be exercised for up
to 18 months or 12 months after an optionee's employment or other service
relationship with the Company and its affiliates terminates due to death or
disability, respectively (unless such options expire sooner by their terms).
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock representing more than 10% of the
total combined voting power of all classes of stock of the Company or any of the
affiliates of the Company, unless the option exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant,
and the term of the option does not exceed five years from the date of grant.
The aggregate fair market value, determined at the time of grant, of the shares
of Common Stock with respect to which incentive stock options are exercisable
for the first time by an optionee during any calendar year (under all such plans
of the Company and its affiliates) may not exceed $100,000. The options, or
portions thereof, which exceed this limit are treated as nonstatutory stock
options. Shares subject to stock awards that have expired or otherwise
terminated without having been exercised in full (or vested in the case of
restricted stock awards) shall again become available for the grant of awards
under the Incentive Plan. The Board of Directors has the authority to reprice
outstanding options and to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares.
Stock awards granted under the Incentive Plan may be granted pursuant to a
repurchase option in favor of the Company in accordance with a vesting schedule
and at a price determined by the Board of Directors. Restricted stock purchases
must be at a price equal to at least 85% of the stock's fair market value on the
award date, but stock bonuses may be awarded in consideration of past services
without a purchase payment. Rights under a stock bonus or restricted stock bonus
agreement are transferable only upon the terms and conditions set forth in the
stock award agreement and the stock awarded pursuant to such an agreement
remains subject to the agreement.
Upon a Change in Control of the Company (as defined below), the surviving or
acquiring corporation may assume outstanding stock awards under the Incentive
Plan or substitute similar stock awards. If it does so, but the holder's service
is either voluntarily terminated with good reason or is involuntarily terminated
without cause (as defined in the Incentive Plan) within one month before, or 13
months after, the Change in Control, both the vesting and the exercisability of
the holder's stock award will accelerate. If the surviving or acquiring
corporation refuses to assume or to substitute for outstanding stock awards,
then (1) both the vesting and exercisability of stock awards held by persons
still serving the Company or an affiliate (whether as an employee, director or
consultant) will accelerate before a Change in Control, and (2) all stock awards
will terminate if not exercised after such acceleration but before a Change in
Control in which there is a surviving or acquiring corporation. "Change in
Control" means a dissolution, liquidation, or sale of all or substantially all
of the Company's assets, a merger or consolidation in which the Company is not
the surviving corporation, a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding
40
<PAGE>
immediately before the merger are converted by virtue of the merger into other
property, or the date that at least 50% of the Board is not composed of the
incumbent Board on August 22, 1997, as well as directors whose election or
nomination was approved by a vote of at least 50% of that incumbent Board.
As of December 31, 1997, no shares of Common Stock had been issued upon the
exercise of options granted under the Incentive Plan, options to purchase
945,400 shares of Common Stock at a weighted average exercise price of $5.55
were outstanding and 654,600 shares remained available for future grant. The
Incentive Plan will terminate on August 21, 2007 unless terminated earlier by
the Board of Directors. As of December 31, 1997, no stock bonuses or restricted
stock awards have been granted under the Incentive Plan.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Board of Directors adopted the 1997 Non-Employee Directors' Stock Option
Plan (the "Director Option Plan") on August 22, 1997, and the stockholders
approved the Director Option Plan on January 15, 1998. The Director Option Plan
provides for the automatic grant to non-employee directors of the Company of
options to purchase shares of Common Stock. The Director Option Plan is
administered by the Board, unless the Board delegates administration to a
committee. An aggregate of 200,000 shares of Common Stock has been reserved for
issuance under the Director Option Plan, subject to adjustment in the event of
certain capital changes.
On August 22, 1997, each non-employee director was automatically granted an
option for 20,000 shares, 1/5 of which will vest on August 21, 1998 and 1/60 of
which will vest each month thereafter. Each person who is first elected as a
non-employee director after August 22, 1997 will automatically receive an option
for 4,000 shares, which will vest at the rate of 1/12 each month. In addition,
on January 1, 1998 and each January 1 thereafter, each non-employee director
will automatically receive an option for 4,000 shares, which will also vest at
the rate of 1/12 each month. If the non-employee director continues to serve the
Company or an affiliate, whether in the capacity of a director, an employee or a
consultant, the option will continue to vest and be exercisable. If the
optionee's service is either voluntarily terminated with good reason or is
involuntarily terminated without cause (as defined in the Director Option Plan)
upon a Change in Control (as defined below), both the vesting and exercisability
of the options will accelerate.
The option is not transferable except by will, by the laws of descent and
distribution, pursuant to a domestic relations order or to the spouse, children,
lineal ancestors and lineal descendants of the optionee (or to a trust or
limited liability company or partnership created solely for the benefit of the
optionee and the foregoing persons). Although the option is exercisable during
the lifetime of the optionee only by the optionee or a permitted transferee, the
optionee may designate a third party who, in the event of the death of the
optionee, will be entitled to exercise the option. Options granted under the
Director Option Plan expire 10 years after the date of grant and have an
exercise price equal to 100% of the fair market value of the Common Stock on the
date of grant. If the optionee's service to the Company or an affiliate
terminates, vesting will stop but the optionee may exercise the option (to the
extent it remains exercisable) for 18 months if termination is due to death, or
for 12 months in all other circumstances.
Upon a Change in Control of the Company, the surviving or acquiring
corporation may assume outstanding options under the Director Option Plan or
substitute similar options. If it does so but the optionee's service is either
voluntarily terminated with good reason or is involuntarily terminated without
cause (as defined in the Director Option Plan) within one month before, or 13
months after, the Change in Control, both the vesting and the exercisability of
the optionee's option will accelerate. If the surviving or acquiring corporation
refuses to assume or to substitute for outstanding options, then (1) both the
vesting and exercisability of options held by optionees still serving the
Company or an affiliate will accelerate, and (2) all options will terminate if
not exercised after such acceleration but before the Change in Control where
there is a surviving or acquiring corporation.
As of December 31, 1997, no shares of Common Stock had been issued upon the
exercise of options granted under the Director Option Plan, options to purchase
84,000 shares of Common Stock at a weighted average exercise price of $4.89 per
share were outstanding and 116,000 shares remained available for future grant.
The Director Option Plan will terminate on August 21, 2007 unless terminated
earlier by the Board of Directors.
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<PAGE>
1994 RESTRICTED STOCK PLAN AND AGREEMENTS
On December 15, 1997 the Board of Directors adopted an amendment to the 1994
Restricted Stock Plan (as amended, the "1994 Plan") and form of Restricted Stock
Agreement ("RSA"). The stockholders approved the 1994 Plan and RSAs on January
15, 1998. The 1994 Plan provides a mechanism for the purchase and sale of Common
Stock by its vice presidents. The 1994 Plan is administered by the Company's
Board of Directors or a committee appointed by the Board.
Under the 1994 Plan, the Company has entered into RSAs with each of its vice
presidents. The 1994 Plan and RSAs provide that each person, upon becoming a
vice president of the Company, must purchase and hold a specific minimum number
of shares of Common Stock. Vice presidents at Levels I and II are required to
purchase and hold that number of shares equal to one times the vice president's
base salary divided by the then-current fair market value of the Common Stock.
Vice presidents at Levels III and IV are required to purchase and hold that
number of shares equal to two times the vice president's base salary divided by
the then-current fair market value of the Common Stock. Prior to the completion
of this offering, the fair market value of the Common Stock is determined by
reference to a report prepared for the Company by an independent valuation firm.
After the consummation of this offering, the fair market value of the Common
Stock will be determined by reference to the closing selling price of the Common
Stock on the Nasdaq National Market.
Shares purchased under the RSAs are subject to a 10-year vesting period
beginning the date upon which an individual becomes a vice president and
continuing upon the completion of each year of service for such vice president.
Automatic acceleration of such vesting occurs upon death or permanent disability
of a vice president and upon certain changes in ownership of the Company.
Partial acceleration of vesting may also occur upon the vice president attaining
the age of 59. Shares purchased after consummation of this offering are fully
vested upon purchase.
Under the terms of the RSAs, the Company retains a repurchase right with
respect to unvested shares, unless such termination is due to death, disability
or changes in control of the Company. Pursuant to this right, the Company may
repurchase unvested shares at the original issuance price plus a growth factor.
The growth factor is equal to the average interest rate compounded quarterly
which the Company pays to a commercial lending institution in a calendar quarter
(the "Growth Factor"). In the event the Company has no borrowings for a
particular quarter, then the Growth Factor shall be the prime rate on the first
day of the quarter, as announced in the Wall Street Journal or if the Wall
Street Journal discontinues such announcements, then it shall be the prime rate
as announced by Bank of America. Shares acquired under RSAs which a vice
president needs in order to satisfy minimum shareholding requirements or which
are encumbered are nontransferable, with the exception of transfers for certain
estate planning and charitable gift purposes. In addition, the RSAs provide
that, under certain circumstances and upon attaining a certain age, a vice
president may sell a portion, but not all, of his or her shares to other vice
presidents or to the Company. The Company may also repurchase vested shares from
a departing vice president if he or she competes with the Company and/or profits
from the sale of Common Stock within six months of such competition. Upon
completion of this offering, a vice president may sell unencumbered shares of
Common Stock on the public market, subject to the continued satisfaction of the
minimum shareholding requirements. Vice presidents pay the purchase price of the
shares by means of non-recourse and recourse non-interest bearing promissory
notes.
The RSAs also contain non-competition and non-solicitation provisions which
apply generally to the vice president's employment with the Company and which
continue to bind the vice president even after repurchase of all shares by the
Company; provided, however, that such provisions may be superseded by an
employment agreement entered into between the Company and the vice president.
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN AND AGREEMENTS
On August 22, 1997, the Board of Directors adopted the Non-Employee Director
Restricted Stock Plan (the "Director Stock Plan") and form of Non-Employee
Director Restricted Stock Agreement ("Director RSA"). The stockholders approved
the Director Stock Plan and Director RSA on January 15, 1998. The Director Stock
Plan is administered by the Company's Board of Directors or a committee
appointed by the Board of Directors.
42
<PAGE>
The Company has entered into Director RSAs with each of its non-employee
directors. The Director RSAs provide that each person, upon becoming a
non-employee director of the Company, must purchase a minimum number of shares
of Common Stock. Currently, each non-employee director is required to purchase
and continue to hold shares of Common Stock with an aggregate fair market value
equal to $10,000, the current annual cash compensation payable for services as a
non-employee director. Common Stock purchased under the Director RSAs is fully
vested upon purchase.
Under the terms of the Director RSAs, prior to effectiveness of this
offering, the Company retains a repurchase right with respect to all Common
Stock upon the termination of a non-employee director's service with the
Company. Pursuant to such right, the Company may repurchase all shares of Common
Stock at the then-current market value. Common Stock acquired under Director
RSAs is nontransferable, with the exception of transfers for certain
estate-planning and charitable gift purposes. In addition, the Director RSAs
provide that under certain circumstances, a non-employee director may sell a
portion, but not all, of his or her Common Stock to other non-employee
directors, officer/stockholders of the Company or to the Company. The Company
may pay the purchase price either entirely in cash or a combination of cash and
a promissory note. All other purchasers must pay cash for the purchase price.
Upon effectiveness of this offering, a non-employee director may sell
unencumbered Common Stock in the public market, subject to the continued
satisfaction of the minimum shareholding requirements.
ASSOCIATE 401(K) AND STOCK OWNERSHIP PLAN
The Associate 401(k) and Stock Ownership Plan (the "ASOP"), as amended, was
adopted effective December 1, 1995. The ASOP covers all employees of the Company
and affiliates of the Company designated by the Company's Board of Directors,
excluding any union employees unless their coverage is bargained for, and
excluding non-resident aliens without U.S. source earned income. ASOP
participation commences automatically for newly eligible employees on semiannual
entry dates.
Under the ASOP, participants may elect to reduce their current compensation
by up to the lesser of 15% of such compensation or the statutorily prescribed
annual limit ($9,500 in 1997) and have the amount of such reduction contributed
to the ASOP. In addition, the Company may make contributions to the ASOP on
behalf of participants. Company contributions may be matching contributions
allocated based on each participant's compensation reduction contributions,
discretionary profit sharing contributions allocated based on each participant's
compensation, or "first share contributions" allocated to some or all
participants on a per capita basis.
The ASOP is intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended, so that contributions by employees or by the Company
to the ASOP, and income earned thereon are not taxable until withdrawn and so
that contributions by the Company, if any, will be deductible by the Company
when made. Participants become vested in Company contributions under two graded
vesting schedules, so that matching and first share contributions are fully
vested after five years of service and profit sharing contributions are fully
vested after seven years of service. The ASOP is a leveraged employee stock
ownership plan. The ASOP borrowed $4.0 million from a third-party financial
institution (the "ASOP Loan") to purchase 1,429,848 shares of Common Stock in
1995. The shares of Common Stock so purchased were placed in a suspense account
under the ASOP from which they are released and allocated to participants
accounts' as the ASOP Loan is repaid. Any or all Company contributions may be
used to repay the ASOP Loan.
In 1996, the Company made matching contributions and first share
contributions to the ASOP sufficient to provide a 50% matching contribution and
a first share contribution of 200 shares of Common Stock for each participant
who was employed by the Company on January 1, 1996 or became employed by the
Company thereafter. In 1997, the Company will make a matching contributions and
per capita contributions sufficient to provide (i) a 50% matching contribution
and (ii) a per capita contribution of 1,000 shares of Common Stock to be
allocated to the account of each participant who is employed by the Company on
November 26, 1997. All 1996 and 1997 Company contributions were used to repay
the ASOP Loan.
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<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
On January 1, 1994 the Company adopted the Supplemental Executive Retirement
Plan (the "SERP"). The SERP was amended on January 1, 1996. The SERP is
administered by the Board of Directors or a committee appointed by the Board of
Directors.
Participants in the SERP are those executive officers at the vice president
or higher level of seniority who are eligible to participate in the 1994 Plan
and who are selected by the Board of Directors or a committee appointed by the
Board of Directors to participate. The Board of Directors or a committee
appointed by the Board of Directors may also designate other officers for
participation in the compensation reduction portion of the SERP. Participation
is conditioned on the submission of a completed enrollment form. SERP
participation terminates when a participant ceases to be a stockholder of the
Company, provided that a former stockholder who continues as an officer may
continue to participate in the compensation reduction portion of the SERP.
Participants may make fully vested compensation reduction contributions to
the SERP, subject to a maximum deferral of 10% of annual base salary. The
Company may make a voluntary contribution for any year in an amount determined
by the Board to the account of SERP participants (the "FCG Contribution"). FCG
Contributions vest 10% for each year of service (with up to 5 years service
credit for participants who were vice presidents on January 1, 1994), provided
that FCG Contributions fully vest upon a Change in Control of the Company or
upon a participant's death, disability or attainment of age 65.
Compensation reduction contributions and FCG Contributions are contributed
to an irrevocable grantor trust, under which accounts are maintained for each
participant, and are invested in investment subaccounts of variable universal
life insurance policies. A participant's SERP account is distributed to the
participant (or his or her beneficiaries) upon the participant's death,
disability or termination of employment, in forms and at times that vary based
on the event triggering the distribution and elections made by the participant.
The Company has the right to terminate the SERP at any time.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, the Company
expects to enter into indemnification agreements with each of its directors and
executive officers.
The Company has obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act. In addition, the Company's Certificate of
Incorporation provides that, to the fullest extent permitted by Delaware law,
the Company's directors will not be liable for monetary damages for breach of
the directors' fiduciary duty of care to the Company and its stockholders. This
provision in the Certificate of Incorporation does not eliminate the duty of
care, and in appropriate circumstances, equitable remedies such as an injunction
or other forms of non-monetary relief would remain available under Delaware law.
Under current Delaware law, a director's liability to the Company or its
stockholders may not be limited with respect to any breach of the director's
duty of loyalty to the Company or its stockholders, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for any transaction from which the director derived an improper personal
benefit, for improper transactions between the director and the Company and for
improper distributions to stockholders and loans to directors and officers. This
provision also does not affect a director's responsibilities under any other
laws such as the federal securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
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<PAGE>
CERTAIN TRANSACTIONS
The Company and its vice presidents have entered into certain agreements
relating to the issuance of the Company's securities. Under the provisions of
the 1994 Plan, the Company's vice presidents have entered into RSAs that require
each vice president to purchase a minimum number of shares of Common Stock.
Shares of Common Stock are purchased under the RSAs at a price per share equal
to the then-prevailing market value for shares of Common Stock as determined by
an independent valuation firm. On and prior to July 30, 1997, the Company also
provided certain of its vice presidents with non-qualified stock options to
purchase shares of Common Stock based on the number of shares purchased under
the RSAs. These options were granted with exercise prices below the
then-prevailing market value for shares of Common Stock as determined by an
independent valuation firm. In connection with the RSAs and stock option
agreements entered into between the Company and its vice presidents the Company
has, from time to time, made certain loans to its vice presidents equal to the
following: (i) the aggregate purchase price for shares of Common Stock purchased
by a vice president under the 1994 Plan; (ii) the aggregate exercise price for
stock options exercised by a vice president in connection with the 1994 Plan;
and (iii) the aggregate amount of medicare and income taxes payable by a vice
president as a result of the exercise of stock options granted in connection
with the 1994 Plan. The promissory notes evidencing such loans are generally
non-recourse, non-interest bearing, and have a stated term of ten years. The
Company records a compensation expense and the Company's vice presidents
recognize income on the imputed interest attributable to these notes. Shares of
Common Stock purchased under the RSAs or pursuant to the exercise of stock
options, for which purchase or exercise a loan was granted, are pledged as
security for the outstanding principal amounts of the loans. Upon the
consummation of this offering, each vice president is required to pledge that
number of shares having a market value equal to 120% of the amount remaining due
under the loans. The RSAs require the Company's vice presidents to repay the
outstanding principal amounts of such loans at the greater of (i) one-tenth
(1/10) of the face amount of such loans, and (ii) one-half ( 1/2) of the vice
presidents' net after tax annual bonus. The Company's vice presidents may repay
the outstanding principal amounts in advance without penalty. As of December 31,
1997, all of the outstanding options under these arrangements have been
exercised and the outstanding aggregate principal amount under these loans
equaled approximately $9.3 million. In the future, the Company plans to grant
all stock options at market value and to match employee 401(k) contributions
with shares of Common Stock based on the market value of the shares at the time
of grant.
The Company has an ongoing, non-contractual business relationship with First
Ticket Travel, whose sole proprietor is Fatima Reep, the wife of James A. Reep,
Chairman of the Board, Chief Executive Officer and President of the Company. For
the year ended December 31, 1997, the Company has purchased travel services from
First Ticket Travel in the amount of approximately $124,000.
The Company entered into a consulting agreement with Stanley R. Nelson on
September 1, 1997. The agreement provides that Mr. Nelson will be paid up to a
maximum of $11,115 per month, for consulting services related to the
administration of and strategic planning for the Scottsdale Institute.
The Company intends to enter into indemnification agreements with its
directors and officers for the indemnification of and advancement of expenses to
such persons to the full extent permitted by law. The Company also intends to
execute such agreements with its future directors and officers.
The Company believes that the foregoing transactions were in its best
interest. As a matter of policy the transactions were, and all future
transactions between the Company and any of its officers, directors or principal
stockholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and will be in connection with bona fide business purposes of the Company.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of December 31, 1997, and as adjusted to reflect
the sale of Common Stock offered hereby by: (i) each stockholder who is known by
the Company to own beneficially more than 5% of Common Stock; (ii) each Named
Executive Officer of the Company; (iii) each director of the Company; (iv) each
stockholder of the Company who is selling shares of Common Stock in this
offering ("Selling Stockholder"); and (v) all directors and executive officers
of the Company as a group. Unless otherwise indicated, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE NUMBER OF OWNED AFTER THE
OFFERING (1) SHARES OFFERING (1)
----------------------- BEING -----------------------
5% STOCKHOLDERS, NAMED EXECUTIVE OFFICERS AND DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
James A. Reep (2).......................................... 3,200,000 26.6% 320,000 2,880,000 19.8%
FCG Enterprises, Inc. Associate 401(k) and Stock Ownership
Plan (3)................................................. 1,589,544 13.2 -- 1,589,544 10.9
Brent A. Hanson (4)........................................ 1,020,000 8.5 102,000 918,000 6.3
Thomas A. Reep (5)......................................... 722,072 6.0 64,000 658,072 4.5
Frank I. Mueller........................................... 335,440 2.8 33,544 301,896 2.1
Roy A. Ziegler (6)......................................... 230,684 1.9 -- 230,684 1.6
Steven Heck (7)............................................ 213,756 1.8 21,376 192,380 1.3
Richard N. Kramer (8)...................................... 185,880 1.5 18,588 167,292 1.2
Luther J. Nussbaum (9)..................................... 150,132 1.2 15,012 135,120 *
Stanley R. Nelson.......................................... 2,100 * -- 2,100 *
Steven Lazarus............................................. 2,100 * -- 2,100 *
Stephen E. Olson........................................... 2,100 * -- 2,100 *
Jack O. Vance.............................................. 2,100 * -- 2,100 *
Scott S. Parker............................................ 1,344 * -- 1,344 *
All executive officers and directors as a group (17
persons) (3)(10)......................................... 5,712,640 47.4 502,964 5,209,676 35.8
OTHER SELLING STOCKHOLDERS
- -----------------------------------------------------------
G. Brian May............................................... 383,984 3.2 38,400 345,584 2.4
Raeford A. Bell (11)....................................... 301,584 2.5 30,160 271,424 1.9
Pamela J. Garrison (12).................................... 286,864 2.4 28,688 258,176 1.8
James E. D'Itri (13)....................................... 265,088 2.2 26,508 238,580 1.6
Patricia A. Lowery......................................... 256,000 2.1 25,600 230,400 1.6
Joseph M. Casper (14)...................................... 197,576 1.6 19,756 177,820 1.2
Don M. Tompkins (15)....................................... 168,264 1.4 16,828 151,436 1.0
Mark S. Gross (16)......................................... 148,672 1.2 10,000 138,672 *
Louis F. Nicholson......................................... 146,552 1.2 14,656 131,896 *
Michael R. Gorsage (17).................................... 136,160 1.1 13,616 122,544 *
Bruce G. Lemon (18)........................................ 75,836 * 5,004 70,832 *
Michael T. Krouse (19)..................................... 72,264 * 4,648 67,616 *
Daniel S. Herman (20)...................................... 72,260 * 4,000 68,260 *
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to
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<PAGE>
community property laws where applicable, the Company believes, based on
information furnished by such persons, that the persons named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 12,042,664 shares of Common Stock outstanding as of
December 31, 1997 and 14,542,664 shares of Common Stock outstanding after
completion of this offering. Certain shares are subject to repurchase at
the original issuance price plus a growth factor. The growth factor is
equal to the average interest rate compounded quarterly which the Company
pays to a commercial lending institution in a calendar quarter (the "Growth
Factor"). In the event the Company has no borrowings for a particular
quarter, then the Growth Factor shall be the prime rate on the first day of
the quarter, as announced in the Wall Street Journal or if the Wall Street
Journal discontinues such announcements, then it shall be the prime rate as
announced by Bank of America.
(2) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. Of the
shares held, 2,880,000 are held by the Reep Family LLC of which Mr. Reep is
the Managing Member, and 320,000 are held by The Reep Family Inter Vivos
Trust, a Revocable Trust, dated October 12, 1993, of which Mr. Reep is a
trustee.
(3) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. The
shares are held by Union Bank as trustee of the ASOP. The Company allocates
shares of Common Stock as matching contributions to certain of its
executive officers. These executive officers have the right to acquire the
fair market value of the stock allocated to their respective accounts upon
termination of employment. Such stockholder also has the right to vote such
shares of Common Stock allocated under the ASOP with respect to the
approval or disapproval of any Company merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar
transaction. Of the shares held by the ASOP, 9,180 shares have been
allocated to the accounts of the following named executive officers: Steven
Heck (1,520 shares), Richard N. Kramer (1,500 shares), Frank I. Mueller
(1,540 shares), James A. Reep (1,540 shares), Thomas A. Reep (1,540 shares)
and Roy A. Ziegler (1,540 shares). All other executive officers as a group
have been allocated a total of 9,280 shares.
(4) The business address of the named stockholder is c/o First Consulting
Group, Inc., 6903 Rockledge Drive, Suite 920, Bethesda, MD 20817. The
shares are held by The Brent A. Hanson Inter Vivos Trust dated March 24,
1995, of which Mr. Hanson is trustee.
(5) The business address of the named stockholder is c/o First Consulting
Group, Inc., 111 West Ocean Blvd., 4th Floor, Long Beach, CA 90802. The
shares are held by The Reep Family Inter Vivos Trust, dated May 27, 1992,
of which Mr. Reep and his wife, Patricia A. Reep, are trustees. Of the
shares held, 82,072 are unvested shares as of March 1, 1998. Of such
unvested shares, 41,036 are subject to repurchase by the Company at a price
equal to $2.38 per share plus the Growth Factor and 41,036 shares are
subject to repurchase by the Company at a price equal to $4.76 per share
plus the Growth Factor.
(6) Of the shares held, 138,411 are unvested shares as of March 1, 1998. Of
such unvested shares, 33,994 are subject to repurchase by the Company at a
price equal to $0.44 per share plus the Growth Factor, 27,629 are subject
to repurchase by the Company at a price equal to $0.53 per share plus the
Growth Factor, 51,192 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor, and 25,596 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor.
(7) Of the shares held, 21,376 are unvested shares as of March 1, 1998. Of such
unvested shares, 8,000 are subject to repurchase by the Company at a price
equal to $0.22 per share plus the Growth Factor, 6,285 are subject to
repurchase by the Company at a price equal to $0.53 per share plus the
Growth Factor, 4,727 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor and 2,364 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor.
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<PAGE>
(8) Of the shares held, 130,116 are unvested as of March 1, 1998. Of such
unvested shares, 86,744 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor and 43,372 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor.
(9) The shares are held by The Nussbaum Family Trust, a Revocable Living Trust
dated March 2, 1992, of which Mr. Nussbaum is a trustee. Of the shares
held, 105,093 are unvested shares as of March 1, 1998. Of such unvested
shares, 70,062 are subject to repurchase by the Company at a price equal to
$0.57 per share plus the Growth Factor and 35,031 are subject to repurchase
by the Company at a price equal to $2.80 per share plus the Growth Factor.
(10) Of the shares held, 848,887 are unvested shares as of March 1, 1998. In
general, such unvested shares are subject to repurchase by the Company at a
price equal to the original purchase price plus the Growth Factor.
(11) Of the shares held, 30,159 are unvested shares as of March 1, 1998. Of such
unvested shares, 16,000 are subject to repurchase by the Company at a price
equal to $0.14 per share plus the Growth Factor, 8,000 are subject to
repurchase by the Company at a price equal to $0.17 per share plus the
Growth Factor, 3,159 are subject to repurchase by the Company at a price
equal to $0.53 per share plus the Growth Factor, 2,000 are subject to
repurchase by the Company at a price equal to $0.57 per share plus the
Growth Factor and 1,000 are subject to repurchase by the Company at a price
equal to $2.80 per share plus the Growth Factor.
(12) The shares are held by the Steven Scott Levin and Pamela Jane Garrison
Revocable Trust of 1993 of which Ms. Garrison is a trustee. Of the shares
held, 86,060 are unvested as of March 1, 1998. Of such unvested shares,
48,000 are subject to repurchase by the Company at a price equal to $0.14
per share plus the Growth Factor, 24,000 are subject to repurchase by the
Company at a price equal to $0.17 per share plus the Growth Factor, 5,060
are subject to repurchase by the Company at a price equal to $0.53 per
share plus the Growth Factor, 6,000 are subject to repurchase by the
Company at a price equal to $0.57 per share plus the Growth Factor and
3,000 are subject to repurchase by the Company at a price equal to $2.80
per share plus the Growth Factor.
(13) Of the shares held, 159,053 are unvested shares as of March 1, 1998. Of
such unvested shares, 144,000 are subject to repurchase by the Company at a
price equal to $0.14 per share plus the Growth Factor, 14,400 are subject
to repurchase by the Company at a price equal to $0.44 per share plus the
Growth Factor and 653 are subject to repurchase by the Company at a price
equal to $0.53 per share plus the Growth Factor.
(14) Of the shares held, 138,306 are unvested shares as of March 1, 1998. Of
such unvested shares, 53,380 are subject to repurchase by the Company at a
price equal to $0.57 per share plus the Growth Factor, 29,118 are subject
to repurchase by the Company at a price equal to $2.38 per share plus the
Growth Factor, 26,690 are subject to repurchase by the Company at a price
equal to $2.80 per share plus the Growth Factor and 29,118 are subject to
repurchase by the Company at a price equal to $4.76 per share plus the
Growth Factor.
(15) Of the shares held, 84,132 are unvested shares as of March 1, 1998. Of such
unvested shares, 9,504 are subject to repurchase by the Company at a price
equal to $0.53 per share plus the Growth Factor, 49,752 are subject to
repurchase by the Company at a price equal to $0.57 per share plus the
Growth Factor and 24,876 are subject to repurchase by the Company at a
price equal to $2.80 per share plus the Growth Factor.
(16) Of the shares held, 104,073 are unvested shares as of March 1, 1998. Of the
unvested shares, 64,367 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor, 13,001 are subject to
repurchase by the Company at a price equal to $1.13 per share plus the
Growth Factor, 13,704 are subject to repurchase by the Company at a price
equal to $2.80 per share plus the Growth Factor and 13,001 are subject to
repurchase by the Company at a price equal to $2.83 per share plus the
Growth Factor.
(17) Of the shares held, 40,848 are unvested shares as of March 1, 1998. Of such
unvested shares, 24,000 are subject to repurchase by the Company at a price
equal to $0.22 per share plus the Growth Factor, 4,800 are subject to
repurchase by the Company at a price equal to $0.44 per share plus the
Growth Factor, 8,448 are
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<PAGE>
subject to repurchase by the Company at a price equal to $0.53 per share
plus the Growth Factor, 2,400 are subject to repurchase by the Company at a
price equal to $0.57 per share plus the Growth Factor and 1,200 are subject
to repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor.
(18) The shares are held by the Bruce G. Lemon Inter Vivos Trust dated April 20,
1994, of which Mr. Lemon is a trustee. Of the shares held, 53,086 are
unvested shares as of March 1, 1998. Of such unvested shares, 23,352 are
subject to repurchase by the Company at a price equal to $0.57 per share
plus the Growth Factor, 11,676 are subject to repurchase by the Company at
a price equal to $2.80 per share plus the Growth Factor and 18,058 are
subject to repurchase by the Company at a price equal to $7.44 per share
plus the Growth Factor.
(19) Of the shares held, 50,586 are unvested shares as of March 1, 1998. Of the
unvested shares, 21,684 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor, 10,842 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor and 18,060 are subject to repurchase by the Company at a
price equal to $7.44 per share plus the Growth Factor.
(20) Of the shares held, 50,584 are unvested shares as of March 1, 1998. Of the
unvested shares, 21,684 are subject to repurchase by the Company at a price
equal to $0.57 per share plus the Growth Factor, 10,842 are subject to
repurchase by the Company at a price equal to $2.80 per share plus the
Growth Factor and 18,058 are subject to repurchase by the Company at a
price equal to $7.44 per share plus the Growth Factor.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $.001 par value, and
10,000,000 shares of Preferred Stock, $.001 par value.
COMMON STOCK
As of December 31, 1997, there were 12,042,664 shares of Common Stock
outstanding held of record by 51 stockholders. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. The holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are, and all shares of Common Stock to be outstanding upon
completion of this offering will be, fully-paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock, $.001 par
value, in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of such series,
without any further vote or action by stockholders. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware Law,
an anti-takeover law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
employees, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws also require that,
effective upon the closing of this offering, any action required or permitted to
be taken by stockholders of the Company must be effected at a duly called annual
or special meeting of the stockholders and may not be effected by a consent in
writing. In addition, special meetings of the stockholders of the Company may be
called only by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer of the Company or by any person or persons holding shares
representing at least 10% of the outstanding capital stock. The Company's
Certificate of Incorporation also provides for a classified Board and specifies
that the authorized number of directors may be changed only by resolution of the
Board of Directors. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. See
"Management--Board Composition."
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company has been appointed as the transfer
agent and registrar for the Common Stock.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect the market price of the Common Stock
prevailing from time to time. Furthermore, since only a limited number of shares
will be available for sale shortly after this offering because of certain
contractual and legal restrictions on resale described below, sales of
substantial amounts of Common Stock in the public market after the restrictions
lapse could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, based on the number of shares outstanding
as of December 31, 1997, the Company will have outstanding an aggregate of
14,542,664 shares of Common Stock assuming (i) the issuance by the Company of
2,500,000 shares of Common Stock offered hereby and (ii) no exercise of the
Underwriters' over-allotment option to purchase 496,858 shares of Common Stock.
Of these shares, 3,312,384 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
shares held by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act (whose sales would be subject to certain limitations
and restrictions described below) and the regulations promulgated thereunder.
The remaining 11,230,280 shares held by officers, directors, employees,
consultants and other stockholders of the Company were sold by the Company in
reliance on exemptions from registration requirements of the Securities Act and
are "restricted securities" within the meaning of Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the provisions of Rules 144 and 701 as well as the vesting requirements of
the RSAs, additional shares may be available for sale in the public market
pursuant to the terms of lock-up agreements as follows: (i) no restricted
securities will be eligible for immediate sale on the effective date of this
offering; (ii) 1,123,028 restricted securities will be eligible for sale 180
days after the date of this Prospectus upon expiration of the lock-up
agreements; (iii) an additional 1,123,028 restricted securities will be eligible
for sale 360 days after the date of this Prospectus upon expiration of the
lock-up agreements; and (iv) an additional 8,984,224 restricted securities will
be eligible for sale 540 days after the date of this Prospectus upon expiration
of the lock-up agreements. Each of the Company's vice presidents is required to
purchase and maintain a minimum number of shares of Common Stock. In addition,
shares of Common Stock held for a period longer than one (1) year after receipt
of payments in respect of installment loans used to purchase such restricted
securities become eligible for sale under Rule 144 upon the expiration of the
Company's right of repurchase with respect of such shares.
The stockholders of the Company have agreed with the representatives of the
Underwriters for a period of 540 days after the date of this Prospectus, that
they will not, directly or indirectly, offer, sell, contract to sell or grant
any option to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock or securities convertible into or exchangeable for, or any
rights to purchase or acquire, Common Stock, without the prior written consent
of Hambrecht & Quist LLC; provided, however, that at the end of the first
180-day period following the date of this Prospectus, 10% of such shares will
become eligible for sale; at the end of the second 180-day period following the
date of this Prospectus an additional 10% of such shares will become eligible
for sale; and the remaining shares will become eligible for sale 540 days after
the date of this Prospectus. Hambrecht & Quist LLC, in its sole discretion and
at any time without notice, may release all or any portion of the securities
subject to the 540-day lock-up agreement. The Company has agreed that it will
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options to acquire shares of
Common Stock or securities exchangeable for or convertible into shares of Common
Stock during the 180-day period following the date of this Prospectus, except
that the Company may issue shares upon the exercise of options granted prior to
the date hereof, and may grant additional options under its stock option plans,
provided that, without the prior written consent of Hambrecht & Quist LLC, such
additional options shall not be exercisable during such 180-day period.
51
<PAGE>
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
that were not acquired from the Company or an affiliate of the Company within
the previous one year, will be entitled to sell in any three-month period a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately 145,426 shares immediately
after this offering) or (ii) the average weekly trading volume of Common Stock
in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Commission.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or person whose shares are aggregated) who is not deemed to
have been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who beneficially owns restricted securities is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
described above; provided that at least two years have elapsed since the later
of the date the shares were acquired from the Company or from an affiliate of
the Company.
As of December 31, 1997, there were options outstanding to purchase an
aggregate of 1,029,400 shares of Common Stock under the Company's stock option
plans, none of which will be eligible for sale within 180 days following the
offering. An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits affiliates and
non-affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-affiliates may sell Rule 701 shares
without complying with public information, volume and notice provisions of Rule
144.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Incentive
Plan, the Director Option Plan, the 1994 Plan and the Director Stock Plan, thus
permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing.
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Hambrecht & Quist LLC, BancAmerica Robertson Stephens and UBS Securities LLC
(the "Representatives"), have severally agreed to purchase from the Company and
the Selling Stockholders the following respective number of shares of Common
Stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC.............................................................
BancAmerica Robertson Stephens....................................................
UBS Securities LLC................................................................
----------
Total...........................................................................
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and independent
auditors. The nature of the Underwriters' obligation is such that they are
committed to purchase all shares of Common Stock offered hereby if any of such
shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives. The Representatives have informed
the Company that the Underwriters do not intend to confirm sales to accounts
over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 496,858
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The existing stockholders of the Company, who will own in the aggregate
11,230,280 shares of Common Stock after the offering, have agreed that they will
not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options to acquire shares of
Common Stock or securities exchangeable for or convertible into shares of Common
Stock owned by them during the 540-day period following the date of this
Prospectus; provided, however, that at the end of the first 180-day period
following the date of this Prospectus, 10% of such shares will become eligible
for sale; at the end of the second 180-day period following the date of this
Prospectus, an additional 10% of such shares will become eligible for
53
<PAGE>
sale; and the remaining shares will become eligible for sale 540 days after the
date of this Prospectus. The Company has agreed that it will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose
of any shares of Common Stock, options to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock during
the 180-day period following the date of this Prospectus, except that the
Company may issue shares upon the exercise of options granted prior to the date
hereof, and may grant additional options under its stock option plans, provided
that, without the prior written consent of Hambrecht & Quist LLC, such
additional options shall not be exercisable during such 180-day period.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price are prevailing
market and economic conditions, revenue and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this preliminary prospectus is subject to change as a
result of market conditions and other factors.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Cooley Godward LLP, Palo Alto, California.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, Menlo Park, California.
EXPERTS
The financial statements of FCG Enterprises, Inc. d.b.a. First Consulting
Group as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997 appearing in this Prospectus and Registration
Statement have been audited by Grant Thornton LLP, independent certified public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto, relating
to the Common Stock offered hereby has been filed by the Company with the
Commission. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
summaries of such contracts and documents. Although all material elements of
such contracts or documents required to be disclosed in this Prospectus are
disclosed, each statement concerning such contracts or documents is qualified in
all respects by reference to the copy of such contract or document
54
<PAGE>
filed as an exhibit to the Registration Statement. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from the Commission upon payment of certain fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information filed
electronically with the Commission. The address of the site is
http://www.sec.gov.
55
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................................................... F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.............................................................................. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS.................................................................... F-4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY................................................ F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
FCG Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of FCG
Enterprises, Inc. and its subsidiaries (d.b.a. First Consulting Group) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FCG Enterprises, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Los Angeles, California
January 17, 1998, except for Note K
as to which the date is
, 1998.
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of the
4-for-1 stock split described in Note K to the financial statements.
/s/ GRANT THORNTON LLP
Los Angeles, California
January 22, 1998
F-2
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997
----------------------
PRO FORMA ACTUAL 1996
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................................................. $ 2,950 $ 2,950 $ 214
Accounts receivable, less allowance of $500 and $83 in 1997 and 1996, respectively..... 11,846 11,846 7,803
Work in process........................................................................ 8,030 8,030 7,117
Prepaid expenses....................................................................... 821 821 1,067
Income tax receivables................................................................. 1,114 1,114 --
Current portion of notes receivable--stockholders...................................... 328 328 184
----------- --------- ---------
Total current assets................................................................. 25,089 25,089 16,385
Notes receivable--stockholders (Note D).................................................. 1,368 1,368 454
Property and equipment
Furniture, equipment, and leasehold improvements....................................... 1,874 1,874 1,040
Information systems equipment.......................................................... 9,040 9,040 6,565
----------- --------- ---------
10,914 10,914 7,605
Less accumulated depreciation and amortization........................................... 5,641 5,641 3,286
----------- --------- ---------
5,273 5,273 4,319
Other assets
Executive Benefit Trust (Note G)....................................................... 2,506 2,506 1,264
Other.................................................................................. 189 189 390
----------- --------- ---------
2,695 2,695 1,654
----------- --------- ---------
Total assets......................................................................... $ 34,425 $ 34,425 $ 22,812
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit......................................................................... $ 2,000 $ 2,000 $ --
Current portion of long-term debt (Note B)............................................. 871 871 670
Accounts payable....................................................................... 735 735 1,646
Accrued liabilities.................................................................... 2,219 2,219 931
Accrued vacation....................................................................... 1,923 1,923 1,368
Deferred revenue....................................................................... 391 391 --
Customer advances...................................................................... 1,965 1,965 --
Deferred income taxes (Note C)......................................................... 5,679 5,679 4,218
----------- --------- ---------
Total current liabilities............................................................ 15,783 15,783 8,833
Non-current liabilities
Long-term debt, net of current portion (Note B)........................................ 262 262 2,692
Supplemental executive retirement plan (Note G)........................................ 2,506 2,506 1,264
Deferred income taxes (Note C)......................................................... 447 447 140
Other.................................................................................. -- -- 185
----------- --------- ---------
3,215 3,215 4,281
Commitments and contingencies (Notes E and G)............................................ -- -- --
Put obligation related to ASOP and capital stock (Notes H and I)......................... -- 9,965 6,658
Stockholders' equity
Preferred Stock, $.001 par value; 10,000,000 shares authorized, no shares issued and
outstanding; Common Stock, $.001 par value; 50,000,000 shares authorized, 12,042,664
and 10,696,120 shares issued and outstanding at December 31, 1997 and 1996,
respectively......................................................................... 12 12 11
Additional paid-in capital............................................................. 20,822 20,822 11,539
Retained earnings...................................................................... 4,215 4,215 5,749
Deferred compensation--stock incentive agreements (Notes A and H)...................... (3,635) (3,635) (2,333)
Unearned ASOP shares (Note I).......................................................... (853) (853) (3,225)
Notes receivable--stockholders (Note D)................................................ (5,134) (5,134) (2,043)
Put obligation related to ASOP and capital stock (Notes H and I)....................... -- (9,965) (6,658)
----------- --------- ---------
Total stockholders' equity........................................................... 15,427 5,462 3,040
----------- --------- ---------
Total liabilities and stockholders' equity........................................... $ 34,425 $ 34,425 $ 22,812
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net revenue...................................................................... $ 91,570 $ 65,822 $ 47,744
Cost of services................................................................. 53,526 40,718 26,518
--------- --------- ---------
Gross profit................................................................. 38,044 25,104 21,226
General and administrative expenses.............................................. 31,669 23,670 17,517
Compensation expenses related to stock issuances (Note H)........................ 6,060 588 385
--------- --------- ---------
Income from operations....................................................... 315 846 3,324
--------- --------- ---------
Other income
Interest income................................................................ 245 245 172
Interest expense............................................................... (313) (242) (208)
Other income, net.............................................................. 119 44 18
--------- --------- ---------
Income before income taxes................................................... 366 893 3,306
Provision for income taxes....................................................... 1,900 500 1,423
--------- --------- ---------
Net income (loss)............................................................ $ (1,534) $ 393 $ 1,883
--------- --------- ---------
--------- --------- ---------
Basic and diluted net income (loss) per share.................................... $ (0.14) $ 0.04 $ 0.19
--------- --------- ---------
--------- --------- ---------
Shares used in computing per share amounts....................................... 11,134 11,118 9,761
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED
---------------------- RETAINED DEFERRED ASOP
SHARES AMOUNT EARNINGS COMPENSATION SHARES
----------- --------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995.................................. 7,428 $ 967 $ 3,473 $ -- $ --
Redemption of Common Stock................................ (216) (80) -- -- --
Issuance of Common Stock.................................. 52 30 -- -- --
Stock issued under stock option agreement--compensation... -- 76 -- -- --
Issuance of Common Stock under the Associate 401(k) and
Stock Ownership Plan.................................... 1,432 4,000 -- -- (4,000)
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. 1,372 3,625 -- (1,978) --
Increase of put obligation................................ -- -- -- -- --
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- -- 385 --
Net income................................................ -- -- 1,883 -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1995................................ 10,068 8,618 5,356 (1,593) (4,000)
Redemption of Common Stock................................ (28) (40) -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. 560 1,953 -- (1,048) --
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- -- 308 --
Capital stock released under the Associate 401(k) and
Stock Ownership Plan.................................... -- 272 -- -- 775
Interest income on stockholders' notes receivable......... -- -- -- -- --
Issuance of new Common Stock to Associate 401(k) and Stock
Ownership Plan.......................................... 96 362 -- -- --
Increase of put obligation................................ -- -- -- -- --
Excess income tax benefits attributable to exercised stock
options................................................. -- 385 -- -- --
Net income................................................ -- -- 393 -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1996................................ 10,696 11,550 5,749 (2,333) (3,225)
Redemption of Common Stock................................ (64) (305) -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. 1,347 4,899 -- (1,847) --
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- -- 545 --
Common Stock released under the Associate 401(k) and Stock
Ownership Plan.......................................... -- 3,725 -- -- 2,677
Issuance of Common Stock to Associate 401(k) and Stock
Ownership Plan.......................................... 64 305 -- -- (305)
Interest income on stockholders' notes receivable......... -- -- -- -- --
Issuance of new Common Stock to associates in the
Associate 401(k) and Stock Ownership Plan............... -- 265 -- -- --
Increase of put obligation................................ -- -- -- -- --
Excess income tax benefits attributable to exercised stock
options................................................. -- 395 -- -- --
Net income................................................ -- -- (1,534) -- --
----------- --------- ----------- ------- -----------
Balance, December 31, 1997................................ 12,043 $ 20,834 $ 4,215 $ (3,635) $ (853)
----------- --------- ----------- ------- -----------
----------- --------- ----------- ------- -----------
<CAPTION>
NOTES
RECEIVABLE-- PUT
STOCKHOLDERS OBLIGATION TOTAL
-------------- ----------- ---------
<S> <C> <C> <C>
Balance, January 1, 1995.................................. $ -- $ (2,730) $ 1,710
Redemption of Common Stock................................ -- -- (80)
Issuance of Common Stock.................................. -- -- 30
Stock issued under stock option agreement--compensation... -- -- 76
Issuance of Common Stock under the Associate 401(k) and
Stock Ownership Plan.................................... -- -- --
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. (1,469) -- 178
Increase of put obligation................................ -- (2,570) (2,570)
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- 385
Net income................................................ -- -- 1,883
------- ----------- ---------
Balance, December 31, 1995................................ (1,469) (5,300) 1,612
Redemption of Common Stock................................ -- -- (40)
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. (481) -- 424
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- 308
Capital stock released under the Associate 401(k) and
Stock Ownership Plan.................................... -- -- 1,047
Interest income on stockholders' notes receivable......... (93) -- (93)
Issuance of new Common Stock to Associate 401(k) and Stock
Ownership Plan.......................................... -- -- 362
Increase of put obligation................................ -- (1,358) (1,358)
Excess income tax benefits attributable to exercised stock
options................................................. -- -- 385
Net income................................................ -- -- 393
------- ----------- ---------
Balance, December 31, 1996................................ (2,043) (6,658) 3,040
Redemption of Common Stock................................ -- -- (305)
Issuance of Common Stock under the Restricted Stock
Agreements.............................................. (2,825) -- 227
Compensation recognized under the Restricted Stock
Agreements.............................................. -- -- 545
Common Stock released under the Associate 401(k) and Stock
Ownership Plan.......................................... -- -- 6,402
Issuance of Common Stock to Associate 401(k) and Stock
Ownership Plan.......................................... -- -- --
Interest income on stockholders' notes receivable......... (266) -- (266)
Issuance of new Common Stock to associates in the
Associate 401(k) and Stock Ownership Plan............... -- -- 265
Increase of put obligation................................ -- (3,307) (3,307)
Excess income tax benefits attributable to exercised stock
options................................................. -- -- 395
Net income................................................ -- -- (1,534)
------- ----------- ---------
Balance, December 31, 1997................................ $ (5,134) $ (9,965) $ 5,462
------- ----------- ---------
------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................... $ (1,534) $ 393 $ 1,883
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 2,453 1,739 767
Provision for bad debts................................................... 417 83 84
Deferred income taxes..................................................... 1,769 498 1,727
Loss (gain) on sale of assets............................................. 16 5 (13)
Compensation from stock issuances......................................... 8,093 1,830 385
Interest income on notes receivable--stockholders......................... (266) (93) --
Change in assets and liabilities:
Accounts receivable....................................................... 1,311 7,865 (6,084)
Work in process........................................................... (6,684) (9,159) --
Prepaid expenses.......................................................... 246 -- (721)
Income taxes receivables.................................................. (1,114) (185) --
Other assets.............................................................. 201 (271) (39)
Accounts payable.......................................................... (911) (752) 1,756
Accrued liabilities....................................................... 1,288 (877) 385
Accrued vacation.......................................................... 555 1,369 334
Customer advances......................................................... 1,965 -- --
Deferred revenue.......................................................... 391 -- --
Other..................................................................... (186) (235) 315
----------- --------- ---------
Net cash provided by operating activities............................... 8,010 2,210 779
----------- --------- ---------
Cash flows from investing activities:
Issuance of notes receivable................................................ (2,554) (709) (153)
Payments on notes receivable................................................ 1,232 648 177
Purchase of property and equipment.......................................... (3,423) (3,571) (1,928)
----------- --------- ---------
Net cash used in investing activities................................... (4,745) (3,632) (1,904)
Cash flows from financing activities:
Net borrowings on line of credit............................................ 2,000 -- --
Proceeds from issuance of long-term debt.................................... 147 -- 4,000
Principal payments on long-term debt........................................ (2,681) (670) (2,160)
Proceeds from issuance of Common Stock...................................... 5 271 106
Common Stock repurchase..................................................... -- (40) (80)
----------- --------- ---------
Net cash provided by (used in) financing activities..................... (529) (439) 1,866
----------- --------- ---------
Net change in cash and cash equivalents................................. 2,736 (1,861) 741
Cash and cash equivalents at beginning of period.............................. 214 2,075 1,334
----------- --------- ---------
Cash and cash equivalents at end of period.................................... $ 2,950 $ 214 $ 2,075
----------- --------- ---------
----------- --------- ---------
Cash paid during the period for:
Interest.................................................................... $ 313 $ 328 $ 202
Income taxes................................................................ $ 87 $ 33 $ 539
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
FCG Enterprises, Inc. and its subsidiaries, d.b.a. First Consulting Group
(the "Company"), is a leading provider of information technology and other
consulting services for healthcare providers, payors, and other healthcare
organizations. The Company's services are designed to assist its clients in
increasing operations effectiveness by reducing cost, improving customer service
and enhancing the quality of patient care. The Company provides this expertise
to clients by assembling multi-disciplinary teams which provide comprehensive
services across its four principal services: consulting, software
implementation, network and application integration and co-management services.
The Company's services and consultants are supported by internal research and a
centralized information system which provides real-time access to current
industry and technology information, project methodologies, experiences and
tools.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of FCG
Enterprises, Inc. and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated.
2. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter.
4. WORK IN PROCESS
Work in process represents the recognized net revenue for services performed
that had not been billed to clients at the balance sheet date. Such amounts are
billed as project requisites are met.
5. INCOME TAXES
The Company accounts for income taxes on the liability method under which
deferred tax liabilities (assets) are determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense (benefit) is equal to the change in the deferred
tax liability (asset) from the beginning to the end of the year. A current tax
asset or liability is recognized for the estimated taxes refundable or payable
for the current year.
6. PUT OBLIGATIONS
Currently the existing stockholders of the Company, including the Associate
401(k) and Stock Ownership Plan ("ASOP"), have the ability to require the
Company to repurchase their shares upon the occurrence of certain conditions,
which are outside the control of the Company (see Notes H and I). As such, the
Company reflects estimated obligations related to these repurchase commitments
outside of equity in the accompanying financial statements.
F-7
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
7. REVENUE RECOGNITION
The Company generates substantially all of its revenue from fees for
professional services. The Company typically bills for its services on an
hourly, fixed-fee or fixed-fee per month basis. For services billed on an hourly
basis, the Company recognizes revenue as services are performed. For services
billed on a fixed-fee or fixed-fee per month basis, the Company recognizes
revenue using the percentage of completion method. Revenue is recorded as
incurred at assignment rates net of any adjustments due to specific engagement
situations.
8. STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation as prescribed by
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and has adopted
the disclosure provisions of Statement of Financial Accounting Standards 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"). SFAS 123 requires pro
forma disclosures of net income and net income per share as if the fair value
based method of accounting for stock-based awards had been applied. Under the
fair value based method, compensation cost is recorded based on the value of the
award at the grant date and is recognized over the service period. The adoption
of SFAS 123 disclosure provisions has no effect on either the Company's
financial condition or its results of operations.
9. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated in accordance with Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"), which
superseded APB Opinion No. 15. Net income (loss) per share for all periods
presented has been restated to reflect the adoption of SFAS 128. Basic net
income (loss) per share is based upon the weighted average number of common
shares outstanding. Diluted net income (loss) per share is based on the
assumption that all convertible shares and stock options were converted or
exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period. ASOP shares that have not been committed to be released are not
treated as outstanding when determining the weighted average number of shares
for either basic or diluted net income (loss) per share. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, common and common
equivalent shares issued below the initial public offering price during the
twelve months immediately preceding the initial public offering filing date
(using the treasury stock method) have been included in the calculation of
weighted average number of shares in computing both basic and diluted net income
(loss) per share as if they were outstanding for all periods presented.
10. CREDIT RISKS
Financial instruments that subject the Company to concentrations of credit
risks consist primarily of billed and unbilled accounts receivable. The
Company's clients are primarily involved in the healthcare industry.
Concentrations of credit risk with respect to billed and unbilled accounts
receivable are limited due to the Company's credit evaluation process and the
nature of its clients. Historically, the Company has not incurred significant
credit-related losses.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the fair value of financial instruments approximates
their carrying amounts. The carrying value of cash and cash equivalents
approximates their estimated fair values. Management believes the
F-8
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fair values of notes payable and stockholders' notes receivable approximate
their carrying values based on current rates for instruments with similar
characteristics.
12. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The Company is in the process of modifying its stock agreements such that,
upon the effectiveness of the proposed initial public offering, the Company will
no longer have the obligation to repurchase shares of Common Stock from the
current stockholders. A pro forma unaudited consolidated balance sheet as of
December 31, 1997 has been presented to reflect this change.
13. DEFERRED COMPENSATION--STOCK INCENTIVE AGREEMENTS
In accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, the Company records a charge to deferred compensation when it grants
options or sells stock to officers or employees at an exercise price which is
less than the fair market value of such shares. Amounts recorded as deferred
compensation are amortized over the appropriate service period based upon the
vesting schedule for such grants (generally ten years).
14. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, 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 from those estimates.
15. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), REPORTING COMPREHENSIVE
INCOME, which prescribes standards for reporting comprehensive income and its
components. Comprehensive income consists of net income or loss for the current
period and other comprehensive income (income, expenses, gains and losses that
currently bypass the income statement and are reported directly in a separate
component of equity). SFAS 130 is effective for financial statements issued for
periods beginning after December 15, 1997. The Company has determined that the
adoption of SFAS 130 will not have a material effect on the Company's financial
statements.
In 1997, the FASB issued Statement of Financial Accounting Standards No. 131
("SFAS 131"), DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which applies only to publicly held business entities. A reportable
segment, referred to as an operating segment, is component of an entity about
which separate financial information is produced internally, that is evaluated
by the chief operation decision-maker to assess performance and allocate
resources. SFAS 131 is effective for financial statements issued for periods
beginning after December 15, 1997.
16. RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
NOTE B--NOTES PAYABLE
The Company has a $6,000,000 revolving line of credit available through
December 1, 1998, at the bank's prevailing prime rate. The balance outstanding
on this line of credit was $2,000,000 and zero at December 31,
F-9
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B--NOTES PAYABLE (CONTINUED)
1997 and 1996, respectively. Borrowings on the line are collaterized by all of
the Company's deposit accounts, accounts receivable and equipment. Under the
line of credit agreement, the Company is required to pay a fee equal to 0.25%
per annum on the average daily unused balance and maintain selected financial
ratios.
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Note payable to bank....................................................... $ 958 $ 3,333
Other note payable......................................................... 175 29
--------- ---------
1,133 3,362
Less current portion....................................................... 871 670
--------- ---------
Non-current portion........................................................ $ 262 $ 2,692
--------- ---------
--------- ---------
</TABLE>
The note payable to bank is collateralized by all deposit accounts, accounts
receivable, and equipment of the Company and by unreleased ASOP shares (see Note
I). The Note bears interest at the bank's prime rate (8.5% and 8.25% at December
31, 1997 and 1996, respectively) plus 0.5%. The note is payable in monthly
installments of $56,000 ($672,000 annually) plus interest with the last
installment due December 2001.
NOTE C--INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.............................................................................. $ 131 $ 2 $ (288)
State................................................................................ -- -- (16)
--------- --- ---------
Total current...................................................................... 131 2 (304)
Deferred............................................................................... 1,769 498 1,727
--------- --- ---------
Provision for income taxes............................................................. $ 1,900 $ 500 $ 1,423
--------- --- ---------
--------- --- ---------
</TABLE>
F-10
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--INCOME TAXES (CONTINUED)
Temporary differences consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets
Current
Net operating loss............................................................... $ 72 $ 96 $ 23
Contributions.................................................................... 74 72 22
Bad debts........................................................................ 205 18 --
Other............................................................................ (14) -- --
--------- --------- ---------
Total current deferred tax assets.............................................. 337 186 45
Non-current........................................................................
Supplemental executive retirement plan contributions............................. 720 506 273
Stock based compensation......................................................... -- 104 181
Other............................................................................ 205 61 97
--------- --------- ---------
Total non-current deferred tax assets.......................................... 925 671 551
--------- --------- ---------
Total deferred tax assets.................................................... 1,262 857 596
--------- --------- ---------
Deferred tax liabilities
Current--Accrual to cash basis adjustment.......................................... 6,016 4,404 4,456
Non-current--Stock based compensation 1,372 811 --
--------- --------- ---------
Total deferred tax liabilities 7,388 5,215 4,456
--------- --------- ---------
Total net deferred tax liabilities......................................... $ 6,126 $ 4,358 $ 3,860
--------- --------- ---------
--------- --------- ---------
</TABLE>
As a result of the following items, the total provision for income taxes was
different from the amount computed by applying the statutory U.S. federal income
tax rate to earnings before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax at statutory rate........................................... 35.0% 35.0% 35.0%
Changes due to:
State franchise tax, net of federal income tax benefit....................... 6.0 6.1 6.1
Meals and entertainment...................................................... 44.2 7.1 3.0
ASOP......................................................................... 435.5 12.5 --
Other........................................................................ (1.7) (4.7) (1.1)
----- --- ---
519.0% 56.0% 43.0%
----- --- ---
----- --- ---
</TABLE>
For tax reporting purposes, the Company had historically elected to be taxed
under the cash basis of reporting as opposed to the accrual method used for
financial reporting purposes. As a result of such election, a deferred tax
liability of $6,016,000 and $4,404,000 exists at December 31, 1997 and 1996,
respectively. As a result of the proposed initial public offering of Common
Stock, the Company is required to change its tax reporting to the accrual basis
to be consistent with financial reporting purposes. As a result of this change,
the
F-11
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--INCOME TAXES (CONTINUED)
deferred tax liability resulting from the use of cash basis reporting for income
taxes will become payable over a period not exceeding four years.
NOTE D--NOTES RECEIVABLE--STOCKHOLDERS
Notes receivable from stockholders consist primarily of loans provided to
participants of the restricted stock bonus and non-qualified stock option
agreements (see Note H). The Company allows participants to exchange notes for
the purchase of shares of Common Stock and the exercise of stock options. Notes
received in exchange for Common Stock have been classified as a reduction of
stockholders' equity. In addition, the Company also provides participants with
notes to cover associated taxes related to the exercise of stock options. Notes
are generally non-recourse and non-interest bearing and have been discounted
using imputed annual interest rates from 5.77% to 6.36%. Such notes are payable
over a ten-year term.
Participants are required to pay, each year, the greater of 10% of the
outstanding amounts or 50% of the after tax amount of any annual bonus received
by them to repay outstanding amounts of the notes. Stockholders' notes
receivable received in exchange for Common Stock were $5,134,000 and $2,043,000,
as of December 31, 1997 and 1996, respectively. Stockholders' notes receivable
related to advances to associates for payment of taxes associated with stock
option exercises were $1,679,000 and $454,000 as of December 31, 1997 and 1996,
respectively.
NOTE E--COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities, certain office space and living
accommodations for consultants on short-term projects under operating leases
which expire at various dates through 2002. At December 31, 1997, the Company
was obligated under non-cancelable operating leases with future minimum rentals
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 1,620
1999.............................................................................. 1,297
2000.............................................................................. 969
2001.............................................................................. 716
2002.............................................................................. 543
$ 5.145
---------
---------
</TABLE>
Rent expense aggregated $2,624,000, $1,703,000 and $1,241,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operation.
F-12
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--STOCK OPTIONS
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE PER OPTIONS
SHARE OUTSTANDING
------------------- -----------
<S> <C> <C>
Balance at January 1, 1995........................................................ -- --
Options granted................................................................. $ 0.57 1,279,440
Options exercised............................................................... 0.57 (733,088)
-----------
Balance at December 31, 1995...................................................... 0.57 546,432
Options granted................................................................. 1.13 366,168
Options exercised............................................................... 0.94 (193,928)
Options canceled................................................................ 0.57 (22,224)
-----------
Balance at December 31, 1996...................................................... 0.76 696,448
Options granted................................................................. 5.05 1,244,576
Options exercised............................................................... 1.15 (822,424)
Options canceled................................................................ 1.13 (89,200)
-----------
Balance at December 31, 1997...................................................... $ 5.49 1,029,400
-----------
-----------
</TABLE>
None of the options outstanding at December 31, 1997 are exercisable. As of
December 31, 1997, option prices ranged from $4.76 to $7.44 and had a remaining
weighted average life of 9.73 years.
Adjusted pro forma information regarding net income is required by SFAS 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the "minimal value" method for
option pricing with the following weighted average assumptions: risk-free
interest rate of 6%; dividend yield of 0%; and a remaining weighted average life
of the option of two to five years. For purposes of adjusted pro forma
disclosures, the estimated fair value of the options is not materially different
from the intrinsic value of the options. As such, the pro forma impact on
reported results for the years ended December 31, 1997, 1996 and 1995 was not
significant and has not been presented herein. The weighted average fair value
of options granted during the year ended December 31, 1997, 1996 and 1995 was
$1.60, $2.79 and $1.13, respectively.
For the year ended December 31, 1997, 1996 and 1995, compensation expense
recognized in income for stock-based employee compensation related to the grant
of options was $278,415, $215,000 and $385,000, respectively.
NOTE G--PROFIT-SHARING PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PROFIT-SHARING PLAN
The Company had a discretionary profit-sharing plan covering substantially
all employees. Contributions were determined by the Board of Directors and were
limited to the maximum amount deductible for federal income tax purposes.
Discretionary contributions to the profit-sharing plan were $150,000 for the
year ended December 31, 1995. Effective January 1, 1996, this plan was merged
into the ASOP (see Note I).
F-13
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G--PROFIT-SHARING PLAN AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(CONTINUED)
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
On January 1, 1994 the Company adopted the Supplemental Executive Retirement
Plan (the "SERP"). The SERP was amended on January 1, 1996. The SERP is
administered by the Board of Directors or a committee appointed by the Board of
Directors.
Participants in the SERP are those executive officers at the vice president
or higher level of seniority who are eligible to participate in the 1994 Plan
and who are selected by the Board of Directors or a committee appointed by the
Board of Directors to participate. The Board of Directors or a committee
appointed by the Board of Directors may also designate other officers for
participation in the compensation reduction portion of the SERP. Participation
is conditioned on the submission of a completed enrollment form. SERP
participation terminates when a participant ceases to be a stockholder of the
Company, provided that a former stockholder who continues as an officer may
continue to participate in the compensation reduction portion of the SERP.
Participants may make fully vested compensation reduction contributions to
the SERP, subject to a maximum deferral of 10% of annual base salary. The
Company may make a voluntary "FCG Contribution" for any year in an amount
determined by the Board to the account of SERP participants. FCG Contributions
vest 10% for each year of service (with up to 5 years service credit for
participants who were vice presidents on January 1, 1994), provided that FCG
Contributions fully vest upon a Change in Control of the Company or upon a
participant's death, disability or attainment of age 65. Company contributions
to the SERP were $493,000, $372,000 and $301,000 for the years ended December
31, 1997, 1996, and 1995, respectively.
The contributions to the SERP are invested by the Company in Variable Life
Insurance Contracts. Management believes that the participants' account balance,
cash surrender value of life insurance and death benefits will be sufficient to
satisfy the Company's obligations under the SERP.
NOTE H--STOCK INCENTIVE AGREEMENTS
1994 RESTRICTED STOCK PLAN AND AGREEMENTS
On December 15, 1997, the Board of Directors adopted an amendment to the
1994 Restricted Stock Plan (as amended the "1994 Plan") and form of Restricted
Stock Agreement ("RSA"). The stockholders approved the 1994 Plan and RSAs on
January 15, 1998. The 1994 Plan provides a mechanism for the purchase and sale
of Common Stock by its vice presidents. The 1994 Plan is administered by the
Company's Board of Directors or a committee appointed by the Board.
Under the 1994 Plan, the Company has entered into RSAs with each of its vice
presidents. The 1994 Plan and RSAs provide that each person, upon becoming a
vice president of the Company, must purchase and hold a specific minimum number
of shares of Common Stock. Vice presidents at Levels I and II are required to
purchase and hold that number of shares equal to one times the vice president's
base salary divided by the then-current fair value of the Common Stock. Vice
presidents at Levels III and IV are required to purchase and hold that number of
shares equal to two times the vice president's base salary divided by the
then-current fair value of the Common Stock. Prior to the completion of this
offering, the fair value of the Common Stock is determined by reference to a
report prepared for the Company by an independent valuation firm.
Shares purchased under the RSAs are subject to a 10-year vesting period
beginning the date upon which an individual becomes a vice president and vest
annually upon the completion of each year of service. Automatic
F-14
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK INCENTIVE AGREEMENTS (CONTINUED)
acceleration of vesting occurs upon death or permanent disability of a vice
president and upon certain changes in ownership of the Company. Partial
acceleration of vesting may also occur once the vice president attains the age
of 59. Shares purchased after consummation of this offering are fully vested
upon purchase.
Under the terms of the RSAs, the Company retains a repurchase right with
respect to unvested shares, unless such termination is due to debt, disability
or changes in control of the Company. Pursuant to this right, the Company may
repurchase unvested shares at the original issuance price plus a growth factor.
The growth factor is equal to the average interest rate compounded quarterly
which the Company pays to a commercial lending institution in a calendar quarter
(the "Growth Factor"). In the event the Company has no borrowings for a
particular quarter, then the Growth Factor shall be the prime rate on the first
day of the quarter, as announced in the Wall Street Journal or if the Wall
Street Journal discontinues such announcements, then it shall be the prime rate
as announced by Bank of America. Shares acquired under RSAs are nontransferable,
with the exception of transfers for certain estate planning and charitable gift
purposes. In addition, the RSAs provide that, under certain circumstances and
upon attaining a certain age, a vice president may sell a portion, but not all,
of his or her shares to other vice presidents or to the Company. The Company may
also repurchase vested shares from a departing vice president if he or she
competes with the Company and/or profits from the sale of Common Stock within
six months of such competition. Upon completion of this offering, a vice
president may also sell unencumbered shares of Common Stock on the public
market, subject to continuing to satisfy the minimum shareholding requirements.
Vice presidents pay the purchase price of the shares by means of non-recourse
and recourse non-interest bearing promissory notes.
The RSAs also contain non-competition and non-solicitation provisions which
apply generally to the vice president's employment with the Company and which
continue to bind the vice president even after repurchase of all shares by the
Company; provided, however, that such provisions may be superseded by an
employment agreement entered into between the Company and the vice president.
The Company maintains life insurance coverage for the purpose of redeeming
stock of its vice president stockholders through the SERP in the event of a vice
president's death (see Note G). For most vice presidents, the insured benefit is
equal to the current market value of the vice president's shareholdings. The
Company is also the beneficiary of a split-dollar life insurance policy on its
principal stockholder that is intended to partially fund the repurchase of the
principal stockholder's stock upon death. The Company also maintains long-term
disability insurance policies on the principal stockholder to help fund the
purchase of stock upon permanent disability of the stockholder.
NON-QUALIFIED STOCK OPTION AGREEMENT
Effective January 1, 1996, and restated January 1, 1997, the Company
executed and adopted a non-qualified stock option agreement for certain
officers. The principal terms of the agreement provide that for each share of
stock purchased at fair market value, the stockholder is granted one exercisable
stock option which allows the stockholder to purchase additional shares at a
price below the fair market value of the Common Stock. During 1997 and 1996,
215,176 and 366,168 shares, respectively, were granted under the provisions of
the agreement and stockholders exercised options on 822,424 and 193,928 shares
of Common Stock, respectively. Deferred compensation of $512,000 and $737,000
was recorded for the years ended December 31, 1997 and 1996, respectively,
related to the granting of options under this agreement. Compensation expense
related to the amortization of the deferred compensation on these options
approximated $145,000 and $79,000 for the years ended December 31, 1997 and
1996, respectively.
F-15
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK INCENTIVE AGREEMENTS (CONTINUED)
Effective December 19, 1995, the Company executed and adopted a
non-qualified stock option agreement for certain vice presidents. The principal
terms of the agreement provided that for each share of stock purchased at fair
market value of the Common Stock, the stockholder was granted two exercisable
stock options which allow the stockholder to purchase additional shares at
approximately 20% of the fair market value of the Common Stock. During 1995,
1,279,440 stock options were granted under the provisions of the agreement and
vice presidents exercised options for 733,008 shares of Common Stock.
Compensation expense related to these options approximated $134,000, $136,000
and $385,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The agreements also provide that the Company will make non-recourse loans
available for the purchase of stock, the exercise of stock options and
associated taxes (see Note D).
OTHER EQUITY PLANS
On August 22, 1997, the Board adopted an equity incentive plan and
non-employee directors' stock option plan, which was approved by the
shareholders on January 15, 1998. The principal terms of the equity incentive
plan allow the Company to grant either stock options, stock bonuses or stock
appreciation rights to acquire up to 1,600,000 shares of Common Stock. The stock
awards vest over a ten-year term from the date of grant. Under the plan, the
Company granted employees 945,400 options to purchase Common Stock at an
exercise price equal to the market price of Common Stock on the date of grant.
As of December 31, 1997, none of these options were exercisable. The Company had
no stock appreciation rights issued or outstanding for the year ended December
31, 1997.
The non-employee directors' stock option plan allows the Company to grant
options under such plan for up to 200,000 shares of Common Stock. Under the
plan, the Company granted 84,000 options on August 22, 1997, to purchase Common
Stock at an exercise price equal to the market price of the Common Stock on date
of grant. These options vest over a ten-year term from date of grant.
NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN
The ASOP, as amended, was adopted effective December 1, 1995. The ASOP
covers all employees of the Company and affiliates of the Company designated by
the Company's Board of Directors, excluding any union employees unless their
coverage is bargained for, and excluding non-resident aliens without U.S. source
earned income. ASOP participation commences automatically for newly eligible
employees on semiannual entry dates.
Under the ASOP, participants may elect to reduce their current compensation
by up to the lesser of 15% of such compensation or the statutorily prescribed
annual limit ($9,500 in 1997) and have the amount of such reduction contributed
to the ASOP. In addition, the Company may make contributions to the ASOP on
behalf of participants. Company contributions may be matching contributions
allocated based on each participant's compensation reduction contributions,
discretionary profit sharing contributions allocated based on each participant's
compensation, or "first share contributions" allocated to some or all
participants on a per capita basis.
The ASOP is intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended, so that contributions by employees or by the Company
to the ASOP, and income earned thereon are not taxable until withdrawn and so
that contributions by the Company, if any, will be deductible by the Company
when made. Participants become vested in Company contributions under two graded
vesting schedules, so that matching and first share contributions are fully
vested after five years of service and profit sharing contributions are fully
vested after seven years of service. The ASOP is a leveraged employee stock
ownership plan. The ASOP
F-16
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN (CONTINUED)
borrowed $4.0 million from a third-party financial institution (the "ASOP Loan")
to purchase 1,429,848 shares of Common Stock in 1995. The shares of Common Stock
so purchased were placed in a suspense account under the ASOP from which they
are released and allocated to participants accounts' as the ASOP Loan is repaid.
Any or all Company contributions may be used to repay the ASOP Loan.
The Company accounts for its ASOP in accordance with Statement of Position
93-6, EMPLOYERS' ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. Accordingly, the
Company reports in its Statement of Financial Position the debt of the ASOP and
unearned ASOP shares, which is the original cost basis of the ASOP shares
pledged as collateral for the debt. As shares are committed to be released, the
Company credits unearned ASOP shares based on the cost of the shares to the
ASOP. The Company records compensation expense based on the fair market value of
the shares committed to be released. The difference between the fair value of
shares committed to be released and the cost of those shares to the ASOP is
either charged or credited to stockholders' equity accounts, as applicable.
Compensation expense for the 401(k) match and the ASOP was approximately
$2,438,000 and $1,841,000 for the years ended December 31, 1997 and 1996,
respectively. No compensation expense related to the ASOP was recognized in 1995
as the plan was adopted on December 1, 1995 and none of the shares had been
committed to be released. Prior to the adoption of the ASOP, the Company
sponsored a profit-sharing plan which included a 401(k) provision with
essentially the same provisions as the current ASOP. The Company's matching
contributions to the 401(k) provision under the previous profit sharing plan was
$560,000 during 1995.
In 1996, the Company made matching contributions and first share
contributions to the ASOP sufficient to provide a 50% matching contribution and
a first share contribution of 200 shares of Company stock for each participant
who was employed by the Company on January 1, 1996 or became employed by the
Company thereafter. In consideration for employees allowing the Company to make
a plan modification to the current ASOP plan, the Company committed to release
1,000 shares of Common Stock to each participant in the ASOP as of November 26,
1997 (568,000 shares in the aggregate). This commitment resulted in a charge to
compensation expense of approximately $4,000,000 million in the fourth quarter
of 1997. Such amount is included in compensation expenses related to stock
issuances in the accompanying financial statements. The committed shares will be
released to participant accounts to the extent that shares distributed to an
individual do not exceed certain Internal Revenue Service section limitations.
The ASOP shares were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Allocated shares.................................... 1,301,712 372,780 --
Unreleased shares................................... 287,832 1,152,764 1,429,848
------------ ------------ ------------
Total ASOP shares............................... 1,589,544 1,525,544 1,429,848
Fair market value of unreleased shares.............. $ 2,520,000 $ 7,258,000 $ 4,039,000
</TABLE>
Upon the cessation of employment of an employee, the Company pays the
employee the fair market value of the shares of Common Stock previously
allocated to such employee under the ASOP. The fair market value of Common Stock
is determined by an independent valuation firm. The ultimate funding of this
obligation rests with the Company. Accordingly, the Company has recorded the
potential future obligation to repurchase such securities outside of permanent
equity (see also Note H). Subsequent to the Company's closing of its anticipated
F-17
<PAGE>
FCG ENTERPRISES, INC. AND SUBSIDIARIES
(D.B.A. FIRST CONSULTING GROUP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--ASSOCIATE 401(k) AND STOCK OWNERSHIP PLAN (CONTINUED)
initial public offering, shares of Common Stock held by the ASOP are expected to
be tradable on an established exchange and recording of such amounts outside of
permanent equity will no longer be required (see Note A-11).
NOTE J--CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in a financial institution located
in Long Beach, California. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At December 31, 1997, the Company had
balances in excess of the insured amount of approximately $3,940,000. The
Company has not experienced any losses in such account and believes it is not
exposed to any significant credit risk on its cash and cash equivalents. The
Company has concentrations of credit risk related to accounts receivable and
revenues. At December 31, 1997, accounts receivable associated with five clients
represented approximately 30% of the accounts receivable balance. Also, for the
year ended December 31, 1997, approximately 15% of total net revenue was
attributable to five clients.
NOTE K--SUBSEQUENT EVENT
The Board of Directors authorized management of the Company to file a
registration statement with the Securities and Exchange Commission permitting
the Company to sell up to 2,996,858 shares of Common Stock to the public (the
"Offering"). In connection with the Offering, the Board of Directors will
approve a four-for-one stock split in the form of a stock dividend covering all
of the Company's capital stock and options. All share and per share amounts
included in the accompanying financial statements have been adjusted to reflect
the stock split. In conjunction with the Offering, the Board of Directors
authorized, subject to shareholder approval, the reincorporation of the Company
into Delaware.
F-18
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY 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......................................... 5
Special Note Regarding Forward-Looking Statements.... 12
Use of Proceeds...................................... 13
Dividend Policy...................................... 13
Capitalization....................................... 14
Dilution............................................. 15
Selected Consolidated Financial Data................. 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 17
Business............................................. 24
Management........................................... 35
Certain Transactions................................. 45
Principal and Selling Stockholders................... 46
Description Of Capital Stock......................... 50
Shares Eligible For Future Sale...................... 51
Underwriting......................................... 53
Legal Matters........................................ 54
Experts.............................................. 54
Additional Information............................... 54
Index To Financial Statements........................ F-1
</TABLE>
--------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,312,384 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
BANCAMERICA ROBERTSON STEPHENS
UBS SECURITIES
, 1998
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, all of which are to be paid by the
registrant in connection with the distribution of the Common Stock being
registered. All amounts are estimated, except the SEC Registration Fee, the NASD
Filing Fee and the Nasdaq National Market Filing Fee:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.............................................................. $ 15,151
NASD Filing Fee................................................................... 5,500
Nasdaq National Market Filing Fee................................................. 24,046
Blue Sky Fees and Expenses........................................................ 5,000
Accounting Fees................................................................... 200,000
Legal Fees and Expenses........................................................... 450,000
Transfer Agent and Registrar Fees................................................. 3,000
Printing and Engraving............................................................ 150,000
Miscellaneous..................................................................... 22,303
----------
Total......................................................................... $ 875,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that directors of the
Registrant shall not be personally liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, to the fullest
extent permitted by the Delaware General Corporation Law. The Registrant's
Bylaws provide for indemnification of officers and directors to the full extent
and in the manner permitted by Delaware law. Section 145 of the Delaware General
Corporation Law makes provision for such indemnification in terms sufficiently
broad to cover officers and directors under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act").
The Registrant intends to enter into indemnification agreements with each
director and certain officers which provide indemnification under certain
circumstances for acts and omissions which may not be covered by any directors'
and officers' liability insurance.
The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1995, the Company has sold and issued the following
unregistered securities:
(1) On December 14, 1995, the Company issued 1,429,848 shares of Common
Stock to the Associate 401(k) and Stock Ownership Plan at a price of $2.80 per
share.
(2) From January 1, 1995 to December 31, 1995, the Company issued 639,720
shares of Common Stock to officers of the Company at a price of $2.80 per share
and 52,800 shares of Common Stock to officers of the Company at a price of $0.57
per share. During this time, officers exercised options to purchase 733,008
shares of Common Stock at a weighted average price of $0.57 per share.
(3) From January 1, 1996 to December 31, 1996, the Company issued 366,168
shares of Common Stock to officers of the Company at a price of $2.83 per share.
During this time, officers exercised options to purchase 193,928 shares of
Common Stock at a weighted average exercise price of $0.94 per share.
II-1
<PAGE>
(4) From January 1, 1997 to December 31, 1997, the Company issued to
officers and directors of the Company 786,316 shares of Common Stock at a price
of $4.76 per share, 99,316 shares of Common Stock at a price of $5.50 per share
and 467,412 shares of Common Stock at a price of $7.44 per share. During this
time, officers exercised options to purchase 822,424 shares of Common Stock at a
weighted average exercise price of $1.15 per share.
The sales and issuances of securities in the transactions described in
paragraphs (3) and (4) and the exercise of stock options referred to in
paragraph (2) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The sales and issuances of securities in the transactions described in
paragraphs (1) and (2) above were deemed to be exempt from registration under
the Securities Act by virtue of Section 4(2). The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed to
the stock certificates issued in such transactions. Similar legends were imposed
in connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.3* Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Cooley Godward LLP.
10.1* 1997 Equity Incentive Plan.
10.1.1* Form of Incentive Stock Option between the Registrant and its employees, directors, and consultants.
10.1.2* Form of Non-Statutory Stock Option between the Registrant and its employees, directors, and consultants.
10.1.3* Form of Non-Statutory Stock Option (United Kingdom) between the Registrant and its United Kingdom
resident employees, directors, and consultants.
10.1.4* Form of 1997 Equity Incentive Plan Notice of Exercise between the Registrant and its employees,
directors, and consultants.
10.2* 1997 Non-Employee Directors' Stock Option Plan.
10.2.1* Form of Non-Statutory Stock Option (Initial Option-Continuing Non-Employee Directors) between the
Registrant its continuing non-employee directors.
10.2.2* Form of Non-Statutory Stock Option (Initial Option-New Non-Employee Directors) between the Registrant
and its non-employee directors.
10.2.3* Form of Non-Statutory Stock Option (Annual Option) between the Registrant and its non-employee
directors.
10.2.4* Form of 1997 Non-Employee Directors' Stock Option Plan Notice of Exercise between the Registrant and its
non-employee directors.
10.3 1994 Restricted Stock Plan, as amended.
10.3.1 Form of Amended and Restated Restricted Stock Agreement between the Registrant and its executive
officers.
10.3.2* Form of Loan and Pledge Agreement between the Registrant and its vice presidents.
10.3.3* Form of Secured Promissory Note (Non-Recourse) between the Registrant and its vice presidents.
10.4 Second Amended and Restated Associate 401(k) and Stock Ownership Plan.
10.5 First Amendment to the Second Amended and Restated Associate 401(k) and Stock Ownership Plan.
10.6 1997 Non-Employee Director Restricted Stock Plan.
10.6.1 Form of Restricted Stock Agreement between the Registrant and its non-employee directors.
10.7* Supplemental Executive Retirement Plan.
10.8* Form of Indemnity Agreement between the Registrant and its directors and executive officers.
10.9* Lease, dated as of October 3, 1996, between the Registrant and Landmark Square Associates, L.P. for the
Registrant's principal executive offices in Long Beach, CA.
10.10 Credit Agreement between the Registrant and Wells Fargo Bank, dated December 18, 1997.
11.1 Statement re computation of per share earnings.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP, Certified Public Accountants.
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS
A. 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.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First Consulting
Group, Inc. has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf, by the undersigned, thereunto duly authorized, in
the City of Long Beach, County of Los Angeles, State of California, on January
22, 1997.
<TABLE>
<S> <C> <C>
FIRST CONSULTING GROUP, INC.
By: *
-----------------------------------------
James A. Reep
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------- ------------------
<C> <C> <S> <C>
* Chairman, Chief Executive
- ---------------------------------- Officer and President
James A. Reep (PRINCIPAL EXECUTIVE January 22, 1997
OFFICER)
/s/ THOMAS A. REEP Chief Financial Officer and
- ---------------------------------- Vice President (PRINCIPAL
Thomas A. Reep FINANCIAL AND ACCOUNTING January 22, 1997
OFFICER)
*
- ---------------------------------- Director January 22, 1997
Steven Heck
*
- ---------------------------------- Director January 22, 1997
Steven Lazarus
*
- ---------------------------------- Director January 22, 1997
Stanley R. Nelson
/s/ LUTHER J. NUSSBAUM
- ---------------------------------- Director January 22, 1997
Luther J. Nussbaum
*
- ---------------------------------- Director January 22, 1997
Stephen E. Olson
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------- ------------------
<C> <C> <S> <C>
*
- ---------------------------------- Director January 22, 1997
Scott S. Parker
*
- ---------------------------------- Director January 22, 1997
Jack O. Vance
/s/ LUTHER J. NUSSBAUM
- ----------------------------------
Luther J. Nussbaum
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.3* Bylaws of the Registrant.
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Cooley Godward LLP.
10.1* 1997 Equity Incentive Plan.
10.1.1* Form of Incentive Stock Option between the Registrant and its employees, directors, and consultants.
10.1.2* Form of Non-Statutory Stock Option between the Registrant and its employees, directors, and consultants.
10.1.3* Form of Non-Statutory Stock Option (United Kingdom) between the Registrant and its United Kingdom
resident employees, directors, and consultants.
10.1.4* Form of 1997 Equity Incentive Plan Notice of Exercise between the Registrant and its employees,
directors, and consultants.
10.2* 1997 Non-Employee Directors' Stock Option Plan.
10.2.1* Form of Non-Statutory Stock Option (Initial Option-Continuing Non-Employee Directors) between the
Registrant its continuing non-employee directors.
10.2.2* Form of Non-Statutory Stock Option (Initial Option-New Non-Employee Directors) between the Registrant
and its non-employee directors.
10.2.3* Form of Non-Statutory Stock Option (Annual Option) between the Registrant and its non-employee
directors.
10.2.4* Form of 1997 Non-Employee Directors' Stock Option Plan Notice of Exercise between the Registrant and its
non-employee directors.
10.3 1994 Restricted Stock Plan, as amended.
10.3.1 Form of Amended and Restated Restricted Stock Agreement between the Registrant and its executive
officers.
10.3.2* Form of Loan and Pledge Agreement between the Registrant and its vice presidents.
10.3.3* Form of Secured Promissory Note (Non-Recourse) between the Registrant and its vice presidents.
10.4 Second Amended and Restated Associate 401(k) and Stock Ownership Plan.
10.5 First Amendment to the Second Amended and Restated Associate 401(k) and Stock Ownership Plan.
10.6 1997 Non-Employee Director Restricted Stock Plan.
10.6.1 Form of Restricted Stock Agreement between the Registrant and its non-employee directors.
10.7* Supplemental Executive Retirement Plan.
10.8* Form of Indemnity Agreement between the Registrant and its directors and executive officers.
10.9* Lease, dated as of October 3, 1996, between the Registrant and Landmark Square Associates, L.P. for the
Registrant's principal executive offices in Long Beach, CA.
10.10 Credit Agreement between the Registrant and Wells Fargo Bank, dated December 18, 1997.
11.1 Statement re computation of per share earnings.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP, Certified Public Accountants.
23.2 Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
FIRST CONSULTING GROUP, INC.
_____________ SHARES(1)
COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
January __, 1998
HAMBRECHT & QUIST LLC
BANCAMERICA ROBERTSON STEPHENS
UBS SECURITIES
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
First Consulting Group, Inc., a Delaware corporation (herein called the
"Company"), proposes to issue and sell ________ shares of its authorized but
unissued Common Stock, $0.001 par value (herein called the "Common Stock"),
and the stockholders of the Company named in Schedule II hereto (herein
collectively called the "Selling Securityholders", which term shall include,
except where otherwise noted, those stockholders named as Affiliated Selling
Securityholders in Schedule II hereto, herein collectively called the
"Affiliated Selling Securityholders") propose to sell an aggregate of
________ shares of Common Stock of the Company (said ________ shares of
Common Stock being herein called the "Underwritten Stock"). The Company
proposes to grant to the Underwriters (as hereinafter defined) an option to
purchase up to ___________ additional shares of Common Stock (herein called
the "Option Stock" and together with the Underwritten Stock herein referred
to as the "Stock"). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the "Underwriters," which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters
to enter into this Agreement on its behalf and to act for it in the manner
herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities
and Exchange Commission (herein called the "Commission") a registration
statement on Form S-1 (Registration No. 333-41121), including the related
preliminary prospectus, for the registration under the Securities Act of
1933, as amended (herein called the "Securities Act") of the Stock. Copies
of such registration statement and of each amendment thereto, if any,
including the related preliminary prospectus (meeting the requirements of
Rule 430A of the rules and regulations of the Commission) heretofore filed by
the Company with the Commission have been delivered to you.
The term "Registration Statement" as used in this agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective,
and any registration
- ---------------------
(1) Plus an option to purchase from the Company up to ________ additional
shares to cover over-allotments.
<PAGE>
statement filed pursuant to Rule 462(b) of the rules and regulations of the
Commission with respect to the Stock (herein called a "Rule 462(b)
Registration Statement"), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the
"Effective Date"), shall also mean (from and after the effectiveness of such
amendment) such registration statement as so amended (including any Rule
462(b) Registration Statement). The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Stock first filed with
the Commission pursuant to Rule 424(b) and Rule 430A (or if no such filing is
required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall
also mean (from and after the filing with the Commission of such supplement
or the effectiveness of such amendment) such prospectus as so supplemented or
amended. The term "Preliminary Prospectus" as used in this Agreement shall
mean each preliminary prospectus included in such registration statement
prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to
the use of such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.
(a) The Company and the Affiliated Selling Securityholders hereby
represent and warrant as follows:
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own or lease properties and conduct
business as described in the Registration Statement and the Prospectus
and as currently being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure
to be so qualified would not have a material adverse effect on the
business, properties, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect")).
(ii) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole, whether or not arising from transactions in the
ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the
ordinary course of business, neither the Company nor any of its
subsidiaries has entered into any material transaction not referred to
in the Registration Statement and the Prospectus.
(iii) Other than FCG (UK), FCG (Ireland), the Scottsdale
Informatics Institute, and UK Subsidiaries, none of which are
Significant Subsidiaries as defined in Rule 405 promulgated under the
Securities Act, the Company does not own, directly or indirectly, any
capital stock or other equity interest of any corporation or have any
direct equity or ownership interest in any other business, whether
organized as a corporation, partnership, joint venture or otherwise.
(iv) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus relating to the
proposed offering of the Stock nor instituted or threatened instituting
proceedings for that purpose. The Registration Statement and the
Prospectus comply, and on the Closing Date (as hereinafter defined) and
any later date on which Option Stock is to be purchased, the Prospectus
will comply, in all material respects, with the provisions of the
Securities Act and the Securities Exchange Act of 1934, as amended
(herein called the "Exchange Act"), and the rules and regulations of the
Commission thereunder. On the Effective Date, the Registration Statement
did not contain any untrue statement of a material fact and did not omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and, on the
Effective Date, the
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Prospectus did not and, on the Closing Date and any later date on which
Option Stock is to be purchased, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of
the representations and warranties in this subparagraph (iv) shall apply
to statements in, or omissions from, the "Underwriting" section of the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to
the Company by or on behalf of the Underwriters for use in the
Registration Statement or the Prospectus.
(v) The Company's authorized, issued and outstanding
capitalization as of December 31, 1997 is as set forth under the caption
"Capitalization" in the Prospectus. The Stock is duly and validly
authorized, and, when issued and sold to the Underwriters as provided
herein, will be duly and validly issued, fully paid and nonassessable,
and upon the delivery of and payment for such shares of the stock, the
several underwriters will receive good and marketable title thereto,
free and clear of all liens, encumbrances, equities, security interests
and claims whatsoever. The Stock conforms in all material respects to
the description thereof contained in the Prospectus. No further approval
or authority of the stockholders or the Board of Directors of the
Company will be required for the issuance and sale of the Stock as
contemplated herein or for the transfer and sale of the Stock to be sold
by the Selling Securityholders. The authorized capital stock of the
Company conforms as to legal matters to the description thereof
contained in the Prospectus. The shares of capital stock outstanding
prior to the issuance of the Underwritten Stock and, if any, the Option
Stock have been duly authorized and are validly issued, fully paid and
nonassessable.
(vi) Prior to the Closing Date, the Stock to be issued and sold
under this Agreement will be authorized for listing and duly admitted
for trading on the Nasdaq National Market (herein called "NNM") upon
official notice of issuance of the Stock.
(vii) Except as disclosed in the Registration Statement, and
except for grants of stock options in the ordinary course of business
occurring after December 31, 1997, the Company does not have outstanding
any options or warrants to purchase, or any preemptive rights, or other
rights to subscribe or to purchase or rights of co-sale, any securities
or obligations convertible or exercisable into, or any contracts or
commitments to issue or sell or register for sale, shares of its capital
stock or any such options, warrants, rights, convertible securities,
exercisable securities or obligations.
(viii) Grant Thornton LLP, who have certified the consolidated
financial statements included in the Registration Statement, have
represented to the Company that they are, and the Company has no reason
to believe that such representation is incorrect, independent public
accountants as required by the Securities Act and the rules and
regulations of the Commission thereunder.
(ix) The consolidated financial statements of the Company and
its subsidiaries, together with related notes and schedules as set forth
in the Registration Statement ("Financial Statements"), present fairly
the financial position and the results of operations of the Company and
its subsidiaries, at the indicated dates and for the indicated periods.
The Financial Statements have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout the
periods involved, and all adjustments necessary for a fair presentation
of results for such periods have been made. The selected and summary
financial data contained in the Registration Statement and the financial
information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" present
fairly the information shown therein and have been compiled on a basis
consistent with the Financial Statements. Other than as set forth in
the Financial Statements, the Company and its subsidiaries have no
material liabilities, contingent or otherwise, other than liabilities
incurred in the ordinary course of business and described in the
Registration Statement.
(x) The Company has filed all required tax returns and has paid or
is contesting in good faith all taxes shown thereon as due, and there is no
tax deficiency that has been or might be asserted against the
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Company that will or might have a Material Adverse Effect on the
Company, and all tax liabilities are adequately provided for in the
Financial Statements of the Company.
(xi) The Company is not in violation or default under any provision
of its Certificate of Incorporation or bylaws as of the Closing Date and
any later date upon which the Option Stock is purchased, or any
indenture, license, mortgage, lease, franchise, permit, deed of trust or
other agreement or instrument to which the Company is a party or by
which the Company or any of its properties is bound or may be affected,
except where such violation or default would not have a Material Adverse
Effect.
(xii) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by the Company and is a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited by applicable laws
and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, or by general equitable
principles. The execution and performance of this Agreement and the
consummation of the transactions herein contemplated, including, but not
limited to, the issuance and sale of the Stock by the Company and the
sale of the Stock by the Selling Securityholders do not and will not:
(i) conflict with, or result in a breach of, or violation of, any of the
terms or provisions of, or constitute, either by itself or upon notice
or the passage of time or both, a default under, any indenture, license,
mortgage, lease, franchise, permit, deed of trust or other agreement or
instrument to which the Company is a party or by which the Company or
any of its properties is bound or may be affected, except where such
breach, violation or default would not have a Material Adverse Effect,
(ii) violate any of the provisions of the Certificate of Incorporation
or Bylaws of the Company in effect as of the Closing Date and any later
date upon which the Option Stock is purchased, (iii) violate any order,
judgment, statute, rule or regulation applicable to the Company or of
any regulatory, administrative or governmental body or agency having
jurisdiction over the Company or any of its properties or assets, or
(iv) result in the creation or imposition of any lien, charge or
encumbrance upon any assets or properties of the Company.
(xiii) Any consent, approval, authorization, order, registration,
filing, qualification, license or permit of or with any court or any
public, governmental or regulatory agency or body having jurisdiction
over the Company or any of its properties or assets which is required
for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the
issuance, sale and delivery of the Stock to be issued, sold and
delivered by the Company hereunder, have been obtained, including the
registration of the Stock under the Securities Act, clearance of the
offering of the Stock with the National Association of Securities
Dealers, Inc. (the "NASD") and such consents, approvals, authorizations,
orders, registrations, filings, qualifications, licenses and permits as
may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Stock by the Underwriters.
(xiv) There is no pending or, to the Company's knowledge,
threatened action, suit, claim or proceeding against the Company or any
of its officers or any of its properties, assets or rights before any
court or governmental agency or body or otherwise which (i) might have a
Material Adverse Effect, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in
the Registration Statement and not otherwise disclosed; and there are no
contracts or documents of the Company that are required to be described
in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been fairly and accurately described in all
material respects in the Prospectus and filed as exhibits to the
Registration Statement. The contracts so described in the Prospectus are
in full force and effect on the date hereof, and neither the Company
nor, to the Company's knowledge, any other party is in breach of or
default under any of such contracts.
(xv) Other than as set forth in the Registration Statement, no
claim is pending or, to the Company's knowledge, threatened to the
effect that the present or past operations of the Company infringe upon
or conflict with the rights of others with respect to any licenses,
patents, patent rights, patent
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applications, trademarks, trademark applications, trade names,
copyrights, trade secrets, drawings, schematics, applications,
technology, know-how and other tangible and intangible proprietary
information or material ("Intellectual Property") which may impair the
ability of the Company to conduct its businesses as now conducted and
proposed to be conducted; no claim is pending or, to the Company's
knowledge, threatened regarding the Company's ownership or other
interest in, or rights under, any Intellectual Property which is
necessary in any respect to permit the Company to conduct its businesses
as now conducted and proposed to be conducted; and, no claim is pending
or, to the Company's knowledge, threatened to the effect that any
Intellectual Property owned by or licensed to the Company is invalid or
unenforceable. Except as disclosed in the Prospectus, the Company owns,
or is licensed or otherwise has sufficient rights to, all Intellectual
Property used or proposed to be used in the business of the Company as
now conducted and proposed to be conducted. Except as otherwise
disclosed in the Prospectus, no contract, agreement or understanding
between the Company and any other party exists which would impede or
prevent in any respect the continued use by the Company of the entire
right, title and interest of the Company in and to any Intellectual
Property used in the business of the Company as currently conducted.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected
to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Stock.
(xvii) Except as described in the Prospectus, no holder of
securities of the Company has any rights to the registration of
securities of the Company because of the filing of the Registration
Statement or otherwise in connection with the sale of the Stock
contemplated hereby. All registration rights have been waived with
respect to the sale and issuance of the Stock.
(xviii) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(xix) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes.
(b) Each of the Selling Securityholders, severally and not jointly,
hereby represents and warrants as follows:
(i) Such Selling Securityholder has good and marketable title
to all the shares of Stock to be sold by such Selling Securityholder
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to
deliver the same hereunder, subject, in the case of each Selling
Securityholder, to the rights of _____________, as Custodian (herein
called the Custodian), and that upon the delivery of and payment for
such shares of the Stock hereunder, the several Underwriters will
receive good and marketable title thereto, free and clear of all liens,
encumbrances, equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of the Stock
to be sold by such Selling Securityholder have been placed in custody
under a Custody Agreement for delivery under this Agreement with the
Custodian; such Selling Securityholder specifically agrees that the
shares of the Stock represented by the certificates so held in custody
for such Selling Securityholder are subject to the interests of the
several Underwriters and the Company, that the arrangements made by such
Selling Securityholder for such custody, including the Power of Attorney
provided for in such Custody Agreement, are to that extent irrevocable,
and that the obligations of such Selling Securityholder shall not be
terminated by any act of such Selling Securityholder or by operation of
law, whether by the death or incapacity of such Selling Securityholder
(or, in the case of a Selling Securityholder that is not an individual,
the dissolution or liquidation of such Selling Securityholder) or the
occurrence of any other event; if any such death, incapacity,
dissolution, liquidation or other such event should occur before the
delivery of such shares of
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the Stock hereunder, certificates for such shares of the Stock shall be
delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such death, incapacity, dissolution, liquidation
or other event had not occurred, regardless of whether the Custodian
shall have received notice of such death, incapacity, dissolution,
liquidation or other event.
(iii) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has
not independently verified the accuracy or completeness of all the
information contained therein, nothing has come to the attention of such
Selling Securityholder that would lead such Selling Securityholder to
believe that on the Effective Date, the Registration Statement contained
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, on the Effective Date the
Prospectus contained and, on the Closing Date and any later date on
which Option Stock is to be purchased, contains any untrue statement of
a material fact or omitted or omits to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and
sell __________ shares of the Underwritten Stock to the several Underwriters,
each Selling Securityholder agrees to sell to the several Underwriters the
number of shares of the Underwritten Stock set forth in Schedule II opposite
the name of such Selling Securityholder, and each of the Underwriters agrees
to purchase from the Company and the Selling Securityholders the respective
aggregate number of shares of Underwritten Stock set forth opposite its name
in Schedule I. The price at which such shares of Underwritten Stock shall be
sold by the Company and the Selling Securityholders and purchased by the
several Underwriters shall be $___ per share. The obligation of each
Underwriter to the Company and each of the Selling Securityholders shall be
to purchase from the Company and the Selling Securityholders that number of
shares of the Underwritten Stock which represents the same proportion of the
total number of shares of the Underwritten Stock to be sold by each of the
Company and the Selling Securityholders pursuant to this Agreement as the
number of shares of the Underwritten Stock set forth opposite the name of
such Underwriter in Schedule I hereto represents of the total number of
shares of the Underwritten Stock to be purchased by all Underwriters pursuant
to this Agreement, as adjusted by Hambrecht & Quist LLC in such manner as
Hambrecht & Quist LLC deems advisable to avoid fractional shares. In making
this Agreement, each Underwriter is contracting severally and not jointly;
except as provided in paragraphs (b) and (c) of this Section 3, the agreement
of each Underwriter is to purchase only the respective number of shares of
the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice
to purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter
or Underwriters and upon the terms herein set forth, all or any part of the
shares of the Stock which such defaulting Underwriter or Underwriters agreed
to purchase. If the non-defaulting Underwriters fail so to make such
arrangements with respect to all such shares and portion, the number of
shares of the Stock which each non-defaulting Underwriter is otherwise
obligated to purchase under this Agreement shall be automatically increased
on a pro rata basis to absorb the remaining shares and portion which the
defaulting Underwriter or Underwriters agreed to purchase; PROVIDED, HOWEVER,
that the non-defaulting Underwriters shall not be obligated to purchase the
shares and portion which the defaulting Underwriter or Underwriters agreed to
purchase if the aggregate number of such shares of the Stock exceeds 10% of
the total number of shares of the Stock which all Underwriters agreed to
purchase hereunder. If the total number of shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Securityholders shall have the right, within 24 hours
next succeeding the 24-hour period above referred to, to make arrangements
with other underwriters or purchasers satisfactory to you for purchase of
such shares and portion on the terms herein set forth. In any such case,
either
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you or the Company and the Selling Securityholders shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company and
the Selling Securityholders shall make arrangements within the 24-hour
periods stated above for the purchase of all the shares of the Stock which
the defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholders to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company or the Selling Securityholders.
Nothing in this paragraph (b), and no action taken hereunder, shall relieve
any defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth,
the Company grants an option to the several Underwriters to purchase,
severally and not jointly, up to ____________ shares in the aggregate of the
Option Stock from the Company at the same price per share as the Underwriters
shall pay for the Underwritten Stock. Said option may be exercised only to
cover over-allotments in the sale of the Underwritten Stock by the
Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the thirtieth day after the date of this
Agreement upon written or telegraphic notice by you to the Company setting
forth the aggregate number of shares of the Option Stock as to which the
several Underwriters are exercising the option. Delivery of certificates for
the shares of Option Stock, and payment therefor, shall be made as provided
in Section 5 hereof. The number of shares of the Option Stock to be
purchased by each Underwriter shall be the same percentage of the total
number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by Hambrecht & Quist LLC in such manner as Hambrecht & Quist LLC
deems advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the
concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the
only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 A.M., San Francisco time, on the date two
business days preceding the Closing Date), and payment therefor, shall be
made at the office of Cooley Godward LLP, Five Palo Alto Square, 3000 El
Camino Real, Palo Alto, CA 94306, at 7:00 a.m., California time, on the
fourth business day after the date of this Agreement, or at such time on such
other day, not later than seven full business days after such fourth business
day, as shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 3(b) hereof) are herein called
the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding
the Closing Date, delivery of certificates for the shares of Option Stock,
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and payment therefor, shall be made at the office of Cooley Godward LLP, Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306, at 7:00 a.m.,
California time, on the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order, and payment for the Stock purchased from the
Selling Securityholders shall be made to the Custodian, for the account of
the Selling Securityholders, in each case by one or more certified or
official bank check or checks in same day funds. Such payment shall be made
upon delivery of certificates for the Stock to you for the respective
accounts of the several Underwriters against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in such
name or names and shall be in such denominations as you may request at least
one business day before the Closing Date, in the case of Underwritten Stock,
and at least one business day prior to the purchase thereof, in the case of
the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of
on the business day prior to the Closing Date or, in the case of
the Option Stock, by 3:00 p.m., New York time, on the business day preceding
the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any
later date on which Option Stock is purchased for the account of such
Underwriter. Any such payment by you shall not relieve such Underwriter from
any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and
agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act or
the rules and regulations of the Commission.
(b) The Company will promptly notify Hambrecht & Quist LLC in the event
of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement, (iii) the institution or
notice of intended institution of any action or proceeding for that purpose,
(iv) the receipt by the Company of any notification with respect to the
suspension of the qualification of the Stock for sale in any jurisdiction, or
(v) the receipt by it of notice of the initiation or threatening of any
proceeding for such purpose. The Company will make every reasonable effort
to prevent the issuance of such a stop order and, if such an order shall at
any time be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together
with, in each case, all exhibits thereto unless previously furnished to you)
and will also deliver to you, for distribution to the Underwriters, a
sufficient number of additional conformed copies of each of the foregoing
(but without exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to the
several Underwriters, at such office or offices as you may designate, as many
copies of the Prospectus as you may reasonably request, and (iii) thereafter
from time to time during the period in which a prospectus is required by law
to be delivered by an Underwriter or dealer, likewise send to the
Underwriters as many additional copies of the Prospectus and as many copies
of any supplement to the Prospectus and of any amended prospectus, filed by
the Company with the Commission, as you may reasonably request for the
purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in
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writing by you, shall occur as a result of which it is necessary, in the
opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Stock, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus so that the Prospectus as so supplemented or amended will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the
Stock by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of offering thereof by reason of changes in general
market conditions or otherwise, you will advise the Company in writing of the
proposed variation, and, if in the opinion either of counsel for the Company
or of counsel for the Underwriters such proposed variation requires that the
Prospectus be supplemented or amended, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended
prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may reasonably designate and, during
the period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good standing under
said securities or blue sky laws; 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 so
qualified. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders
of the Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of the obligations of the Company and Selling Securityholders
under this Agreement, including all costs and expenses incident to (i) the
preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. ("NASD") of the Registration
Statement, any Preliminary Prospectus and the Prospectus, (ii) the furnishing
to the Underwriters of copies of any Preliminary Prospectus and of the
several documents required by paragraph (c) of this Section 6 to be so
furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of
all supplements and amendments to the Prospectus referred to in paragraph (d)
of this Section 6, (v) the furnishing to you and the Underwriters of the
reports and information referred to in paragraph (g) of this Section 6 and
(vi) the printing and issuance of stock certificates, including the transfer
agent's fees. The Selling Securityholders will pay any transfer taxes
incident to the transfer to the Underwriters of the shares of Stock being
sold by the Selling Securityholders.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including
reasonable fees of counsel and disbursements and cost of printing blue sky
memoranda for the Underwriters) paid by or for the account of the
Underwriters or their counsel in qualifying the Stock under state securities
or blue sky laws and in the review of the offering by the NASD.
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(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs which the Company hereby agrees to pay and shall not affect any
agreement which the Company and the Selling Securityholders may make, or may
have made, for the sharing of any such expenses and costs.
(l) The Company hereby agrees that, without the prior written consent
of Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not,
for a period of 180 days following the commencement of the public offering of
the Stock by the Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for
or any rights to purchase or acquire Common Stock or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the Stock to be sold to the Underwriters pursuant to
this Agreement, or (B) options to purchase Common Stock granted under the
Option Plans.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(n) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning
of Section 15 of the Securities Act from and against any and all losses,
claims, damages or liabilities, joint or several, to which such indemnified
parties or any of them may become subject under the Securities Act, the
Exchange Act or the common law or otherwise, and the Company and the Selling
Securityholders jointly and severally agree to reimburse each such
Underwriter and each person (including each partner or officer thereof) who
controls any Underwriter within the meaning of Section 15 of the Securities
Act for any legal or other expenses (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel) incurred
by the respective indemnified parties in connection with defending against
any such losses, claims, damages or liabilities or in connection with any
investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as
part thereof and any Rule 462(b) registration statement) or any
post-effective amendment thereto (including any Rule 462(b) registration
statement), or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the
omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER, that (1) the
indemnity agreements of the Company and the Selling Securityholders contained
in this paragraph (a) shall not apply to any such losses, claims, damages,
liabilities or expenses if such statement or omission was made in reliance
upon and in conformity with information
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furnished as herein stated or otherwise furnished in writing to the Company
by or on behalf of any Underwriter for use in any Preliminary Prospectus or
the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph
(a) with respect to any Preliminary Prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Stock which is the subject
thereof (or to the benefit of any person controlling such Underwriter) if at
or prior to the written confirmation of the sale of such Stock a copy of the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement or omission of a material
fact contained in such Preliminary Prospectus was corrected in the Prospectus
(or the Prospectus as amended or supplemented) unless the failure is the
result of noncompliance by the Company with paragraph (c) of Section 6
hereof, and (3) each Selling Securityholder (other than the Affiliated
Selling Securityholders) shall only be liable under this paragraph with
respect to (A) information pertaining to such Selling Securityholder
furnished by or on behalf of such Selling Securityholder expressly for use in
any Preliminary Prospectus or the Registration Statement or the Prospectus or
any such amendment thereof or supplement thereto or (B) facts that would
constitute a breach of any representation or warranty of such Selling
Securityholder set forth in Section 2(b) hereof. The indemnity agreements of
the Company and the Selling Securityholders contained in this paragraph (a)
and the representations and warranties of the Company and the Selling
Securityholders contained in Section 2 hereof shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any indemnified party and shall survive the delivery of and payment for the
Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each
other Underwriter and each person (including each partner or officer thereof)
who controls the Company or any such other Underwriter within the meaning of
Section 15 of the Securities Act, and the Selling Securityholders from and
against any and all losses, claims, damages or liabilities, joint or several,
to which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or the common law or otherwise and to
reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as
part thereof and any Rule 462(b) registration statement) or any
post-effective amendment thereto (including any Rule 462(b) registration
statement) or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise furnished
in writing to the Company by or on behalf of such indemnifying Underwriter
for use in the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto. The indemnity agreement of each Underwriter
contained in this paragraph (b) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in
such paragraphs, it will promptly give written notice (herein called the
"Notice") of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for in
such paragraphs shall be available to any party who shall fail so to give the
Notice if the party to whom such Notice was not given was unaware of the
action, suit, investigation, inquiry or proceeding to which the Notice would
have related and was prejudiced by the failure to give the Notice, but the
omission so to notify such indemnifying party or parties of any such service
or notification shall not relieve such indemnifying party or parties from any
liability which it or they
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may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any indemnifying party shall be
entitled at its own expense to participate in the defense of any action, suit
or proceeding against, or investigation or inquiry of, an indemnified party.
Any indemnifying party shall be entitled, if it so elects within a reasonable
time after receipt of the Notice by giving written notice (herein called the
"Notice of Defense") to the indemnified party, to assume (alone or in
conjunction with any other indemnifying party or parties) the entire defense
of such action, suit, investigation, inquiry or proceeding, in which event
such defense shall be conducted, at the expense of the indemnifying party or
parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; PROVIDED,
HOWEVER, that (i) if the indemnified party or parties reasonably determine
that there may be a conflict between the positions of the indemnifying party
or parties and of the indemnified party or parties in conducting the defense
of such action, suit, investigation, inquiry or proceeding or that there may
be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to
conduct the defense to the extent reasonably determined by such counsel to be
necessary to protect the interests of the indemnified party or parties and
(ii) in any event, the indemnified party or parties shall be entitled to have
counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. If, within a reasonable time after receipt of the
Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or
other expenses subsequently incurred by the indemnified party or parties in
connection with the defense of the action, suit, investigation, inquiry or
proceeding, except that (A) the indemnifying party or parties shall bear the
legal and other expenses incurred in connection with the conduct of the
defense as referred to in clause (i) of the proviso to the preceding sentence
and (B) the indemnifying party or parties shall bear such other expenses as
it or they have authorized to be incurred by the indemnified party or
parties. If, within a reasonable time after receipt of the Notice, no Notice
of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party
or parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in paragraph (a) or (b) of this Section 7
(i) in such proportion as is appropriate to reflect the relative benefits
received by each indemnifying party from the offering of the Stock or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of each
indemnifying party in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, or actions in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Securityholders on
the one hand and the Underwriters on the other shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of
the Stock received by the Company and the Selling Securityholders and the
total underwriting discount received by the Underwriters, as set forth in the
table on the cover page of the Prospectus, bear to the aggregate public
offering price of the Stock. 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 each indemnifying party and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in the first sentence of
this paragraph (d). The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities, or actions in respect thereof,
referred to in the first sentence of this paragraph (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigation, preparing to defend or defending
against any action or claim which is the subject of this paragraph (d).
Notwithstanding the provisions of this paragraph (d), no Underwriter shall be
required to contribute any amount in excess of the underwriting discount
applicable to the Stock purchased by such Underwriter. No person guilty of
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fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations
in this paragraph (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will promptly
give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise (except as specifically provided in paragraph (c) of this Section
7).
(e) Neither the Company nor the Selling Securityholders will, without
the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not such Underwriter or any person who controls such
Underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act is a party to such claim, action, suit or proceeding)
unless such settlement, compromise or consent includes an unconditional
release of such Underwriter and each such controlling person from all
liability arising out of such claim, action, suit or proceeding.
(f) The liability of each Selling Securityholder under such Selling
Securityholder's representations and warranties contained in paragraphs (a)
and (b) of Section 2 hereof and under the indemnity and reimbursement
agreements contained in the provisions of this Section 7 and Section 11
hereof shall be limited to an amount equal to the initial public offering
price of the stock sold by such Selling Securityholder to the Underwriters.
The Company and the Selling Securityholders may agree, as among themselves
and without limiting the rights of the Underwriters under this Agreement, as
to the respective amounts of such liability for which they each shall be
responsible.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i)
the engagement in hostilities or an escalation of major hostilities by the
United States or the declaration of war or a national emergency by the United
States on or after the date hereof, (ii) any outbreak of hostilities or other
national or international calamity or crisis or change in economic or
political conditions if the effect of such outbreak, calamity, crisis or
change in economic or political conditions in the financial markets of the
United States would, in the Underwriters' reasonable judgment, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading
in securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, or The
Nasdaq Stock Market, or limitations on prices (other than limitations on
hours or numbers of days of trading) for securities on either such exchange
or system, (iv) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of, or commencement
of any proceeding or investigation by, any court, legislative body, agency or
other governmental authority which in the Underwriters' reasonable opinion
materially and adversely affects or will materially or adversely affect the
business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking
of any action by any federal, state or local government or agency in respect
of its monetary or fiscal affairs which in the Underwriters' reasonable
opinion has a material adverse effect on the securities markets in the United
States. If this Agreement shall be terminated pursuant to this Section 8,
there shall be no liability of the Company or the Selling Securityholders to
the Underwriters and no liability of the Underwriters to the Company or the
Selling Securityholders; PROVIDED, HOWEVER, that in the event of any such
termination the Company and the Selling Securityholders agree to indemnify
and hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to
the performance by the Company and by the Selling
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Securityholders of all their respective obligations to be performed hereunder
at or prior to the Closing Date or any later date on which Option Stock is to
be purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and
the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to
the financial statements contained therein), shall have been approved at or
prior to the Closing Date by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters.
(c) You shall have received from Cooley Godward LLP, counsel for the
Company and the Selling Securityholders, an opinion addressed to the
Underwriters and dated the Closing Date, covering the matters set forth in
Annex A hereto, and if Option Stock is purchased at any date after the
Closing Date, an additional opinion from such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinion remain valid as of such
later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus omitted
to state any material fact required to be stated therein or necessary in
order to make the statements therein, respectively, not misleading, (ii)
since the Effective Date, no event has occurred which should have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment, (iii) since the respective dates as
of which information is given in the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein,
there has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not arising from transactions in
the ordinary course of business, and, since such dates, except in the
ordinary course of business, neither the Company nor any of its subsidiaries
has entered into any material transaction not referred to in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, (iv) neither the Company nor any of its
subsidiaries has any material contingent obligations which are not disclosed
in the Registration Statement and the Prospectus, (v) there are not any
pending or known threatened legal proceedings to which the Company or any of
its subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed in
the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed as
required, (vii) the representations and warranties of the Company herein are
true and correct in all material respects as of the Closing Date or any later
date on which Option Stock is to be purchased, as the case may be, and (viii)
there has not been any material change in the market for securities in
general or in political, financial or economic conditions from those
reasonably foreseeable as to render it impracticable in your reasonable
judgment to make a public offering of the Stock, or a material adverse change
in market levels for securities in general (or those of companies in
particular) or financial or economic conditions which render it inadvisable
to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in the
form in which it originally became effective and the Prospectus contained
therein and any supplements or amendments thereto, and that the statements
included in clauses (i) through (vii) of paragraph (d) of this Section 9 are
true and correct.
(f) You shall have received from Grant Thornton LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the meaning
of the Securities Act and
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the applicable published rules and regulations thereunder and, based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than three business days prior to the Closing
Date or such later date on which Option Stock is purchased (i) confirming, to
the extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original
Letter since the date of the Original Letter or to reflect the availability
of more recent financial statements, data or information. The letters shall
not disclose any change, or any development involving a prospective change,
in or affecting the business or properties of the Company or any of its
subsidiaries which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the purchase
of the Option Stock as contemplated by the Prospectus.
(g) You shall have received from Grant Thornton LLP a letter stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at December 31, 1997,
did not disclose any weakness in internal controls that they considered to be
material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by the
Company and the Selling Securityholders shall have been duly authorized for
listing by the NNM upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from all
directors, officers and stockholders, agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, stating that without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, such person
or entity will not, for a period of 180 days following the commencement of
the public offering of the Stock by the Underwriters, directly or indirectly,
(i) sell, offer, contract to sell, make any short sale, pledge, sell any
option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or (ii) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. At the end of such 180-day period, 10% of the shares held by such
stockholders shall be released from the lock-up; at the end of the period
ending 360 days after commencement of the public offering, an additional 10%
of the shares shall be released; and at the expiration of the period ending
540 days after commencement of the offering, all shares shall be released
from the lock-up.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters, shall be satisfied that they
comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company or
the Selling Securityholders to the Underwriters and without liability of the
Underwriters to the Company or the Selling Securityholders; PROVIDED,
HOWEVER, that (i) in the event of such termination, the Company and the
Selling Securityholders agree to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of
the Company and the Selling Securityholders under this Agreement, including
all costs and expenses referred to in paragraphs (i) and (j) of Section 6
hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company or the Selling
Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by
reason of a default by any of the Underwriters, the Company will reimburse the
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Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred
by them in connection with the transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling
Securityholders to deliver the Stock shall be subject to the conditions that
(a) the Registration Statement shall have become effective and (b) no stop
order suspending the effectiveness thereof shall be in effect and no
proceedings therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be
without liability of the Company and the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; PROVIDED, HOWEVER, that in the event of any such
termination the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company and
the Selling Securityholders under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any
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 paragraph (a) of Section 7 of this Agreement, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the obligations under this Section 11 and the possibility
that such payments might later be held to be improper; provided, however,
that (i) to the extent any such payment is ultimately held to be improper,
the persons receiving such payments shall promptly refund them and (ii) such
persons shall provide to the Company, upon request, reasonable assurances of
their ability to effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 7 hereof,
the several parties (in addition to the Company, the Selling Securityholders
and the several Underwriters) indemnified under the provisions of said
Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give
to any other person, firm or corporation any legal or equitable remedy or
claim under or in respect of this Agreement or any provision herein
contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Stock from any of the
several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters,
shall be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush
Street, San Francisco, California 94104; and if to the Company, shall be
mailed, telegraphed or delivered to it at its office, 111 W. Ocean Boulevard,
4th Floor, Long Beach, CA 90802, Attention: Chairman and Chief Executive
Officer; and if to the Selling Securityholders, shall be mailed, telegraphed
or delivered to the Selling Securityholders in care of the Corporate
Secretary, 111 W. Ocean Boulevard, 4th Floor, Long Beach, CA 90802. All
notices given by telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties
and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation
made by or on behalf of any Underwriter or controlling person thereof, or by
or on behalf of the Company or the Selling Securityholders or their
respective directors or officers, and (c) delivery and payment for the Stock
under this Agreement; provided, however, that if this Agreement is terminated
prior to the Closing Date, the provisions of paragraphs (l) and (m) of
Section 6 hereof shall be of no further force or effect.
16
<PAGE>
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
Please sign and return to the Company and to the Selling Securityholders
in care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.
Very truly yours,
FIRST CONSULTING GROUP, INC.
By: __________________________
James A. Reep
Chairman and Chief Executive Officer
SELLING SECURITYHOLDERS:
By: __________________________
Attorney-in-Fact
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
BANCAMERICA ROBERTSON, STEPHENS
UBS SECURITIES
By: Hambrecht & Quist LLC
By: __________________________
Name
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
17
<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
UNDERWRITERS TO BE PURCHASED
------------ ---------------
Hambrecht & Quist, LLC.........................
BancAmerica Robertson Stephens.................
UBS Securities.................................
----------------
Total:.........................................
----------------
----------------
18
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
NUMBER OF
NAME AND ADDRESS SHARES
OF SELLING SECURITYHOLDER TO BE SOLD
------------------------- -----------
-----------
Total:.....................................................
-----------
-----------
AFFILIATED
SELLING SECURITYHOLDERS
NUMBER OF
NAME AND ADDRESS OF SHARES
AFFILIATED SELLING SECURITYHOLDERS TO BE SOLD
---------------------------------- ----------
-----------
Total:......................................................
-----------
-----------
19
<PAGE>
NUMBER [FIRST CONSULTING GROUP LOGO] SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 31986R 10 3
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
- ---------------------- FIRST CONSULTING GROUP, INC. -------------------------
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER IN PERSON OR BY
DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL 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:
[FIRST CONSULTING GROUP CORPORATE SEAL]
/s/ PATRICIA A. LOWERY /s/ JAMES A. REEP
------------------------ -------------------------
SECRETARY CHAIRMAN
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
-----------------------------------------
AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY DEC 29, 1997 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 054181FC
(562) 989-2333
(FAX) (562) 426-7450 308-19x Proof /s/ REV 1
-----
<PAGE>
FIRST CONSULTING GROUP, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES
AND/OR RIGHTS. SUCH REQUESTS SHALL BE MADE TO THE CORPORATION'S SECRETARY AT
THE PRINCIPAL OFFICE OF THE CORPORATION.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR
DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
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
TEN ENT -- AS TENANTS BY THE ENTIRETIES
JT TEN -- AS JOINT TENANTS WITH RIGHT OF
SURVIVORSHIP AND NOT AS TENANTS
IN COMMON
UNIF GIFT MIN ACT -- ................CUSTODIAN..................
(CUST) (MINOR)
UNDER UNIFORM GIFTS TO MINORS
ACT........................................
(STATE)
UNIF TRF MIN ACT -- ................CUSTODIAN (UNTIL AGE .....)
(CUST)
....................UNDER UNIFORM TRANSFERS
(MINOR)
TO MINORS ACT..............................
(STATE)
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE TEXT.
FOR VALUE RECEIVED, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_________________
|_________________|
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the common 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_________________________
X _________________________________________
X _________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.
AMERICAN BANK NOTE COMPANY DEC 10, 1997 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 054181BK
(562) 989-2333
(FAX) (562) 426-7450 Proof /s/ NEW
-----
<PAGE>
[LOGO]
ATTORNEYS AT LAW San Francisco,
Five Palo Alto CA
Square 415 693-2000
3000 El Camino Real Menlo Park, CA
Palo Alto, CA 650 843-5000
94306-2155 San Diego, CA
Main 650 843-5000 619 550-6000
Fax 650 857-0663 Boulder, CO
www.cooley.com 303 546-4000
Denver, CO
303 606-4800
January 22, 1998
First Consulting Group, Inc.
111 W. Ocean Blvd., 4th Floor
Long Beach, CA 90802
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by First Consulting Group, Inc. (the "Company") of a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission"), covering an underwritten
public offering of up to 3,312,384 (including 496,858 additional shares of
Common Stock for which the underwriters have been granted an over allotment
option) shares of the Company's common stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and Bylaws and the originals or copies certified to our
satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable to render
the opinion expressed below and (ii) assumed that the shares of the Common Stock
will be sold by the underwriters at a price established by the Pricing Committee
of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Common Stock, when sold and issued in accordance with the
Registration Statement and related Prospectus, will be validly issued, fully
paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: ____/s/ Patrick A. Pohlen_________
Patrick A. Pohlen
<PAGE>
FCG ENTERPRISES, INC.
1994 RESTRICTED STOCK PLAN
(AMENDED: DECEMBER 15, 1997)
SECTION 1. PURPOSE
The purpose of the 1994 Restricted Stock Plan of FCG Enterprises, Inc.
is to provide incentives and rewards for Executive Officers of the Company,
and its subsidiaries, if any, who by their industry, loyalty, or exceptional
service contribute to the success of the enterprise by making them
participants in that success. Another purpose of the Plan is to promote the
interests of the Company and its shareholders by strengthening the Company's
ability to attract and retain valuable employees and to provide a means to
encourage stock ownership and proprietary interest in the Company to such
officers of the Company, on a long term basis. Additionally, by virtue of
the mandatory nature of the Plan, each Participant will have a direct stake
in the Company's performance. Finally, the Plan provides, under certain
circumstances, for the mandatory redemption of a Participant's shares of
Stock of the Company.
SECTION 2. DEFINITIONS
2.1 "AGREEMENT" shall mean the Amended and Restated Restricted Stock
Agreement attached hereto as Exhibit "A."
2.2 "BOARD" shall mean the Board of Directors of the Company.
2.3 "COMMITTEE" shall mean the Board unless the Board has established
a Committee of the Board of Directors to administer this Plan.
2.4 "COMMON STOCK" or "STOCK" shall mean the Company's Common Stock
as described in the Company's Articles of Incorporation.
2.5 "COMPANY" shall mean FCG Enterprises, Inc., a California
corporation, or any successor thereof.
2.6 "DIRECTOR" shall mean a member of the Board.
2.7 "EXECUTIVE OFFICERS" shall mean the Chairman of the Board,
President, all Vice Presidents and the Chief Financial Officer of the Company.
2.8 "PARTICIPANT" shall mean those Executive Officers of the Company
and its subsidiaries, if any, selected by the Board or Committee to
participate in this Plan.
2.9 "PLAN" shall refer to the FCG Enterprises, Inc. 1994 Restricted
Stock Plan, as may be amended from time to time.
2.10 "VOTING STOCK" shall mean all shares of common stock of the
Company which have voting rights, regardless of the class thereof.
1
<PAGE>
SECTION 3. ADMINISTRATION AND AUTHORIZATION
3.1 PLAN ADMINISTRATION. The Plan shall be administered by the Board
or by a Committee composed of three or more Board members who are appointed
by the Board. The Board may from time to time remove members from, or add
members to, the Committee. Vacancies on the Committee, howsoever caused,
shall be filled by the Board. The Committee shall select one of its members
as Chairman and shall hold meetings at such times and places as it may
determine, subject to such rules and procedures not inconsistent with the
provisions of the Plan as are prescribed by the Board, and as prescribed by
the Committee itself. A majority of the authorized number of members of the
Committee shall constitute a quorum for the transaction of business. Acts
reduced to or approved in writing by a majority of the members of the
Committee then serving shall be the valid acts of the Committee.
3.2 PARTICIPATION. The Committee is authorized and empowered to
administer the Plan and to (a) select the Participants to whom shares of
Stock are to be sold and to fix the number of shares and price per share of
Stock with respect thereto in accordance with the formula or procedure
approved by the Board and the Company's compensation and bonus policies; (b)
determine the date upon which the shares of Stock will be sold and the terms
and conditions of such sale in a manner consistent with the Plan, which terms
need not always be identical; (c) interpret the Plan; (d) prescribe, amend
and rescind rules relating to the Plan; (e) determine the rights and
obligations of Participants under the Plan; and (f) direct the Company to
execute Agreements pursuant to the Plan.
3.3 AUTHORIZATION. Any determination, decision, or action of the
Committee in connection with the construction, interpretation,
administration, or application of the Plan shall be final, conclusive, and
binding upon all Participants and any person claiming under or through a
Participant, unless otherwise determined by the Board. Any determination,
decision, or action of the Committee provided for in the Plan may be made or
taken by action of the Board if it so determines, with the same force and
effect as if such determination, decision, or action had been made or taken
by the Committee. No member of the Committee or of the Board shall be liable
for any determination, decision, or action made in good faith with respect to
the Plan or shares of Stock granted under the Plan. The Company shall
indemnify and hold harmless the members of the Board and the Committee from
and against any and all liabilities, costs, and expenses incurred by such
persons as a result of any act, or omission, in connection with the
performance of such persons' duties, responsibilities, and obligations under
the Plan, other than such liabilities, costs, and expenses as may result from
the bad faith, willful misconduct, or criminal acts of such persons.
SECTION 4. STOCK SUBJECT TO PLAN
The stock to be issued under the Plan shall be the Company's Common
Stock.
SECTION 5. ELIGIBILITY
The Board or Committee appointed by the Board will, in its sole and
absolute discretion, determine who will participate in the Plan and the start
date for the Participant. However, it is expected that all Executive
Officers of the Company will participate.
2
<PAGE>
SECTION 6. STOCK PURCHASE TERMS AND RESTRICTIONS
The terms and conditions under which shares of Stock will be purchased
and sold are as set forth in the form of Agreement attached hereto as Exhibit
"A" and incorporated herein by reference. For a Participant to participate
in the Plan, both the Participant and the Company must execute the Agreement.
SECTION 7. NOTICE TO PARTICIPANT OF INCLUSION IN PLAN
As soon as practicable after the determination by the Committee that a
Participant is eligible to participate in the Plan, the Committee shall give
notice (written or oral) thereof to such Participant, which notice shall be
accompanied by a copy of the Agreement to be executed by the Participant.
SECTION 8. PARTICIPANT BONUSES
Annually, the Board or a committee of the Board, shall determine the
bonus, if any, to which a Participant is entitled, pursuant to the policies
of the Company regarding bonuses. Any bonus which is granted may be entirely
in cash or a combination of cash and shares of Stock of the Company.
SECTION 9. ADJUSTMENTS IN STOCK
9.1 If any change is made in the Stock subject to the Plan, or
subject to any Agreement (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the Company), the Plan will be appropriately
adjusted in the type(s) and maximum number of securities subject to the Plan,
and the outstanding Agreements will be appropriately adjusted in the type(s)
and number of securities and, if applicable, the price per share of Stock.
Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (A
"transaction not involving the receipt of consideration by the Company" shall
not include the conversion of any convertible securities of the Company or a
reincorporation of the Company.)
9.2 In the event of a Change in Control (as defined herein) either:
(i) any surviving corporation or acquiring corporation shall assume or
continue the Plan and all rights and obligations under outstanding Agreements
under the Plan, or
(ii) in the event any surviving corporation or acquiring corporation
refuses to assume or continue the Plan and such rights and obligations, the
Stock subject to each outstanding Agreement shall be fully vested immediately
prior to such Change in Control and the Plan and all related Agreements
terminated after such event.
9.3 For purposes of the Plan, a "Change in Control" shall mean: (1)
a dissolution, liquidation or sale of all or substantially all of the assets
of the Company; (2) a merger or
3
<PAGE>
consolidation in which the Company is not the surviving corporation; (3) a
reverse merger in which the Company is the surviving corporation but the
shares of the Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise; or (4) the acquisition by any person, entity
or group within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any affiliate of the Company) of
the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of directors.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 NON-TRANSFERABILITY OF SHARES OF STOCK. Except as otherwise set
forth in the Agreement, no shares of Stock issued pursuant to the Plan may be
sold, transferred, pledged or hypothecated (collectively "Transfer") without
the prior written consent of the Company. Any Transfer in violation of the
foregoing shall be void ab initio.
10.2 RESTRICTIONS ON ISSUANCE OF SHARES OF STOCK. No shares of Stock
shall be issued or delivered unless and until there shall have been
compliance with all applicable requirements (including exemptions) of the
Securities Act of 1933, as amended, all applicable state securities laws, and
any other requirement of law or of any regulatory body having jurisdiction
over such issuance and delivery. The inability of the Company to obtain any
required permits, authorizations, or approvals necessary for the lawful
issuance and sale of any shares of Stock hereunder on terms deemed reasonable
by the Board shall relieve the Company, the Board, and the Committee of any
liability in respect of the non-issuance or sale of such shares of Stock as
to which such requisite permits, authorizations, or approvals shall not have
been obtained.
As a condition to the granting of shares of Stock under the Plan, the
Board may require the person receiving the shares of Stock to make such
representations and/or warranties to the Company as may be required under any
applicable law or regulation, including but not limited to a representation
that the shares of Stock are being acquired only for investment and without
any present intention to sell or distribute such shares of Stock.
10.3 EFFECTIVENESS SUBJECT TO BOARD AND SHAREHOLDERS' APPROVAL. The
effectiveness of the Plan is conditioned on approval of the Plan by the vote
or written consent of the holders of a majority of the outstanding shares of
the Company's Voting Stock prior to issuing any shares of Stock under the
Plan, and shall become effective upon such approvals being obtained.
10.4 TAX WITHHOLDING. The Board shall make such provisions and take
such steps as it deems necessary or appropriate for the withholding of any
federal, state, local, and other tax required by law to be withheld with
respect to the issuance of shares of Stock under the Plan, including, but
without limitation, the deduction of the amount of any such withholding tax
from any compensation or other amounts payable to the Participant by the
Company, or requiring a Participant (or the Participant's beneficiary or
legal representative) as a condition of issuing the
4
<PAGE>
shares of Stock, to pay to the Company any amount required to be withheld, or
to execute such other documents as the Board deems necessary or desirable in
connection with the satisfaction of any applicable withholding obligation.
10.5 LEGENDS ON STOCK CERTIFICATES. Each share certificate
representing shares of Stock acquired under this Plan shall be endorsed with
all legends, if any, required by applicable federal and state securities laws
to be placed on the certificate. The determination of which legends, if any,
shall be placed upon the share certificates shall be made by the Board in its
sole discretion and such decision shall be final and binding.
10.6 CONTINUATION OF EMPLOYMENT. Nothing contained in the Plan or in
the Agreement shall confer upon any Participant any rights with respect to
continuation of employment by the Company, nor shall this Plan or any
individual Agreement issued pursuant hereto be deemed a contract of
employment.
10.7 TERMINATION, SUSPENSION, AND AMENDMENT. The Board may amend,
alter, and/or terminate the Plan at any time; provided, however, that unless
required by applicable law, rule, or regulation the Board shall not amend the
Plan in the following respects without the approval of stockholders holding a
majority of the Company's outstanding shares of Voting Stock:
(1) To increase the maximum number of shares of Stock available
for grant under the Plan;
(2) To provide for the administration of the Plan other than by
the Board or a Committee;
(3) To change the classes of Participants.
Except as set forth above, the Board may amend the terms of the Plan
prospectively or retroactively, and may amend the form of Agreement provided,
however, that unless required by applicable law, rule, or regulation, no
amendment of the Plan or of the Agreement shall affect in a material and
adverse manner any awards of shares of Stock granted prior to the date of any
such amendment without the consent of the affected Participant(s).
10.8 GOVERNING LAW. The Plan shall be governed by, construed and
enforced in accordance with the internal laws of the State of California,
provided that the Agreements may be governed by other applicable law
specified in the Agreements.
10.9 BINDING UPON SUCCESSORS. The terms and provisions of the Plan
shall be binding upon the heirs, executors, administrators, personal
representatives, and permitted successors and assigns of a Participant.
10.10 NUMBER AND GENDER. As used in this Plan, words in the singular
shall include the plural and words in a particular gender shall include
either or both genders when the context in which such words are used
indicates that such is the intent.
5
<PAGE>
AMENDED AND RESTATED
RESTRICTED STOCK AGREEMENT
FIRST CONSULTING GROUP, INC.
THIS RESTRICTED STOCK AGREEMENT ("Agreement") by and between FIRST
CONSULTING GROUP, INC., a Delaware corporation (the "Company") and _____________
("Participant") shall be effective immediately upon the effectiveness of the
merger of FCG Enterprises, Inc. with and into the Company.
WHEREAS, the Company sponsors and maintains the 1994 Restricted Stock Plan,
as amended (the "Plan") and the Board has approved a form of restricted stock
agreement pursuant to the Plan;
WHEREAS, the Participant has previously executed a restricted stock
agreement under the Plan; and
WHEREAS, the Board has selected Participant to participate in the Plan and
considers it desirable and in the Company's best interest that Participant
acquire a proprietary interest in the Company.
NOW, THEREFORE, in consideration of the foregoing recitals, the parties
hereto agree to amend and restate this restricted stock agreement to read as
follows:
1. (a) PURPOSE OF PLAN. The purpose of the Plan is to provide
incentives and rewards for Executive Officers of the Company and its
subsidiaries, who by their industry, loyalty, or exceptional service contribute
to the success of the enterprise by making them participants in that success.
Additionally, by virtue of the mandatory nature of the Plan, Participant will
have a direct stake in the Company's performance.
(b) DEFINITIONS. Certain terms used herein shall have the following
meanings:
(i) "ACQUISITION AGREEMENT" means an agreement setting
forth the terms of an Acquisition Transaction.
(ii) "ACQUISITION TRANSACTION" shall mean any transaction
involving:
(1) the purchase or other acquisition of all or any
portion of a consulting business or assets of such a business;
(2) the issuance, purchase or other acquisition by the
Company of (i) any capital stock of a consulting business, (ii) any option,
call, warrant or right (whether or not immediately exercisable) to acquire
any capital stock of a consulting business, or (iii) any security, instrument
or obligation that is or may become convertible into or exchangeable for any
capital stock of a consulting business; or
1.
<PAGE>
(3) any merger, consolidation, business combination,
share exchange, reorganization or similar transaction involving the Company
and a consulting business.
(iii) "AGREEMENT" shall mean this Amended and Restated
Restricted Stock Agreement;
(iv) "APPROVED PARTICIPANT" shall mean an employee of the
Company who has signed and is bound by a restricted stock agreement under the
Plan, as may be amended from time to time;
(v) "APPROVED SHAREHOLDER" shall mean the ASOP, a
Transferee Entity and an Approved Participant;
(vi) "APPLICABLE YEAR" shall mean the calendar year in
which the Purchase Event occurs;
(vii) "ASOP" shall mean the Company's Associate Profit
Sharing 401(k) and Stock Ownership Plan (effective December 1, 1995), as may
be amended from time to time;
(viii) "BORROWING RATE" shall mean the average interest rate
the Company pays to a commercial lending institution in a calendar quarter.
In the event the Company has no borrowings for a particular quarter, then the
rate shall be the prime rate on the first day of the quarter, as announced in
the Wall Street Journal or if the Wall Street Journal discontinues such
announcements, then the reference lending rate as announced by Bank of
America;
(ix) "BOARD" shall mean the Board of Directors of the
Company;
(x) "CLIENT" shall mean any then current client of the
Company and any person or entity to which the Company has submitted a
proposal during the 12 months immediately prior to the date that
Participant's employment with the Company is terminated.
(xi) "CODE" shall mean the Internal Revenue Code of 1986,
as amended.
(xii) "COMPANY" shall mean First Consulting Group, Inc., a
Delaware corporation, or its successor in interest;
(xiii) "EXECUTIVE OFFICERS" shall mean the Chairman of the
Board, the President, all Vice Presidents, and the Chief Financial Officer of
the Company;
(xiv) "GROWTH FACTOR" shall have the same meaning as
"Borrowing Rate," compounded on a quarterly basis; PROVIDED THAT, for
quarters prior to October 1, 1994, Attachment I stipulates the rates to be
applied;
2.
<PAGE>
(xv) "MARKET VALUE" shall mean the closing sales price for
the Stock (or the closing bid, if no sales were reported) as quoted on the
specific Public Trading Market on which the Stock is traded (or the Public
Trading Market with the highest trading volume in the Stock if the Stock is
traded on more than one exchange or market) on the relevant date, as reported
in The Wall Street Journal or such other source as the Board deems reliable;
(xvi) "MINIMUM SHAREHOLDINGS" shall be as defined in Section
3(a);
(xvii) "PARTICIPANT" shall mean the individual employee of
Company executing this Agreement;
(xviii) "PLAN" shall mean the 1994 Restricted Stock Plan, as
amended;
(xix) "PRINCIPAL AMOUNT" shall mean the principal amount
of any promissory note given in connection with a purchase of Stock, based
upon the Purchase Price;
(xx) "POST-EMPLOYMENT PERIOD" shall mean the two (2) year
period after the date Participant's employment with the Company terminates.
(xxi) "PUBLIC TRADING MARKET" shall mean that shares of
Stock are actively traded on an established stock exchange, including but not
limited to a national securities exchange, the Nasdaq National Market, and/or
The Nasdaq SmallCap Market;
(xxii) "PURCHASE EVENT" shall mean the event causing a
purchase or sale under this Agreement, including the following events: death,
permanent disability, termination of employment, and any other required or
permitted disposition of Stock under this Agreement;
(xxiii) "PURCHASE PRICE" shall mean the Market Value;
(xxiv) "RESTRICTED AREA" shall mean the geographical area
served by the Company at the time of such termination.
(xxv) "STOCK" shall mean the Company's Common Stock, $0.001
par value;
(xxvi) "SERVICE YEAR" shall mean a calendar year of service
(or in the case of the calendar year in which Participant becomes an
Executive Officer, the remaining portion of such year from the time
Participant become an Executive Officer) in which Participant completes at
least 1,000 hours of continuous service (to be interpreted in the same
fashion as the term "hours of service" is determined under the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
promulgated thereunder) as an Executive Officer in the employ of the Company,
including service as an Executive Officer prior to adoption of the Plan,
except that the Board, in its sole discretion, may determine that a Board
approved part-time schedule be deemed a Service Year notwithstanding that
Participant does not provide 1,000 hours of continuous service. In addition,
to the extent Participant maintains a continuing relationship with the
Company (as determined by the Board in the Board's sole discretion), but does
not complete at least 1,000 hours of continuous service during a calendar
year, then such Participant shall be credited with a fractional Service Year,
such fraction having a numerator
3.
<PAGE>
equaling the number of hours of continuous service performed by Participant
during the relevant calendar year and a denominator equaling 1,000;
(xxvii) "TRANSFEREE ENTITY" shall be as defined in Section 13;
(xxviii) "VALUATION REPORT" shall mean the report of the
market valuation specialist as to the Market Value of the Stock.
2. PARTICIPANT BONUSES. Annually, the Board, or a Committee of the
Board, shall determine the bonus, if any, to which Participant is entitled
pursuant to the policies of the Company regarding bonuses. As more fully
described below, any bonus which is granted may be entirely in cash, entirely in
stock or a combination of cash and shares of Stock.
3. PARTICIPANT STOCK PURCHASE REQUIREMENTS.
(a) Participant shall purchase shares of Stock (from the Company, an
Approved Shareholder with the prior written consent of the Company, or on a
Public Trading Market) at the time Participant is selected to participate in the
Plan and at the end of each calendar year thereafter so that Participant shall
own a number of shares of Stock that equals or exceeds the Minimum
Shareholdings. Any shares of Stock allocated to Participant's account in the
ASOP and any shares of Stock subject to a stock option granted to Participant
shall not be counted towards satisfaction of Participant's Minimum
Shareholdings. The number of shares of Stock Participant must own (vested and
unvested) initially and thereafter as required by this Agreement, shall be at
least equal to the following, which is referred to hereinafter as the "Minimum
Shareholdings":
Executive Officer Level Minimum Shareholdings
----------------------- ---------------------
Executive Officer Levels I & II One times annual base salary divided by
then current Market Value
Executive Officer Levels III & IV Two times annual base salary divided by
then current Market Value
(b) Until such time as Participant either (i) owns a number of shares
of Stock equal to or exceeding the Minimum Shareholdings or (ii) reaches the end
of the calendar year during which Participant attains age 54, and also has no
Stock-related loans outstanding with the Company or in any way guaranteed by the
Company, the greater of (i) one-half of Participant's net annual bonus and all
other discretionary cash awards (after taxes and mandatory governmental
deductions), if any, or (ii) the amount necessary to amortize any outstanding
Stock-related loans in 10 years from the origination of the loans, shall be used
first to repay any Stock-related loans outstanding and then shall be used to
purchase shares of Stock pursuant to Section 3(a). Participant may elect to
apply more than one-half of his or her bonus to the repayment of loans, or in
the absence of any outstanding Stock-related debt, to purchase
4.
<PAGE>
additional shares of Stock. The Board at its sole discretion may increase or
decrease the percentage of annual bonus which must be used to purchase the
Minimum Shareholdings and/or to repay any outstanding Stock-related loans.
(c) Subject to the limitations set forth in Section 3(a), shares of
Stock to which Participant or a Transferee Entity holds legal title shall be
counted towards satisfying Participant's Minimum Shareholdings.
4. DETERMINATION OF STOCK VALUE.
For purposes of determining the number of shares of Stock which Participant
must own in order to achieve his or her Minimum Shareholdings, the Company's
Stock shall be valued once a year at the time of Participant's annual review
using the value of the Company's Stock at the end of each of the three (3)
preceding calendar quarters (based on the closing price for the Stock on the
last trading day of each such quarter on the securities exchange or automated
quotation system on which the Company's Stock had the highest average trading
volume for such quarter, or if the end of such quarter occurred prior to the
time that the Company's Stock is traded on a Public Trading Market, the value
based on the Valuation Report applicable to such date), and the highest such
value shall be used.
5. TRANSFER RESTRICTIONS.
(a) Participant shall be permitted to transfer his or her shares to a
Transferee Entity, in accordance with the provisions of Section 13 below, and as
permitted by this Agreement, to the ASOP or an Approved Participant. In
addition, Participant may sell his or her shares on a Public Trading Market
(subject to the limitations of Section 7). Shares of Stock transferred to the
ASOP in accordance with the terms of this Agreement will not thereafter be
subject to the provisions of this Agreement.
(b) Without the prior written consent of the Company (which may be
given or withheld in its sole discretion), at no time may any of the shares of
Stock owned by Participant or Transferee Entity, or any interest therein, that
comprise Participant's minimum Shareholdings be pledged or encumbered.
(c) None of the shares of Stock of the Company, held as collateral
or required to meet the Minimum Shareholdings, regardless of when or how
obtained or the class thereof, may be transferred, sold, or assigned to any
person, or hypothecated, except as otherwise provided for in this Section 5
and in Section 13.
(d) Any transfer, sale, assignment, hypothecation, encumbrance, or
alienation of any of the shares of Stock of the Company other than expressly
permitted by, and according to the terms of, this Agreement is void and
transfers no right, title, or interest in or to those shares, or any of them,
to the purported transferee, buyer, assignee, pledgee, or encumbrance holder.
(e) Notwithstanding any other provision of this Agreement to the
contrary, Participant agrees that the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act of
1933, as amended (the "Securities Act") (hereinafter, the "IPO"), require that
5.
<PAGE>
Participant not sell or otherwise transfer or dispose of any shares of Stock
or other securities of the Company, both those securities subject to this
Agreement and otherwise, during such period (not to exceed five hundred forty
(540) days) following the effective date of the S-1 Registration Statement of
the Company filed under the Securities Act as may be requested by the Company
or the representative of the underwriters. Participant further agrees that
the Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such period.
6. VESTING.
(a) With respect to shares of Stock purchased by Participant from
the Company, Participant will vest in such shares based the number of Service
Years Participant has completed as an Executive Officer of the Company,
including service prior to adoption of the Plan. If a break in service
occurs, the Board, in its sole discretion, may grant credit for prior Service
Years and/or establish a different vesting schedule. Except as otherwise
modified by the preceding sentence, the vesting schedule is as follows:
(i) For shares of Stock purchased prior to the IPO,
excluding shares of Stock acquired in connection with an Acquisition
Transaction:
Service Shares Shares
Years(1) Vested Unvested
-------- ------ --------
0 through 3 None 100%
4 100% 60%
5 40% 50%
6 50% 40%
7 60% 30%
8 70% 20%
9 80% 10%
10 or more 90% 0%
Such vesting shall be calculated so that the first-purchased shares are the
first to vest. For example, if Participant purchased 10,000 shares on
January 1, 1996, and 15,000 shares on July 1, 1996, and had 5 years of
service, Participant would be vested in all 10,000 shares purchased on
January 1, 1996, and 2,500 shares purchased on June 1, 1996. Shares of Stock
purchased after the IPO shall not be considered in calculating the vested
percentage of share of Stock purchased prior to the IPO.
(ii) For Shares of Stock purchased on or after the IPO,
excluding shares of Stock acquired in connection with an Acquisition
Transaction:
- -------------------
(1) Partial Service Years may also result in vesting credit if a Participant
has completed at least three complete Service Years and has a continuing
relationship with the Company, as explained in the definition of "Service
Year" in Section 1(b)(xxiii). Thus, if a Participant owns 10,000 shares and
is credited with 4.6 Service Years, 4,600 of his or her shares would be
vested and 5,400 would be unvested.
6.
<PAGE>
All shares of Stock shall be one hundred percent (100%)
vested at all times at and after the time of purchase.
(iii) For shares of Stock acquired in an Acquisition
Transaction:
All shares of Stock shall vest as determined in the
relevant Acquisition Agreement.
(b) Notwithstanding the foregoing vesting schedule, Participant
shall automatically be one hundred percent (100%) vested in those shares of
Stock which, at the end of the calendar year in which Participant attains age
59, have been owned for at least three years, provided that Participant is
serving as an Executive Officer at the end of such calendar year. Any shares
of Stock owned by Participant at the end of the calendar year in which
Participant attains age 59 that have not been held for at least three years
will become one hundred percent (100%) vested when held for three years from
the date of purchase.
(c) In the event of the death or permanent disability of
Participant while an Executive Officer, Participant will automatically become
one hundred percent (100%) vested in his or her shares of Stock regardless of
the number of Service Years. Participant shall be deemed to be permanently
disabled when a medical doctor, reasonably acceptable to the Company,
certifies in writing ("Physician's Certificate") that Participant is
permanently disabled and unable to carry on his or her normal duties at the
Company.
(d) In the event of a Change in Ownership (as defined in Section
6(e)), Participant will automatically become one hundred percent (100%)
vested in his or her shares of Stock if Participant is either (x) terminated
without Cause or (y) suffers a Constructive Termination within the thirty-six
(36) month period following the occurrence of the Change in Ownership.
(i) Termination of Participant's employment with the Company
shall be for "Cause" in the event of the occurrence of any of the following:
(a) any intentional action or intentional failure to act by Participant which
was performed in bad faith and to the material detriment of the Company; (b)
Participant intentionally refuses or intentionally fails to act in accordance
with any lawful and proper direction or order of the Board; (c) Participant
willfully and habitually neglects the duties of employment; or (d)
Participant is convicted of a felony crime involving moral turpitude;
PROVIDED THAT in the event that any of the foregoing events is capable of
being cured, the Company shall provide written notice to Participant
describing the nature of such event and Participant shall thereafter have ten
(10) business days to cure such event. All other terminations of Participant
by the Company shall be treated as not for Cause.
(ii) A Constructive Termination shall be deemed to be a
termination of employment of Participant without Cause. For purposes of this
Agreement, a "Constructive Termination" means that Participant voluntarily
terminates his or her employment after any of the following are undertaken
without Participant's express written consent:
(1) The assignment to Participant of any duties or
responsibilities which result in any diminution or adverse change of
Participant's position, status or circumstances of employment;
7.
<PAGE>
(2) a reduction by the Company in Participant's annual
base salary by greater than five percent (5%);
(3) a relocation of Participant, or the Company's
principal executive offices if Participant's principal office is at such
offices, to a location more than forty (40) miles from the location at which
Participant is then performing his or her duties, except for an opportunity
to relocate which is accepted by Participant in writing;
(4) any material breach by the Company of any provision
of this Agreement; or
(5) any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the Company.
(e) For purposes of this Agreement, a "Change in Ownership" shall
have occurred if at any time during the term of Participant's employment
hereunder, any of the following events shall occur:
(i) The Company is merged, consolidated, or reorganized into
or with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than fifty percent (50%) of the
combined voting power of the then-outstanding securities of such corporation
or person immediately after such transaction are held in the aggregate by the
holders of voting securities of the Company immediately prior to such
transaction;
(ii) The Company sells all or substantially all of its assets
or any other corporation or other legal person and, thereafter, less than
fifty percent (50%) of the combined voting power of the then-outstanding
voting securities of the acquiring or consolidated entity are held in the
aggregate by the holders of voting securities of the Company immediately
prior to such sale;
(iii) There is a report filed after the date of this Agreement
on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or
report), each as promulgated pursuant to the Securities Exchange Act of 1934,
as amended, (the "Exchange Act") disclosing that any person (as such term is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become
the beneficial owner (as such term is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act) representing
fifty percent (50%) or more of the combined voting power of the
then-outstanding voting securities of the Company;
(iv) The Company shall file a report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-X thereunder or Item 5(f) of
Schedule 14A thereunder (or any successor schedule, form or report or item
therein) that the change in control of the Company has or may have occurred
or will or may occur in the future pursuant to any then-existing contract or
transaction; or
(v) During any period of two consecutive years, individuals
who at the beginning of any such period constitute the members of the Board
cease for any reason to
8.
<PAGE>
constitute at least a majority thereof unless the election to the Board or
nomination for election by the Company's stockholders of each member of the
Board first elected during such period was approved by a vote of at least
two-thirds of the members of the Board then still in office who were members
of the Board at the beginning of such period.
(vi) Notwithstanding anything to the foregoing, any eventual
ownership of more than fifty percent (50%) of the Company by the ASOP shall
not be deemed a Change of Ownership.
(f) In the event that any payment of benefit received or to be
received by Participant under this Agreement would result in all or a portion
of such payment to be subject to the excise tax on "golden parachute
payments" under Section 4999 of the Code, then Participant's payment shall be
either (i) the full payment or (ii) such lesser amount which would result in
no portion of the payment being subject to excise tax under Section 4999 of
the Code, whichever of the foregoing amounts, taking into account the
applicable Federal, state, and local employment taxes, income taxes, and the
excise tax imposed by Section 4999 of the Code, results in the receipt by
Participant on an after-tax basis, of the greatest amount of the payment
notwithstanding that all or some portion of the payment may be taxable under
Section 4999 of the Code.
(g) Vested shares of Stock that are purchased, sold, or otherwise
transferred in accordance with the provisions of this Agreement, will retain
the status of vested shares in the hands of the transferee; provided,
however, that if shares of Stock are transferred to an Approved Participant,
such Shares of Stock shall be governed by the terms of the restricted stock
agreement between the Company and the Approved Participant, unless otherwise
determined by the Company in its sole discretion.
7. REQUIRED HOLDINGS AND SALE OF VESTED SHARES.
Sales of vested shares of Stock shall be completed upon the following
terms and conditions:
(a) Provided that Participant continues, after the time of a sale
of vested shares of Stock, to own sufficient shares of Stock to satisfy both
his or her Minimum Shareholdings requirement plus an additional amount equal
to one times annual base salary, valued in accordance with Section 4,
Participant may sell vested shares of Stock through an investment banking or
brokerage firm designated by the Company.
(b) Notwithstanding the foregoing, Participant may not sell shares
of Stock which have been pledged or are otherwise being held as collateral
for a loan from the Company and/or a loan to purchase such shares of Stock.
Such pledged or collateralized shares of Stock may only be released from such
security interest under the terms of that written instrument setting forth
the terms of such security interest. If the only security interest
encumbering such shares of Stock relates to a loan from the Company, the
proceeds of which loan were used to purchase such shares of Stock, and if the
written instrument setting forth the terms of that security interest does not
include a formula for release of such shares of Stock from the security
interest, then the following formula shall apply: Upon each anniversary date
of the loan, the
9.
<PAGE>
Company's Stock shall be valued at the end of each of the three (3) preceding
calendar quarters (based on the closing price for the Stock on the last
trading day of each such quarter on the securities exchange or automated
quotation system on which the Company's Stock had the highest average trading
volume for such quarter, or if the end of such quarter occurred prior to the
time that the Company's Stock is traded on a Public Trading Market, the value
based on the Valuation Report applicable to such date), and the lowest of
such three (3) values shall be deemed the "Secured Share Value." The Secured
Share Value shall be multiplied by the number of shares of Stock held under
the security interest and, if the resulting product (the "Aggregate Secured
Share Value") exceeds one hundred twenty percent (120%) of the amount
remaining due under the loan, then the Company shall cause whole shares of
Stock to be released from the security interest until the Aggregate Secured
Share Value no longer exceeds one hundred twenty percent (120%) of the amount
remaining due under the loan.
(c) Once a Participant has (i) attained age 55 and is one hundred
percent (100%) vested in all shares of Stock acquired pursuant to the Plan or
(ii) ceased providing services to the Company or an affiliate of the Company
as an Executive Officer or an equivalent position with an affiliate for a
continuous period of at least six (6) months, then the restrictions of
Section 7(a) shall no longer apply to such Participant.
8. SALE AND PURCHASE OF UNVESTED SHARES OF STOCK.
(a) Upon the termination of Participant's employment for any
reason (excluding death, permanent disability or Change in Ownership) the
Company may, but is not required to, purchase all of Participant's unvested
shares of Stock at the price Participant paid for the shares of Stock plus
the Growth Factor from the date Participant purchased the shares of Stock.
The decision whether to purchase such unvested shares shall be made by the
Company in its sole discretion, and in all events must be communicated to
Participant within sixty (60) days following Participant's termination.
(b) Unvested shares of Stock may not be sold by Participant to
anyone other than the Company under any circumstances unless and until the
Company waives (in writing) its rights under Section 8(a) above or the sixty
(60)-day period set forth in Section 8(a) lapses without the Company having
properly notified Participant.
9. PAYMENT TERMS IF PARTICIPANT COMPETES WITH THE COMPANY.
(a) If Participant competes with the Company during the
Post-Employment Period, then Participant shall (A) automatically forfeit all
unexercised stock options granted to Participant by the Company or any
affiliate of the Company, regardless of whether the stock options are vested
and exercisable, (B) the Company shall have the right, but not the
obligation, to purchase some or all of the shares of Stock owned by
Participant or a Transferee Entity with respect to such Participant under the
terms set forth in Section 9(c) below and Section 11, and (C) Participant and
any Transferee Entity (with respect to such Participant) shall be required to
pay to the Company an amount equal to any profit which Participant or such
Transferee Entity may have realized from any sale of shares of Stock within
six (6) months of the date as of which the Company determines, in its sole
discretion, that Participant began competing with the Company.
10.
<PAGE>
(b) Participant shall be deemed to be in competition with the
Company if:
(i) he or she directly or indirectly (as an owner, employee,
independent contractor, or otherwise) engaged in any business activity that
was engaged in by the Company at any time during the one (1)-year period
immediately preceding the time Participant left the employ of the Company
within the Restricted Area;
(ii) within the one (1) year period following the time
Participant left the employ of the Company, provides consulting services (as
distinguished from internal staff services) to a Client with respect to any
substantive matter in which the Company provided consulting services at any
time to any of the Company's Clients during the one (1)-year period
immediately preceding the time Participant left the employ of the Company; or
(iii) within the two (2)-year period following the time
Participant left the employ of the Company, provides any services to a Client
to which Participant provided services while employed by the Company, other
than providing internal staff services as a full-time employee of a Client
(or as a part-time employee of Client, provided that Participant is not
otherwise engaging in conduct that is deemed to be in competition with the
Company).
Notwithstanding any of the foregoing, Participant shall not be
deemed to be in competition with the Company if he or she makes an investment
defined in Section 15(e).
(c) The purchase price for all shares of Stock purchased by the
Company shall be paid over a ten (10)-year period from the date of the
Closing (see Section 11), in equal quarterly installments, without stated
interest. If at the time Participant leaves, Participant is not competing
with the Company, or, in the alternative, the Company is unaware that
Participant is competing with the Company, but later Participant begins
competing with the Company or Company discovers that Participant is competing
with the Company within the Post-Employment Period respectively, then the
payment period shall be extended to a ten (10)-year payout from the date of
the Closing and the payments shall be recalculated by the Company, with
payments payable quarterly, without interest. In the latter case, if the
payments already made to Participant exceed what would have been paid to
Participant on a ten (10)-year payout, then no further payments will be made
until the amount payable exceeds the amount previously paid.
(d) The Board may elect to relax some or all of the provisions of
this Section 9 in its sole discretion.
10. LIMITATIONS ON PAYMENTS BY THE COMPANY. Notwithstanding anything
in this Agreement to the contrary, at no time shall the Company purchase any
shares of its capital stock if such purchase would violate state or federal
law.
11. CLOSING.
(a) With respect to any shares of Stock being purchased by the
Company pursuant to this Agreement, payment by the Company and delivery and
transfer of the shares of Stock to the Company (the "Closing") shall take
place within thirty (30) days after the
11.
<PAGE>
occurrence of the Purchase Event. At the Closing the following provisions
shall be applicable to any and all purchases of shares of Stock by the
Company:
(i) At the Closing, the Company shall deliver the applicable
Note representing all or a portion of the Purchase Price, and any required
down payment. If the Company is the beneficiary of life insurance on the
life of Participant, and the Company has received insurance proceeds under
such insurance due to the death of Participant (for the purpose of redeeming
Participant's shares), said proceeds shall be paid in cash at the Closing,
not in excess of the Purchase Price.
(ii) Participant or his or her estate, conservator, guardian,
or Transferee Entity, as the case may be, shall deliver to the Company the
share certificate or certificates for all of the shares being purchased, duly
endorsed for transfer. Additionally, in the case of permanent disability,
there shall be delivered to the Company the Physician's Certificate referred
to in Section 6(c).
(iii) The Company's duty to close any purchase, including the
duty to pay any portion of the Purchase Price, and deliver the Note, is
expressly subject to full performance or satisfaction of all terms and
conditions that are required to be performed or satisfied by any other person
or entity other than the Company.
(b) Unless otherwise agreed in writing between the parties, the
Closing shall take place at 111 West Ocean Boulevard, Suite 400, Long Beach,
California 90802, or such other place designated by the Company at 10:00 A.M.
on a date mutually satisfactory to the parties within the aforesaid thirty
(30)-day period. If the parties are unable to agree upon a mutually
satisfactory date within said thirty (30)-day period, then the Closing shall
occur on the thirtieth (30th) day following the date of the Purchase Event,
or if the thirtieth (30th) day is a Saturday, Sunday, or legal holiday, then
the Closing shall occur on the next business day.
(c) Notwithstanding any other provision of this Agreement, if a
Purchase Event results due to death or permanent disability (determined
pursuant to Section 6(c)) of Participant, the Closing Date shall be extended
for such period of time as may be reasonably required for the appointment of
a personal representative of the deceased or disabled stockholder, and for
the obtaining of probate court instructions, approvals, or confirmations
required by law, or until such time as full legal and equitable tax-free
title to the shares of Stock can be transferred to the Company.
(d) Further, notwithstanding any other provision of this
Agreement, the Closing of the purchase shall be subject to any approvals as
may be required from federal and/or state regulatory authorities.
12. COST BASIS OF SHARES UNDER CERTAIN CIRCUMSTANCES AND VESTING
EXCEPTIONS.
(a) All shares owned by a Plan Participant for at least three
years as of December 31, 1993, for purposes of all under the Plan, shall be
deemed to have a cost basis of $1.765 per share. With respect to shares, the
Growth Factor shall commence accruing on January 1, 1994. Shares owned by a
Plan Participant which have not been held for at least three years as of
December 31, 1993, shall for purposes of repurchase rights held by the
Company
12.
<PAGE>
under the Plan, have a cost basis equal to their actual cost until the shares
have been held for three years, at which time their cost basis for purposes
of repurchase rights held by the Company under the Plan shall be deemed to be
$1.765. With respect to such shares, the Growth Factor shall commence to
accruing on January 1, 1994 or the date the shares were purchased, whichever
is later.
(b) Notwithstanding the vesting schedule set forth in Section
6(a), shares of Stock owned by the following Plan Participants shall be fully
vested in such Participant at such time as the Participant attains age 55
with continuous full time service as an Executive Officer: Roy Walters, Erica
Drazen, Ray Bell, Luther Nussbaum, Don Tompkins and Pat Lowery.
13. TRANSFERS TO A REVOCABLE LIVING TRUST, FAMILY LIMITED LIABILITY
COMPANY, FAMILY LIMITED PARTNERSHIP, PRIVATE FOUNDATION, OR SIMILAR ESTATE
PLANNING ENTITY OR CHARITABLE GIFT PLANNING ENTITY. Notwithstanding anything
in this Agreement to the contrary, Participant may make a gift of his or her
shares of Stock to: (i) a revocable living grantor trust established for the
benefit of the Participant or his or her family, (ii) a family limited
liability company established for the benefit of the Participant or his or
her family, (iii) a family limited partnership established for the benefit of
the Participant or his or her family, or (iv) with respect to which
Participant is a "disqualified person" within the meaning of Section 4946 of
the Code, or similar estate planning entity or charitable gift planning
entity ("Transferee Entity"), subject to the satisfaction, as applicable, of
all of the following:
(a) The trustee, manager, general partner, president, or
comparable authorized person of the Transferee Entity shall, prior to
obtaining possession of shares of such Stock, sign a copy of this Agreement
or other document signifying that the entity and all persons having an
economic ownership interest thereunder are bound by the terms of this
Agreement, and shall make no further distribution, conveyance, or transfer
other than as herein provided.
(b) Concurrent with the transfer or gift, the trustee, manager,
general partner, president, or comparable authorized person of the Transferee
Entity shall execute an irrevocable proxy granting the transferor of the
Stock the right to vote the Stock transferred for the maximum period
permitted under the then applicable law; and which proxy, shall be renewed
for like periods so long as the Transferee Entity is a stockholder of the
Company, and so long as this Agreement is in force, in order to carry out the
purposes of this Agreement.
(c) With respect to transfers to a trust, Participant shall at all
times retain the right, during his or her lifetime, to re-acquire the shares
of Stock transferred to the trust, except to the extent that such
reacquisition would be a violation of federal or state law.
(d) Upon the occurrence of a Purchase Event, the Transferee
Entity, if then the owner of shares of Stock, shall transfer and sell all of
the shares of Stock transferred to the Transferee Entity by Participant, upon
the same terms and conditions that would have applied had the Stock been
owned by Participant at the time of such Purchase Event.
(e) As a condition to the transfer to the Transferee Entity,
Participant may, at the Company's option, be required to provide a copy of
the governing documents for such
13.
<PAGE>
Transferee Entity to the Company, and to certify that the Transferee Entity
satisfies all applicable legal and tax requirements for such type of entity.
(f) Any transfer of shares of Stock to a Transferee Entity which
does not satisfy all the applicable requirements set forth in this Section
13, as determined in the sole discretion of the Company, may be declared by
the Company to be void, and the Company shall not be required to reflect the
attempted change of ownership in the books and records of the Company.
14. REPRESENTATIONS AND WARRANTIES OF PARTICIPANT. As an inducement to
the Company to issue and sell the shares of Stock to Participant, Participant
represents, warrants and covenants to Company, which shall be continuing
representations, warranties and covenants applicable at any time Participant
purchases shares of Stock, subject to the provisions of Section 14(f), as
follows:
(a) That any shares of Stock acquired by Participant will be
acquired for Participant's own account, for investment, and not with a view
to or for sale in connection with any distribution of such shares.
(b) (i) That Participant has a preexisting business relationship
with Company and/or one or more of its officers or directors; or
(ii) By reason of Participant's business or financial
experience or the business experience of his professional advisors who are
unaffiliated with and who are not compensated by the Company or any affiliate
or selling agent of the Company, directly or indirectly, Participant has the
capacity to protect his own interests in connection with the acquisition of
such shares of Stock and to evaluate the risks and rewards of investing in
such shares of Stock.
(c) That Participant is an Executive Officer of the Company.
(d) That Participant has reviewed the Company's financial
statements and such other information as Participant deemed important and
that Participant has had the opportunity to and has asked questions of
representatives of the Company pertaining to such financial statements and
other information and has received satisfactory answers to such questions.
(e) That the offer and sale of the shares of Stock was not
accomplished by the publication of any advertising.
(f) The provisions of this Section 14 shall no longer apply at any
time when the Company's Stock is traded on a Public Trading Market to the
extent that the shares of Stock acquired by Participant during such time have
been registered or qualified under applicable securities law or an exemption
from such registration and qualification requirements is available which does
not require Participant to make the representations set forth above.
14.
<PAGE>
15. NON-COMPETE/NON-SOLICITATION RESTRICTIONS.
(a) Until such time that Participant is neither an employee nor a
stockholder of the Company, Participant agrees that he or she will not,
directly or indirectly, own an interest in, operate, join, control, or
participate in, or be connected as an officer, employee, agent, independent
contractor, partner, stockholder, or principal of any corporation,
partnership, proprietorship, firm, association, person, or other entity
producing, designing, providing, soliciting orders for, selling,
distributing, or marketing products, goods, equipment, and/or services which
directly or indirectly compete with the Company's business.
(b) Until such time that Participant is neither an employee or
stockholder of the Company, and during the Post-Employment Period,
Participant agrees that he or she will not, directly or indirectly, either
for himself or herself or for any other person, firm, or corporation, divert
or take away or attempt to divert or take away (and during the
Post-Employment Period, call on or solicit or attempt to call on or solicit)
any of the Company's customers or clients, including but not limited to those
upon whom Participant called or whom Participant solicited or to whom
Participant catered or with whom Participant became acquainted while engaged
as an employee in the Company's business (See Section 9).
(c) Until such time that Participant is no longer an employee
and/or stockholder of the Company, Participant agrees that he will not
undertake planning for or organization of any business activity competitive
with the Company's business or combine or conspire with other employees or
representatives of the Company's business for the purpose of organizing any
such competitive business activity.
(d) Until such time that Participant is no longer an employee
and/or stockholder of the Company, and thereafter for five years or the term
of any Note given to Participant as part of the purchase price of his shares
of Stock, whichever is longer, Participant agrees that he will not, directly
or indirectly or by action in concert with others, induce or influence (or
seek to induce or influence) any person who is engaged (as an employee,
agent, independent contractor or otherwise) by the Company to terminate his
or her employment or engagement with the Company.
(e) Ownership as a passive investor of five percent (5%) or less
of the shares of a company (1) whose shares are traded on the New York,
American or Pacific Stock Exchange or (2) whose shares are listed for trading
on the Nasdaq National Market and/or The Nasdaq SmallCap Market or (3) whose
shares are listed on a similar stock exchange, shall be excluded from the
provisions of this Section 15, provided that Participant is not otherwise
associated or providing services directly or indirectly with such company or
any affiliate of such company. The Board, in its sole discretion, may permit
a variance from the provisions of this Section 15.
16. TRADE SECRETS.
(a) Participant acknowledges and agrees that during the term of
his or her employment with the Company and in the course of the discharge of
his or her duties with the Company, Participant has or will have access to
and become acquainted with information
15.
<PAGE>
concerning the operation of the Company, including without limitation, its
customers, clients, personnel, sales information, marketing information,
planning information, financial information, software programs, services,
competitor information and method of operation, all of which is owned by the
Company, is regularly used in the operation of the Company's business, was
created or compiled by the Company at great expense, gives the Company a
competitive advantage, and constitute trade secrets of the Company.
(b) Participant agrees that Participant will not disclose any such
trade secrets, directly or indirectly, to any other person or use them in any
way, either during the term of Participant's employment with the Company or
at any other time thereafter, except as is required in the course of
Participant's employment with the Company.
(c) Participant further agrees that all files, records, documents,
equipment, and similar items relating to Company's business, whether prepared
by Participant or others, are and shall remain the exclusive property of the
Company and shall be returned to the Company immediately upon the termination
of Participant's employment with the Company.
17. LEGEND ON STOCK CERTIFICATES; ESCROW AND PLEDGE AGREEMENT.
(a) Participant acknowledges and agrees that certificates for
shares of Stock to be issued to Participant may bear some or all of the
following legends as determined by the Company in its sole discretion, and
such additional or modified legends as the Company shall determine are
appropriate to put potential transferees of one or more certificates
representing shares of Stock subject to this Agreement on notice of the terms
and conditions of this Agreement and applicable law affecting such shares.
"The sale, transfer, assignment or hypothecation of the shares
represented by this certificate are subject to substantial restrictions as
set forth in that certain Amended and Restated Restricted Stock Agreement and
any amendments thereto ("Agreement") dated _____________, 199_, between the
Issuer of these shares and the owner of these shares. All of the provisions
of said Agreement are incorporated herein by this reference."
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and have not been
qualified under the California Corporate Securities Law of 1968, as amended,
or the securities laws of any other state. Such shares may not be sold,
transferred, assigned or hypothecated in the absence of such registration or
qualification, or an exemption from such registration and qualification, the
availability of which shall be established to the satisfaction of counsel for
the Company."
(b) If requested by the Company, Participant agrees to deliver
three (3) stock assignments substantially in the form of Exhibit A, duly
endorsed (with date and number of shares left blank), joint escrow
instructions (the "Joint Escrow Instructions") substantially in the form of
Exhibit B, duly executed by Participant, and if some or all of the total
Purchase Price is to be paid by promissory Note, an executed pledge agreement
substantially in the form of Exhibit C (the "Pledge Agreement") under which
all shares of the Stock acquired by Note shall be pledged as collateral
security for the payment of the indebtedness represented by the Note; and
16.
<PAGE>
including, if requested by the Company, endorsed certificates representing
the appropriate number of shares of Stock.
18. ARBITRATION. The parties shall submit any dispute concerning the
interpretation of or the enforcement of rights and duties under this
Agreement to final and binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, in Los Angeles,
California. At the request of any party, the arbitrators, attorneys, parties
to the arbitration, witnesses, experts, court reporters, or other persons
present at the arbitration shall agree in writing to maintain the strict
confidentiality of the arbitration proceedings. Arbitration shall be
conducted by a single, neutral arbitrator, or, at the election of any party,
three neutral arbitrators, appointed in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator(s)
shall be attorneys in practice for at least ten years, and experienced in the
matter(s) being arbitrated. In any such arbitration, California Code of
Civil Procedure Section 1283.05 (Right to Discovery; Procedure and
Enforcement) shall be applicable. The award of the arbitrator(s) shall be
enforceable according to the applicable provisions of the California Code of
Civil Procedure. The arbitrator(s) shall have the same powers as those of a
judge of the Superior Court of the State of California, and shall render a
decision as would a judge of the Superior Court of the State of California;
PROVIDED, HOWEVER, the arbitrator(s) shall not have the authority or power to
award punitive or exemplary damages, and specifically shall have the
authority to grant equitable and injunctive relief. If proper notice of any
hearing has been given, the arbitrator(s) will have full power to proceed to
take evidence or to perform any other acts necessary to arbitrate the matter
in the absence of any party who fails to appear.
19. JURY TRIAL WAIVERS. TO THE FULLEST EXTENT PERMITTED BY LAW, AND AS
SEPARATELY BARGAINED-FOR CONSIDERATION, EACH PARTY HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY HEREBY EXPRESSLY
ACKNOWLEDGES THE INCLUSION OF THIS JURY TRIAL WAIVER BY ITS OR HIS INITIALS
SET FORTH BELOW.
"Company" "Participant"
Initials Initials
----------------- -----------------
Initials Initials
20. PLAN INCORPORATED BY REFERENCE. This Agreement is subject to all
of the terms and conditions of the Plan, all of which are incorporated herein
by reference. Participant acknowledges having received and reviewed a copy of
the Plan.
21. REPORTS TO PARTICIPANTS. The Company shall provide Participant
with audited financial statements concerning the Company on an annual basis
as soon as reasonably practical after the close of a fiscal year and shall
also provide such other materials as shall be required by law to be provided
to stockholders of the Company.
17.
<PAGE>
22. BINDING UPON SUCCESSORS. Subject to the restrictions on transfer
set forth in this Agreement, the provisions of this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, legal representatives, trustees,
successors and assigns.
23. CERTAIN ADJUSTMENTS. If from time to time during the term of this
Agreement there is any stock dividend, stock split or other change in the
Stock subject to this Agreement, then, in such event, any securities to which
Participant is entitled through ownership of Stock subject to this Agreement
will be immediately subject to this Agreement and be included in the word
"Stock" for all purposes of this Agreement with the same force and effect as
the shares of Stock then subject to this Agreement. As provided in the Plan,
if any change is made in the Stock subject to this Agreement (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by
the Company), this Agreement will be appropriately adjusted in the type(s)
and number of securities and price per share of Stock.
24. GOVERNING LAW, INTERPRETATION AND VENUE. This Agreement shall be
interpreted and enforced in accordance with the internal laws of [state of
Participant's residence]. The provisions of this Agreement shall be interpreted
in accordance with their plain meaning. No provision of this Agreement shall be
interpreted against a party as a consequence of that party having drafted said
provision. It is the intent of the parties that all issues concerning this
Agreement be arbitrated in accordance with the provisions of Section 18.
Nevertheless, should any legal action or proceeding be brought arising out of or
related to this Agreement, the parties agree and irrevocably consent to the
exclusive jurisdiction of the courts of the [state of Participant's residence]
and the federal courts located in the same district as [city of Participant's
residence], with respect to any such legal action or proceeding. Participant
waives any objection based on forum non conveniens or improper venue in
connection with any such action or proceeding.
25. SPECIFIC PERFORMANCE. Each party's obligation under this Agreement
is unique. If any party should default in its obligations under this
Agreement, the parties each acknowledge that it would be extremely
impracticable to measure the resulting damages; accordingly, without
prejudice to its rights to seek and recover monetary damages, the
non-defaulting party shall be entitled to sue in equity for specific
performance of this Agreement, and the parties each hereby expressly waive
the defense that a remedy in damages would be adequate.
26. TERMINATION. This Agreement shall terminate upon the earliest of
the following events:
(a) The written agreement of the Company and Participant to
terminate this Agreement.
(b) The termination of the Plan; provided that any such
termination shall not affect shares of Stock which Participant has previously
purchased.
(c) The liquidation or dissolution of the Company.
18.
<PAGE>
27. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement shall be effective unless and until an instrument reflecting
the amendment or waiver has been executed by the party or parties charged
with such amendment or waiver.
28. CAPTIONS. The captions of sections in this Agreement are provided
for ease of reference only and shall not be used to interpret or modify the
provisions of this Agreement.
29. NOTICES. Any notices to be given hereunder shall be deemed given
upon personal delivery or three business days after mailing, if mailed by
certified mail, return receipt requested, postage prepaid. Notices to
Company shall be addressed to First Consulting Group, Inc., 111 West Ocean
Boulevard, Suite 400, Long Beach, California 90807, Attention: Corporate
Secretary or to any subsequent address of the Company's headquarters which
Participant could be reasonably expected to be aware of. Notices to
Participant shall be addressed to Participant at his or her last known
address shown on the books and records of the Company. Either party may
change his or its address for notices by giving notice of change of address
in accordance herewith.
30. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument.
31. TAX IMPLICATIONS. Participant understands, acknowledges and agrees
that (a) the purchase of shares of Stock, particularly by an employee, has
certain tax consequences; and (b) prior to any purchase or transfer of shares
of Stock, Participant will obtain advice from his or her own tax advisor with
respect to such consequences.
32. ENTIRE AGREEMENT; SUPERSEDES PRIOR AGREEMENT. This Agreement
supersedes any prior restricted stock agreement between the undersigned and
the Company. All shares of the Company's Stock owned by Participant (or a
Transferee Entity with respect to such Participant) at the time this
Agreement is signed, as well as all acquisitions of the Company's Stock
subsequent thereto, shall be subject to the provisions of this Agreement and
any relevant Acquisition Agreement. All prior promises, negotiations,
representations or agreements concerning the subject matter of this Agreement
not expressly set forth in this Agreement or the relevant Acquisition
Agreement are of no force or effect. All references in any document or
instrument referring to the restricted stock agreement shall be deemed to
include a reference to this Agreement. This Agreement and any relevant
Acquisition Agreement shall cover all shares of Stock or other securities of
the Company owned by Participant as of the date of this Agreement, regardless
of the manner in which Participant acquired such shares of Stock or other
securities of the Company, excluding (unless otherwise specifically provided
for in this Agreement or relevant Acquisition Agreement): (i) shares of
Stock held by or for Participant's benefit in the ASOP, and (ii) shares of
Stock acquired upon exercise of a stock option granted by the Company
pursuant to a stock option agreement that expressly indicates that such
shares shall not be covered by this Agreement.
33. GENDER. As used herein, whenever the context so requires, the
masculine gender shall include the feminine and the neuter.
19.
<PAGE>
34. NOT AN EMPLOYMENT AGREEMENT. This Agreement is not an agreement to
employ Participant for any fixed or indeterminate period of time. Unless
Participant has a separate written employment agreement specifying otherwise,
Participant is an at-will employee and either the Company or Participant may
terminate Participant's employment at any time without advance notice.
35. EQUITABLE REMEDY FOR BREACH OF NON-COMPETITION, NON-SOLICITATION
AND TRADE SECRET PROVISIONS.
(a) The non-competition, non-solicitation and trade secret
provisions contained in Sections 9, 15 and 16, shall be construed as
covenants independent of any other provision in this Agreement, and the
existence of any claim or cause of action by Participant against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of the non-competition,
non-solicitation or trade secret provisions. If any non-competition or
non-solicitation provision(s) in this Agreement is held to be unreasonable,
arbitrary or against public policy, the provision(s) shall be considered
divisible as to time, geographical area, and otherwise. In such case, each
month of the specified period shall be deemed a separate period of time, and
each county of each State in the Restricted Area shall be deemed a separate
geographical area. The parties agree that, in the event any arbitrator or
court of competent jurisdiction determines the specified time period or the
specified geographical area to be unreasonable, arbitrary or against public
policy, a lesser time period or geographical area, which is determined by the
arbitrator or court to be reasonable, non-arbitrary and not against public
policy, may be enforced against Participant.
(b) Participant acknowledges that continued employment with the
Company is adequate consideration for the waiver of a jury trial specifically
for the purposes of this Section 35.
(c) Participant acknowledges that the breach of any
non-competition, non-solicitation or trade secret provision contained in this
Agreement will result in immediate and irreparable damage to the Company and
that money damages alone would be inadequate to compensate the Company.
Therefore, Participant agrees that in the event of a breach or threatened
breach of any of such provisions the Company may, in addition to other
remedies, immediately obtain and enforce injunctive relief, including but not
limited to obtaining and enforcing a temporary restraining order, without
bond, prohibiting the breach of such provision(s) and compelling performance
hereunder, consent to which is hereby specifically given by Participant.
36. SEVERABILITY. Should any provision or portion of this Agreement be
held unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
20.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
"PARTICIPANT" "COMPANY"
FIRST CONSULTING GROUP, INC.
By:
- --------------------------------- ----------------------------------
(Signature) (Authorized Officer)
Title:
- --------------------------------- -------------------------------
(Name Printed)
NOTE: Please initial as indicated in Section 19.
21.
<PAGE>
CONSENT OF SPOUSE
I, the undersigned, agree and certify that:
1. I am married to _________________________, who signed the foregoing
Amended and Restated Restricted Stock Agreement ("Agreement"), and who has
the right to become a stockholder and/or is a stockholder of First Consulting
Group, Inc. (the "Company").
2. I have read and approve the provisions of said Agreement including
those relating to the purchase and sale of the shares of Stock of the Company
owned by a deceased, disabled, terminated or terminating stockholder. I
understand that the Agreement supersedes and replaces the Restricted Stock
Agreement previously executed by my spouse.
3. I agree to be bound by all of the provisions of said Agreement,
including but not limited to the provisions regarding the purchase and sale
of shares of Stock, regardless of any interest I may have in said shares of
Stock or rights I may have to purchase or sell shares of Stock of the Company
owned by my spouse, be such interest community property or otherwise. In
consenting hereto, I have either been advised by an attorney of my own
choosing, or personally decided not to seek such advice.
4. In consideration of the execution of said Agreement by the parties
thereto, I agree that if my spouse, the Company, other stockholders or the
ASOP elect(s) to purchase any interest of mine in the said shares of Stock in
accordance with the provisions of said Agreement, I shall execute any and all
documents, and do all acts necessary, to effect such purchase and sale in
accordance with the provisions of the Agreement.
5. This Consent shall be interpreted and enforced under the laws of the
state in which Participant's principal work place is located. Capitalized
terms used in this consent shall have the same meaning set forth in the
Agreement.
Dated: , 199
---------------- --
-------------------------------------
(Signature of Spouse)
-------------------------------------
(Typed name of Spouse)
22.
<PAGE>
ATTACHMENT I
GROWTH FACTOR FOR QUARTERS
PRIOR TO OCTOBER 1, 1994
Prime Total
Month Rate Qtr Avg FCG Cost Interest
Jan-94 6.00%
Feb-94 6.00%
Mar-94 6.06% 6.02% 0.50% 6.52%
Apr-94 6.45%
May-94 6.99%
Jun-94 7.25% 6.90% 0.50% 7.40%
Jul-94 7.25%
Aug-94 7.51%
Sep-94 7.75% 7.50% 0.50% 8.00%
23.
<PAGE>
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto FIRST CONSULTING GROUP, INC., a Delaware corporation (the
"Company"), pursuant to the Stock Pledge Agreement under that certain
Restricted Stock Agreement, dated _____________, ____, by and between the
undersigned and the Company (the "Agreement"), _______________ (________)
shares of Common Stock of the Company standing in the undersigned's name on
the books of the Company represented by Certificate No(s). _______ and does
hereby irrevocably constitute and appoint the Company's Secretary attorney to
transfer said stock on the books of the Company with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement and the Stock
Pledge Agreement and only to the extent that such shares remain subject to
the Stock Pledge Agreement.
Dated:
---------------
--------------------------------------
(Signature)
--------------------------------------
(Print Name)
24.
<PAGE>
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
Secretary
FIRST CONSULTING GROUP, INC.
111 West Ocean Boulevard, Suite 400
Long Beach, CA 90807
Ladies and Gentlemen:
As Escrow Agent for both FIRST CONSULTING GROUP, INC., a Delaware corporation
("Corporation") and ___________________ ("Purchaser"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to
the terms of that certain Restated Stock Purchase Agreement ("Agreement")
dated as of ___________________, to which a copy of these Joint Escrow
Instructions is attached in accordance with the following instructions:
1. In the event Corporation or an assignee shall elect to exercise the
purchase option set forth in the Agreement, the Corporation or its assignee
will give to Purchaser and you a written notice specifying the number of
shares of stock to be purchased, the purchase price, and the time for a
closing thereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver the same, together with the certificate
evidencing the shares of stock to be transferred, to the Corporation against
the simultaneous delivery to you of the purchase price (which may include
suitable acknowledgment of cancellation of indebtedness) for the number of
shares of stock being purchased pursuant to the exercise of the Purchase
Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and
any additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make
such securities negotiable and complete any transaction herein contemplated,
including but not limited to any appropriate filing with state or government
officials or bank officials. Subject to the provisions of this paragraph 3,
Purchaser shall exercise all rights and privileges of a shareholder of the
Corporation while the stock is held by you.
4. This escrow shall terminate upon the exercise in full or expiration
of the Purchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same
25.
<PAGE>
to Purchaser and shall be discharged of all further obligations hereunder;
provided, however, that if at the time of termination of this escrow you are
advised by the Corporation that any property subject to this escrow is the
subject of a pledge or other security agreement, you shall deliver all such
property to the pledgeholder or other person designated by the Corporation.
6. Except as otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting
in good faith and in the exercise of your own good judgment, and any act done
or omitted by you pursuant to the advice of your own attorneys shall be
conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified,
annulled, set aside, vacated or found to have been entered without
jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or
called for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Corporation -or if you shall resign by
written notice to each party. In the event of any such termination, the
Corporation shall appoint any officer or assistant officer of the Corporation
as successor Escrow Agent, and Purchaser hereby confirms the appointment of
such successor as his attorney-in-fact and agent to the full extent of your
appointment.
12. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain
in your possession without liability to anyone all or any part of said
securities until such dispute shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction
26.
<PAGE>
after the time for appeal has expired and no appeal has been perfected, but
you shall be under no duty whatsoever to institute or defend any such
proceedings.
14. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery, including
delivery by express courier, or five (5) days after deposit in the United
States Post Office, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties entitled to such notice at
the following addresses, or at such other addresses as a party may designate
by ten days' advance written notice to each of the other parties hereto.
CORPORATION: FIRST CONSULTING GROUP, INC.
111 West Ocean Boulevard, Ste. 400
Long Beach, CA 90807
PURCHASER: [PURCHASER NAME]
---------------------------------
---------------------------------
---------------------------------
ESCROW AGENT: SECRETARY
First Consulting Group, Inc.
111 West Ocean Boulevard, Ste. 400
Long Beach, CA 90807
15. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not
become a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other experts
(including, without limitation, the firm of Cooley Godward LLP) as you may
deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and you may pay such
counsel reasonable compensation therefor. The Corporation shall be
responsible for all fees generated by such legal counsel in connection with
your obligations hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It
is understood and agreed that references to "you" and "your" herein refer to
the original Escrow Agents. It is understood and agreed that the Corporation
may at any time or from time to time assign its rights under the Agreement
and these Joint Escrow Instructions.
27.
<PAGE>
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of __________, as such laws are
applied by __________ courts to contracts made and to be performed entirely
in __________ by residents of that state.
Very truly yours,
FIRST CONSULTING GROUP, INC.
By
---------------------------------
[Name and Title]
PURCHASER:
---------------------------------
[NAME]
ESCROW AGENT:
[NAME]
28.
<PAGE>
EXHIBIT C
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by
______________, an individual with a residence at ____________ ("Pledgor"),
in favor of First Consulting Group, Inc., a Delaware corporation with its
principal place of business at Long Beach, California ("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note (the "Note") in favor of Pledgee in the amount of
____________________ ($_________) in payment of the purchase price of
________________________ (___) shares of the Common Stock of Pledgee; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and
delivered to Pledgee this Pledge Agreement and the Collateral (as defined
below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and performance
when due (whether by stated maturity, by acceleration or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Note (all such
indebtedness being the "Liabilities"), together with, without limitation, the
prompt payment of all expenses, including, without limitation, reasonable
attorneys' fees and legal expenses, incidental to the collection of the
Liabilities and the enforcement or protection of Pledgee's lien in and to the
collateral pledged hereunder, Pledgor hereby pledges to Pledgee, and grants
to Pledgee, a first priority security interest in all of the following
(collectively, the "Pledged Collateral"):
(a) ________________________ (___) shares of Common Stock of Pledgee
represented by Certificates numbered ________________ (the "Pledged Shares"),
and all dividends, cash, instruments, and other property or proceeds from time
to time received, receivable, or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the
right to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time
to time acquired by Pledgor in any manner (which additional shares shall be
deemed to be part of the Pledged Shares), and the certificates representing
such additional shares, and all dividends, cash, instruments, and other
property or proceeds from time to time received, receivable, or otherwise
distributed in respect of or in exchange for any or all of such shares.
29.
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The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness may be or hereafter becomes unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to
or affecting the Pledged Collateral, and in connection therewith may deposit
or surrender control of such Pledged Collateral thereunder, accept other
property in exchange for such Pledged Collateral and do and perform such acts
and things as it may deem proper, and any money or property received in
exchange for such Pledged Collateral shall be applied to the indebtedness or
thereafter held by it pursuant to the provisions hereof; (3) insure, process
and preserve the Pledged Collateral; (4) cause the Pledged Collateral to be
transferred to its name or to the name of its nominee; (5) exercise as to
such Pledged Collateral all the rights, powers and remedies of an owner,
except that so long as no default exists under the Note or hereunder Pledgor
shall retain all voting rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of
Pledgor to do so, Pledgee at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due
and payable irrespective of any agreed maturity, upon the happening of any of
the following events: (1) failure to keep or perform any of the terms or
provisions of this Pledge Agreement; (2) failure to pay any installment of
principal or interest on the Note when due; (3) the levy of any attachment,
execution or other process against the Pledged Collateral; or (4) the
insolvency, commission of an act of bankruptcy, general assignment for the
benefit of creditors, filing of any petition in bankruptcy or for relief
under the provisions of Title 11 of the United States Code of, by, or against
Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding paragraph, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash
in the hands of Pledgee in whole or in part, with or without any previous
demands or demand of performance or notice or advertisement, the whole or any
part of the Pledged Collateral in such order as Pledgee may elect, and any
such sale may be made either at public or private sale at its place of
business or elsewhere, or at any broker's board or securities exchange,
either for cash or upon credit or for future delivery; provided, however,
that if such disposition is at private sale, then the purchase price of the
Pledged Collateral shall be equal to the public market price then in effect,
or, if at the time of sale no public market for the Pledged Collateral
30.
<PAGE>
exists, then, in recognition of the fact that the sale of the Pledged
Collateral would have to be registered under the Securities Act of 1933 and
that the expenses of such registration are commercially unreasonable for the
type and amount of collateral pledged hereunder, Pledgee and Pledgor hereby
agree that such private sale shall be at a purchase price mutually agreed to
by Pledgee and Pledgor or, if the parties cannot agree upon a purchase price,
then at a purchase price established by a majority of three independent
appraisers knowledgeable of the value of such collateral, one named by
Pledgor within 10 days after written request by the Pledgee to do so, one
named by Pledgee within such 10 day period, and the third named by the two
appraisers so selected, with the appraisal to be rendered by such body within
30 days of the appointment of the third appraiser. The cost of such
appraisal, including all appraiser's fees, shall be charged against the
proceeds of sale as an expense of such sale. Pledgee may be the purchaser of
any or all Pledged Collateral so sold and hold the same thereafter in its own
right free from any claim of Pledgor or right of redemption. Demands of
performance, notices of sale, advertisements and presence of property at sale
are hereby waived, and Pledgee is hereby authorized to sell hereunder any
evidence of debt pledged to it. Any sale hereunder may be conducted by any
officer or agent of Pledgee.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the
Pledged Collateral, to the payment of any other costs, charges, attorneys'
fees or expenses mentioned herein, and to the payment of the indebtedness or
any part hereof, all in such order and manner as Pledgee in its discretion
may determine. Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully
discharged thereafter from all liability and responsibility with respect to
such Pledged Collateral so transferred, and the transferee shall be vested
with all the rights and powers of Pledgee hereunder with respect to such
Pledged Collateral so transferred; but with respect to any Pledged Collateral
not so transferred Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time
to time irrespective of the fact that the indebtedness or any part thereof
may have become barred by any statute of limitations, or that the personal
liability of Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as the indebtedness is paid. Such releases shall be at the rate
of one share for each ________________________________ ($_____) of principal
amount of indebtedness paid. Release from pledge, however, shall not result
in release from the provisions of those certain Joint Escrow Instructions, if
any, of even date herewith among the parties to this Pledge Agreement and the
Escrow Agent named therein.
31.
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10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure
or delay by Pledgee in exercising any right, power or remedy hereunder shall
not be deemed to be a waiver of such right, power or remedy, and any single
or partial exercise of any right, power or remedy hereunder shall not
preclude the further exercise thereof; and every right, power and remedy of
Pledgee shall continue in full force and effect until such right, power or
remedy is specifically waived by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Pledge Agreement shall be deemed
valid and enforceable to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of __________ as applied to contracts
made and performed entirely within the State of __________ by residents of
such State.
Dated: .
---------------
PLEDGOR -------------------------------------
Printed Name:
------------------------
32.
<PAGE>
FCG ENTERPRISES, INC.
ASSOCIATE 401(k) AND
STOCK OWNERSHIP PLAN
Second Restatement
(Includes First, Second and Third Amendments)
<PAGE>
TABLE OF CONTENTS Page
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ARTICLE 1.
GENERAL
1.1. PLAN NAME AND PURPOSE.
1.1.1. This instrument sets forth the terms of the First
Amendment and Restatement of the FCG Enterprises, Inc. Associate 401(k)
and Stock Ownership Plan (the "Plan" or "ASOP").
1.1.2. The portion of this Plan consisting of Pre-Tax (401(k))
Matching Contributions Accounts (Subsection 2.1.2.), the Profit Sharing
Stock Accounts, if any (Paragraph 2.1.3.1.), the First Share Accounts,
if any (Subsection 2.1.4.), the Deferred Payment Accounts (Subsection
2.1.6.), the ASOP Suspense Subfund, and the proceeds of any Exempt
Loan, is intended to qualify under Code Section 401(a) as a stock bonus
plan and an employee stock ownership plan (within the meaning of Code
Section 4975(e)(7)). Since the employee stock ownership plan portion
of the Plan is intended to promote employee ownership, amounts held in
that portion of the Plan shall be invested primarily in Company Stock
and holdings of such Stock are intended to be maintained for the long
term.
1.1.3. The portion of this Plan other than the portion described
in Subsection 1.1.2. is intended to qualify under Code Section 401(a)
as a profit sharing plan, with a qualified cash or deferred arrangement
under Code Section 401(k). Employer contributions under the profit
sharing portion of the Plan may be made without regard to current or
accumulated profits of the Employer.
1.1.4. Effective as of January 1, 1996, the FCG Enterprises,
Inc. dba First Consulting Group Profit Sharing 401(k) Plan (the "Prior
Plan") was merged into and with the Plan.
1.1.5. The Plan is intended to constitute a plan described in
ERISA Section 404(c) to the extent amounts are invested in assets or
funds other than Company Stock and to the extent Participants are given
the opportunity to direct investments. As such, Plan fiduciaries may
be relieved of liability for any losses which are the direct and
necessary result of investment instructions regarding investment
choices other than Company Stock given by any Participant or
Beneficiary.
1.2. EFFECTIVE DATE.
1.2.1. The original Effective Date of the Plan is December 1,
1995. This Second Restatement of the Plan, including the First, Second
and Third Amendments, sets forth provisions of the Plan as of the date
of execution hereof. The effective date of the provisions of this Plan
as
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amended by the First, Second and Third Amendments shall be as set forth
in said amendments.
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<PAGE>
ARTICLE 2.
DEFINITIONS
When capitalized, the following terms shall have the meanings set forth
in this Article 2:
2.1. ACCOUNTS. "Accounts" or "Participant's Accounts" shall mean the
following Plan accounts that may be maintained by the Administration
Committee for each Participant and such other accounts as the Administration
Committee may determine:
2.1.1. "Pre-Tax (401(k)) Contributions Account" shall mean the
account established and maintained for each Participant to reflect
amounts held in the Trust Fund on behalf of such Participant which are
attributable to Pre-Tax (401(k)) Contributions by an Employer on behalf
of the Participant in accordance with Section 5.2. or under the Prior
Plan and which are not a part of the ASOP Fund.
2.1.2. "Pre-Tax (401(k)) Matching Contributions Account" shall
mean the account established and maintained for each Participant to
reflect amounts held in the Trust Fund on behalf of such Participant
which are attributable to Pre-Tax (401(k)) Matching Contributions by an
Employer under Section 5.4. or under the Prior Plan. A Participant's
Pre-Tax (401(k)) Matching Contributions Account may consist of one or
more sub-accounts including, but not limited to, the following:
2.1.2.1. Pre-Tax (401(k)) ASOP Matching Contributions
Account" shall mean the account established and maintained for
each Participant to reflect amounts held in the Trust Fund on
behalf of such Participant which are attributable to Pre-Tax
(401(k)) Matching Contributions by an Employer under Section 5.4.
and which are a part of the ASOP Fund.
2.1.2.2. Pre-Tax (401(k)) Pre-1996 Matching
Contributions Account" shall mean the account established and
maintained for each Participant to reflect amounts held in the
Trust Fund on behalf of such Participant which are attributable to
Pre-Tax (401(k)) Matching Contributions by an Employer under the
Prior Plan and which are not a part of the ASOP Fund.
2.1.3. "Profit Sharing Account" shall mean the account
established and maintained for each Participant to reflect amounts held
in the Trust Fund on behalf of such Participant which are attributable
to any Profit Sharing Contributions in accordance with Section 5.5. or
5.6. or under the Prior Plan. A Participant's "Profit Sharing Account"
may consist of one
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or more sub-accounts including, but not limited to, the following:
2.1.3.1. "Profit Sharing Stock Account" shall mean the
account established and maintained for each Participant to reflect
amounts held in the trust fund on behalf of such Participant which
are attributable to Profit Sharing Contributions made under
Section 5.5. or 5.6. and which are a part of the ASOP Fund.
2.1.3.2. "Profit Sharing Diversified Account" shall mean the
account established and maintained for each Participant to reflect
amounts held in the trust fund on behalf of such Participant which
are attributable to Profit Sharing Contributions made under
Section 5.5. or 5.6. or under the Prior Plan and which are not a
part of the ASOP Fund.
2.1.4. "First Share Account" shall mean the account established
and maintained for each Participant, in the discretion of the
Administration Committee, to reflect amounts held in the Trust Fund on
behalf of such Participant which are attributable to the First Share
Contributions made with respect to such Participant in accordance with
Section 5.3. and which are a part of the ASOP Fund.
2.1.5. "Rollover Account" shall mean the account established and
maintained for a Participant to reflect amounts held in the Trust Fund
on behalf of such Participant which are attributable to any rollover
contributions by the Participant described in Section 4.8. and which
are not a part of the ASOP Fund.
2.1.6. "Deferred Payment Account" shall mean the account
established and maintained for a Participant following such
Participant's Severance to reflect amounts held in the Trust Fund on
behalf of such Participant which are attributable to the cash value of
any Company Stock formerly held in the Participant's ASOP Matching
Contributions Account, if any, Profit Sharing Stock Account, if any,
and First Share Contributions Account, if any, and any other amounts
held in such Accounts, and which have been transferred to the
Participant's Deferred Payment Account in accordance with Section 7.5.
and are part of the ASOP Fund.
2.2. ADMINISTRATION COMMITTEE. "Administration Committee" shall mean
the Administration Committee described in Article 14. hereof.
2.3. AFFILIATED COMPANY. "Affiliated Company" shall mean:
2.3.1. with respect to an Employer, any corporation that is
included in a controlled
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group of corporations, within the meaning of Section 414(b) of the
Code, that includes such Employer,
2.3.2. with respect to an Employer, any trade or business that
is under common control with such Employer within the meaning of
Section 414(c) of the Code,
2.3.3. with respect to an Employer, any member of an affiliated
service group, within the meaning of Section 414(m) of the Code, that
includes such Employer, and
2.3.4. with respect to an Employer, any other entity required to
be aggregated with such Employer pursuant to regulations under Section
414(o) of the Code.
2.4. ANNUITY STARTING DATE. "Annuity Starting Date" shall mean the
first day of the first period with respect to which any amount is received
under this Plan.
2.5. ASOP COMMITTEE. "ASOP Committee" shall mean the ASOP Committee
described in Article 15. hereof.
2.6. ASOP FUND. "ASOP Fund" shall mean that portion of the Trust Fund
comprising the employee stock ownership portion of the Plan as described in
Subsection 1.1.2.
2.7. ASOP SUSPENSE SUBFUND. "ASOP Suspense Subfund" shall mean the
Subfund established under Section 6.5. hereof as part of the ASOP Fund to
hold Company Stock purchased with the proceeds of an Exempt Loan, pending the
allocation of such Stock to Participant Accounts.
2.8. ASSOCIATE.
2.8.1. "Associate" shall mean each person currently employed in
any capacity by an Employer or Affiliated Company, any portion of whose
Compensation paid by an Employer or an Affiliated Company is subject to
withholding of income tax and/or for whom Social Security contributions
are made by an Employer or an Affiliated Company.
2.8.2. In addition, "Associate" shall mean a person deemed to be
employed by an Employer or an Affiliated Company, pursuant to Code
Section 414(n).
2.8.3. Although Eligible Associates are the only class of
Associates eligible to participate in this Plan, the term "Associate"
is used to refer to persons employed in a non-Eligible Associate
capacity as well as Eligible Associate category. Thus, those
provisions of this Plan that are not limited to Eligible Associates,
such as those relating to
5
<PAGE>
certain service computation rules, apply to both Eligible and
non-Eligible Associates.
2.9. BENEFICIARY. "Beneficiary" or "Beneficiaries" means the person
or persons last designated by a Participant as set forth in Section 12.3.
or, if there is no designated Beneficiary or surviving Beneficiary, the
person or persons designated in Section 12.3. to receive the Distributable
Benefit of a deceased Participant in such event.
2.10. BOARD OF DIRECTORS. "Board of Directors" shall mean the Board of
Directors of FCG Enterprises, Inc. as it may from time to time be
constituted, or a committee thereof, if duly authorized to act for and in
place of the Board of Directors.
2.11. BREAK IN SERVICE. "Break in Service," for purposes of
determining an Associate's Years of Vesting Service credit, shall mean a
Computation Period during which an individual completes not more than
one-half the number of Hours of Service required for such Year of Vesting
Service. A Break in Service shall be sustained, or be deemed to occur, on
the last day of the applicable Computation Period.
2.11.1. Solely for purposes of determining whether an Associate
sustains a Break in Service because he is not credited with not more
than one-half the number of Hours of Service required for a Year of
Vesting Service, the provisions of Subsections 2.11.2. and 2.11.3.
below shall apply to an Associate's period of Maternity or Paternity
Absence.
2.11.2. The number of Hours of Service which shall be credited
to an Associate for a period of Maternity or Paternity Absence shall be
2.11.2.1. the number which otherwise would normally
have been credited to the Associate but for the absence, or
2.11.2.2. if the Administrative Committee determines
that the number described in 2.11.2.1. above can not be
determined, eight (8) Hours of Service per day of such absence,
provided, however, that the total number of hours treated as
Hours of Service under this Subsection 2.11.2. shall not exceed
five hundred one (501), and that these Hours of Service shall be
taken into account solely for purposes of determining whether or
not the Associate has incurred a Break in Service.
2.11.3. The Hours described in Subsection 2.11.2. above shall be
credited to the Computation Period
2.11.3.1. in which the absence from work begins, if the
Associate would be
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<PAGE>
prevented from incurring a Break in Service in that Computation
Period solely because of such crediting, or
2.11.3.2. in any other case, in the immediately following
Computation Period.
2.12. CODE. "Code" shall mean the Internal Revenue Code of 1986, as in
effect on the date of execution of this Plan document and as thereafter
amended from time to time.
2.13. Company. "Company" shall mean FCG Enterprises, Inc., a
California corporation.
2.14. Company Stock. "Company Stock" shall mean any class of stock of
the Company which both constitutes "qualifying employer securities" as
defined in Section 407(d) of ERISA and "employer securities" as defined in
Section 409(l) of the Code.
2.15. COMPENSATION.
2.15.1. "Compensation" for purposes of this Plan, other than
Article 19. and Article 23., shall mean a Participant's W-2 earnings,
except that a determination of "Compensation" under this Subsection
2.15.1. shall be subject to the following special rules and to the
other provisions of this Section:
2.15.1.1. Except as specifically included under this
Section, Compensation shall not include fringe benefits,
contributions by an Employer to any employee benefit plan, or
benefits under any employee benefit plan;
2.15.1.2. Amounts deducted pursuant to authorization by
a Participant or pursuant to requirements of law (including
amounts of Compensation deferred in accordance with the
provisions of Section 4.1. and which qualify for treatment under
Code Section 401(k) and amounts of Compensation deducted under a
plan which satisfies the requirements of Section 125 of the Code)
shall be included in "Compensation" for purposes of Articles 4.
and 5. but not for other purposes, unless specifically provided
to the contrary elsewhere in this Plan;
2.15.1.3. Amounts not included in an Associate's gross
income for his current taxable year pursuant to deferred
compensation plans or agreements (other than amounts qualifying
for treatment under Code Section 401(k) as described in 2.15.1.2.
above) shall not be taken into account in determining
Compensation; and
2.15.1.4. Neither bonuses nor relocation payments shall
be taken into account
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in determining Compensation.
2.15.2. For purposes of Article 19. (relating to certain
limitations under Code Section 415 on annual additions to or benefits
from qualified plans) and Article 23. of this Plan, and subject to the
applicable limitations of this Subsection 2.15.2., the term
"Compensation" shall mean a Participant's W-2 earnings. For purposes
of applying the limitations of Article 19., Compensation for a
Limitation Year is the Compensation actually paid or includible in
gross income during such Limitation Year.
2.15.3. For purposes of Articles 4. and 5., the "Compensation"
of any Associate taken into account under the Plan for any Plan Year
shall not exceed the annual compensation limit under Section 401(a)(17)
of the Code as in effect on the January 1 coinciding with or
immediately preceding the first day of such Plan Year.
2.15.3.1. "Compensation" of any Associate taken into
account under the Plan for any Plan Year that begins on or after
January 1, 1994 shall not exceed $150,000, as that amount is
adjusted in accordance with Section 401(a)(17)(B) of the Code.
2.15.3.2. "Compensation" of any Associate taken into
account under the Plan for any Plan Year that begins before
January 1, 1994, shall not exceed $200,000, as that amount is
adjusted at the same time and in the same manner as under Section
415(d) of the Code.
2.15.3.3. If Compensation for a period of less than
twelve (12) months is taken into account for any Plan Year, then,
to the extent required by regulations under Section 401(a)(17) of
the Code, the otherwise applicable annual Compensation limit
provided under this Subsection is reduced in the same proportion
as the reduction in the twelve-month period.
2.15.3.4. If an Associate is a five percent (5%) owner
or one of the top-ten highest paid Associates, the family
aggregation rules of Section 414(q)(6) of the Code shall apply
for purposes of the annual Compensation limit provided under this
Subsection, except in applying such rules, the term "family"
shall include only the Spouse of the Associate and any lineal
descendants of the Associate who have not attained age 19 before
the close of the year. If, as a result of the application of
such rules the limit is exceeded, then, the limit shall be
prorated among the affected individuals in proportion to each
such individual's Compensation as determined under this
Subsection prior to the application of this limit.
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2.16. COMPUTATION PERIOD. "Computation Period" shall mean the consecutive
twelve-month period used for purposes of determining whether an Associate is to
be credited with a Year of Vesting Service, or a Break in such Service. For
purposes of determining whether an Associate is to be credited with a Year of
Vesting Service or a Break in such Service, the Computation Period shall be the
Plan Year.
2.17. DISABILITY. "Disability" shall mean any inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration, within the meaning of Section 72(m)(7)
of the Code. Notwithstanding the foregoing, the Administration Committee shall
determine that an Associate has incurred a Disability if the Participant
qualifies for disability benefits under the Employer's LTD plan, and shall
presume conclusively that a Participant covered by such LTD plan but who does
not so qualify has not incurred a Disability.
2.18. DISTRIBUTABLE BENEFIT. "Distributable Benefit" shall mean the
Vested Interest of a Participant in this Plan which is determined and
distributable to the Participant in accordance with the provisions of
Articles 9., 11., 12. and 13
2.19. EFFECTIVE DATE. "Effective Date" shall mean December 1, 1995,
unless otherwise expressly provided herein.
2.20. ELIGIBLE ASSOCIATE.
2.20.1. "Eligible Associate" shall mean any individual who is
employed by an Employer, except as provided in Subsection 2.20.2. below.
2.20.2. The term "Eligible Associate" shall not include:
2.20.2.1. Any Associate who is covered by a collective
bargaining agreement to which an Employer is a party, unless the
collective bargaining agreement provides for coverage under this
Plan. Notwithstanding the provisions of the preceding sentence,
solely for purposes of applying percentage coverage tests under
Code Section 410, to the extent required by Section 410,
employees covered by a collective bargaining agreement shall be
deemed ineligible only if there is evidence that retirement
benefits were the subject of good faith bargaining between the
Employer and the collective bargaining representative, and if
less than two percent of the employees of the employer who are
covered pursuant to that agreement are professionals as defined
in Treasury Regulations Section 1.410(b)-9(g).
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2.20.2.2. Any non-resident alien who receives no earned
income (within the meaning of Code Section 911(d)(2)) from the
Employer that constitutes income from sources within the United
States (within the meaning of Code Section 861(a)(3).
2.20.2.3. Any Associate who is a "leased employee"
within the meaning of Code Section 414(n).
2.20.2.4. Any Associate who is an employee within the
meaning of Code Section 401(c)(3).
2.21. EMPLOYER. "Employer" shall mean FCG Enterprises, Inc. or any
employer that is an Affiliated Company with respect to FCG Enterprises, Inc.
and which may be included within the coverage of the Plan with the written
consent of the Board of Directors (but only for such period of time that such
Employer's participation in this Plan and Trust continues to be approved by
the Board of Directors).
2.22. EMPLOYMENT COMMENCEMENT DATE. "Employment Commencement Date"
shall mean each of the following:
2.22.1. The date on which an Associate first performs an Hour of
Service in any capacity for an Employer or an Affiliated Company with
respect to which the Associate is compensated or is entitled to
compensation by the Employer or the Affiliated Company.
2.22.2. In the case of an Associate who incurs a Severance and
who is reemployed by an Employer or an Affiliated Company, the term
"Employment Commencement Date" shall mean either the Associate's
"Employment Commencement Date" as defined in 2.22.1. above or, if the
Participant incurs a Break in Service, the first day following the
Severance on which the Associate performs an Hour of Service for the
Employer or an Affiliated Company with respect to which he is
compensated or entitled to compensation by the Employer or Affiliated
Company. Unless the Company shall expressly determine otherwise, and
except as is expressly provided otherwise in this Plan or in
resolutions of the Board, an Associate shall not, for purposes of
determining his Employment Commencement Date, be deemed to have
commenced employment with an Affiliated Company prior to the effective
date on which the entity becomes an Affiliated Company.
2.23. ENTRY DATE. "Entry Date" shall mean each January 1 and July 1.
"Entry Date" shall also mean for purposes of contributions to the employee
stock ownership portion of the Plan described in Subsection 1.1.2., the
December 1, 1995 Effective Date.
2.24. ERISA. "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
2.25. EXEMPT LOAN. "Exempt Loan" shall mean any loan to the Plan or
Trust not prohibited by
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Section 4975(c), including a loan which meets the requirements set forth in
Section 4975(d)(3) of the Code and the Regulations promulgated thereunder, the
proceeds of which are used to finance the acquisition of Company Stock or
refinance such a loan.
2.26. FIRST SHARE CONTRIBUTIONS. "First Share Contributions" shall
mean contributions described in Section 5.3
2.27. FORFEITURE ACCOUNT. "Forfeiture Account" shall mean an account
established and maintained pursuant to Section 5.8. for purposes of holding
any non-vested portion of a Participant's Account that is forfeited by the
Participant in accordance with Section 5.10., 5.11., or Section 11.9
2.28. HARDSHIP.
2.28.1. "Hardship" shall mean a need created by an immediate and
heavy financial need of the Participant, which need cannot be met by
other sources reasonably available to the Participant and shall include
a distribution for: 2.28.1.1. expenses for medical care described in
Section 213(d) of the Code previously incurred by the Associate, the
Associate's Spouse, children, or dependents, or necessary for such
persons to obtain medical care described in Code Section 213(d).
2.28.1.2. costs directly related to the purchase
(excluding mortgage payments) of a principal residence for the
Associate.
2.28.1.3. payment of tuition, related educational fees,
and room and board expenses for the next twelve (12) months of
post-secondary education for the Associate, or the Associate's
Spouse, children or dependents.
2.28.1.4. payments necessary to prevent the eviction of
the Associate from, or a foreclosure on the mortgage of, the
Associate's principal residence.
2.28.2. In addition to the above, a Hardship need may include
any amounts necessary to pay any federal, state, or local income taxes
or penalties anticipated to result from a Hardship distribution.
2.28.3. Any determination of Hardship shall be in accordance
with regulations promulgated under Code Section 401(k).
2.29. HIGHLY COMPENSATED ASSOCIATE.
2.29.1. "Highly Compensated Associate" shall mean any Associate
who, during the Plan Year, or the preceding Plan Year,
2.29.1.1. was at any time a Five Percent Owner,
2.29.1.2. received Compensation from an Employer in
excess of $75,000, as adjusted by the Secretary of the Treasury
at the same time and in the same manner as under Code Section
415(d),
2.29.1.3. received Compensation from an Employer in
excess of $50,000, as adjusted by the Secretary of the Treasury
at the same time and in the same manner as under Code Section
415(d), and was in the top-paid group of Associates for such Plan
Year, or
2.29.1.4. was at any time an officer and received
Compensation greater than fifty percent (50%) of the amount in
effect under Section 415(b)(1)(A) of the Code for such Plan Year.
2.29.2. Determination of a Highly Compensated Associate shall be
in accordance with the following special rules:
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2.29.2.1. In the case of the Plan Year for which the
relevant determination is being made, an Associate not described
in Paragraph 2.29.1.2., 2.29.1.3., or 2.29.1.4. of 2.29.1. above
for the preceding Plan Year (without regard to Paragraph
2.29.1.1.) shall not be treated as described in Paragraph
2.29.1.2., 2.29.1.3., or 2.29.1.4. of 2.29.1. above unless such
Associate is a member of the group consisting of the 100
Associates paid the greatest Compensation during the Plan Year
for which such determination is being made.
2.29.2.2. An Associate shall be treated as a Five
Percent Owner for any Plan Year if at any time during such Plan
Year such Associate was a Five Percent Owner (as defined in
Section 23.2).
2.29.2.3. An Associate is in the top-paid group of
Associates for any Plan Year if such Associate is in the group
consisting of the top twenty percent (20%) of the Associates
when ranked on the basis of Compensation paid during such Plan
Year.
2.29.2.4. For purposes of Paragraph 2.29.1.4. of
Subsection 2.29.1. above, no more than fifty (50) Associates
(or, if lesser, the greater of three (3) Associates or ten
percent (10%) of the Associates) shall be treated as officers.
To the extent required by Code Section 414(q), if for any Plan
Year no officer of the Employer is described in Paragraph
2.29.1.4. of Subsection 2.29.1. above, the highest paid officer
of the Employer for such year shall be treated as described in
that section.
2.29.2.5. If any individual is a "family member" with
respect to a Five Percent Owner or of a Highly Compensated
Associate in the group consisting of the ten (10) Highly
Compensated Associates paid the greatest Compensation during the
Plan Year, then
2.29.2.5.1. such individual shall not be
considered a separate Associate, and
2.29.2.5.2. any Compensation paid to such
individual (and any applicable contribution or benefit
on behalf of such individual) shall be treated as if it
were paid to (or on behalf of) the Five Percent Owner or
Highly Compensated Associate. For purposes of this
Paragraph 2.29.2.5., the term "family member" means,
with respect to any Associate, such Associate's Spouse
and lineal ascendants or descendants and the spouses of
such lineal ascendants or descendants.
2.29.2.6. For purposes of this Section, the
term "Compensation" means Compensation as set forth in
Subsection 2.15.2., without regard to the limitations of
Subsection 2.15.3.; provided, however, the determination
under this Paragraph 2.29.2.6. shall be made without
regard to Sections 125, 402(e)(3), and 401(h)(1)(B), and
in the case of Employer contributions made pursuant to a
salary reduction agreement, without regard to Section
403(b).
2.29.2.7. For purposes of determining the
number of Associates in the top-paid group under
Paragraph 2.29.1.3. of Subsection 2.29.1. above, the
following Associates shall be excluded:
2.29.2.7.1. Associates who have
not completed six (6) months of Service,
2.29.2.7.2. Associates who normally
work less than 17-1/2 hours per week,
2.29.2.7.3. Associates who normally
work not more than six (6) months during any
Plan Year,
2.29.2.7.4. Associates who have not
attained age 21,
2.29.2.7.5. Except to the extent
provided in Treasury Regulations, Associates
who are included in a unit of employees
covered by an agreement which the Secretary
of Labor finds to be a collective
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bargaining agreement between Associate
representatives and Employer, and
2.29.2.7.6. Associates who are
nonresident aliens and who receive no earned
income (within the meaning of Section
911(d)(2) from the Employer which constitutes
income from sources within the United States
(within the meaning of Section 861(a)(3)).
An Employer may elect to apply Subparagraphs 2.29.2.7.1.
through 2.29.2.7.4. above by substituting a shorter
period of Service, smaller number of hours or months, or
lower age for the period of service, number of hours or
months, or (as the case may be) than as specified in
such Subparagraphs.
2.29.2.8. A former Associate shall be
treated as a Highly Compensated Associate if:
2.29.2.8.1. such Associate was a
Highly Compensated Associate when such
Associate incurred a Severance, or
2.29.2.8.2. such Associate was a
Highly Compensated Associate at any time
after attaining age fifty-five (55).
2.29.2.9. Code Sections 414(b), (c), (m),
(n), and (o) shall be applied before the application of
this Section 2.29
2.29.3. To the extent permissible under Code Section 414(q),
the Administration Committee may determine which Associates shall be
categorized as Highly Compensated Associates by applying a simplified
method prescribed by the Internal Revenue Service.
2.30. HOUR OF SERVICE.
2.30.1. "Hour of Service" of an Associate shall mean the following:
2.30.1.1. Each hour for which the Associate is paid by
an Employer or an Affiliated Company or entitled to payment for
the performance of services as an Associate. For purposes of
this Section, overtime work shall be credited as straight time.
2.30.1.2. Each hour in or attributable to a period of
time during which the Associate performs no duties (irrespective
of whether he has terminated his employment) due to a vacation,
holiday, illness, incapacity (including pregnancy or disability),
layoff, jury duty or military duty for which he is so paid or so
entitled to payment, whether direct or indirect. However, no such
hours shall be credited to an Associate if such Associate is
directly or indirectly paid or entitled to payment for such hours
and if such payment or entitlement is made or due under a plan
maintained solely for the purpose of complying with applicable
worker's compensation, unemployment compensation or disability
insurance laws or is a payment which solely reimburses the
Associate for medical or medically related expenses incurred by
him.
2.30.1.3. Each hour in or attributable to a period of
time during which the Associate performs no duties due to service
in the Armed Forces of the United States (other than by voluntary
enlistment or commission), provided that such Associate's duties
for the Employer or an Affiliated Company are resumed within
ninety (90) days after release from the Armed Forces. With
respect to any such unpaid absence as set forth in this Paragraph
2.30.1.3., an Associate shall be deemed to complete Hours of
Service at his customary work schedule prior to the commencement
of such absence.
2.30.1.4. Each hour for which the Associate is entitled
to back pay, irrespective of mitigation of damages, whether
awarded or agreed to by the Employer or an Affiliated Company,
provided that
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such Associate has not previously been credited with an Hour of
Service with respect to such hour under Paragraphs 2.30.1.1. or
2.30.1.2. above.
2.30.1.5. Each hour for which the Associate is on a
Leave of Absence, provided the Associate returns to active status
on or before expiration of the Leave of Absence. Notwithstanding
the foregoing, no more than 501 Hours of Service shall be
credited to an Associate under Paragraphs 2.30.1.2. or 2.30.1.4.
above on account of any single continuous period of time during
which no duties are performed.
2.30.2. Hours of Service under Paragraphs 2.30.1.2. and
2.30.1.4. above shall be calculated in accordance with Department of
Labor Regulation 29 C.F.R. Section 2530.200b-2(b). Hours of Service
shall be credited to the appropriate computation period according to
Department of Labor Regulation Section 2530.200b-2(c). However, an
Associate will not be considered as being entitled to payment until the
date when the Employer or the Affiliated Company would normally make
payment to the Associate for such Hour of Service.
2.30.3. Unless expressly provided to the contrary by this Plan
or by the Board of Directors, an Associate shall not be credited with
Hours of Service for periods of employment with an Affiliated Company
prior to the date on which an entity becomes an Affiliated Company, or
part of an Affiliated Company.
2.31. INVESTMENT FUND. "Investment Fund" shall mean any of the separate
Investment Funds established by the Administration Committee which may be made
available by the Administration Committee from time to time for selection by
Participants for purposes of the investment of amounts contributed to this Plan,
as provided in Article 7.
2.32. INVESTMENT MANAGER. "Investment Manager" means the one or more
Investment Managers, if any, that are appointed pursuant to Section 14.3.
2.33. LEAVE OF ABSENCE. "Leave of Absence" shall mean any absence with or
without pay authorized by the Employer under the Employer's standard personnel
practices. The treatment of Leaves of Absence under this Plan shall not result
in discrimination in favor of Highly Compensated Associates in violation of Code
Section 401(a)(4).
2.34. MATERNITY OR PATERNITY ABSENCE. "Maternity or Paternity Absence"
shall mean an absence from work for any period
2.34.1. By reason of the pregnancy of the Associate,
2.34.2. By reason of the birth of a child of the Associate,
2.34.3. By reason of the placement of a child with the Associate
in connection with the adoption of the child by the Associate, or
2.34.4. For purposes of caring for the child for a period
beginning immediately following the birth or placement referred to in
Subsection 2.34.2. or 2.34.3. above. Notwithstanding the foregoing, a
period of absence shall be treated as a Maternity or Paternity Absence
only if the Associate claims that such absence qualifies as a Maternity
or Paternity Absence and furnishes such proof and information regarding
such absence as the Administration Committee reasonably requires. A
Maternity or Paternity Absence shall be recognized solely for purposes
of
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determining whether or not an Associate has incurred a Break in
Service. Accordingly, such a Maternity or Paternity Absence shall not
result in an accrual of Service for purposes of the benefit accrual or
vesting provisions of this Plan. Further, nothing in this Plan shall
be construed or interpreted to give an Associate the right to any paid
or unpaid maternity or paternity leave. An Associate's rights, if any,
with respect to such leave shall be governed by the Employer's standard
personnel practices and policies.
2.35. NORMAL RETIREMENT DATE. "Normal Retirement Date" shall mean the
date that such Participant has both attained age sixty-two (62) and attained
the fifth (5th) anniversary of the Participant's commencement of
participation in the Plan or the Prior Plan.
2.36. PARTICIPANT AND ACTIVE PARTICIPANT.
2.36.1. "Participant" shall mean any person for whom an Account
is maintained under the Plan and whose Account, representing such
person's interest in the Trust Fund, has not been distributed or
otherwise disposed of in accordance with applicable law.
2.36.2. "Active Participant" as of any applicable date shall
mean an Eligible Associate who has satisfied the eligibility and
participation requirements of Article 3. without regard to whether such
Eligible Associate is making Participant contributions in accordance
with Article 4.
2.37. PLAN. "Plan" shall mean the FCG Enterprises, Inc. Associate
401(k) and Stock Ownership Plan as set forth herein, and as it may be amended
from time to time.
2.38. PLAN ADMINISTRATOR. "Plan Administrator" shall mean the
administrator of the Plan, within the meaning of Section 3(16)(A) of ERISA.
The Plan Administrator shall be FCG Enterprises, Inc.
2.39. PLAN YEAR. "Plan Year" shall mean the twelve (12) month period
ending on each December 31.
2.40. PRE-TAX (401(k)) CONTRIBUTIONS. "Pre-Tax (401(k)) Contributions"
shall include those amounts contributed to the Plan as a result of a salary
or wage reduction election made by the Participant in accordance with
applicable provisions of the Plan, to the extent such contributions qualify
for treatment as contributions made under a "qualified cash or deferred
arrangement" within the meaning of Section 401(k) of the Code.
2.41. PRE-TAX (401(k)) MATCHING CONTRIBUTIONS. "Pre-Tax (401(k))
Matching Contributions" shall mean Employer contributions that are geared to
Participant contributions, as provided in Section 5.4
2.42. PRIOR PLAN. "Prior Plan" shall mean provisions of the FCG
Enterprises, Inc. dba First Consulting Group Profit Sharing 401(k) Plan as in
effect from time to time prior to the merger of such Prior Plan into and with
this Plan effective as of January 1, 1996.
2.43. PROFIT SHARING CONTRIBUTIONS. "Profit Sharing Contributions"
shall mean Profit Sharing Contributions described in Section 5.5. or Section
5.6
2.44. QUALIFIED JOINT AND SURVIVOR ANNUITY. "Qualified Joint and
Survivor Annuity" shall mean an annuity for the life of the Participant with
a survivor annuity for the life of the Participant's Spouse which is fifty
percent (50%) of the amount of the annuity which is payable during the joint
lives of the Participant and the Spouse.
2.45. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. "Qualified
Preretirement Survivor Annuity" shall
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mean a survivor annuity for the life of the surviving Spouse of the Participant.
2.46. RETIREMENT VESTING DATE. "Retirement Vesting Date" shall mean
the last day of the Plan Year in which the later of the following occurs: (a)
the Participant attains age fifty-five (55), or (b) the fifth (5th)
anniversary of the commencement of the Participant's participation in the
Plan or the Prior Plan.
2.47. SEVERANCE. "Severance" shall mean the termination of an
Associate's employment, in any capacity, with the Employer and Affiliated
Companies, by reason of such Associate's death, resignation, dismissal or
otherwise, as determined in accordance with the provisions of this Section
2.47. For the purposes of this Plan, in determining whether the service or
employment of an Associate has terminated, the customary policies and
practices of the employer shall apply. However, for purposes of determining
whether an individual is entitled to receive a distribution of benefits by
reason of a termination of employment or Severance, no person shall be deemed
to have experienced a termination of employment or Severance prior to the
date as of which such person (a) experiences a "separation from service," as
such term is used in Sections 401(a), 401(k) and resolutions, rulings or
other pronouncements thereunder issued by the Secretary of the Treasury or
Internal Revenue Service, or (b) otherwise becomes entitled to a distribution
of benefits under Sections 401(a) and 401(k).
2.48. SEVERANCE DATE. "Severance Date" shall, in the case of any
Associate who incurs a Severance, mean the day on which such Associate is
deemed to have incurred said Severance, determined in accordance with the
provisions of Section 2.47.
2.49. SPOUSE. "Spouse" shall mean the person to whom a Participant is
legally married as of the Annuity Starting Date with respect to the payment
of all or a portion of the Participant's Vested Interest in his Accounts, or
in the case of a payment after the Participant's death, the person to whom
the Participant is legally married as of the date of the Participant's death.
To the extent required under a qualified domestic relations order, a former
spouse shall be treated as a Spouse.
2.50. TRUST AGREEMENT. "Trust Agreement" shall mean the one or more
trust agreements entered into by the Company in accordance with the
provisions of Article 6. for the purpose of holding contributions and
earnings under this Plan, and shall include any funding agreement with an
insurance company or custodian treated as a Trustee under Section 401(f) of
the Code.
2.51. TRUST AND TRUST FUND. "Trust" or "Trust Fund" shall mean the
assets of the Plan held in a trust, insurance contract or custodial account
established under a Trust Agreement pursuant to Article 6.
2.52. TRUSTEE. "Trustee" shall mean any successor or other corporation
or person or persons selected by the Board of Directors to act as a trustee
of the Trust Fund under a Trust Agreement, and shall include any insurance
company, bank or person treated as the holder of a qualified trust under
Section 401(f) of the Code.
2.53. VALUATION DATE. "Valuation Date" shall mean the date as of which
the Trustee shall determine the fair market value of the assets in the Trust
Fund for purposes of determining the value of each Account therein. The
Administration Committee may designate a separate Valuation Date
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with respect to each Investment Fund or investment pool forming a part of the
Trust Fund, except that the Valuation of Company Stock shall be valued as
provided in Article 8.
2.54. VESTED INTEREST. "Vested Interest" or "Vested Right" shall mean
the interest of a Participant in his Accounts which is at all times fully
vested and nonforfeitable.
2.55. YEAR OF VESTING SERVICE. An Associate's Years of Vesting Service
credit shall be determined in accordance with the following provisions of
this Section 2.55.
2.55.1. "Year of Vesting Service" shall mean a Computation
Period during which the Associate completes at least one thousand
(1,000) Hours of Service for an Employer or an Affiliated Company. In
no instance will an Associate be credited with more than one (1) Year
of Vesting Service with respect to service performed in a single
Computation Period.
2.55.2. In the case of any Associate who incurs a Break in
Service, upon such Associate's completion of one (1) Hour of Service
following a Break in Service, his Years of Vesting Service prior to
said Break shall be taken into account under this Plan if he either had
a Vested Right to benefits under this Plan immediately preceding such
Break, or the number of his one-year Breaks in Service does not equal
or exceed his Parity Period, as defined in Subsection 2.55.4. below.
2.55.3. In the case of any Associate who incurs a Break in
Service and who, immediately preceding such Break, did not have any
Vested Right to benefits under this Plan, if the number of his one-year
Breaks in Service equals or exceeds his Parity Period, as defined in
Subsection 2.55.4. below, then his Years of Vesting Service prior to
said Break in Service shall not be taken into account under this Plan.
Any Years of Vesting Service credit accrued before a Break shall be
deemed not to include any Years of Vesting Service not required to be
taken into account under this Subsection 2.55.3. by reason of any prior
Break in Service.
2.55.4. For purposes of this Section 2.55., the term Parity
Period shall mean the greater of (i) five Years of Vesting Service, or
(ii) the number of Years of Vesting Service credited under this
Section prior to the Severance giving rise to such Break.
2.55.5. Except to the extent provided by the Board of Directors,
or unless otherwise expressly stated in this Plan, such an Associate
shall not receive such Years of Vesting Service credit for any period
of employment with an Affiliated Company prior to such entity becoming
or becoming a part of, an Affiliated Company.
2.55.6. In the event of a change in the Plan Year, an Associate
who is credited with a Year of Vesting Service in both the twelve (12)
month period that begins on the first day of the short Plan Year and
the Plan Year that immediately follows such short Plan Year, shall be
credited with two (2) Years of Vesting Service.
2.55.7. With respect to periods prior to January 1, 1996, a
Participant's Years of Vesting Service and Break in Service Years shall
be such number of such years as are determined under provisions of the
Prior Plan through December 31, 1995.
ARTICLE 3.
ELIGIBILITY AND PARTICIPATION
3.1. ELIGIBILITY TO PARTICIPATE.
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3.1.1. Any Eligible Associate shall be eligible to become an
Active Participant effective as of any Entry Date coinciding with or
immediately following the date such Participant becomes an Eligible
Associate.
3.1.2. If an Eligible Associate ceases to be an Eligible
Associate he shall be eligible to become an Active Participant in the
Plan effective as of an Entry Date following the date he again becomes
an Eligible Associate.
3.1.3. Notwithstanding the preceding rules of this Section 3.1.,
the actual date upon which an Eligible Associate will become an Active
Participant will be determined pursuant to the rules of Section 3.2.
below.
3.2. COMMENCEMENT OF ACTIVE PARTICIPATION.
3.2.1. An Eligible Associate shall become an Active Participant
for purposes of Article 5. as of the Entry Date determined in
accordance with Section 3.1.
3.2.2. Effective as of the Entry Date determined in accordance
with Section 3.1. or any subsequent Entry Date, an Active Participant
may elect to make Pre-Tax (401(k)) Contributions in accordance with the
provisions of Article 4., starting with the first day of any full
payroll period that commences with or immediately follows such Entry
Date, by delivering to the Administration Committee prior to such Entry
Date his written election to contribute to the Plan. An Eligible
Associate's written election to contribute must be delivered to the
Administration Committee within the time period prescribed by the
Administration Committee.
3.2.3. Each Active Participant shall complete an enrollment form
and such other forms as may be prescribed by the Administration
Committee and shall designate a Beneficiary. An Active Participant
shall also designate one or more of the Investment Funds described in
Article 7. for the investment of contributions allocated to his
Accounts, to the extent provided in Article 7. The Administration
Committee may prescribe such rules as it deems appropriate in
connection with a Participant's investment designations. As a
condition of Participation in the Plan, a Participant may be required
to enter into such agreements as are consistent with the articles of
incorporation and bylaws of the Company, requiring sale to the Company
of Company Stock received in any distribution from the Plan upon
cessation of Associate status.
3.3. CHANGE IN STATUS. If an Active Participant is transferred from
one Employer to another Employer, he shall automatically become an Active
Participant under the Plan with such other Employer if he continues to be an
Eligible Associate; further, he shall continue to be a Participant with
respect to his Accounts at the date of transfer during the period that he is
a Participant under the Plan with such Employer. If an Active Participant
becomes an ineligible Associate and therefore becomes ineligible to continue
to be an Active Participant because he is no longer an Eligible Associate, he
shall continue to be a Participant with respect to his Accounts at the date
of his change of status during the period of his subsequent employment as an
ineligible Associate.
3.4. ASSOCIATE RESPONSIBILITY. It shall be the responsibility of an
Eligible Associate who elects to contribute to this Plan to verify that
amounts of his contributions are in accordance with his election, and
investment of such contributions is in accordance with his investment
designation.
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ARTICLE 4.
PARTICIPANT CONTRIBUTIONS
4.1. ELECTION TO CONTRIBUTE.
4.1.1. Each Eligible Associate who has satisfied the
requirements of Section 3.1. may elect to contribute to the Plan by
completing a contribution election form pursuant to Section 3.2. in
which he agrees to have an amount equal to a percentage of his
Compensation contributed to the Plan for each payroll period that the
contribution election is in effect, as provided in Section 4.2 All
contributions by Active Participants shall be made as Pre-Tax (401(k))
Contributions.
4.1.2. An Active Participant's contribution election shall be
effective as of the Entry Date determined in accordance with Section
3.2. Such contribution election shall remain in effect until it is
modified, revoked or terminated, pursuant to Section 4.3., or until the
Active Participant ceases to be an Eligible Associate. A contribution
election shall be made in such form and manner as the Administration
Committee shall prescribe or approve.
4.1.3. An Active Participant's Pre-Tax (401(k)) Contributions
shall be made by payroll deduction and an amount equal to such Pre-Tax
(401(k)) Contributions shall be paid by the Employer to the Trustee in
accordance with Section 5.2
4.2. PARTICIPANT CONTRIBUTION AMOUNTS. Participant contribution
amounts shall be subject to the limitations of this Section 4.2., in addition
to such other limitations as may be provided elsewhere in this Plan.
4.2.1. Pre-Tax (401(k)) Contributions. The amount of an Active
Participant's Pre-Tax (401(k)) Contributions for each payroll period
for which his election to make Pre-Tax (401(k)) Contributions is in
effect shall be in dollar amounts (not in excess of a dollar amount in
excess of fifteen percent (15%) of Compensation) or whole percentage
amounts of from one percent (1%) of the Active Participant's
Compensation for each such payroll period, up to fifteen percent (15%).
4.2.2. After-Tax Contributions. A Participant shall not be
permitted to make "after-tax" contributions.
4.2.3. In general, no Active Participant shall be permitted to
make Pre-Tax (401(k)) Contributions in excess of the dollar limitation
on the exclusion of elective deferrals from the Participant's gross
income under Section 402(g) of the Code, as in effect with respect to
the taxable year of the Participant (hereinafter referred to as the
"Deferral Limitation"). In the event an Active Participant's Pre-Tax
(401(k)) Contributions under this Plan, or the total amount of his
elective deferrals, within the meaning of Code Section 402(g)(3), under
all plans of the Employer and any Affiliated Company, exceed the
Deferral Limitation for any reason, such excess elective deferrals, and
any income allocable thereto, shall be returned to the Participant in
accordance with Section 4.6
4.2.4. The Administration Committee may prescribe such rules as
it deems necessary or appropriate regarding an Active Participant's
contributions under this Plan, including rules regarding the maximum
amount that any Active Participant may contribute and the timing of a
contribution election. These rules shall apply to all Eligible
Associates, except to the extent that the
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Administration Committee prescribes special or more stringent rules
applicable only to Highly Compensated Associates.
4.3. MODIFICATION, REVOCATION OR TERMINATION OF CONTRIBUTION ELECTION.
4.3.1. Subject to the limitations of Section 4.2., an Active
Participant may modify his contribution election effective as of the
first day of any payroll period commencing with or immediately
following any Entry Date by delivering to the Administration Committee
his written notice of such modification at least within the time
prescribed by the Administrative Committee before the effective date of
the change.
4.3.2. An Active Participant may revoke his contribution
election effective as of the first day of any payroll period by
delivering to the Administration Committee his written notice of such
revocation at least within the time prescribed by the Administrative
Committee before the effective date of the change. A revocation shall
remain in effect throughout that Plan Year and all subsequent Plan
Years until the Participant makes a new contribution election pursuant
to Section 4.1.
4.3.3. An Active Participant's contribution election shall
automatically terminate if he ceases to be an Eligible Associate. If
he again becomes an Eligible Associate and desires to again contribute
a portion of his Compensation, it shall be his responsibility to make a
new contribution election pursuant to Section 3.2. in order to resume
contributions.
4.3.4. The Administration Committee may prescribe such rules as
it deems necessary or appropriate regarding the modification,
revocation or termination of an Active Participant's contribution
election.
4.4. LIMITATION ON PRE-TAX (401(k)) CONTRIBUTIONS BY HIGHLY COMPENSATED
ASSOCIATES. With respect to each Plan Year, Participant Pre-Tax (401(k))
Contributions under the Plan for the Plan Year shall not exceed the limitations
on contributions on behalf of Highly Compensated Associates under Section
401(k) of the Code, as provided in this Section. In the event that Pre-Tax
(401(k)) Contributions under this Plan on behalf of Highly Compensated
Associates for any Plan Year exceed the limitations of this Section for any
reason, such excess contributions and any income allocable thereto shall be
returned to the Participant as provided in Section 4.5.
4.4.1. The Pre-Tax (401(k)) Contributions by a Participant for a
Plan Year shall satisfy the Average Deferral Percentage test set forth
in 4.4.1.1.1. below, or the alternative Average Deferral Percentage
test set forth in 4.4.1.1.2. below, and to the extent required by
regulations under Code Section 401(m), also shall satisfy the test
identified in 4.4.1.2. below:
4.4.1.1. Average Deferral Percentage Test.
4.4.1.1.1. The "Actual Deferral Percentage"
for Eligible Associates who are Highly Compensated
Associates shall not be more than the "Actual Deferral
Percentage" of all other Eligible Associates multiplied
by 1.25, or
4.4.1.1.2. The excess of the "Actual Deferral
Percentage" for Eligible Associates who are Highly
Compensated Associates over the "Actual Deferral
Percentage" for all other Eligible Associates shall not
be more than two percentage points, and the "Actual
Deferral Percentage" for Highly Compensated Associates
shall not be more than the "Actual Deferral Percentage"
of all other Eligible Associates multiplied by 2.00.
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4.4.1.2. Average Contribution Percentage Test. Average
Contribution Percentage for Highly Compensated Associates
eligible to participate in this Plan and a plan of the Company or
an Affiliated Company that is subject to the limitations of
Section 401(m) of the Code including, if applicable, this Plan,
shall be reduced in accordance with Section 5.10., to the extent
necessary to satisfy the requirements of Treasury Regulations
Section 1.401(m)-2.
4.4.2. For the purposes of the limitations of this Section, the
following definitions shall apply:
4.4.2.1. "Actual Deferral Percentage" means, with
respect to Eligible Associates who are Highly Compensated
Associates and all other Eligible Associates for a Plan Year, the
average of the Deferral Percentages, calculated separately for
each Eligible Associate in such group.
4.4.2.2. "Deferral Percentage" means for any Eligible
Associate the ratio of the amount of Pre-Tax (401(k))
Contributions under the Plan allocated to the Eligible Associate
for such Plan Year to such Associate's "Compensation" for such
Plan Year. An Eligible Associate's Pre-Tax (401(k))
Contributions may be taken into account for purposes of
determining his Deferral Percentage for a particular Plan Year
only if such Pre-Tax (401(k)) Contributions are allocated to the
Eligible Associate as of a date within that Plan Year. For
purposes of this rule, an Eligible Associate's Pre-Tax (401(k))
Contributions shall be considered allocated as of a date within a
Plan Year only if (A) the allocation is not contingent upon the
Eligible Associate's participation in the Plan or performance of
services on any date subsequent to that date, and (B) the Pre-Tax
Contribution is actually paid to the Trust no later than the end
of the twelve month period immediately following the Plan Year to
which the contribution relates. In accordance with regulations
issued by the Secretary of the Treasury, Employer contributions
on behalf of an Active Participant that satisfy the requirements
of Code Section 401(k)(3)(C)(ii) shall also be taken into account
for the purpose of determining the Deferral Percentage of such
Active Participant.
4.4.2.3. "Eligible Associate" includes any Associate
directly or indirectly eligible to make Pre-Tax (401(k))
Contributions at any time during the Plan Year, including any
otherwise Eligible Associate during a period of suspension due to
a hardship withdrawal, as prescribed by the Secretary of the
Treasury in regulations under Code Section 401(k).
4.4.2.4. "Compensation" means Compensation determined by
the Administration Committee in accordance with the requirements
of Section 414(s) of the Code, including, to the extent elected
by the Administration Committee, amounts deducted from an
Associate's wages or salary that are excludable from income under
Sections 125 and 402(a)(8) of the Code.
4.4.3. In the event that as of the last day of a Plan Year this
Plan satisfies the requirements of Section 401(a)(4) or 410(b) of the
Code only if aggregated with one or more other plans which include
arrangements under Code Section 401(k), then this Section shall be
applied by determining the Actual Deferral Percentages of Eligible
Associates as if all such plans were a single plan, in accordance with
regulations prescribed by the Secretary of the Treasury under Section
401(k) of the Code.
4.4.4. For the purposes of this Section, the Deferral Percentage
for any Highly Compensated Associate who is a participant under two or
more Code Section 401(k) arrangements of the Company
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or an Affiliated Company shall be determined by taking into account the
Highly Compensated Associate's Compensation under each such arrangement
and contributions under each such arrangement which qualify for
treatment under Code Section 401(k), in accordance with regulations
prescribed by the Secretary of the Treasury under Section 401(k) of the
Code.
4.4.5. If an Eligible Associate (who is also a Highly
Compensated Associate) is subject to the family aggregation rules in
Section 2.29., the combined Actual Deferral Percentage for the family
group (which is treated as one Highly Compensated Associate) shall be
the Actual Deferral Percentage determined by combining the Pre-Tax
(401(k)) Contributions, amounts treated as Pre-Tax (401(k))
Contributions under Code Section 401(k)(3)(D)(ii), and Compensation of
all eligible family members.
4.4.6. For purposes of this Section, the amount of Pre-Tax
(401(k)) Contributions by a Participant who is not a Highly Compensated
Associate for a Plan Year shall be reduced by any Pre-Tax (401(k))
Contributions in excess of the Deferral Limitation which have been
distributed to the Participant under Section 4.6., in accordance with
regulations prescribed by the Secretary of the Treasury under Section
401(k) of the Code.
4.4.7. The determination of the Deferral Percentage of any
Participant shall be made after applying the provisions of Section
19.5. relating to certain limits on Annual Additions under Section 415
of the Code.
4.4.8. The determination and treatment of Pre-Tax (401(k))
Contributions and the Actual Deferral Percentage of any Participant
shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
4.4.9. The Administration Committee shall keep or cause to have
kept such records as are necessary to demonstrate that the Plan
satisfies the requirements of Code Section 401(k) and the regulations
thereunder, in accordance with regulations prescribed by the Secretary
of the Treasury.
4.5. PROVISIONS FOR DISPOSITION OF EXCESS PRE-TAX (401(k)) CONTRIBUTIONS
BY HIGHLY COMPENSATED ASSOCIATES.
4.5.1. The Administration Committee shall determine, as soon as
is reasonably possible following the close of each Plan Year, if the
Actual Deferral Percentage test is satisfied for the Plan Year. If,
pursuant to the determination by the Administration Committee, any or
all of a Highly Compensated Associate's Pre-Tax (401(k)) Contributions
must be reduced to enable the Plan to satisfy the Actual Deferral
Percentage test, then any excess Pre-Tax (401(k)) Contributions by a
Highly Compensated Associate, and any income allocable thereto shall,
if administratively feasible, be distributed to the Participant not
later than two and one-half (2-1/2) months following the close of the
Plan Year in which such excess Pre-Tax (401(k)) Contributions were
made, but in any event no later than the close of the first Plan Year
following the Plan Year in which such excess Pre-Tax (401(k))
Contributions were made (after withholding any applicable income taxes
due on such amounts). Recharacterization of excess Pre-Tax (401(k))
Contributions as Participant After-Tax Contributions shall not be
permitted. Any excess Pre-Tax (401(k)) Contributions applied to reduce
a Participant's loan shall be treated as a taxable distribution of such
excess in accordance with this Section 4.5
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4.5.2. The Administration Committee shall determine the amount
of any excess Pre-Tax (401(k)) Contributions by Highly Compensated
Associates for a Plan Year by application of the leveling method set
forth in Treasury Regulation Section 1.401(k)-1(f)(2) under which the
Deferral Percentage of the Highly Compensated Associate who has the
highest such percentage for such Plan Year is reduced to the extent
required (i) to enable the Plan to satisfy the Actual Deferral
Percentage test, or (ii) to cause such Highly Compensated Associate's
Deferral Percentage to equal the Deferral Percentage of the Highly
Compensated Associate with the next highest Deferral Percentage. This
process shall be repeated until the Plan satisfies the Actual Deferral
Percentage test. For each Highly Compensated Associate, the amount of
excess Pre-Tax (401(k)) Contributions shall be equal to the total
Pre-Tax (401(k)) Contributions (plus any amounts treated as Pre-Tax
(401(k)) Contributions) made or deemed to be made by such Highly
Compensated Associate (determined prior to the application of the
foregoing provisions of this Subsection 4.5.2.) minus the amount
determined by multiplying the Highly Compensated Associate's Deferral
Percentage (determined after application of the foregoing provisions of
this Subsection 4.5.2.) by his Compensation.
4.5.3. The determination and correction of excess Pre-Tax
(401(k)) Contributions of a Highly Compensated Associate whose Actual
Deferral Percentage is determined under the family aggregation rules in
Section 4.4. shall be accomplished by reducing the Actual Deferral
Percentage as required under Subsections 4.5.1. and 4.5.2. above and
allocating the excess Pre-Tax (401(k)) Contributions for the family
unit in proportion to the Pre-Tax (401(k)) Contributions of each family
member that are combined to determine the Actual Deferral Percentage.
4.5.4. For purposes of satisfying the Actual Deferral Percentage
test, income allocable to a Participant's excess Pre-Tax (401(k))
Contributions, as determined under 4.5.2. above, shall be determined in
accordance with any reasonable method used by the Plan for allocating
income to Participant Accounts, provided such method does not
discriminate in favor of Highly Compensated Associates and is
consistently applied to all Participants for all corrective
distributions under the Plan for a Plan Year.
4.5.5. The Administration Committee shall not be liable to any
Participant (or his Beneficiary, if applicable) for any losses caused
by misestimating the amount of any Pre-Tax (401(k)) Contributions in
excess of the limitations of this Article 4. and any income allocable
to such excess.
4.5.6. To the extent required by regulations under Section
401(k) or 415 of the Code, any excess Pre-Tax (401(k)) Contributions
with respect to a Highly Compensated Associate shall be treated as
Annual Additions under Article 19. for the Plan Year for which the
excess Pre-Tax (401(k)) Contributions were made, notwithstanding the
distribution of such excess in accordance with the provisions of this
Section.
4.5.7. The amount of Pre-Tax (401(k)) Contributions to be
distributed to a Highly Compensated Associate in accordance with this
Section shall be reduced by the Pre-Tax (401(k)) Contributions in
excess of the Deferral Limitation previously distributed to such Highly
Compensated Associate for the taxable year ending in the same Plan Year
The Pre-Tax (401(k)) Contributions in excess of the Deferral
Limitation to be distributed for a taxable year in accordance with
Section 4.6. shall be
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reduced by the Pre-Tax (401(k)) Contributions previously distributed in
accordance with this Section for the Plan Year beginning in such
taxable year.
4.6. PROVISIONS FOR RETURN OF ANNUAL PRE-TAX (401(k)) CONTRIBUTIONS IN
EXCESS OF THE DEFERRAL LIMITATION. In the event Participant's elective
deferrals, within the meaning of Code Section 402(g)(3), for any calendar
year exceed the Deferral Limitation, such excess elective deferrals shall be
returned to the Participant as provided in this Section 4.6
4.6.1. In the event that due to error or otherwise, a
Participant's Pre-Tax (401(k)) Contributions under this Plan for any
calendar year exceed the Deferral Limitation for such calendar year
(without regard to elective deferrals under any other plan), the
Administration Committee shall notify the Plan of the amount of the
excess Pre-Tax (401(k)) Contributions, and such excess Pre-Tax (401(k))
Contributions, together with income allocable thereto, shall be
distributed to the Participant on or before the first April 15
following the close of the calendar year in which such excess Pre-Tax
(401(k)) Contributions were made.
4.6.2. If in any calendar year, a Participant makes Pre-Tax
(401(k)) Contributions under this Plan and additional elective
deferrals, within the meaning of Code Section 402(g)(3), under any
other plan maintained by the Employer or an Affiliated Company, and the
total amount of the Participant's elective deferrals under this Plan
and all such other plans exceed the Deferral Limitation, the Employer
and each Affiliated Company maintaining a plan under which the
Participant made any elective deferrals shall notify the affected
plans, and corrective distributions of the excess elective deferrals,
and any income allocable thereto, shall be made from one or more such
plans, to the extent determined by the Employer and each Affiliated
Company. All corrective distributions of excess elective deferrals
shall be made on or before the first April 15 following the close of
the calendar year in which the excess elective deferrals were made.
4.6.3. Income on Pre-Tax (401(k)) Contributions in excess of the
Deferral Limitation shall be calculated in accordance with 4.5.4.,
except that if the Plan Year is not the calendar year, calculations of
allocable income shall be made with reference to income allocable for
the calendar year rather than the Plan Year, and based upon the
Participant's account balance as of the last day of the calendar year.
4.6.4. The Administration Committee shall not be liable to any
Participant (or his Beneficiary, if applicable) for any losses caused
by misestimating the amount of any Pre-Tax (401(k)) Contributions in
excess of the limitations of this Article 4. and any income allocable
to such excess.
4.6.5. In the event a Participant's Pre-Tax (401(k))
Contributions for any calendar year exceed the Deferral Limitation
solely by reason of the Participant's elective deferrals under a plan
maintained by an unrelated employer, such excess Pre-Tax (401(k))
Contributions shall not be returned to the Participant, but shall be
held in the Participant's Pre-Tax (401(k)) Contributions Account until
distribution can be made in accordance with the provisions of this Plan.
4.6.6. To the extent required by regulations under Section
402(g) or 415 of the Code, Pre-Tax (401(k)) Contributions with respect
to a Participant in excess of the Deferral Limitation shall be treated
as Annual Additions under Article 19. for the Plan Year for which the
excess Contributions
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<PAGE>
were made, unless such excess is distributed to the Participant in
accordance with the provisions of this Section.
4.7. CHARACTER OF AMOUNTS CONTRIBUTED AS PRE-TAX (401(k)) CONTRIBUTIONS.
Unless otherwise specifically provided to the contrary elsewhere in this Plan,
Pre-Tax (401(k)) Contributions pursuant to a Participant's contribution election
described above in Section 4.1. (and which qualify for treatment under Code
Section 401(k) and are contributed to the Trust Fund pursuant to Article 6.)
shall be treated, for federal and state income tax purposes, as Employer
contributions.
4.8. PARTICIPANT ROLLOVER CONTRIBUTIONS.
4.8.1. To the extent permissible under Code Section 402(c), and
in accordance with rules established by the Administration Committee,
all or part of a distribution from a plan that satisfies the
requirements of Code Section 401(a), or from an individual retirement
account which is attributable solely to a rollover contribution within
the meaning of Code Section 408(d)(3), may be rolled over into this
Plan by any Eligible Associate.
4.8.2. A rollover contribution by an Eligible Associate shall be
credited to a Rollover Account established for such Eligible Associate
in accordance with rules which the Administration Committee shall
prescribe from time to time. Any rollover contributions in accordance
with this Section shall be in cash and shall not be subject to
distribution except as expressly provided under the terms of this Plan.
4.8.3. An Eligible Associate who makes a rollover contribution
to the Plan shall be treated as a Participant for purposes of the Plan
provisions relating to the maintenance, valuation, investment and
distribution of Accounts; provided, however, such Associate shall not
be eligible to contribute to the Plan prior to satisfaction of the
requirements of Article 4. and shall not receive an allocation of
Pre-Tax (401(k)) Matching Contributions under the Plan with respect to
any rollover contribution. No portion of a Rollover Account shall be
invested in Company Stock.
4.9. PLAN-TO-PLAN TRANSFERS. No amounts held under another plan that is
qualified under Code Section 401(a) may be transferred directly from the trustee
of that plan to the Trustee of this plan, except in the case of a merger of this
plan with another plan qualified under Code Section 401(a) in accordance with
Code Sections 401(k), 411(d)(6) and 414(l).
ARTICLE 5.
EMPLOYER CONTRIBUTIONS
5.1. GENERAL.
5.1.1. Subject to the requirements and restrictions of this
Article 5. and Articles 4. and 19., and subject also to the amendment
or termination of the Plan or the suspension or discontinuance of
contributions as provided herein, Employer contributions to the Plan
shall be determined in accordance with this Article 5.
5.1.2. Some or all of a contribution under this Article 5. made
in cash or property other than Company Stock may be applied to repay
any outstanding Exempt Loan. The Administration Committee may, subject
to any pledge or similar agreement, direct or determine the proportions
by which contributions are applied to repay each of the one or more
Exempt Loans.
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5.1.3. Some or all of a contribution under this Article 5. made
in cash or property other than Company Stock may be applied to purchase
the shares of Company Stock, including shares allocated to the Accounts
of any Participant (or Beneficiary), in order to make a distribution
under Article 11. to such Participant (or Beneficiary), and including
purchases from the Company or any other person.
5.2. PRE-TAX (401(k)) CONTRIBUTIONS. The Employers shall make a Pre-Tax
Contribution on behalf of each Active Participant who is an Eligible Associate
of such Employer in an amount equal to the amount of the Pre-Tax (401(k))
Contributions elected by the Active Participant in accordance with Article 4.,
provided such Pre-Tax (401(k)) Contribution qualifies for tax treatment under
Code Section 401(k). A Pre-Tax (401(k)) Contribution on behalf of an Active
Participant for a payroll period shall be paid to the Trustee and allocated to
the Active Participant's Pre-Tax (401(k)) Contribution Account as soon as
administratively practicable following the last day of such payroll period, but
in no event later than ninety (90) days following the last day of the payroll
period, or such earlier date as may be prescribed under Department of Labor
regulations.
5.3. FIRST SHARE CONTRIBUTIONS. The Company may, in its discretion,
in any Plan Year, cause the Employers to make a First Share Contribution on
behalf of each Eligible Associate in accordance with Subsection 5.3.1. or
Subsection 5.3.2. Such contribution shall be made in such amount as is
determined by the Company and shall be made in shares of Company Stock or in
cash applied to the purchase of Company Stock, as determined by the Company.
5.3.1. The Company may, in its discretion, cause the Employers
in any Plan Year to make a First Share Contribution on behalf of each
Eligible Associate to whom a First Share Contribution has not
previously been allocated. Only one First Share Contribution shall be
made under this Subsection 5.3.1. with respect to any individual during
the duration of such individual's employment with the Employer and
shall be allocated per capita to the First Share Account of each
Eligible Associate entitled to such allocation. In the event that
application of Section 401(a)(4) of the Internal Revenue Code would
prevent the allocation of First Share Contributions as provided herein
for any Plan Year, such Contributions shall be curtailed in such manner
as the Administration Committee determines in its discretion, including
curtailment of the contributions beginning with the Participant
entitled to an allocation whose compensation is greatest for such Plan
Year.
5.3.2. Notwithstanding the foregoing, the Company may, in its
sole discretion, cause the employers in any Plan Year to make a First
Share Contribution on behalf of each Eligible Associate without regard
to whether such Eligible Associate has previously received a First
Share Contribution. Such First Share Contribution shall be allocated
per capita to the First Share Account of each Eligible Associate.
5.3.3. Any First Share Contribution for a Plan Year under this
Section 5.3. shall be paid to the Trustee and allocated to the Eligible
Associate's First Share Account on or as soon as practicable following
the last day of such Plan Year. To the extent determined by the
Company, in its sole discretion, any First Share Contribution under
this Section 5.3. may be designated as "loan repayment contribution"
and to the extent of such designation shall be applied to the repayment
of any Exempt Loan designated by the Company. Any such determination
by the Company shall be
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made not later than the date such First Share Contribution is paid to
the Trustee.
5.3.4. A Participant's Vested Interest in his or her First Share
Account shall be determined as provided in Subsection 9.2.1
5.4. PRE-TAX (401(k)) MATCHING CONTRIBUTIONS.
5.4.1. As of the last day of each Plan Year, the Company may, in
its sole discretion, determine that the Employers shall make a Matching
Contribution on behalf of each "Eligible Participant," as defined in
Subsection 5.4.3. below. Any Matching Contribution under this Section
5.4. shall be allocated among Eligible Participants in the same
proportion that the amount of each Eligible Participant's Pre-Tax
(401(k)) Contributions for the Plan Year bears to the aggregate amount
of Pre-Tax (401(k)) Contributions of all Eligible Participants for the
Plan Year, or as a percentage of such contributions determined by the
Company. The Company may in its sole discretion determine that such
Matching Contribution shall not exceed a percentage, as determined by
the Company, of each Eligible Participant's Compensation for the Plan
Year and may determine to establish a different maximum percentage for
Highly Compensated Associates than for other Eligible Associates.
5.4.2. Unless the Company determines that Pre-Tax (401(k))
Matching Contributions shall be made for a Plan Year in accordance with
this Section 5.4., no Pre-Tax (401(k)) Matching Contributions shall be
made for such Plan Year.
5.4.3. Any Pre-Tax (401(k)) Matching Contributions for a Plan
Year under this Section 5.4. shall be paid to the Trustee and allocated
to the Eligible Participant's Pre-Tax (401(k)) ESOP Matching
Contributions Account on or as soon as practicable following the last
day of such Plan Year. To the extent determined by the Company, in its
sole discretion, any Matching Contribution under this Section 5.4. may
be designated as "loan repayment contribution" and to the extent of
such designation shall be applied to the repayment of any Exempt Loan
designated by the Company. Any such determination by the Company shall
be made not later than the date such Matching Contribution is paid to
the Trustee.
5.4.4. For purposes of this Section 5.4., "Eligible Participant"
means for a Plan Year, each Eligible Associate of the Employer who is
an Eligible Associate on December 31 of such Plan Year.
5.5. PROFIT SHARING CONTRIBUTIONS.
5.5.1. As of the last day of a Plan Year, the Company may, in
its sole discretion, cause the Employers to make a Profit Sharing
Contribution for such Plan Year in cash or Company Stock, on behalf of
"Eligible Participants," as defined in Subsection 5.5.4. below, in an
amount to be determined by the Company. Unless the provisions of
Section 5.6. apply, any Profit Sharing Contributions in accordance with
this Section 5.5. shall be allocated as of the last day of a Plan Year
to the Profit Sharing Account of each Eligible Participant in the
manner described in this Section 5.5
5.5.1.1. The allocation for a Plan year in which the
Plan is not top-heavy (as defined in Article 23.) of the Plan)
shall be:
5.5.1.1.1. A dollar amount equal to the
Maximum Excess Contribution percentage multiplied by the
sum of each Eligible Participant's total Compensation
plus Excess Compensation shall be allocated to each
Eligible Participant's Profit Sharing Account. If the
Profit Sharing Contribution does not
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equal or exceed such amount for all Eligible
Participants, each Eligible Participant will be allocated
a share of the contribution in the same proportion that
his Compensation plus his Excess Compensation for the
Plan year bears to the total compensation plus the total
Excess compensation of all Eligible Participants for such
Plan year.
5.5.1.1.2. The balance of the Profit Sharing
Contribution over the amount allocated under Subparagraph
5.5.1.1.1. above, if any, shall be allocated to each
Eligible Participant's Profit Sharing Account in the same
proportion that his compensation for the Plan Year bears
to the total Compensation of all Eligible Participants
for such Plan year.
5.5.1.2. The allocation for a Plan year in which the
Plan is top-heavy (as defined in Article 23. of the Plan) shall
be:
5.5.1.2.1. An amount equal to the top Heavy
Percentage multiplied by each Participant's Compensation
for the Plan Year shall be allocated to each
Participant's Profit Sharing Account. If the Employer
Profit Sharing Contribution does not equal or exceed such
amount for all Participants, the amount shall be
allocated to each Participant's Profit Sharing Account in
the same proportion that his Compensation for the Plan
Year bears to the total Compensation of all participants
for such Plan Year.
5.5.1.2.2. The balance of the Profit Sharing
Contribution over the amount allocated under Subparagraph
5.5.1.2.1. above shall be allocated to each Participant's
Profit Sharing Account in a dollar amount equal to the
Top heavy Percentage (not to exceed the Maximum Excess
Contribution Percentage) multiplied by the Participant's
Excess Compensation. If the Profit Sharing Contribution
does not equal or exceed such amount for all
Participants, each Participant shall be allocated a share
of the contribution in the same proportion that his
Excess Compensation for the Plan year bears to the total
Excess Compensation of all Participants for such Plan
Year.
5.5.1.2.3. The balance of the Profit Sharing
Contribution over the amount allocated under Subparagraph
5.5.1.2.2. above shall be allocated to each Participant's
Profit Sharing Account in a dollar amount equal to the
difference between the Maximum Excess Contribution
Percentage and the Top Heavy Percentage, but not less
than zero percent (0%), multiplied by the sum of each
Participant's Compensation plus Excess Compensation. If
the Profit Sharing Contribution does not equal or exceed
such amount for all Participants, each Participant shall
be allocated a share of the contribution in the same
proportion that his Compensation plus his Excess
Compensation for the Plan Year bears to the total
compensation plus the total Excess Compensation of all
Participants for such Plan Year.
5.5.1.2.4. The balance of the Profit Sharing
Contribution over the amount allocated under Subparagraph
5.5.1.2.3. above, if any, shall be allocated to each
Participant's Profit Sharing Account in the same
proportion that his Compensation for the Plan Year bears
to the total Compensation of all Participants for such
Plan Year.
5.5.1.3. For purposes of this Subsection
5.5.1., the following terms shall have the meaning
indicated below:
5.5.1.3.1. Excess Compensation.
"Excess Compensation" means the amount in any
Plan year by
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which a Participant's Compensation paid by the
Employer for such year exceeds the Social
Security Wage Base in effect on the first day
of the Plan Year; such base being the maximum
amount of earnings which may be considered
wages for such year under Section 3121(a)(1) of
the Code, or any subsequent statute of similar
import.
5.5.1.3.2. Top Heavy Percentage.
"Top Heavy Percentage" means the minimum
Employer contribution expressed as a percentage
of Compensation required for Plan Years in
which the Plan is top heavy.
5.5.1.3.3. Maximum Excess
Contribution Percentage. "Maximum Excess
Contribution Percentage" means five and
seven-tenths percent (5.7%).
5.5.2. To the extent determined by the Company, in its sole
discretion, any Profit Sharing Contributions under this Section 5.5.
may be designated as "loan repayment contributions" and to the extent
of such designation shall be applied to the repayment of any Exempt
Loan designated by the Company. Any such determination by the Company
shall be made not later than the date such Profit Sharing Contributions
are paid to the Trustee. In the event the Company makes such a
determination and designation, such Profit Sharing Contributions shall
not be allocated in accordance with this Section 5.5., but shall be
allocated in the proportion that each Eligible Participant's
Compensation bears to the Compensation of all Eligible Participants.
5.5.3. Unless the Employer determine that Profit Sharing
Contributions shall be made for a Plan Year in accordance with this
Section 5.5., no Profit Sharing Contributions shall be made for such
Plan Year under this Section 5.5. 5.5.4. For purposes of this Section
5.5., "Eligible Participant" means for a Plan Year each Eligible
Associate of the Employer who is an Eligible Associate on the last day
of such Plan Year.
5.6. QUALIFIED NONELECTIVE PROFIT SHARING CONTRIBUTIONS.
5.6.1. As of the last day of a Plan Year, the Company may, in
its sole discretion, cause the Employers to make, in cash or Company
Stock, a Profit Sharing Contribution for such Plan Year, in an amount
to be determined by the Company, which contribution shall be designated
as a "qualified non-elective contribution," within the meaning of
regulations under Section 401(k) of the Code, and allocated in
accordance with 5.6.2. below. Unless the Company determines that a
Profit Sharing Contribution shall be made for a Plan Year in accordance
with this Section 5.6., no Employer Contribution shall be made for such
Plan Year under this Section 5.6
5.6.2. Any Profit Sharing Contributions for a Plan Year in
accordance with this Section 5.6. shall be allocated as of the last day
of such Plan Year to Profit Sharing Accounts of Eligible Participants,
in accordance with the following rules:
5.6.2.1. Profit Sharing Contributions shall first be
allocated to the Profit Sharing Account of the Eligible
Participant with the lowest Compensation for the Plan Year in an
amount sufficient to cause the Deferral Percentage (as defined in
Section 4.4.) of the Participant to equal the maximum percentage
of Compensation an Active Participant is permitted to contribute
to the Plan for the Plan Year as a Pre-Tax Contribution, as
determined under rules established by the Administration
Committee in accordance with Section 4.2.
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5.6.2.2. Such Profit Sharing Contributions shall then be
allocated in the amount described above to the Eligible
Participant with the next lowest Compensation, and such
allocations shall continue in the same manner until a sufficient
amount has been allocated to the Pre-Tax (401(k)) Contributions
Accounts of Eligible Participants to satisfy the Actual Deferral
Percentage test with the smallest aggregate Employer Contribution.
5.6.3. If, by the deadline for making "qualified nonelective
contributions" to the Plan under Treasury Regulations
1.401(k)-1(b)(4)(i)(A)(2), the Employers do not have sufficient data or
is unable to determine exactly the smallest Employer Contribution
amount necessary to satisfy the Actual Deferral Percentage test in
accordance with the provisions of Paragraph 5.6.2.2. above, the
Employers may estimate such amount and add a cushion sufficient to
ensure that the test will be met. Under these circumstances, the
Profit Sharing Contributions designated as "qualified nonelective
contributions" shall be allocated as provided in Paragraphs 5.6.2.1.
and 5.6.2.2. above, except that allocations under Paragraph 5.6.2.2.
shall continue until the aggregate estimated amount of such Profit
Sharing Contributions is completely allocated.
5.6.4. For purposes of this Section 5.6., "Eligible Participant"
means any Participant who has Compensation for the Plan Year, who is
not a Highly Compensated Associate, and who is eligible to receive an
allocation of the Employer Contribution pursuant to the provisions of
5.6.2. above.
5.6.5. To the extent determined by the Company, in its sole
discretion, any Profit Sharing Contribution under this Section 5.6. may
be designated as "loan repayment contribution" and to the extent of
such designation shall be applied to the repayment of any Exempt Loan
designated by the Company. Any such determination by the Company shall
be made not later than the date such Profit Sharing Contribution is
paid to the Trustee.
5.7. TIMING OF EMPLOYER CONTRIBUTIONS. In no event shall any Employer
contributions under this Article 5. for any Plan Year be made later than the
time prescribed by law for the deduction of such contributions for purposes of
the Employer's Federal income tax, as determined by the applicable provisions of
the Code.
5.8. APPLICATION OF FORFEITURES. Any non-vested portion of a
Participant's Account in this Plan that is forfeited under any provision of
this Plan shall be credited to a Forfeiture Account. Any amount credited to
a Forfeiture Account shall first be applied to restore Employer contribution
amounts previously forfeited, as provided in Subsection 11.9.3., may next be
applied to reduce administrative expenses, to the extent determined by the
Company, and shall then be applied to reduce future Employer contributions,
and shall not otherwise be repaid to or recovered by the Employers. No
forfeiture shall be applied in a manner to result in discrimination
prohibited by Code Section 401(a)(4) or 401(m).
5.9. SPECIAL LIMITATIONS ON 401(m) CONTRIBUTIONS. With respect to
each Plan Year, any employer matching contributions, as defined in Section
401(m) of the Code, or Associate "after-tax contributions, as defined in
regulations under Section 401(m) of the Code, under the Plan for the Plan
Year (hereafter referred to collectively as "401(m) Contributions") shall not
exceed the limitations on such contributions by or on behalf of Highly
Compensated Associates under Section
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401(m) of the Code, as provided in this Section. In the event that 401(m)
Contributions under this Plan by or on behalf of Highly Compensated Associates
for any Plan Year exceed the limitations of this Section for any reason, such
excess 401(m) Contributions and any income allocable thereto shall be disposed
of in accordance with Section 5.10
5.9.1. 401(m) Contributions by and on behalf of Participants for
a Plan Year shall satisfy the Average Contribution Percentage test set
forth in 5.9.1.1. below or the alternative Average Contribution
Percentage test set forth in 5.9.1.2. below, or to the extent required
by regulations under Code Section 401(m), shall satisfy the test
identified in 5.9.1.3. below.
5.9.1.1. The Average Contribution Percentage for
Eligible Associates who are Highly Compensated Associates shall
not be more than the Average Contribution Percentage of all other
Eligible Associates multiplied by 1.25, or
5.9.1.2. The excess of the Average Contribution
Percentage for Eligible Associates who are Highly Compensated
Associates over the Average Contribution Percentage for all other
Eligible Associates shall not be more than two (2) percentage
points, and the Average Contribution Percentage for the Highly
Compensated Associates shall not be more than the Average
Contribution Percentage of all other Eligible Associates
multiplied by 2.00.
5.9.1.3. The Average Contribution Percentage for Highly
Compensated Associates eligible to participate in this Plan and a
plan of the Employer or an Affiliated Company that satisfies the
requirements of Section 401(k) of the Code, including, if
applicable, this Plan, shall be reduced to the extent necessary
to satisfy the requirements of Treasury Regulations Section
1.401(m)-2 or similar such rule relating to the multiple use of
the alternative test described in 5.9.1.2. above. The reduction
of the Average Contribution Percentage shall apply to all
Participants who are Highly Compensated Associates and such
reduction shall be made in the order of priority provided in
Subsection 5.9.6. below.
5.9.2. For purposes of this Article 5., the following
definitions shall apply:
5.9.2.1. "Average Contribution Percentage" means, with
respect to a group of Eligible Associates for a Plan Year, the
average of the Contribution Percentage, calculated separately for
each Eligible Associate in such group.
5.9.2.2. The "Contribution Percentage" means for any
Eligible Associate the percentage determined by dividing the sum
of 401(m) Contributions under the Plan on behalf of each Eligible
Associate for such Plan Year, by such Eligible Associate's
Compensation for such Plan Year in accordance with regulations
prescribed by the Secretary of the Treasury under Code Section
401(m). An after-tax contribution shall be taken into account
for a Plan Year if it is paid to the Trust during the Plan Year
or paid to an agent of the Plan and transmitted to the Trust
within a reasonable period after the end of the Plan Year. A
matching contribution shall be taken into account for a Plan Year
only if it is (A) made on account of a Participant's Pre-Tax
(401(k)) Contributions or after-tax contributions for the Plan
Year; (B) allocated to the Participant's matching contributions
account during that Plan Year; and (C) actually paid to the Trust
no later than the end of the twelve month period immediately
following the Plan Year to which the contribution relates. To
the extent determined
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by the Administration Committee and in accordance with
regulations issued by the Secretary of the Treasury under Code
Section 401(m)(3), Pre-Tax (401(k)) Contributions on behalf of an
Eligible Associate and any qualified nonelective contributions,
within the meaning of Code Section 401(m)(4)(C), on behalf of an
Eligible Associate may also be taken into account for purposes of
calculating the Contribution Percentage of such Eligible
Associate, but shall not otherwise be taken into account.
However, if matching contributions are taken into account for
purposes of determining the Actual Deferral Percentage of an
Eligible Associate for a Plan Year under Section 4.4. then such
matching contributions shall not be taken into account under this
Section.
5.9.2.3. "Eligible Associate" means any Eligible
Associate directly or indirectly eligible to contribute to the
Plan, including any otherwise Eligible Associate during a period
of suspension due to a Hardship withdrawal, in accordance with
regulations prescribed by the Secretary of the Treasury under
Code Section 401(k).
5.9.2.4. "Compensation" means Compensation determined
by the Administration Committee in accordance with Section
414(s) of the Code, including to the extent determined by the
Administration Committee, amounts deducted from an Associate's
wages or salary that are not currently includible in the
Associate's gross income by reason of the application of Code
Section 402(e)(3) or 125.
5.9.3. In the event that as of the last day of a Plan Year this
Plan satisfies the requirements of Section 410(b) of the Code only if
aggregated with one or more other plans, or if one or more other plans
satisfy the requirements of Section 410(b) of the Code only if
aggregated with this Plan, then this Section shall be applied by
determining the Contribution Percentages of Eligible Associates as if
all such plans were a single plan, in accordance with regulations
prescribed by the Secretary of the Treasury under Section 401(m) of the
Code.
5.9.4. For the purposes of this Section, the Contribution
Percentage for any Eligible Associate who is a Highly Compensated
Associate under two or more Code Section 401(a) plans of an Employer or
an Affiliated Company to the extent required by Code Section 401(m),
shall be determined in a manner taking into account the participant
contributions and matching contributions for such Eligible Associate
under each of such plans.
5.9.5. If an Eligible Associate (who is also a Highly
Compensated Associate) is subject to the family aggregation rules in
Section 2.29., the combined Average Contribution Percentage for the
family group (which is treated as one Highly Compensated Associate)
shall be the Average Contribution Percentage determined by combining
the 401(m) Contributions, amounts treated as matching contributions
under Code Section 401(m)(3), and Compensation of all the eligible
family members.
5.9.6. The determination of the Contribution Percentage of any
Participant shall be made after first applying the provisions of
Section 19.5. relating to certain limits on Annual Additions under
Section 415 of the Code, then applying the provisions of Section 4.6.
relating to the return of Pre-Tax (401(k)) Contributions in excess of
the Deferral Limitation, then applying the provisions of Section 4.5.
relating to certain limits under Section 401(k) of the Code imposed on
Pre-Tax (401(k)) Contributions of Highly Compensated Associates and
last, applying the provisions of Section 5.11.
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relating to the forfeiture of matching contributions attributable to
excess deferrals or contributions.
5.9.7. The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
5.9.8. The Administration Committee shall keep or cause to have
kept such records as are necessary to demonstrate that the Plan
satisfies the requirements of Code Section 401(m) and the regulations
thereunder, in accordance with regulations prescribed by the Secretary
of the Treasury.
5.10. PROVISIONS FOR REDUCTION OF EXCESS 401(m) CONTRIBUTIONS BY OR ON
BEHALF OF HIGHLY COMPENSATED ASSOCIATES.
5.10.1. The Administration Committee shall determine, as soon as
is reasonably possible following the close of the Plan Year, if 401(m)
Contributions by or on behalf of Highly Compensated Associates satisfy
the Average Contribution Percentage test for such Plan Year. If,
pursuant to the determination by the Administration Committee, 401(m)
Contributions by or on behalf of a Highly Compensated Associate must be
reduced to enable the Plan to satisfy the Average Contribution
Percentage test, then the Administration Committee shall take the
following steps:
5.10.1.1. First, any excess after-tax contributions
that were not matched by matching contributions, and any income
allocable thereto, shall be distributed to the Highly Compensated
Associate.
5.10.1.2. Second, if any excess remains after the
provisions of 5.10.1.1. above are applied, to the extent
necessary to eliminate the excess, any matching contributions on
behalf of the Highly Compensated Associate, any corresponding
after-tax contributions, and any income allocable thereto, shall
be forfeited, to the extent forfeitable under the Plan, or
distributed to the Highly Compensated Associate, to the extent
non-forfeitable under the Plan (after withholding any applicable
income taxes on such amounts).
5.10.1.3. If administratively feasible, excess 401(m)
Contributions including any income allocable thereto, shall be
distributed to Highly Compensated Associates, or, to the extent
forfeitable, forfeited, within two and one-half (2-1/2) months
following the close of the Plan Year for which the excess
Contributions were made, but in any event no later than the end
of the first Plan Year following the Plan Year for which the
excess Contributions were made, notwithstanding any other
provision in this Plan.
5.10.1.4. Any amounts of excess matching contributions
forfeited by Highly Compensated Associates under this Section,
including any income allocable thereto, shall be credited to the
Forfeiture Account and applied in accordance with Section 5.8.
5.10.2. The Administration Committee shall determine the amount
of any excess 401(m) Contributions made by or on behalf of Highly
Compensated Associates for a Plan Year by application of the leveling
method set forth in Proposed Treasury Regulation Section
1.401(m)-1(e)(2) under which the Contribution Percentage of the Highly
Compensated Associate who has the highest such percentage for such Plan
Year is reduced, to the extent required (i) to enable the Plan to
satisfy the Average Contribution Percentage test, or (ii) to cause such
Highly Compensated Associate's Contribution Percentage to equal the
Contribution Percentage of the Highly Compensated Associate with the
next highest Contribution Percentage. This process shall
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be repeated until the Plan satisfies the Average Contribution
Percentage test. For each Highly Compensated Associate, the amount of
excess 401(m) Contributions shall be equal to the total 401(m)
Contributions (plus any amounts treated as matching contributions) made
on behalf of such Highly Compensated Associate (determined prior to the
application of the foregoing provisions of this Subsection 5.10.2.)
minus the amount determined by multiplying the Highly Compensated
Associate's Contribution Percentage (determined after the application
of the foregoing provisions of this Subsection 5.10.2.) by his
Compensation.
5.10.3. The determination and correction of excess 401(m)
Contributions made by and on behalf of a Highly Compensated Associate
whose Average Contribution Percentage is determined under the family
aggregation rules in Section 5.9. shall be accomplished by reducing the
Average Contribution Percentage as required under Subsections 5.10.1.
and 5.10.2. above and allocating the excess 401(m) Contributions for
the family unit in proportion to the 401(m) Contributions of each
family member that are combined to determine the Average Contribution
Percentage.
5.10.4. For purposes of satisfying the Average Contribution
Percentage test, income allocable to a Participant's excess 401(m)
Contributions, as determined under 5.10.2. above, shall be determined
in accordance with any reasonable method used by the Plan for
allocating income to Participant Accounts, provided such method does
not discriminate in favor of Highly Compensated Associates and is
consistently applied to all Participants for all corrective
distributions under the Plan for a Plan Year. Alternatively, the
Administration Committee may determine that income on excess 401(m)
Contributions shall be calculated as follows:
5.10.4.1. Allocable income for the Plan Year shall be
determined by multiplying the income for the Plan Year allocable
to the 401(m) Contributions for the Participant, as applicable,
by a fraction, the numerator of which is the excess contribution
amount for the Plan Year and the denominator of which is the
balance of the applicable Account as of the last day of the Plan
Year, reduced by the gain allocable to the Account for the Plan
Year and increased by the loss allocable to such Account for the
Plan Year.
5.10.4.2. Allocable income for the period between the
last day of the Plan Year and the date of the corrective
distribution, or forfeiture, if applicable, may be calculated
under the fractional method (5.10.4.1. above), or under the "safe
harbor" method set forth in the regulations prescribed by the
Secretary of the Treasury under Section 401(m) of the Code.
Under the "safe harbor" method, allocable income is ten percent
(10%) of the income calculated under the fractional method for
the prior Plan Year, multiplied by the number of calendar months
since the last day of the Plan Year. A distribution on or before
the 15th of the month is treated as made on the last day of the
preceding month; a distribution after the 15th of the month is
treated as made on the first day of the next month.
5.10.4.3. The Administration Committee shall not be
liable to any Highly Compensated Associate (or his Beneficiary,
if applicable) for any losses caused by misestimating the amount
of any excess 401(m) Contributions on behalf of a Highly
Compensated Associate and the income attributable to such excess.
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5.10.5. To the extent required by regulations under Section
401(m) or 415 of the Code, any 401(m) Contributions in excess of the
limitations of Section 5.9. forfeited by or distributed to a Highly
Compensated Associate in accordance with this Section shall be treated
as an Annual Addition under Article 18. for the Plan Year for which the
excess contribution was made, notwithstanding such forfeiture or
distribution.
5.11. FORFEITURE OF PRE-TAX (401(k)) MATCHING CONTRIBUTIONS
ATTRIBUTABLE TO EXCESS DEFERRALS OR CONTRIBUTIONS. To the extent any Pre-Tax
(401(k)) Matching Contributions allocated to a Participant's Pre-Tax (401(k))
Matching Contributions Account are attributable to excess Pre-Tax (401(k))
Contributions required to be distributed to the Participant in accordance
with Section 4.5. or 4.6., or excess after-tax contributions required to be
distributed to the Participant in accordance with Section 5.10., such Pre-Tax
(401(k)) Matching Contributions, including any income allocable thereto,
shall be forfeited, notwithstanding that such Pre-Tax (401(k)) Matching
Contributions may otherwise be non-forfeitable under the terms of the Plan.
5.12. IRREVOCABILITY. An Employer shall have no right or title to, nor
interest in, the contributions made to the Trust Fund, and no part of the
Trust Fund shall revert to an Employer except that on and after the Effective
Date funds may be returned to the Employer as follows:
5.12.1. In the case of an Employer contribution which is made by
a mistake of fact, that contribution (and any income allocable to such
contribution) may be returned to the Employer within one (1) year after
it is made.
5.12.2. All Employer contributions are hereby conditioned upon
the Plan initially satisfying all of the requirements of Code Section
401(a) and Section 401(k). If the Plan does not initially qualify, at
the Company's written election the Plan or any portion thereof may be
revoked and any or all such contributions with respect to the portion
revoked may be returned to the Employer within one year after the date
of IRS denial of the initial qualification of the Plan. Upon such a
revocation the affairs of the Plan and Trust shall be terminated and
wound up as the Company shall direct.
5.12.3. All contributions to the Trust Fund are conditioned on
deductibility under Code Section 404. In the event a deduction is
disallowed for any such contribution such contribution shall be
returned to the Employer within one (1) year of the disallowance of the
deduction.
ARTICLE 6.
TRUST FUND
6.1. IN GENERAL. The Company has entered into a Trust Agreement with a
Trustee creating the Trust Fund. Such Trust Agreement provides for the
administration of the Trust Fund by the Trustee. The Trust Fund shall be
invested in accordance with provisions of Article 7. and the Trust Agreement and
shall be held in trust for the exclusive benefit of Participants or their
Beneficiaries. The Company by action of the Board of Directors shall select such
Trustee and may, without further reference to or action by any Participant, from
time to time
6.1.1. enter into such further agreements with the Trustee or
other parties and make such amendments to the Trust Agreement or said
further agreements as it may deem necessary or desirable to carry out
the Plan,
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6.1.2. designate a successor Trustee or successor Trustees, and
6.1.3. take such other steps and execute such other instruments
as it may deem necessary or desirable to put the Plan into effect or to
carry out the provisions thereof.
6.2. DIVISION OF ASSETS. Assets of the Trust Fund shall be held in
separate funds which initially shall consist of the ASOP Fund, and thereafter
shall consist of such other Investment Funds as the Administration Committee
may establish from time to time in accordance with Section 7.1. Individual
Participant interests in the Trust Fund shall be reflected in the Accounts
maintained for each Participant. Notwithstanding the foregoing, the Trust
Fund shall be treated as a single trust for purposes of investment and
administration, and nothing contained herein shall require a physical
segregation of assets for any fund or for any Account maintained under the
Plan.
6.3. INVESTMENT OF ASOP FUND. The ASOP Fund shall be invested
primarily in Company Stock except for cash or cash equivalent investments for
the limited purposes of making Plan distributions to participants or paying
Plan administrative expenses, or pending the investment of contributions or
other cash receipts in Company Stock. Neither any Employer nor the ASOP
Committee nor any Trustee shall have any responsibility or duty to time any
transaction involving Company Stock, in order to anticipate market conditions
or changes in stock value, nor shall any such person have any responsibility
or duty to sell Company Stock held in the ASOP Fund (or otherwise to provide
investment management for Company Stock held in the ASOP Fund) in order to
maximize return or minimize loss. The ASOP Committee may direct the Trustees
to have the Plan enter into one or more Exempt Loans to finance the
acquisition of Company Stock. Employer contributions in cash, and other cash
received by the Trustees, may be used to acquire shares of Company Stock from
Company shareholders or directly from the Company.
6.4. EXEMPT LOAN. Notwithstanding anything contained herein to the
contrary, proceeds of an Exempt Loan shall be used, within a reasonable time
after receipt by the Trust, only for the following purposes:
6.4.1. to acquire Company Stock;
6.4.2. to repay the same Exempt Loan; or
6.4.3. to repay any previous Exempt Loan.
An Exempt Loan shall be repaid only from amounts loaned to the Trust and the
proceeds of such loans, from Employer contributions in cash and earnings
attributable thereto, from any collateral given for the loan, and from dividends
paid on Company Stock acquired with proceeds of the exempt Loan.
No Company Stock acquired with the proceeds of an Exempt Loan may be
subject to a put, call, or other option, or buy-sell or similar arrangement
while held by the Plan and when distributed by the Plan whether or not the
Plan is then an employee stock ownership plan within the meaning of Section
4975(e)(7) of the Code.
6.5. SUSPENSE FUND. Company Stock acquired by the ASOP Fund through
an Exempt Loan shall be added to and maintained in the ASOP Suspense Subfund
and shall thereafter be released from the ASOP Suspense Subfund and allocated
to Accounts of Participants as provided in Section 6.7
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6.6. RELEASE. Company Stock acquired for the ASOP Fund through an
Exempt Loan shall be released from the ASOP Suspense Subfund as the Exempt
Loan is repaid, in accordance with the provisions of this Section 6.6.
6.6.1. For each Plan Year until the Exempt Loan is fully repaid,
the number of shares of Company Stock released from the ASOP Suspense
Subfund shall equal the number of unreleased shares immediately before
such release for the current Plan Year multiplied by the "Release
Fraction." As used herein, the Release Fraction shall be a fraction
the numerator of which is the amount of principal and interest paid on
the Exempt Loan for such current Plan Year and the denominator of which
is the sum of the numerator plus the principal and interest to be paid
on such Exempt Loan for all future years during the duration of the
term of such Loan (determined without reference to any possible
extensions or renewals thereof). Notwithstanding the foregoing, in the
event such Loan shall be repaid with the proceeds of a subsequent
Exempt Loan (the "Substitute Loan"), such repayment shall not operate
to release all such Company Stock in the ASOP Suspense Subfund, but,
rather, such release shall be effected pursuant to the foregoing
provisions of this Section 6.6. on the basis of payments of principal
and interest on such Substitute Loan.
6.6.2. If required by any pledge or similar agreement, then in
lieu of applying the provisions of Subsection 6.6.1. hereof with
respect to such loan or Substitute Loan, shares shall be released from
the ASOP Suspense Subfund as the principal amount of an Exempt Loan is
repaid (and without regard to interest payments), provided the
following three conditions are satisfied:
6.6.2.1. The Exempt Loan must provide for annual
payments of principal and interest at a cumulative rate that is
not less rapid at any time than level annual payments of such
amounts for ten years.
6.6.2.2. The interest portion of any payment is
disregarded only to the extent it would be treated as interest
under standard loan amortization tables.
6.6.2.3. If the Exempt Loan is renewed, extended or
refinanced, the sum of the expired duration of the Exempt Loan
and the renewal, extension or new Exempt Loan period must not
exceed ten years.
6.6.3. If at any time there is more than one Exempt Loan
outstanding, separate accounts may but need not be established under
the ASOP Suspense Subfund for each such Loan. Each Exempt Loan for
which a separate account is maintained may be treated separately for
purposes of the provisions governing the release of shares from the
ASOP Suspense Subfund under this Section 6.6. and for purposes of the
provisions governing the application of Employer contributions to repay
an Exempt Loan under Section 5.1. hereof.
6.6.4. It is intended that the provisions of this Section 6.6.
shall be applied and construed in a manner consistent with the
requirements and provisions of Treasury Regulation Section
54.4975-7(b)(8), and any successor Regulation thereto. All Company
Stock released from the ASOP Suspense Subfund during any Plan Year
shall be allocated among Participants as prescribed by Section 6.7.
hereof.
6.7. ALLOCATION PROCEDURES FOR RELEASED SHARES. Shares of Company Stock
released from the ASOP Suspense Subfund for a Plan Year in accordance with
Section 6.6. hereof shall be held in the
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ASOP Fund on an unallocated basis until allocated by the Administration
Committee in accordance with this Section 6.7
6.7.1. The allocation of released shares of Company Stock shall
be made first in respect of Pre-Tax (401(k)) Matching Contributions for
the Plan Year in accordance with Section 5.4. to the extent such
matching contributions are designated as "loan repayment contributions."
6.7.2. If any shares remain unallocated after the application of
Subsection 6.7.1. above, such shares shall be allocated in respect of
First Share Contributions for the Plan Year as determined by the
Company in accordance with Section 5.3., to the extent that such First
Share Contributions are designated as "loan repayment contributions."
6.7.3. If any shares remain unallocated after the application of
6.7.2. above, such shares shall be allocated in respect of Profit
Sharing Contributions for the Plan Year in accordance with Section
5.6., to the extent that such Profit Sharing Contributions are
designated as "loan repayment contributions."
ARTICLE 7.
INVESTMENTS
7.1. INVESTMENTS OF CONTRIBUTIONS. Profit Sharing Contributions in
accordance with Sections 5.5. or 5.6. shall be allocable to Participant's
Profit Sharing Diversified Account unless designated by the Company at the
date of contribution to be held in the ASOP Fund. A Participant's Pre-Tax
(401(k)) Contributions Account and Rollover Account, if any, shall be
invested in accordance with the Participant's investment designations in one
or more Investment Funds established from time to time by the Administration
Committee for this purpose. The Administration Committee in its discretion
may, from time to time, either establish or delete Investment Funds as it
deems appropriate; and may provide that a Participant's Profit Sharing
Account, to the extent not included in the ASOP Fund, shall be invested in
one or more pooled or commingled funds without Participant direction as to
investment or shall be a part of the Participant's Pre-Tax (401(k))
Contributions Account or that it be invested in the same manner as the
Participant's Pre-Tax 401(k)) Contributions Account..
7.2. INVESTMENT IN SECURITIES ISSUED BY THE COMPANY OR AN AFFILIATED
COMPANY. Unless an appropriate and effective registration statement is filed
with the Securities and Exchange Commission, no Pre-Tax (401(k))
Contributions to the Plan shall be allocated to the purchase of Company
Stock. In addition, the Administration Committee shall establish such
procedures as it deems appropriate regarding investment changes and
distributions involving Company Stock in respect of persons subject to
Section 16 of the Securities and Exchange Act of 1934.
7.3. PARTICIPANT INVESTMENT DESIGNATIONS. In accordance with rules of
uniform application which the Administration Committee may from time to time
adopt and subject to any limitations set forth below in this Article 7., each
Participant shall have the right to designate one or more of the Investment
Funds established by the Administration Committee for the investment of his
Pre-Tax (401(k)) Contributions and rollover contributions under the Plan, in
accordance with the following rules:
7.3.1. Investment of Pre-Tax (401(k)) Contributions and rollover
contributions by a Participant in
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any Investment Fund and transfer of a Participant's Pre-Tax (401(k))
Contributions Account and Rollover Account balances between Investment
Funds shall be in increments of one percent (1%).
7.3.2. A Participant may make a new investment designation which
shall apply to (i) the amount standing to his credit in his Pre-Tax
(401(k)) Contributions Account and Rollover Account, effective as of
any Valuation Date; and/or (ii) future contributions to such Account,
effective as of any Valuation Date by giving notice to the
Administration Committee or its delegate.
7.3.3. Investment Funds may, from time to time, hold cash or cash
equivalent investments (including interests in any fund maintained by
the Trustee as provided in the Trust Agreement) resulting from
investment transactions relating to the property of said Fund;
provided, however, that neither the Administration Committee, the ASOP
Committee, any Employer, the Trustee or any other person shall have any
duty or responsibility to cause such Funds to be held in cash or cash
equivalent investments for investment purposes. In the case of any
Investment Fund under the management and control of an Investment
Manager appointed by the Administration Committee in accordance with
Section 14.3., neither the Administration Committee, any Employer, the
Trustee, nor any other person shall have any responsibility or
liability for investment decisions made by such Investment Manager.
7.3.4. In the event a Participant fails to make an investment
designation in accordance with this Article 7., Pre-Tax (401(k))
Contributions or rollover contributions by the Participant shall be
invested in a money-market or other interest-bearing fund.
7.4. DIVERSIFICATION RULE.
7.4.1. For the purpose of this Section 7.4. only, the following
definitions shall apply:
7.4.1.1. "Qualified Participant" shall mean a
Participant who has attained age 55 and who has completed at
least 10 years of participation in the Plan (excluding any period
prior to December 1, 1995, when this Plan was not a plan
described in Code Section 4975(e)(7)).
7.4.1.2. "Qualified Election Period" shall mean the six
Plan Year period beginning with the Plan Year in which the
Participant first becomes a Qualified Participant.
7.4.2. Each Qualified Participant shall be permitted to direct
the Plan as to the diversification of twenty-five percent (25%) of the
value of the vested portion of the Participant's (401(k)) Matching
Contributions Account held in the ASOP Fund, Profit Sharing Account
held in the ASOP Fund and First Share Account held in the ASOP Fund in
the manner provided under 7.4.3. below, within ninety (90) days after
the last day of each Plan Year during the Participant's Qualified
Election Period. Within ninety (90) days after the close of the last
Plan Year in the Participant's Qualified Election Period, a Qualified
Participant may direct the Plan as to the diversification of fifty
percent (50%) of the value of the vested portion of such Accounts.
7.4.3. A Qualified Participant's diversification election shall
be provided to the Administration Committee in writing and may specify
either of the options set forth in 7.4.3.1. and 7.4.3.2. below.
7.4.3.1. At the election of the Qualified Participant,
the Plan shall distribute, in a single sum cash distribution
(notwithstanding Section 409(d) of the Code) the portion of the
Participant's Accounts (that are subject to the diversification
election described in this Section 7.4.), within ninety (90) days
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after the last day of the period during which the election can
be made.
7.4.3.2. A Qualified Participant who has a right to
elect to receive a cash distribution under 7.4.3.1. above may
elect instead to transfer the portion of the Participant's
Accounts that are distributable in cash and covered by such
election from the ASOP Fund to one or more of the other
Investment Funds, described in Section 7.3 Such investment
change shall be made no later than ninety (90) days after the
last day of the period during which the election can be made.
7.5. DEFERRED PAYMENT ACCOUNT. In the event a Participant who incurs
a Severance makes an election to defer payment of his Distributable Benefit
(including a deemed election to defer payment as provided in Paragraph
11.2.1.3.), upon the liquidation of the Participant's vested interest in any
shares of Company Stock held in the Participant's Matching Contributions
Account, Profit Sharing Stock Account, and First Share Contributions Account
as of the Valuation Date determined in accordance with Subsection 11.2.3.,
the cash value of such shares and any other amounts held in such Accounts,
shall be transferred to the Participant's Deferred Payment Account. Deferred
Payment Accounts shall be invested pursuant to the Participant's directions
in the same manner as Participant's Pre-Tax 401(k)) Contributions Accounts
(or in the absence of such directions, in such default investment option,
such as a short-term money fund or interest-bearing account as the
Administration Committee may from time to time designate for such purpose).
ARTICLE 8.
SPECIAL PROVISIONS CONCERNING COMPANY STOCK
8.1. SECURITIES TRANSACTIONS. The Trustee may acquire Company Stock
in the open market or from the Company or any other person, including a party
in interest. No commission will be paid in connection with the Trustee's
acquisition of Company Stock from a party in interest. Neither any Employer,
nor the ASOP Committee, nor any Trustee have any responsibility or duty to
time any transaction involving Company Stock in order to anticipate market
conditions or changes in Company Stock value. Neither any Employer, nor the
ASOP Committee nor any Trustee have any responsibility or duty to sell
Company Stock held in the Trust Fund in order to maximize return or minimize
loss.
8.2. VALUATION OF COMPANY SECURITIES. When it is necessary to value
Company Stock held by the Plan, the value will be the current fair market
value of the Company Stock, determined in accordance with applicable legal
requirements. If the Company Stock is publicly traded, fair market value will
be based on the most recent closing price in public trading, as reported in
The Wall Street Journal or any other publication of general circulation
designated by the ASOP Committee, unless another method of valuation is
required by the standards applicable to prudent fiduciaries. If the Company
Stock cannot be valued on the basis of its closing price in recent public
trading, fair market value will be determined by the ASOP Committee based on
a valuation by an independent appraiser meeting the requirements similar to
the requirements of regulations prescribed under Code Section 170(a)(1).
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In the case of a transaction between the Plan and an Employer or another party
in interest, the fair market value of the Company Stock must be determined as of
the date of the transaction rather than as of some other Valuation Date
occurring before or after the transaction. In other cases, the fair market
value of the Company Stock will be determined as of the most recent valuation.
8.3. ALLOCATION OF STOCK DIVIDENDS AND SPLITS. Company Stock received
by the Trust as a result of a Company Stock split or Company Stock dividend
on Company Stock held in Participants' Accounts in the ASOP Fund will be
allocated coincident with or following the date of such split or dividend, to
each Participant who has one or more Accounts in the ASOP Fund. The amount
allocated will bear substantially the same proportion to the total number of
shares received as the number of shares in the Participant's Accounts in the
ASOP Fund bears to the total number of shares allocated to such Accounts of
all Participants in the ASOP Fund immediately before the allocation. The
shares will be allocated to the nearest thousandth of a share.
8.4. REINVESTMENT OF DIVIDENDs. Upon direction of the ASOP Committee,
cash dividends may be reinvested as soon as practicable by the Trustee in
shares of Company Stock for Participants' Accounts. Cash dividends may be
reinvested in Company Stock purchased as provided in Section 8.1. or
purchased from the Accounts of Participants who receive cash distributions of
a fractional share or a fractional interest therein.
8.5. VOTING AND OTHER RIGHTS OF COMPANY STOCK. All voting rights of
Company Stock held by the Trust Fund shall be exercised by the Trustee as
directed by the ASOP Committee in accordance with the following provisions of
this Section:
8.5.1. Subject to the provisions of Subsection 8.5.2. below, all
Company Stock held in the Plan shall be voted as the ASOP Committee
directs in its absolute discretion.
8.5.2. In the case of any corporate matter which involves the
voting of Company Stock with respect to the approval or disapproval of
any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially all
assets of a trade or business, or such similar transaction as the
Secretary of the Treasury may prescribe in regulations, any Company
Stock allocated to the Accounts of a Participant shall be voted in
accordance with the directions of such Participant as are given to the
Trustee or as are given to the ASOP Committee and communicated in turn
by the ASOP Committee to the Trustee.
8.5.3. All Participants entitled to direct voting as provided in
Subsection 8.5.2., above, shall be notified by the ASOP Committee (or
the Company, pursuant to its normal communications with shareholders)
of each occasion for the exercise of such voting rights within a
reasonable time before such rights are to be exercised. Such
notification shall include all information distributed to shareholders
by the Company regarding the exercise of such rights. Such
Participants shall be so entitled to direct the voting of fractional
shares (or fractional rights to shares), provided, however, that the
Trustee shall, to the extent possible, vote the combined fractional
shares (or fractional rights to shares) so as to reflect the aggregate
direction of all Participants giving directions with respect to
fractional shares (or fractional rights to shares). In the event that
a Participant shall fail to direct the ASOP Committee in whole or in
part as to the exercise of voting rights arising under any Company
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Stock allocated to his Accounts, then such voting rights shall be
exercised only to the extent directed by such Participant. Each
Participant shall be a named fiduciary (as that term is defined in
ERISA Section 402(a)(2)), with respect to Company Stock for which he
has the right to direct the voting under the Plan, but solely for the
purpose of exercising voting rights pursuant to Subsection 8.5.2. and
8.5.3.
8.6. TENDERING OF SHARES. All rights (other than voting rights) of
Company Stock held in the Trust Fund, including such Stock held in the ASOP
Suspense Subfund as well as such Stock allocated to the Accounts of
Participants, shall be exercised by the ASOP Committee in the same manner and
to the same extent as provided in Subsection 8.5.1., but without regard to
the provisions of Subsections 8.5.2. and 8.5.3.
8.7. CONFIDENTIALITY PROCEDURES. In its sole discretion, the ASOP
Committee may establish procedures intended to ensure the confidentiality of
information relating to Participant transactions involving Company Stock,
including the exercise of voting, tender and similar rights. In the event
the ASOP Committee establishes such confidentiality procedures, the ASOP
Committee shall also be responsible for ensuring the adequacy of the
confidentiality procedures and monitoring compliance with such procedures.
The ASOP Committee may, in its sole discretion, appoint an independent
fiduciary to carry out any activities that it determines involve a potential
for undue Employer influence on Participants with respect to the exercise of
their rights as shareholders.
8.8. SECURITIES LAW LIMITATION. Neither the ASOP Committee nor the
Trustee shall be required to engage in any transaction, including, without
limitation, directing the purchase or sale of Company Stock, which either
determines in its sole discretion might tend to subject itself, its members,
the Plan, any Employer, or any Participant or Beneficiary to a liability
under federal or state securities laws.
ARTICLE 9.
VESTING
9.1. VESTED INTEREST IN PRE-TAX (401(k)) CONTRIBUTIONS ACCOUNT. Each
Participant shall at all times have one hundred percent (100%) Vested
Interest in the value of his Pre-Tax (401(k)) Contributions Account and
Rollover Account, if any, under the Plan.
9.2. DETERMINATION OF VESTED INTEREST IN PRE-TAX (401(k)) MATCHING
CONTRIBUTIONS ACCOUNT, FIRST SHARE ACCOUNT AND PROFIT SHARING CONTRIBUTION
ACCOUNT. A Participant shall acquire a Vested Interest in the value of his
Pre-Tax (401(k)) Matching Contributions Account, his First Share Account and his
Profit Sharing Account in accordance with the following provisions of this
Section 9.2.
9.2.1. The Vested Interest of each Participant in his Pre-Tax
(401(k)) Matching Contributions Account, his First Share Account, and
his Profit Sharing Account shall be determined as provided in the
following table:
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Number of Full Years of Vesting Service Vested Interest
--------------------------------------- ---------------
Under 1 0%
At least 1, less than 2 20%
At least 2, less than 3 40%
At least 3, less than 4 60%
At least 4, less than 5 80%
5 or more 100%
9.2.2. In addition, a Participant shall be one hundred percent 100%
vested in the value of his Pre-Tax (401(k)) Matching Contributions
Account, his First Share Account and his Profit Sharing Account upon
attainment of Normal Retirement Date or Retirement Vesting Date while
employed by the Employer or an Affiliated Company or upon an earlier
Severance due to death or Disability.
9.2.3. Any Profit Sharing Contributions that have been designated as
"qualified nonelective contributions," within the meaning of Section
401(k) of the Code shall be one hundred percent (100%) vested when paid to
the Trustee, notwithstanding anything to the contrary in this Plan.
9.2.4. Notwithstanding the provisions of Subsection 9.2.1. above,
any Years of Vesting Service completed by a Participant after he incurs
at least five (5) consecutive Breaks in Service shall not be taken into
account for purposes of determining his Vested Interest in the value of
his Pre-Tax (401(k)) Matching Contributions Account and Profit Sharing
Account prior to his incurring such five (5) consecutive Breaks in
Service.
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9.2.5. Fractional Years of Service shall not be taken Into account.
9.3. AMENDMENT OF VESTING SCHEDULE. If the vesting schedule under the
Plan is amended or if the Plan is amended in any way that directly or
indirectly affects the computation of a Participant's Vested Interest, each
Participant who has completed at least three (3) Years of Service may elect,
within a reasonable time after the adoption of the amendment, to continue to
have his Vested Interest computed under the Plan without regard to such
amendment. The period during which the election may be made shall commence
with the date the amendment is adopted and shall end on the latest of: (i)
60 days after the amendment is adopted; (ii) 60 days after the amendment is
effective; or (iii) 60 days after the Participant is issued written notice of
the amendment.
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ARTICLE 10.
IN-SERVICE WITHDRAWALS AND LOANS
10.1. APPLICATION OF ARTICLE. This Article 10. shall govern the payment
of in-service withdrawals and loans by a Participant. Except as provided in
this Article 10. (or as required by Section 401(a)(9) of the Code), no
Participant may withdraw an amount from the Plan prior to Severance.
10.2. IN-SERVICE HARDSHIP WITHDRAWALS. To the extent permissible under
the provisions of this Section and Article 11., while still an Associate, a
Participant may make a Hardship withdrawal of a portion of his Pre-Tax
(401(k)) Contributions Account in the Plan, exclusive of any earnings
allocated to such Account.
10.2.1. In the case of a Participant whose Distributable Benefit
exceeds, or at any the time of any prior distribution ever exceeded,
$3,500, distribution of a Hardship withdrawal shall be in the normal
annuity form of payment provided under Section 11.5. unless such
Participant waives the normal annuity form and elects a single sum
payment in cash in accordance with the requirements of Section 11.7.
(including the requirement for the written consent of the Spouse, if
any). Any Hardship withdrawal shall be in accordance with rules of
uniform application which the Administration Committee may from time to
time prescribe.
10.2.2. A Participant may only make a Hardship withdrawal following a
determination by the Administration Committee that such withdrawal is
necessary on account of a Hardship need, as provided in this Section 10.2.
Any determination of a Hardship need shall be in accordance with
regulations promulgated under Section 401(k) of the Code.
10.2.3. A Hardship distribution shall be considered as necessary to
satisfy an immediate and heavy financial need of the Associate only if:
10.2.3.1. The distribution is not in excess of the amount of
the Hardship need of the Participant. The amount of the Hardship
need may include any amounts necessary to pay federal, state, or
local income taxes or penalties reasonably anticipated to result
from the distribution.
10.2.3.2. The Associate has obtained all distributions, other
than Hardship distributions, and all nontaxable (at the time of the
loan) loans under all plans maintained by the Employer.
10.2.3.3. The Associate's Pre-Tax (401(k)) Contributions under
this Plan and any elective contributions and employee contributions
under all qualified and nonqualified plans of deferred compensation
maintained by the Employer, including a stock option, stock
purchase, or similar plan, or a cash or deferred arrangement that
is part of a cafeteria plan within
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the meaning of Code Section 125 (but not including a salary
reduction applied to fund a flexible spending account or applied to
pre-tax premium payment) under such a cafeteria plan, will be
suspended under the terms of each such plan, or in accordance with
the terms of an otherwise legally enforceable agreement, for at
least twelve (12) months after the receipt of the Hardship
distribution.
10.2.3.4. The Plan and all other plans maintained by the
Employer limit the Associate's elective contributions for the
Associate's taxable year immediately following the taxable year of
the Hardship distribution to the Deferral Limitation under Section
402(g) of the Code for such taxable year minus the amount of such
Associate's elective contributions for the taxable year of the
Hardship distribution.
For purposes of determining a Hardship need, a Participant's
resources shall be deemed to include those assets of his Spouse and minor
children that are reasonably available to the Participant.
10.2.4. A Participant may request a Hardship withdrawal by submitting
a written request for such withdrawal in a form satisfactory to the
Administration Committee, together with any supporting documentation which
the Administration Committee in its sole discretion may require. The
maximum amount subject to any withdrawal under this Section shall be
determined as of the Valuation Date coinciding with or immediately
preceding the Administration Committee's determination authorizing the
withdrawal.
10.2.5. A Participant who makes a Hardship withdrawal under this
Section shall not be eligible to again make a withdrawal under this
Section prior to the first day of the Plan Year following the Plan Year
in which his most recent withdrawal was distributed to him.
10.3. IN-SERVICE WITHDRAWALS AT AGE 59-1/2. To the extent permissible
under the provisions of this Section 10.5. and Article 11., while still an
Associate, a Participant who has attained at least age 59-1/2 may make a
withdrawal of all or any portion of his Vested Interest in his Pre-Tax
(401(k)) Contributions Account, Pre-Tax (401(k)) Pre-1996 Matching
Contributions Account and his Profit Sharing Diversified Account in the Plan.
10.3.1. In the case of a Participant whose Distributable Benefit
exceeds, or at any the time of any prior distribution ever exceeded,
$3,500, distribution of any withdrawal shall be in the normal annuity
form of payment provided under Section 11.5. unless such Participant
waives the normal annuity form and elects a single sum payment in cash
in accordance with the requirements of Section 11.7. (including the
requirement for the written consent of the Spouse, if any). Any
withdrawal under this Section 10.5. shall be in accordance with rules of
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uniform application which the Administration Committee may from time to
time prescribe.
10.3.2. A Participant may request a withdrawal under this Section
10.5. by submitting a written request for such withdrawal in a form
satisfactory to the Administration Committee, together with any
supporting documentation which the Administration Committee in its sole
discretion may require. The maximum amount subject to any withdrawal
under this Section shall be determined as of the Valuation Date
coinciding with or immediately preceding the Administration Committee's
determination authorizing the withdrawal.
10.4. IN-SERVICE WITHDRAWALS FROM ROLLOVER ACCOUNT. To the extent
permissible under the provisions of this Section 10.4. and Article 11., while
still an Associate, a Participant may make a withdrawal of all or any portion
of his Rollover Account in the Plan.
10.4.1. In the case of a Participant whose Distributable Benefit
exceeds, or at any the time of any prior distribution ever exceeded,
$3,500, distribution of any withdrawal shall be in the normal annuity
form of payment provided under Section 11.5. unless such Participant
waives the normal annuity form and elects a single sum payment in cash
in accordance with the requirements of Section 11.7. (including the
requirement for the written consent of the Spouse, if any). Any
withdrawal under this Section shall be in accordance with rules of
uniform application which the Administration Committee may from time to
time prescribe.
10.4.2. A Participant may request a withdrawal under this Section
10.4. by submitting a written request for such withdrawal in a form
satisfactory to the Administration Committee, together with any
supporting documentation which the Administration Committee in its sole
discretion may require. The maximum amount subject to any withdrawal
under this Section shall be determined as of the Valuation Date
coinciding with or immediately preceding the Administration Committee's
determination authorizing the withdrawal.
10.5. LOANS. A Participant who is employed by an Employer may borrow
from his/her Accounts pursuant to the provisions of this Section. In
addition to such other requirements as may be imposed by applicable law, any
such loan shall bear a reasonable rate of interest, shall be adequately
secured by proper collateral, and shall be repaid within a specified period
of time according to a written repayment schedule.
10.5.1. HARDSHIP REQUIREMENT. No loan shall be made to a Participant
unless the Participant could qualify for a Hardship withdrawal of the
amount intended to be borrowed, and further, no loan shall be made in
excess of the amount that the Participant could have obtained as a
withdrawal on account of Hardship. For purposes of applying the rule in
this Section 10.5., the following provisions relating to Hardship
withdrawals shall not apply: the requirement in Section 10.2. that
Hardship withdrawals are available only from Participant's Pre-
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Tax (401(k)) Contributions Account, the requirement in Subsection
10.2.2. that all available loans be taken, and the requirement in
10.5.3. or 10.2.3.4. that all contributions cease or are reduced.
10.5.2. REQUIREMENT FOR SPOUSAL CONSENT. No loan shall be made to a
Participant unless the Participant obtains the consent of his/her
Spouse, if any, to the use of the Participant's Account balances as
security for a loan. The consent of the Participant's Spouse shall be
obtained no earlier than the beginning of the ninety (90) day period
that ends on the date the loan is to be so secured. The consent of the
Spouse shall be in writing, shall acknowledge the effect of the loan,
and shall be witnessed by a notary public. Such consent shall
thereafter be binding on the consenting Spouse or any subsequent Spouse
with respect to that loan. A new consent shall be required if the loan
is renegotiated, extended, renewed, or otherwise revised.
10.5.3. NO LOAN FROM ASOP FUND OR PROFIT SHARING ACCOUNT. No amount
may be borrowed from an Account forming a part of the ASOP Fund or
forming a part of the Participant's Profit Sharing Account, nor may any
such Account or interest in the ASOP Fund be taken into account in
determining the amount available for borrowing hereunder.
10.5.4. DETERMINATION OF REASONABLE RATE OF INTEREST FOR
PARTICIPANT LOAN. Subject to a determination by the Administration
Committee that the interest rate for a loan is reasonably equivalent to
interest rates applicable to loans with similar terms and collateral
that are available on a commercial basis within the region of the
Company's principal place of business, the annual percentage rate for a
loan under the Plan shall be at least Prime Interest Rate, or such other
rate as the Administration Committee from time to time shall adopt. For
purposes of this Subsection 10.5.4., Prime Interest Rate shall mean the
Prime Rate published in The Wall Street Journal. The Prime Interest
Rate applicable to a loan shall be the Prime Interest Rate as in effect
on the date said loan is approved by the Administration Committee. The
interest rate applicable to a loan shall remain unchanged for the term
of the loan.
10.5.5. COLLATERAL FOR PARTICIPANT LOAN. Subject to the limitations
of Subsection 10.5.6. below, a loan to a Participant hereunder shall be
secured by the Participant's Vested Interest in his/her Accounts under
this Plan, and shall not be otherwise secured.
10.5.6. REPAYMENT OF PARTICIPANT LOAN.
10.5.6.1. Any loan shall by its terms require repayment within
five (5) years in substantially level payments made not less
frequently than quarterly, except that the repayment period may in
the discretion of the Administration Committee be up to a maximum
of ten (10) years in the case of a loan certified by the
Participant to be used in connection with
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the purchase of any dwelling unit which within a reasonable time is
to be used (determined at the time the loan is made) as a principal
residence of the Participant.
10.5.6.2. If there is any outstanding loan balance at the
Participant's Severance Date, such outstanding loan balance shall
be due and payable as of such Severance Date, and if not repaid
within ninety (90) days following such Severance Date, shall be in
default and the provisions of Subsection 10.5.8. shall apply.
10.5.6.3. Repayments of principal and payments of interest
shall be allocated to the Participant's Accounts and invested in
accordance with the Participant's then current investment direction.
10.5.7. LIMITATIONS ON PARTICIPANT LOANS.
10.5.7.1. In no event shall the principal amount of a loan
hereunder, at the time the loan is made, exceed the lesser of:
10.5.7.1.1. fifty percent (50%) of the Participant's
Vested Interest in his/her Accounts under this Plan (excluding
amounts described in Subsection 10.5.2.), or
10.5.7.1.2. fifty thousand dollars ($50,000) reduced by
the excess of the Participant's highest loan balance during
the preceding 12-month period, over the Participant's
outstanding loan balance as of the date of the new loan.
10.5.7.2. No loan less than one thousand dollars ($1,000) will
be made. Any loan shall be in one hundred dollar ($100) increments
only.
10.5.7.3. No Participant may have more than one loan
outstanding under this Plan on any date, nor may a loan be made
within twelve (12) months of the date of making a prior loan.
10.5.7.4. For purposes of this Subsection 10.5.7., all
qualified plans of the Company or an Affiliated Company shall be
treated as a single plan.
10.5.8. LOAN APPLICATION. Each Participant desiring to borrow from
his/her Vested Interest in his/her Accounts in the Plan shall apply for
a loan by filing a properly completed application. Loan applications
which evidence an intent to comply with applicable rules and to make
timely payments of principal and interest shall be approved. A
Participant may be required to execute such written agreements as may be
necessary or appropriate to establish a bona fide
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debtor-creditor relationship between such Participant and the Plan, and
to protect against the impairment of the security for said loan.
10.5.9. LOAN DEFAULT. In the event a Participant fails to repay
principal or interest in accordance with the terms of a loan agreement
and such failure continues for ninety (90) days, such loan shall be
treated as in default. The date of the enforcement of the security
interest with respect to any loan in default shall be determined by the
Administration Committee, provided no loss of principal or income shall
result due to any delay in such enforcement of the security interest.
As of the later of the date of the Participant's Severance Date, or the
date the Administration Committee determines the loan is in default, the
Participant's Vested Interest in his/her Accounts shall be reduced by
the outstanding amount of a loan which is in default, including any
accrued interest thereon, that is secured by such Participant's Vested
Interest. Any reasonable costs related to collection of a loan made
hereunder shall be borne by the Participant, or, to the extent permitted
by law, the Participant's Account.
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ARTICLE 11
PAYMENT OF PLAN BENEFITS
11.1. APPLICATION OF ARTICLE. This Article 11. shall govern the payment
of a Participant's Distributable Benefits.
11.2 PAYMENT OF BENEFITS FOLLOWING SEVERANCE.
11.2.1. A Participant who incurs a Severance for any reason (other
than the Participants' death) shall be entitled to receive payment
of his/her Distributable Benefit in accordance with this
Section 11.2.
11.2.1.1. In the case of a Participant whose Distributable
Benefit does not exceed, or at the time of any prior distribution
never exceeded, $3,500, distribution shall be made in a lump sum in
cash as provided in Subsection 11.4.1., subject to Section 11.8.
(relating to the Participant's right to elect a direct rollover of
an eligible rollover distribution). Payment shall be made as of an
Annuity Starting Date that is as soon as administratively
practicable following the valuation of the Participant's
Distributable Benefit, whether or not the Participant consents to
such distribution; provided, however, that in its sole discretion
the Administration Committee may require, as a condition of
distribution, that the Participant consent in the same manner as
consent would be required of a Participant whose Distributable
Benefit exceeds $3,500.
11.2.1.2. In the case of a Participant whose Distributable
Benefit exceeds, or at any the time of any prior distribution ever
exceeded, $3,500, distribution shall be in the normal annuity form
provided under Section 11.5. or in an optional form described in
Section 11.6., as elected by the Participant, subject to the
provisions of Section 11.4. (relating to payment in Company Stock),
11.7. (relating to certain legal requirements for a Participant's
waiver of the normal annuity form of payment), and 11.8. (relating
to the Participant's right to elect a direct rollover of an
eligible rollover distribution). Distribution shall be made or
commence as of an Annuity Starting Date that is as soon as
administratively practicable following the Valuation Date
determined under Section 13.2.; provided, however, if such Annuity
Starting Date is prior to the Participant's Normal Retirement Date,
distribution shall be subject to the consent of the Participant and
if required, the Participant's Spouse, in accordance with Paragraph
11.2.1.4.
11.2.1.3. If a Participant described in Paragraph 11.2.1.2.
above incurs a Severance prior to Normal Retirement Date and if
such Participant fails to consent to have distribution of the
Participant's Distributable Benefit made or commence on an Annuity
Starting Date that
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is prior to such Normal Retirement Date, as provided in Paragraph
11.2.1.4., the Participant shall be deemed to have made an election
to defer distribution to Normal Retirement Date.
11.2.1.4. A Participant's consent to receive or commence
distribution of his Distributable Benefit on an Annuity Starting
Date that is prior to Normal Retirement Date shall be in writing
and shall not be valid unless (i) such election is made both after
the Participant receives a written notice advising him of his right
to defer distribution to such Normal Retirement Date and within the
ninety (90) day period ending on the Participant's Annuity Starting
Date, and (ii) if the Participant has a Spouse and payment is not
made as a Qualified Joint and Survivor Annuity, the Participant's
Spouse also consents in writing to such Annuity Starting Date. The
notice to the Participant advising him of his right to defer
distribution to Normal Retirement Date shall be given not more than
ninety (90) days prior to the Participant's Annuity Starting Date.
11.2.1.5. Unless otherwise elected by a Participant,
distribution of a Participant's Distributable Benefit shall be made
or commence not later than the sixtieth (60th) day after the close
of the Plan Year in which occurs the later of (a) the date on which
the Participant attains Normal Retirement Date or (b) the tenth
(10th) anniversary of the commencement of the Participant's
participation in the Plan or (c) the date of the Participant's
Severance.
11.2.2. If a Participant who incurs a Severance does not have a
100% Vested Interest in any Account as of such Severance, the portion of
such Participant's Account which is not vested as of such Severance
shall be held in such Account, subject to forfeiture in accordance with
Section 11.9.
11.2.3. To the extent permissible under Section 401(k)(10) of the
Code, if a Participant ceases to be an Associate by reason of the sale
or other disposition by the Employer or an Affiliated Company of either
(i) substantially all of the assets used by the Employer, or an
Affiliated Company, as the case may be, in a trade or business to an
unrelated corporation, or (ii) the interest of the Employer or an
Affiliated Company, as the case may be, in a subsidiary to an unrelated
entity or individual, such Participant shall be entitled to distribution
of his Distributable Benefit as if, for purposes of this Plan only, such
event constitutes a Severance.
11.2.4. If the Participant continues in the service of the Employer
after he attains Normal Retirement Date, he shall continue to participate
in the Plan in the same manner as Participants who have not attained Normal
Retirement Date.
11.2.5. Notwithstanding the foregoing, to the extent required by
regulations under Section 401(a)(9) of the Code, distribution of a
Participant's
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Distributable Benefit shall be made in or commence in accordance with
Subsection 13.2.3. not later than his "Required Beginning Date" as
determined in accordance with this Subsection:
11.2.5.1 Except as provided in 11.2.5.2. below, a
Participant's "Required Beginning Date" shall mean the April 1
following the calendar year in which the Participant attains age
70-1/2, whether or not such Participant has incurred a Severance or
whether or not the Participant consents to the distribution. To
the extent required under Code Section 401(a)(9), the Participant's
Distributable Benefit determined as of the December 31 of the
calendar year in which occurs his Required Beginning Date and the
December 31 of each subsequent calendar year shall be distributed
no later than the December 31 of the next following calendar year
in accordance with Subsection 13.2.3.
11.2.5.2. Except in the case of a Participant who is a
"5-percent owner" within the meaning of Section 401(a)(9) of the
Code, "Required Beginning Date" for a Participant who attained age
70-1/2 prior to January 1, 1988 shall mean the April 1 following
the later of the calendar year in which the Participant attains age
70-1/2, or the calendar year in which the Participant incurs a
Severance.
11.3. DISTRIBUTION UPON DEATH PRIOR TO COMMENCEMENT OF BENEFITS. Upon
such Participant's Distributable Benefit shall be payable as provided in
Article 12. to the Beneficiary designated by the deceased Participant, or
otherwise entitled to such Distributable Benefit, as provided in Article 12.
11.4. FORM OF PAYMENT OF DISTRIBUTABLE BENEFIT.
11.4.1. Payment of a Participant's Distributable Benefit by reason
of a Severance for any reason, as provided in this Article 11., shall be
in cash , except that any portion of a Participant's Distributable
Benefit attributable to Company Stock allocated to his Accounts forming
a part of the ASOP Fund shall be subject to the rules set forth in
Subsection 11.4.2. below.
11.4.2. If at the time a Participant's Distributable Benefit
otherwise would be paid, the Administration Committee determines that
insufficient cash is held by the Trust to make full payment of the
Distributable Benefit attributable to Company Stock allocated to his
Accounts forming a part of the ASOP Fund, the Administration Committee
shall notify the Participant of his right to elect to have payment of
the portion of his Distributable Benefit attributable to Company Stock
allocated to his Accounts forming a part of the ASOP Fund made in a
distribution of shares of Company Stock (with cash in lieu of any
fractional shares). Upon being so notified, the Participant shall have
a reasonable time (at least thirty (30) days) in which to file a written
election to have such payment made. Any such
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election shall be irrevocable and shall operate to require the
Trustee to distribute shares of such Company Stock (with cash in lieu of
any fractional shares) as soon as administratively practicable. If a
Participant fails to file a written election to have such payment made,
the Administration Committee may elect to make such payment, subject,
however, to the provisions of Section 11.8. and the consent provisions
of Section 11.2.
11.4.3. In the event the Company Stock distributed to a Participant
is not readily tradable on an established market and the Articles of
Incorporation or Bylaws of the Company restrict ownership of
substantially all outstanding Company Stock to employees of the Company
or a trust established by the Company qualified under Section 401(a) of
the Code, the Participant shall be required to sell and the Company
shall be required to purchase such Company Stock based on a valuation by
an independent appraiser. If the Company is required to purchase
Company Stock which is distributed to a Participant in a "total
distribution" (as defined in Code Section 409(h)(5), the Company shall
have the right to pay the amount to be paid for the Company Stock in
substantially equal periodic payments (not less frequently than
annually) over a period beginning not later than thirty (30) days after
the exercise of the put option and not exceeding five (5) years, but
only upon issuance by the Company of a note or other evidence of
indebtedness, upon giving adequate security and reasonable interest paid
on the unpaid amounts. Such security may consist of the Company Stock
subject to such put option and such interest may be at a rate not less
than the prime interest rate existing at the time the note or evidence
of indebtedness is given.
11.5. NORMAL FORMS OF BENEFITS. Except for the portion of a
Participant's Distributable Benefit that is payable in Company Stock under
Section 409(h) of the Code, if the Participant's Distributable Benefit
exceeds $3500, or previously exceeded $3500 as of the date of any prior
payment from the Plan, the normal form of payment of such Distributable
Benefit shall be as follows:
11.5.1. in the case of a Participant who has a Spouse on his/her
Annuity Starting Date, his/her Distributable Benefit shall be paid in the
form of Qualified Joint and Survivor Annuity, and
11.5.2. in the case of a Participant who does not have a Spouse on
his/her Annuity Starting Date, his/her Distributable Benefit shall be
paid in the form of a life annuity.
11.6. OPTIONAL FORMS OF BENEFITS. In accordance with procedures adopted
by the Administration Committee and the rules set forth in Section 11.7.
(pertaining to certain legal requirements relating to waiver of the normal
form of benefit), a Participant whose Distributable Benefit otherwise would
be payable in a normal form of benefit
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described in Section 11.5. may elect one of the following optional forms of
benefit, in lieu of such normal form of benefit:
11.6.1. SINGLE LIFE ANNUITY. The benefit payable to a Participant
may be a single life annuity, payable for the life of the Participant.
11.6.2. JOINT AND 100% SURVIVOR ANNUITY. The benefit payable to a
Participant may be in the form of a joint and one hundred percent (100%)
survivor annuity, with payments for the life of the Participant and, upon
his death, payments to the surviving spouse for life with each payment
equal in amount to each payment made to the Participant during his life.
11.6.3. JOINT AND 75% SURVIVOR ANNUITY. The benefit payable to a
Participant may be in the form of a joint and seventy-five percent (75%)
survivor annuity, with payments for the life of the Participant and,
upon his death, payments to the surviving spouse for life with each
payment equal to seventy-five percent (75%) of the amount of each
payment to the Participant during his life.
11.6.4. INSTALLMENTS. The benefit payable to a Participant may be
in the form of substantially equal installments. Such Participant shall
specify the number of installments to be paid each year and the number of
years over which the installments will be paid.
11.6.5. SINGLE SUM. The benefit payable to a Participant may be in
the form of a single sum.
11.7. CERTAIN NOTICES, WAIVERS, ELECTIONS AND CONSENTS WITH RESPECT TO
OPTIONAL FORMS OF BENEFITS.
11.7.1 Subject to the consent of the Spouse in accordance with 11.7.2.
below, at any time during the applicable Election Period, each Participant
may waive the normal form of benefit provided under Section 11.5., elect
to have his/her benefit payable in an optional form, as provided under
Section 11.6., and designate a Beneficiary, as provided in Section 12.3..
Any such waiver, election or designation by the Participant may be changed
during the applicable Election Period, subject to the consent of the
Spouse in accordance with Subsection 11.7.2. below. Unless the
Participant changes his/her election or designation, any consent by a
Spouse required under Subsection 11.7.2. below shall be irrevocable.
11.7.2. Any waiver, election or designation by a Participant under
11.7.1. above shall not take effect unless
11.7.2.1. the Spouse of the Participant consents in writing
to the waiver, election or designation, and the Spouse's consent
acknowledges
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the effect of the waiver, election or designation and is witnessed by
a notary public, or
11.7.2.2. it is established to the satisfaction of the
Administration Committee that the consent required by Paragraph
11.7.2.1. above may not be obtained because there is no Spouse,
because the Spouse cannot be located, or because of such other
circumstances as may be set forth in regulations under Code Section
417(a)(2), and
11.7.2.3. any consent (or establishment that the consent of a
Spouse may not be obtained) under this Subsection 11.7.2. shall be
effective only with respect to that Spouse.
11.7.3. Within a reasonable period of time before the Participant's
Annuity Starting Date (and consistent with regulations under
Section 417(a)(3)(A) of the Code) the Administration Committee shall
furnish to each Participant a written explanation of
11.7.3.1. the terms and conditions of the normal form of benefit
applicable to the Participant,
11.7.3.2. the Participant's right to make, and the effect of,
an election under Subsection 11.7.1. above to waive the normal form
of benefit,
11.7.3.3. the rights of the Participant's Spouse under
Subsection 11.7.2. above,
11.7.3.4. the Participant's right to make, and the effect of, a
revocation of an election under Subsection 11.7.1. above,
11.7.3.5. the Participant's right, pursuant to Section 11.2.,
to defer distribution to Normal Retirement Date and the rights of
the Spouse if the Participant waives the Qualified Joint and
Survivor Annuity and elects an Annuity Starting Date that is prior
to his/her Normal Retirement Date, and
11.7.3.6. the Participant's right, pursuant to Section 11.8., to
elect a direct rollover of an eligible rollover distribution.
11.7.4. For purposes of this Section, "Election Period" means the
ninety (90) day period ending on the Participant's Annuity Starting Date.
11.8. ELECTION FOR DIRECT ROLLOVER OF DISTRIBUTABLE BENEFIT TO ELIGIBLE
RETIREMENT PLAN.
11.8.1 To the extent required by Section 401(a)(31) of the Code, a
Participant whose Distributable Benefit becomes payable in an "eligible
rollover
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distribution," as defined in Subsection 11.8.2. below, shall be
entitled to make an election for a direct rollover of all or a portion of
the taxable portion of such Distributable Benefit to an "eligible
retirement plan," as defined in Subsection 11.8.2. below. Any nontaxable
portion of a Participant's Distributable Benefit shall be payable to the
Participant, as provided in this Article. For purposes of this Article, a
Participant who makes a direct rollover election in accordance with this
Section 11.8. shall be deemed to have received payment of his/her
Distributable Benefit as of the date payment is made from the Plan.
11.8.2. For purposes of this Section,
11.8.2.1. an "eligible rollover distribution" shall mean any
distribution of all or any portion of a Participant's Distributable
Benefit, except that an eligible rollover distribution shall not
include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and the
Participant's designated Beneficiary, or for a specified period of
ten years or more; any distribution to the extent such distribution
is required under Section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation
with respect to employer securities), and
11.8.2.2. an "eligible retirement plan" shall mean any plan
described in Code Section 402(c)(8)(B), the terms of which permit
the acceptance of a direct transfer from a qualified plan.
11.8.3. A Participant's direct rollover election under this Section
shall be made in accordance with rules and procedures established by the
Administration Committee and shall specify the dollar or percentage
amount of the direct rollover, the name and address of the eligible
retirement plan selected by the Participant and such additional
information as the Administration Committee deems necessary of
appropriate in order to implement the Participant's election. It shall
be the Participant's responsibility to confirm that the eligible
retirement plan designated in the direct rollover election will accept
the eligible rollover distribution. The Administration Committee shall
be entitled to effect the direct rollover based on its reasonable
reliance on information provided by the Participant, and shall not be
required to independently verify such information, unless it is clearly
unreasonable not to do so.
11.8.4. At least thirty (30) days, but not more than ninety (90)
days, prior to a Participant's Annuity Starting Date, each Participant
shall be given written notice of any right he/she may have to elect a
direct rollover of his/her eligible rollover distribution; provided,
however, a Participant who is advised that he/she
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has thirty (30) days to made a direct rollover election may waive the
thirty (30) day notice requirement by making an affirmative election to
make or not to make a direct rollover of all or a portion of his/her
Distributable Benefit following receipt of the notice.
11.8.5. If a Participant whose Distributable Benefit becomes
payable in accordance with this Article fails to file a direct rollover
election with the Administration Committee within sixty (60) days after
receipt of the direct rollover notice, or if the Administration
Committee is unable to effect the rollover within a reasonable time
after the election is filed with the Administration Committee due to the
failure of the Participant to take such actions as may be required by
the eligible retirement plan before it will accept the rollover, the
Participant's Distributable Benefit shall be paid to him/her in
accordance with the provisions of this Article, after withholding any
applicable income taxes and no direct rollover shall be made.
11.8.6. To the extent required by Section 401(a)(31) of the Code,
if all or a portion of a Participant's Distributable Benefit is payable
to his/her surviving Spouse in an eligible rollover distribution, or to
a former Spouse in accordance with a "qualified domestic relations
order," such surviving Spouse or former Spouse shall be entitled to
elect a direct rollover of all or a portion of such distribution to an
individual retirement account or an individual retirement annuity in
accordance with the provisions of this Section.
11.9. FORFEITURES; RESTORATION.
11.9.1. Subject to the provisions of 11.9.3. below, any non-vested
portion of a Participant's Accounts shall be forfeited as of the earlier
of the date the Participant's Distributable Benefit is paid to him or an
eligible retirement plan as provided in Section 11.8., or the date the
Participant incurs five (5) consecutive Breaks in Service. The
non-vested portion of a Participant's Accounts consisting of shares of
Company Stock acquired with the proceeds of an Exempt Loan shall only be
forfeited after all other non-vested portions of his Accounts are
forfeited. For purposes of this Section, if the value of a
Participant's Distributable Benefit is zero, the Participant shall be
deemed to have received payment of his Distributable Benefit.
11.9.2. Any non-vested portion of a Participant's Accounts which is
forfeited in accordance with 11.9.1. above shall be applied as provided
in Section 5.8.
11.9.3. In accordance with such rules as the Administration
Committee may prescribe, there shall be restored to the Participant's
Account the dollar value of any non-vested portion of such a
Participant's Account which was forfeited upon payment of the
Participant's Distributable Benefit (or deemed payment of such
Distributable Benefit) in accordance with Subsection 11.9.1.
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prior to the date on which he incurs five (5) consecutive Breaks in
Service; provided, however, that such restoration shall be made only in
the case of the Participant's reemployment as an Eligible Associate
prior to incurring five (5) consecutive Breaks in Service, and only if
the Participant repays to the Plan in cash no later than the fifth
anniversary of the date on which the Participant resumes employment as
an Eligible Associate an amount equal to the Distributable Benefit
attributable to Profit Sharing Account paid to him following his
Severance (if the Participant requests restoration of Profit Sharing
Account forfeitures), or attributable to his Pre-Tax (401(k)) Matching
Contributions Account paid to him following Severance (if the
Participant requests restoration of Matching Account forfeitures), or
attributable to both types of Accounts paid to him following Severance
(if the Participant requests restoration of both types of accounts).
The determination of the amount the Participant is required to repay in
cash under this Subsection 11.9.3. shall be made as of the Valuation
Date(s) the Participant's Account was valued for purposes of determining
his Distributable Benefit. The determination of the dollar value of the
forfeited portion of the Participant's Account required to be restored
to the Participant shall be made as of the Valuation Date(s) the
Participant's Account was valued for purposes of determining his
Distributable Benefit. No adjustment in the dollar value of the
forfeited amounts shall be made for any gains or losses of the Trust
Fund, between the applicable Valuation Date(s) and the restoration of
the dollar value of the forfeited portion of the Participant's Account
or for gains or losses in the value of a Share of Company Stock.
Restored amounts shall be paid from the Forfeiture Account, or if
forfeitures are not available, the Employer shall make an additional
contribution for this purpose.
11.10. PURCHASE OF ANNUITY CONTRACT. The benefit payable in a form
available under Sections 11.5. or 11.6. (other than a cash lump sum) shall be
provided by the application of the Participant's Distributable Benefit to the
purchase of a single premium non-transferable annuity or other insurance
contract issued by an insurance company authorized under one or more state
insurance laws to conduct an insurance business, provided, however, that such
issuer is rated by one or more national financial reporting or national
financial rating services as having a financial condition consistent with
such service's highest "investment grade" rating, or the equivalent thereof,
and no representative of the Plan shall have any obligation to purchase an
annuity from any issuer whose rating is not of such grade or who, in the sole
and absolute discretion of the Administration Committee or its delegate,
might be less financially secure, whether or not more favorable annuity
purchase rates may be available. Any annuity or other insurance contract
distributed to a Participant, Spouse or Beneficiary to provide benefits under
the Plan shall satisfy the applicable requirements of this Article. The
purchase of a contract as provided herein shall, notwithstanding any other
provisions of the Plan, be deemed to be the purchase of benefits having an
actuarial equivalent value of the amount of Participant's Distributable
Benefit applied to purchase such contract. The purchase of any such contract
shall be a full and complete discharge of the Plan, the Employers, and the
Administration Committee acting on behalf of the Plan, with respect
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to the payment of the Distributable Benefit of the Participant or a Spouse
under this Plan.
11.11. MINIMUM DISTRIBUTION REQUIREMENTS (SECTION 401(a)(9) RULE).
11.11.1. Distributions of a Participant's vested interest shall be
determined and made in accordance with regulations under Code Section
401(a)(9), relating to minimum distribution requirements. No optional
method of payment shall be permitted which would require payments to
extend beyond the life expectancy of the Participant (or a period not
extending beyond the life expectancy of the Participant); or the life
expectancy of the Participant and a designated Beneficiary (or a period
not extending beyond the life expectancies of the Participant and the
designated Beneficiary). If a Participant's benefit is to be distributed
in a series of installments over a specified number of years, the
minimum amount to be distributed each year shall be at least equal to
the quotient obtained by dividing the Participant's Distributable
Benefit under the Plan by the specified number of years. For purposes
of this Subsection, life expectancies may be computed by reference to
the return multiples contained in Treasury Regulation Section 1.72-9.
For purposes of that computation, the life expectancy of the Participant
and/or his/her Spouse or a non-Spouse beneficiary may not be
recalculated. The expected payments to the Participant under any
settlement option made must be more than fifty percent (50%) of the
total payments to be made to both the Participant and the designated
Beneficiary unless the benefit is payable in the form of a Qualified
Joint and Survivor Annuity or the designated Beneficiary is the
Participant's Spouse.
11.11.2. If the Participant dies after his/her Annuity Starting
Date and before his/her entire benefit is distributed, the method of
distributing the remaining portion of his/her benefit shall be at least
as rapid as that in effect as of the date of his/her death.
11.11.3. If a Participant dies before his/her Annuity Starting
Date, his/her entire benefit shall be distributed within five (5) years
of his/her death unless (i) the deceased Participant's benefit is
distributed to a designated Beneficiary over the life of the designated
Beneficiary (or a period not extending beyond the Beneficiary's life
expectancy) and the payments begin not later than one (1) year after the
Participant's death or (ii) the Beneficiary is the surviving Spouse of
the Participant and benefits are paid or commence not later than the
date the Participant would have attained age 70-1/2.
11.11.4. Notwithstanding any provision in this Plan to the
contrary, all distributions under this Plan shall be made in accordance
with Section 401(a)(9) of the Code and the regulations issued
thereunder, which provisions shall override any distribution options
under this Plan that may be inconsistent with Section 401(a)(9) of the
Code. The Administration Committee shall, in its sole
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and absolute discretion, determine whether an optional method of payment
of a Participant's Distributable Benefit, as elected by the Participant,
meets the requirements of Section 401(a)(9) of the Code, and applicable
regulations under Section 401(a)(9) of the Code. This discretion shall
be exercised in a uniform and nondiscriminatory manner.
11.12. MISCELLANEOUS RULES REGARDING PAYMENT OF BENEFITS.
11.12.1 If any payee under the Plan is a minor, or if the
Administration Committee reasonably believes that any payee is legally
incapable of giving a valid receipt and discharge for any payment due
him/her, the Administration Committee may have such payment, or any part
thereof, made to the person (or persons or institution) whom it
reasonably believes is caring for or supporting such payee, unless it
has received due notice of claim therefor from a duly appointed guardian
or committee of such payee. Any such payment shall be a payment for the
account of such payee and shall, to the extent thereof, be a complete
discharge of any liability under the Plan to such payee.
11.12.2. To the extent prohibited by the Code, no single sum
benefit shall be paid after the Participant's Annuity Starting Date,
unless the Participant and his/her Spouse (or where the Participant has
died, the surviving Spouse) consent in writing to such distribution.
11.12.3. The Administration Committee or the Trustee, or both, may,
as a condition precedent to the payment of death benefits hereunder,
require an inheritance tax release and/or such security as the
Administration Committee or Trustee, or both, may deem appropriate as
protection against possible liability for state or federal death taxes
attributable to any death benefits.
11.12.4. Notwithstanding any other provision in this Article 11.
regarding the time within which a Participant's Distributable Benefit
will be paid, if, in the opinion of the Administration Committee there
are or reasonably may be conflicting claims or other legal impediments
to the payment of such Distributable Benefit to a payee, such payment
may be delayed for so long as is necessary to resolve such conflict,
potential conflict, or other legal impediment, but not beyond the date
permitted by applicable law.
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ARTICLE 12.
PAYMENT OF BENEFITS FOLLOWING DEATH OF PARTICIPANT
12.1. FORM OF DEATH BENEFITS PROVIDED.
12.1.1. In the case of a Participant who dies before his/her
Annuity Starting Date, if such Participant's Distributable Benefit does
not exceed, or at the time of any prior distribution never exceeded,
$3,500, distribution shall be made to the Participant's Beneficiary in a
lump sum in cash, subject to the provisions of Subsection 11.4.2., as
soon as administratively practicable following the Valuation Date
determined under Section 13.2.
12.1.2. Except as otherwise provided under Subsection 12.1.1.
above, in the case of a married Participant who dies before his/her
Annuity Starting Date, his/her Distributable Benefit shall be paid in
the form of a Qualified Preretirement Survivor Annuity, subject to the
provisions of Subsection 11.4.2.. Payment of the Qualified
Preretirement Survivor Annuity shall commence, at the Spouse's election,
as soon as administratively practicable following the Valuation Date
determined under Section 13.2., or the Spouse may defer commencement of
payments under the Qualified Preretirement Survivor Annuity until not
later than the date the Participant would have attained Normal
Retirement Date. Notwithstanding the foregoing, after the Participant's
death a surviving Spouse may elect to receive payment of the
Participant's Distributable Benefit in the form of a lump sum
distribution or in a form provided under Section 11.6., commencing as
soon as administratively practicable following the Valuation Date
determined under Section 13.2. or at any later time before the
Participant would have attained Normal Retirement Date.
12.1.3. In the case of an unmarried Participant who dies before
his/her Annuity Starting Date, his/her Distributable Benefit shall be
paid to the Participant's Beneficiary in the form of a lump sum
distribution within five (5) years of the Participant's death, unless
the Beneficiary elects an optional form of benefit available under
Section 11.6. and benefits commence within one (1) year of the
Participant's date of death.
12.1.4. A surviving Spouse entitled to payment of a Participant's
Distributable Benefit following the Participant's death may elect a direct
rollover of all or a portion of such Distributable Benefit in accordance
with the provisions of Section 11.8.
12.1.5. In the case of a Participant who dies after his/her Annuity
Starting Date, no benefits shall be payable except to the extent
required under the form of payment as in effect on the date of the
Participant's death.
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12.2. CERTAIN NOTICES, WAIVERS, ELECTIONS AND CONSENTS WITH RESPECT TO
QUALIFIED PRERETIREMENT SURVIVOR ANNUITY.
12.2.1. Subject to the consent of the Spouse in accordance with
Subsection 12.2.2. below, at any time during the applicable Election
Period, a Participant may elect to waive the Qualified Preretirement
Survivor Annuity and designate a Beneficiary in accordance with Section
12.3. to receive payout of his/her Distributable Benefit after his/her
death. Subject to the provisions of Subsection 12.1.1., after the
Participant's death the Beneficiary may elect any form of payment
available under Section 11.6., subject to the limits of Section 11.11..
The Participant may change any such election or designation during the
Election Period, subject to the consent of the Spouse. Notwithstanding
the foregoing, as of the first day of the Plan Year in which the
Participant attains or will attain age thirty-five (35), any election
and designation by such Participant under this Section relating to a
waiver of the Qualified Joint and Survivor Annuity made prior to the
first day of the Plan Year in which the Participant attains age
thirty-five (35) shall automatically become invalid as of the first day
of such Plan Year, and the provisions of Section 12.1. shall apply as of
such date unless the Participant makes a new election and designation in
accordance with this Section.
12.2.2. For purposes of this Section, the term "Election Period"
means each of the following periods: (a) the period beginning with the
first day of the Plan year in which the Participant will attain age
thirty-two (32) and ending on the last day of the Plan Year preceding
the Plan Year in which the Participant will attain age thirty-five (35),
(b) the period beginning with the first day of the Plan Year in which
the Participant attains age thirty-five (35) and ending on the date of
the Participant's death, and (c) in the case of a Participant who incurs
a Severance and ending on the date of the Participant's death; provided,
that except as otherwise permitted by law, no election shall be
effective prior to the date the Participant is furnished with the notice
specified in Subsection 12.2.3. below.
12.2.3. An election or designation under this Section shall not
take effect unless the Spouse of the Participant consents in writing to
the election and designation, and the Spouse's consent acknowledges the
effect of such election and designation and is witnessed by a notary
public. The consent of a Spouse shall not be required if it is
established to the satisfaction of the Administration Committee that the
consent required by this Section may not be obtained because there is no
spouse, because the Spouse cannot be located, or because of such other
circumstances as may be set forth in regulations under Code Section
417(a)(2). Any consent (or establishment that the consent of a Spouse
may not be obtained) under this Section shall be effective only with
respect to that Spouse. Any consent by a Spouse in accordance with this
Section shall be irrevocable.
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12.2.4. Each Participant shall receive, within a reasonable time
after the date he/she satisfies the eligibility requirements of Section
3.1. (and consistent with regulations under Section 417(a)(3)(B) of the
Code), a written explanation of (and consistent with regulations under
Section 417(a)(3)(A) of the Code) of
12.2.4.1. the terms and conditions of the Qualified
Preretirement Survivor Annuity,
12.2.4.2. the Participant's right to make, and the effect of,
an election under this Section to waive the Qualified Preretirement
Survivor Annuity form of benefit,
12.2.4.3. the rights of the Participant's Spouse under this
Section, and
12.2.4.4. the right to make, and the effect of, a change in an
election under this Section.
The explanation specified in the preceding sentence shall also be given to
the Participant within the period beginning with the first day of the Plan
Year in which the Participant attains age thirty-two (32) and ending with
the close of the Plan Year preceding the Plan Year in which the
Participant attains age thirty-five (35). In the case of a Participant
who is rehired, the explanation shall be given to the Participant within
one (1) year of the date he/she recommences participation.
12.3. DESIGNATION OF BENEFICIARY.
12.3.1. Subject to the provisions of Subsection 12.3.2. below, each
Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive his interest in the Trust Fund in the event of
his death before receipt of his entire interest in the Trust Fund. This
designation is to be made on the form prescribed by and delivered to the
Administration Committee. Subject to the provisions of 12.3.2. below, a
Participant shall have the right to change or revoke any such
designation by filing a new designation or notice of revocation with the
Administration Committee, and no notice to any Beneficiary nor consent
by any Beneficiary shall be required to effect any such change or
revocation.
12.3.2. If a Participant designates a Beneficiary and on the date
of his death has a Spouse who is not such Beneficiary, no effect shall
be given to such designation unless such Spouse has consented or
thereafter consents in writing to such designation, the consent
acknowledges the effect of the designation and the consent is witnessed
by a notary public. The consent of a Spouse may not be revoked. A
Spouse's consent to a Beneficiary designation is not required under the
following circumstances:
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12.3.2.1. if it is established to the satisfaction of the
Administration Committee that there is no Spouse; or
12.3.2.2. if the Participant's Spouse cannot be located; or
12.3.2.3. because of other circumstances under which a
Spouse's consent is not required in accordance with applicable
Treasury or Department of Labor Regulations.
The Administration Committee shall have absolute discretion as to
whether the consent of a Spouse shall be required. The provisions of this
Section shall not be construed to place upon any Employer or the
Administration Committee any duty or obligation to require the consent of
a Spouse for the purpose of protecting the rights or interests of present
or former Spouses of Participants, except to the extent required to comply
with Code Section 401(a)(11) or Section 205 of ERISA.
12.3.3. If a deceased Participant shall have failed to designate a
Beneficiary, or if the Administration Committee shall be unable to locate
a designated Beneficiary after reasonable efforts have been made, or if
for any reason (including but not limited to application of the rules in
12.3.2. above) the designation shall be legally ineffective, or if the
Beneficiary shall have predeceased the Participant without effectively
designating a successor Beneficiary, any distribution required to be made
under the provisions of this Plan shall commence within one (1) year after
the Participant's death to the person or persons included in the highest
priority category among the following, in order of priority:
12.3.3.1. The Participant's surviving Spouse;
12.3.3.2. The Participant's surviving children, including
adopted children and children of deceased children, per stirpes;
12.3.3.3. The Participant's surviving parents in equal shares;
12.3.3.4. The Participant's brothers and sisters, and nephews
and nieces who are children of deceased brothers and sisters, per
stirpes; or
12.3.3.5. The Participant's estate.
The determination by the Administration Committee as to which persons, if
any, qualify within the foregoing categories shall be final and conclusive
upon all persons. Notwithstanding the preceding provisions of this
Section, distribution made pursuant to this Section shall be made to the
Participant's estate if the Administration Committee so determines in its
discretion.
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12.3.4. In the event that the deceased Participant was not a
resident of California at the date of his death, the Administration
Committee, in its discretion, may require the establishment of ancillary
administration in California. In the event that a Participant shall
predecease his Beneficiary and on the subsequent death of the
Beneficiary a remaining distribution is payable under the applicable
provisions of this Plan, the distribution shall be payable in the same
order of priority categories as set forth above but determined with
respect to the Beneficiary, subject to the same provisions concerning
non-California residency, the unavailability of an estate representative
and/or the absence of administration of the Beneficiary's estate as are
applicable on the death of the Participant.
12.3.5. The Administration Committee shall not be required to
authorize any payment to be made to any person following a Participant's
death, whether or not such person has been designated by the Participant
as a Beneficiary, if the Administration Committee determines that the
Plan may be subject to conflicting claims in respect of said payment for
any reason, including, without limitation, the designation or
continuation of a designation of a Beneficiary other than the
Participant's Spouse without the consent of such Spouse to the extent
such consent is required by Section 401(a)(11) of the Code. In the
event the Administration Committee determines in accordance with this
Section not to make payment to a designated Beneficiary, the
Administration Committee shall take such steps as it determines
appropriate to resolve such potential conflict.
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ARTICLE 13.
VALUATION OF ACCOUNTS
13.1. ALLOCATION OF PLAN EARNINGS OR LOSSES. The Administration
Committee shall determine, or cause to be determined, the fair market value
of each Participant's Accounts under the Plan. For this purpose, the value
of a Participant's Accounts, to the extent invested in Investment Funds of a
type valued each business day, shall be so valued and each such date of
valuation shall constitute the Valuation Date for each such Investment Fund.
Pooled investments not so valued, shall be valued annually as of the last day
of each Plan Year, unless the Administration Committee determines, in its
sole discretion, that more frequent valuation is administratively feasible
and in the interest of all Participants and beneficiaries. Such date of
valuation shall constitute the Valuation Date for each such pooled investment.
13.2. VALUE OF PARTICIPANT ACCOUNTS. For purposes of payment of a
Participant's Distributable Benefit following a Severance for any reason, the
value of a Participant's Accounts shall be determined in accordance with
rules prescribed by the Administration Committee, subject, however, to the
following provisions:
13.2.1. Subject to 13.2.2. below, in the case of any Severance
including death, the value of a Participant's Accounts under the Plan
consisting of investments other than Company Stock shall be determined
by reference to the applicable Valuation Date or the date of payment
immediately preceding the date on which both of the following events
have occurred: (i) the occurrence of an event entitling the Participant
to a distribution, and (ii) the receipt by the Administration Committee
of the properly completed application of the Participant (or his
Beneficiary) for payment of the Participant's Distributable Benefit with
respect to such event, and such other forms or documents as the
Administration Committee may require in order to process the application.
13.2.2. The value of a Participant's Accounts shall be increased or
decreased (as appropriate) by any allocation, withdrawals or
distributions properly made under the terms of this Plan to his/her
Accounts that occurred on or after the applicable Valuation Date or
which, for any other reason were not otherwise reflected in the
valuation of his/her Accounts on such Valuation Date. Nothing in this
13.2.2. shall be interpreted or applied to require allocation of a
Employer contribution
13.2.3. As soon as practicable after a Participant's Accounts
become payable by reason of Severance, retirement, death or any other
such event, to the extent that such Accounts include shares of Company
Stock, and to the extent cash is held by the Plan and available for such
purpose, such shares shall be liquidated to permit a cash distribution
as provided in Article 11. Such liquidation shall be at the valuation
determined in accordance with Section 8.2.
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as of the Valuation Date occurring as of the last day of the Plan Year
in which occurs the event that resulted in the Participant's Accounts
being payable. To the extent that an event occurs that entitles a
Participant or other person to payment, in no event shall payment of any
amount attributable to an investment in Company Stock be made prior to
determination of the value of such shares as of the applicable Valuation
Date determined under the preceding provisions of this Subsection
13.2.3. except to the extent required by Code Section 401(a)(14) or
401(a)(9), and in such case, any payment shall be based on an estimate
of value made in good faith by the Administration Committee, shall
consist only of such amount as the Administration Committee determines
to be legally required, and shall be treated as an advance payment with
respect to the valuation of shares as of the applicable Valuation Date.
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ARTICLE 14.
OPERATION AND ADMINISTRATION OF THE PLAN
14.1. PLAN ADMINISTRATION.
14.1.1. Except to the extent the ASOP Committee is authorized to
control and manage the operation and investment of the ASOP Fund under
Article 15. or elsewhere in this Plan, the authority to control and
manage the operation and administration of the Plan shall be vested in
the Administration Committee as provided in this Article.
14.1.2. The Administration Committee shall have not fewer than two
(2) members, all of whom shall be appointed by the Board of Directors
and shall hold office until resignation, death or removal by the Board
of Directors.
14.1.3. For purposes of ERISA Section 402(a), the members of the
Administration Committee shall be Named Fiduciaries of this Plan, except
as provided in Sections 8.5., 8.6. or Article 15. and except as is
provided by the Trust Agreement.
14.1.4. Notwithstanding the foregoing, a Trustee with whom Plan
assets have been placed in trust or an Investment Manager appointed
pursuant to Section 14.3. may be granted by the Administration
Committee, exclusive authority and discretion to control all or any
portion of the assets of the Plan in accordance with the terms of a
Trust Agreement or investment management agreement, as applicable.
14.2. ADMINISTRATION COMMITTEE POWERS. The Administration Committee
shall have all discretionary powers necessary to supervise the administration
of the Plan and control its operations, except to the extent the ASOP
Committee shall have discretionary powers with respect to the operation and
investment of the ASOP Fund as provided elsewhere in this Plan. In addition
to any powers and authority conferred on the Administration Committee
elsewhere in the Plan or by law, the Administration Committee shall have, by
way of illustration but not by way of limitation, the following powers and
authority:
14.2.1. To allocate fiduciary responsibilities (other than trustee
responsibilities) among the Named Fiduciaries and to designate one or
more other persons to carry out fiduciary responsibilities (other than
trustee responsibilities). However, no allocation or delegation under
this Section 14.2. shall be effective until the person or persons to
whom the responsibilities have been allocated or delegated agree to
assume the responsibilities. The term "trustee responsibilities" as
used herein shall have the meaning set forth in Section 405(c) of ERISA.
The preceding provisions of this Section shall not limit
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the authority of the Administration Committee to appoint one or more
Investment Managers in accordance with Section 14.3.
14.2.2. To designate agents to carry out responsibilities relating
to the Plan, other than fiduciary responsibilities.
14.2.3. To employ such legal, actuarial, medical, accounting,
clerical and other assistance as it may deem appropriate in carrying out
the provisions of this Plan, including one or more persons to render
advice with regard to any responsibility any Named Fiduciary or any
other fiduciary may have under the Plan.
14.2.4. To establish rules and regulations from time to time for
the conduct of the Administration Committee's business and the
administration and effectuation of this Plan.
14.2.5. To administer, interpret, construe and apply this Plan and
to decide all questions which may arise or which may be raised under
this Plan by any Associate, Participant, former Participant, Beneficiary
or other person whatsoever, including but not limited to all questions
relating to eligibility to participate in the Plan, the amount of
service of any Participant, and the amount of benefits to which any
Participant or his Beneficiary may be entitled.
14.2.6. To determine the manner in which the assets of this Plan,
or any part thereof, shall be disbursed.
14.2.7. To the extent provided in Section 7.1., to direct the
investment of any portion of the Trust Fund that is not under the
management and control of the Trustee or an Investment Manager.
14.2.8. To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Administration Committee in the
exercise of authority conferred upon it by this Plan shall be conclusive and
binding upon the Participants and their Beneficiaries. All discretionary
powers conferred upon the Administration Committee shall be absolute.
14.3. INVESTMENT MANAGER.
14.3.1. The Administration Committee may appoint one or more
Investment Managers, as defined in Section 3(38) of ERISA, to manage all
or a portion of the assets of the Plan.
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14.3.2. An Investment Manager shall discharge its duties in
accordance with applicable law and in particular in accordance with
Section 404(a)(l) of ERISA.
14.3.3. An Investment Manager, when appointed, shall have full
power to manage the assets of the Plan for which it has responsibility,
and neither an Employer nor the Administration Committee shall
thereafter have any responsibility for the management of those assets.
14.4. ADMINISTRATION COMMITTEE PROCEDURE.
14.4.1. A majority of the members of the Administration Committee
as constituted at any time shall constitute a quorum, and any action by
a majority of the members present at any meeting, or authorized by a
majority of the members in writing without a meeting, shall constitute
the action of the Administration Committee.
14.4.2. The Administration Committee may designate certain of its
members as authorized to execute any document or documents on behalf of
the Administration Committee, in which event the Administration
Committee shall notify the Trustee of this action and the name or names
of the designated members. The Trustee, an Employer, Participants,
Beneficiaries, and any other party dealing with the Administration
Committee may accept and rely upon any document executed by the
designated members as representing action by the Administration
Committee until the Administration Committee shall file with the Trustee
a written revocation of the authorization of the designated members.
14.5. COMPENSATION OF ADMINISTRATION COMMITTEE.
14.5.1. Members of the Administration Committee shall serve without
compensation unless the Board of Directors shall otherwise determine.
However, in no event shall any member of the Administration Committee who
is an Associate receive compensation from the Plan for his services as a
member of the Administration Committee.
14.5.2. All members shall be reimbursed by the Company for any
necessary or appropriate expenditures incurred in the discharge of
duties as members of the Administration Committee.
14.5.3. The compensation or fees, as the case may be, of all officers,
agents, counsel, the Trustee, or other persons retained or employed by the
Administration Committee shall be fixed by the Administration Committee.
14.6. RESIGNATION AND REMOVAL OF MEMBERS. Any member of the
Administration Committee may resign at any time by giving written notice to
the other members and to the Company effective as therein stated. Any member
of the
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Administration Committee may, at any time, be removed by the Board of
Directors. If a member of the Administration Committee who is an Associate
incurs a Severance, such person shall no longer be a member of the
Administration Committee.
14.7. APPOINTMENT OF SUCCESSORS.
14.7.1. Upon the death, resignation, or removal of any Administration
Committee member, or other termination of a member's status as a member of
the Administration Committee, the Board of Directors may appoint a
successor.
14.7.2. Notice of appointment of a successor member shall be given by
the Board of Directors in writing to the Trustee and to the members of the
Administration Committee.
14.7.3. Upon termination, for any reason, of an Administration
Committee member's status as a member of the Administration Committee,
the member's status as a Named Fiduciary shall concurrently be
terminated, and upon the appointment of a successor Administration
Committee member the successor shall assume the status of a Named
Fiduciary as provided in Section 14.1.
14.8. RECORDS.
14.8.1. The Administration Committee shall keep a record of all its
proceedings and shall keep, or cause to be kept, all such books, accounts,
records or other data as may be necessary or advisable in its judgment for
the administration of the Plan and to properly reflect the affairs
thereof.
14.8.2. However, nothing in this Section 14.8. shall require the
Administration Committee or any member thereof to perform any act which,
pursuant to law or the provisions of this Plan, is the responsibility of
the Plan Administrator, nor shall this Section 14.8. relieve the Plan
Administrator from such responsibility.
14.9. RELIANCE UPON DOCUMENTS AND OPINIONS.
14.9.1. The members of the Administration Committee, the Board of
Directors, the Employers and any person delegated under the provisions
hereof to carry out any fiduciary responsibilities under the Plan
("delegated fiduciary"), shall be entitled to rely upon any tables,
valuations, computations, estimates, certificates and reports furnished
by any consultant, or firm or corporation which employs one or more
consultants, upon any opinions furnished by legal counsel, and upon any
reports furnished by the Trustee. The members of the Administration
Committee, the Board of Directors, the Employers and any delegated
fiduciary shall be fully protected and shall not be liable in any manner
whatsoever for anything done or action taken or suffered in reliance
upon any
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such consultant or firm or corporation which employs one or more
consultants, Trustee, or counsel.
14.9.2. Any and all such things done or actions taken or suffered
by the Administration Committee, the Board of Directors, the Employers
and any delegated fiduciary shall be conclusive and binding on all
Associates, Participants, Beneficiaries, and any other persons
whomsoever, except as otherwise provided by law.
14.9.3. The Administration Committee and any delegated fiduciary
may, but are not required to, rely upon all records of the Employers
with respect to any matter or thing whatsoever, and may likewise treat
those records as conclusive with respect to all Associates,
Participants, Beneficiaries, and any other persons whomsoever, except as
otherwise provided by law.
14.10. REQUIREMENT OF PROOF. The Administration Committee or the
Employers may require satisfactory proof of any matter under this Plan from
or with respect to any Associate, Participant, or Beneficiary, and no person
shall acquire any rights or be entitled to receive any benefits under this
Plan until the required proof shall be furnished.
14.11. RELIANCE ON ADMINISTRATION COMMITTEE MEMORANDUM. Any person
dealing with the Administration Committee may rely on and shall be fully
protected in relying on a certificate or memorandum in writing signed by any
Administration Committee member or other person so authorized, or by the
majority of the members of the Administration Committee, as constituted as of
the date of the certificate or memorandum, as evidence of any action taken or
resolution adopted by the Administration Committee.
14.12. MULTIPLE FIDUCIARY CAPACITY. Any person or group of persons may
serve in more than one fiduciary capacity with respect to the Plan.
14.13. LIMITATION ON LIABILITY.
14.13.1. Except as provided in Part 4 of Title I of ERISA, no
person shall be subject to any liability with respect to his duties
under the Plan unless he acts fraudulently or in bad faith.
14.13.2. No person shall be liable for any breach of fiduciary
responsibility resulting from the act or omission of any other fiduciary
or any person to whom fiduciary responsibilities have been allocated or
delegated, except as provided in Part 4 of Title I of ERISA.
14.13.3. No action or responsibility shall be deemed to be a
fiduciary action or responsibility except to the extent required by
ERISA.
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14.14. INDEMNIFICATION.
14.14.1. To the extent permitted by law, the Employers shall
indemnify each member of the Board of Directors and the Administration
Committee, and any other Associate of an Employer with duties under the
Plan, against expenses (including any amount paid in settlement)
reasonably incurred by him in connection with any claims against him by
reason of his conduct in the performance of his duties under the Plan,
except in relation to matters as to which he acted fraudulently or in
bad faith in the performance of such duties. The preceding right of
indemnification shall pass to the estate of such a person.
14.14.2. The preceding right of indemnification shall be in
addition to any other right to which the Board member or Administration
Committee member or other person may be entitled as a matter of law or
otherwise.
14.15. BONDING.
14.15.1. Except as is prescribed by the Board of Directors, as
provided in Section 412 of ERISA, or as may be required under any other
applicable law, no bond or other security shall be required by any
member of the Administration Committee, or any other fiduciary under
this Plan.
14.15.2. Notwithstanding the foregoing, for purposes of satisfying its
indemnity obligations under Section 14.14., the Employers shall purchase
and pay premiums for one or more policies of insurance. However, this
insurance shall not release the Employers of their liability under the
indemnification provisions.
14.16. PROHIBITION AGAINST CERTAIN ACTIONS.
14.16.1. To the extent prohibited by law, in administering this
Plan the Administration Committee shall not discriminate in favor of any
class of Associates and particularly it shall not discriminate in favor
of Highly Compensated Associates.
14.16.2. The Administration Committee shall not cause the Plan to
engage in any transaction that constitutes a nonexempt prohibited
transaction under Section 4975(c) of the Code or Section 406(a) of ERISA.
14.16.3. All individuals who are fiduciaries with respect to the
Plan (as defined in Section 3(21) of ERISA) shall discharge their
fiduciary duties in accordance with applicable law, and in particular,
in accordance with the standards of conduct contained in Section 404 of
ERISA.
14.17. PLAN EXPENSES. All expenses incurred in the establishment,
administration and operation of the Plan, including but not limited to the
expenses
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incurred by the members of the Administration Committee in exercising their
duties, shall be paid by the Employers if not paid by the Trust Fund.
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ARTICLE 15.
OPERATION AND INVESTMENT OF THE ASOP FUND
15.1. ASOP COMMITTEE.
15.1.1. Except to the extent the Administration Committee is
authorized in Article 14. to supervise the administration of the Plan
and control its operations, the authority to control and manage the
operation and investment of the assets of the ASOP Fund shall be vested
in the ASOP Committee, as provided in this Article.
15.1.2. The ASOP Committee shall have not fewer than five (5)
members, all of whom shall be appointed by the Board of Directors and
shall hold office until resignation, death or removal by the Board of
Directors.
15.1.3. For purposes of ERISA Section 402(a), the members of the ASOP
Committee shall be the Named Fiduciaries with respect to the operation and
investment of the ASOP Fund, except as provided in Sections 8.5. and 8.6.
hereof.
15.1.4. Notwithstanding the foregoing, a Trustee with whom Plan
assets have been placed in trust may be granted exclusive authority and
discretion to manage and control all or any portion of the assets of the
ASOP Fund in accordance with the terms of a Trust Agreement, as
applicable.
15.2. ASOP COMMITTEE POWERS. To the extent provided in this Article 15.,
the ASOP Committee shall have all discretionary powers necessary to supervise
the operation and investment of the ASOP Fund. In addition to any powers and
authority conferred on the ASOP Committee elsewhere in the Plan or by law,
the ASOP Committee shall have, by way of illustration but not by way of
limitation, the following powers and authority:
15.2.1. To allocate fiduciary responsibilities (other than trustee
responsibilities) among the members of the ASOP Committee and to designate
one or more other persons to carry out fiduciary responsibilities (other
than trustee responsibilities). However, no allocation or delegation
under this Subsection 15.2.1. shall be effective until the person or
persons to whom the responsibilities have been allocated or delegated
agree to assume the responsibilities. The term "trustee responsibilities"
as used herein shall have the meaning set forth in Section 405(c) of
ERISA.
15.2.2. To employ such legal, actuarial, medical, accounting,
clerical and other assistance as it may deem appropriate in carrying out
the provisions of this Plan relating to the operation and investment of
the ASOP Fund, including one or more persons to render advice with
regard to any responsibility any Named
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Fiduciary or any other fiduciary may have with respect to the operation
and investment of the ASOP Fund under the terms of the Plan.
15.2.3. To establish rules and regulations from time to time for
the conduct of the ASOP Committee's business and the operation and
investment of the ASOP Fund.
15.2.4. To administer, interpret, construe and apply the provisions
of this Plan relating to the operation and investment of the ASOP Fund
and to decide all questions which may arise or which may be raised under
this Plan by any Associate, Participant, former Participant, Beneficiary
or other person whatsoever, relating to the operation and investment of
the ASOP Fund, and the amount of benefits under the ASOP Fund to which
any Participant or his Beneficiary may be entitled.
15.2.5. To determine the manner in which the assets of the ASOP
Fund, or any part thereof, shall be disbursed.
15.2.6. To direct the investment of the ASOP Fund that is not under
the management and control of the Trustee, if any.
15.2.7. To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate or convenient in the efficient
operation and investment of the ASOP Fund.
Any action taken in good faith by the ASOP Committee in the exercise of
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants and their Beneficiaries. All discretionary powers conferred
upon the ASOP Committee shall be absolute.
15.3. ASOP COMMITTEE PROCEDURE.
15.3.1. A majority of the members of the ASOP Committee as
constituted at any time shall constitute a quorum, and any action by a
majority of the members present at any meeting, or authorized by a
majority of the members in writing without a meeting, shall constitute
the action of the ASOP Committee.
15.3.2. The ASOP Committee may designate certain of its members as
authorized to execute any document or documents on behalf of the ASOP
Committee, in which event the ASOP Committee shall notify the Trustee of
this action and the name or names of the designated members. The
Trustee, the Administration Committee, the Employers, Participants,
Beneficiaries, and any other party dealing with the ASOP Committee may
accept and rely upon any document executed by the designated members as
representing action by the ASOP Committee until the ASOP Committee shall
file with the Trustee a written revocation of the authorization of the
designated members.
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15.4. COMPENSATION OF ASOP COMMITTEE.
15.4.1. Members of the ASOP Committee shall serve without
compensation unless the Board of Directors shall otherwise determine.
However, in no event shall any member of the ASOP Committee who is an
Associate receive compensation from the Plan for his services as a
member of the ASOP Committee.
15.4.2. All members shall be reimbursed by the Employers for any
necessary or appropriate expenditures incurred in the discharge of
duties as members of the ASOP Committee.
15.5. RESIGNATION AND REMOVAL OF MEMBERS. Any member of the ASOP
Committee may resign at any time by giving written notice to the other
members and to the Company effective as therein stated. Any member of
the ASOP Committee may, at any time, be removed by the Board of
Directors. If a member of the ASOP Committee who is an Associate incurs
a Severance, such person shall no longer be a member of the ASOP
Committee.
15.6. APPOINTMENT OF SUCCESSORS.
15.6.1. Upon the death, resignation, or removal of any ASOP
Committee member, or other termination of a member's status as a member
of the ASOP Committee, the Board of Directors may appoint a successor.
15.6.2. Notice of appointment of a successor member shall be given
by the Board of Directors in writing to the Trustee and to the members
of the ASOP Committee.
15.6.3. Upon termination, for any reason, of an ASOP Committee
member's status as a member of the ASOP Committee, the member's status
as a Named Fiduciary shall concurrently be terminated, and upon the
appointment of a successor ASOP Committee member the successor shall
assume the status of a Named Fiduciary as provided in Section 15.1.
15.7. RECORDS.
15.7.1. The ASOP Committee shall keep a record of all its
proceedings and shall keep, or cause to be kept, all such books,
accounts, records or other data as may be necessary or advisable in its
judgment for the ASOP and to properly reflect the affairs thereof.
15.7.2. However, nothing in this Section 15.7. shall require the ASOP
Committee or any member thereof to perform any act which, pursuant to law
or the provisions of this Plan, is the responsibility of the Plan
Administrator, nor shall this Section 15.7. relieve the Plan Administrator
from such responsibility.
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15.8. RELIANCE UPON DOCUMENTS AND OPINIONS.
15.8.1. To the extent permissible under Part 4 of Title I of ERISA,
the members of the ASOP Committee shall be entitled to rely upon any
tables, valuations, computations, estimates, certificates and reports
furnished by any consultant, or firm or corporation which employs one or
more consultants, upon any opinions furnished by legal counsel, and upon
any reports furnished by the Trustee as such documents relate to the
ASOP Fund. To the extent permissible under Part 4 of Title I of ERISA,
the members of the ASOP Committee, the Board of Directors, the
Employers, the Administration Committee and any delegated fiduciary
shall be fully protected and shall not be liable in any manner
whatsoever for anything done or action taken or suffered by the ASOP
Committee in reliance upon any such consultant or firm or corporation
which employs one or more consultants, Trustee, or counsel.
15.8.2. Any and all such things done or actions taken or suffered
by the ASOP Committee and any delegated fiduciary shall be conclusive
and binding on all Associates, Participants, Beneficiaries, and any
other persons whomsoever, except as otherwise provided by law.
15.8.3. To the extent permissible under Part 4 of Title I of ERISA,
the ASOP Committee and any delegated fiduciary may, but are not required
to, rely upon all records of the Employers with respect to any matter or
thing whatsoever, and may likewise treat those records as conclusive
with respect to all Associates, Participants, Beneficiaries, and any
other persons whomsoever, except as otherwise provided by law.
15.9. REQUIREMENT OF PROOF. The ASOP Committee, the Administration
Committee or the Employers may require satisfactory proof of any matter under
this Plan from or with respect to any Associate, Participant, or Beneficiary,
and no person shall acquire any rights or be entitled to receive any benefits
under this Plan until the required proof shall be furnished.
15.10. RELIANCE ON ASOP COMMITTEE MEMORANDUM. Any person dealing with
the ASOP Committee may rely on and shall be fully protected in relying on a
certificate or memorandum in writing signed by any ASOP Committee member or
other person so authorized, or by the majority of the members of the ASOP
Committee, as constituted as of the date of the certificate or memorandum, as
evidence of any action taken or resolution adopted by the ASOP Committee.
15.11. MULTIPLE FIDUCIARY CAPACITY. Any person or group of persons may
serve in more than one fiduciary capacity with respect to the Plan.
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15.12. LIMITATION ON LIABILITY.
15.12.1. Except as provided in Part 4 of Title I of ERISA, no
person shall be subject to any liability with respect to his duties
under the Plan unless he acts fraudulently or in bad faith.
15.12.2. No person shall be liable for any breach of fiduciary
responsibility resulting from the act or omission of any other fiduciary
or any person to whom fiduciary responsibilities have been allocated or
delegated, except as provided in Part 4 of Title I of ERISA.
15.12.3. No action or responsibility shall be deemed to be a
fiduciary action or responsibility except to the extent required by
ERISA.
15.13. INDEMNIFICATION.
15.13.1. To the extent permitted by law, the Employers shall
indemnify each member of the ASOP Committee against expenses (including
any amount paid in settlement) reasonably incurred by him in connection
with any claims against him by reason of his conduct in the performance
of his duties under the Plan, except in relation to matters as to which
he acted fraudulently or in bad faith in the performance of such duties.
The preceding right of indemnification shall pass to the estate of such
a person.
15.13.2. The preceding right of indemnification shall be in
addition to any other right to which the Board member or ASOP Committee
member or other person may be entitled as a matter of law or otherwise.
15.14. BONDING.
15.14.1. Except as is prescribed by the Board of Directors, as
provided in Section 412 of ERISA, or as may be required under any other
applicable law, no bond or other security shall be required by any
member of the ASOP Committee, or any other fiduciary under this Plan.
15.14.2. Notwithstanding the foregoing, for purposes of satisfying its
indemnity obligations under Section 15.13., the Employers shall purchase
and pay premiums for one or more policies of insurance. However, this
insurance shall not release the Employers of their liability under the
indemnification provisions.
15.15. PROHIBITION AGAINST CERTAIN ACTIONS.
15.15.1. To the extent prohibited by law, in administering this
Plan the ASOP Committee shall not discriminate in favor of any class of
Associates and particularly it shall not discriminate in favor of Highly
Compensated Associates.
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15.15.2. The ASOP Committee shall not cause the Plan to engage in any
transaction that constitutes a nonexempt prohibited transaction under
Section 4975(c) of the Code or Section 406(a) of ERISA.
15.15.3. All individuals who are fiduciaries with respect to the
Plan (as defined in Section 3(21) of ERISA) shall discharge their
fiduciary duties in accordance with applicable law, and in particular,
in accordance with the standards of conduct contained in Section 404 of
ERISA.
15.16. PLAN EXPENSES. All expenses incurred in the establishment,
administration and operation of the ASOP Fund, including but not limited to
the expenses incurred by the members of the ASOP Committee in exercising
their duties, shall be paid by the Employers if not paid by the Trust Fund.
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ARTICLE 16.
MERGER OF COMPANY; MERGER OF PLAN
16.1. EFFECT OF REORGANIZATION OR TRANSFER OF ASSETS. In the event of a
consolidation, merger, sale, liquidation, or other transfer of the operating
assets of the Company to any other company, the ultimate successor or
successors to the business of the Company shall automatically be deemed to
have elected to continue this Plan in full force and effect, in the same
manner as if the Plan had been adopted by resolution of its board of
directors, unless the successor(s), by resolution of its board of directors,
shall elect not to so continue this Plan in effect, in which case the Plan
shall automatically be deemed terminated as of the applicable effective date
set forth in the board resolution.
16.2. MERGER RESTRICTION. Notwithstanding any other provision in this
Article, this Plan shall not in whole or in part merge or consolidate with,
or transfer its assets or liabilities to any other plan unless each affected
Participant in this Plan would receive a benefit immediately after the
merger, consolidation, or transfer (if the Plan then terminated) which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan had
then terminated).
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ARTICLE 17.
PLAN TERMINATION AND DISCONTINUANCE OF CONTRIBUTIONS
17.1. PLAN TERMINATION. The Board of Directors may terminate the Plan
and the Trust Agreements at any time by an instrument in writing executed in
the name of the Company, and delivered to the Trustee. Upon and after the
effective date of the termination, an Employer shall not make any further
contributions under the Plan and no contributions need be made by the
Employer applicable to the Plan Year in which the termination occurs, except
as may otherwise be required by applicable law. The rights of all affected
Participants to benefits accrued to the date of termination of the Plan, to
the extent funded as of the date of termination, shall automatically become
fully vested as of that date, to the extent required to comply with the
requirements of Code Section 411.
17.2. DISCONTINUANCE OF CONTRIBUTIONS.
17.2.1. In the event an Employer decides it is impossible or
inadvisable for business reasons to continue to make Employer
contributions under the Plan, the Employer may discontinue contributions
to the Plan. Upon and after the effective date of this discontinuance,
neither the Employer nor any Associates of such Employer shall make any
further contributions under the Plan, and no Employer contributions need
be made by the Employer with respect to the Plan Year in which the
discontinuance occurs, except as may otherwise be required by applicable
law.
17.2.2. The discontinuance of Employer contributions on the part of
an Employer shall not terminate the Plan as to the funds and assets then
held by the Trustee, or operate to accelerate any payments of
distributions to or for the benefit of Participants or Beneficiaries,
and the Trustee shall continue to administer the Trust Fund in
accordance with the provisions of the Plan until all of the obligations
under the Plan shall have been discharged and satisfied.
17.2.3. However, if this discontinuance of Employer contributions
shall cause the Plan to lose its status as a qualified plan under Code
Section 401(a), the Plan shall be terminated in accordance with the
provisions of this Article 17.
17.2.4. On and after the effective date of a complete
discontinuance of an Employer's contributions, the rights of all
affected Participants to benefits accrued to that date, to the extent
funded as of that date, shall automatically become fully vested as of
that date, to the extent required by Code Section 411.
17.3 RIGHTS OF PARTICIPANTS. In the event of the termination of the
Plan, for any cause whatsoever, all assets of the Plan, after payment of
expenses, shall be used for the exclusive benefit of Participants and their
Beneficiaries and no part thereof shall be returned to the Employers, except
as provided in Section 5.12. of this Plan.
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17.4 TRUSTEE'S DUTIES ON TERMINATION.
17.4.1. Upon the termination of the Plan, the Trustee shall proceed
as soon as administratively practicable, but in any event within six
months from the effective date, to reduce all of the assets of the Trust
Fund to cash and/or common stock and other securities in such
proportions as the Administration Committee shall determine (after
approval by the Internal Revenue Service, if necessary or desirable,
with respect to any portion of the assets of the Trust Fund held in
common stock or securities of the Company).
17.4.2. After first deducting the estimated expenses for
liquidation and distribution chargeable to the Trust Fund, and after
setting aside a reasonable reserve for expenses and liabilities
(absolute or contingent) of the Trust, the Administration Committee
shall make required allocations of items of income and expense to the
Accounts.
17.4.3. Following these allocations, the Trustee shall promptly,
after receipt of appropriate instructions from the Administration
Committee, distribute in accordance with Section 11.4. to each former
Participant a benefit equal to the amount credited to his Accounts as of
the date of completion of the liquidation.
17.4.4. The Trustee and the Administration Committee shall continue
to function as such for such period of time as may be necessary for the
winding up of this Plan and for the making of distributions in
accordance with the provisions of this Plan.
17.4.5. Notwithstanding the foregoing, distributions to
Participants upon Plan termination in accordance with this Section 17.4.
shall not be made of amounts attributable to Pre-Tax (401(k))
Contributions, qualified Pre-Tax (401(k)) Matching Contributions or
qualified Nonelective Contributions if the Employer establishes or
maintains a "successor plan" as defined in regulations issued under
Section 401(k)(10) of the Code. In the event benefits are not
distributable upon the termination of the Plan, the Administration
Committee shall direct the Trustee to hold the assets until benefits
become distributable under the Plan, or to transfer such benefits to the
successor plan in accordance with regulations prescribed by the
Secretary of the Treasury.
17.5. PARTIAL TERMINATION.
17.5.1. In the event of a partial termination of the Plan within
the meaning of Code Section 411(d)(3), the interests of affected
Participants in the Trust Fund, as of the date of the partial
termination, shall become nonforfeitable as of that date, to the extent
required by Section 411(d)(3).
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17.5.2. That portion of the assets of the Plan affected by the
partial termination shall be used exclusively for the benefit of the
affected Participants and their Beneficiaries, and no part thereof shall
otherwise be applied.
17.5.3. With respect to Plan assets and Participants affected by a
partial termination, the Administration Committee and the Trustee shall
follow the same procedures and take the same actions prescribed in this
Article 17. in the case of a total termination of the Plan.
17.6. FAILURE TO CONTRIBUTE. The failure of an Employer to contribute to
the Trust in any year, if contributions are not required under the Plan for
that year, shall not constitute a complete discontinuance of contributions to
the Plan.
17.7. ASOP SUSPENSE SUBFUND. In the event of the termination or partial
termination of the Plan, any shares of Company Stock remaining in the ASOP
Suspense Subfund shall revert to the Employer, subject to the terms of any
applicable financing agreements.
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ARTICLE 18.
APPLICATION FOR BENEFITS
18.1. APPLICATION FOR BENEFITS. The Administration Committee may require
any person claiming benefits under the Plan to submit an application
therefor, together with such documents and information as the Administration
Committee may require. In the case of any person suffering from a disability
which prevents the claimant from making personal application for benefits,
the Administration Committee may, in its discretion, permit another person
acting on his behalf to submit the application.
18.2. ACTION ON APPLICATION.
18.2.1. Within ninety days following receipt of an application and
all necessary documents and information, the Administration Committee's
authorized delegate reviewing the claim shall furnish the claimant with
written notice of the decision rendered with respect to the application.
18.2.2. In the case of a denial of the claimant's application, the
written notice shall set forth:
18.2.2.1. The specific reasons for the denial, with reference
to the Plan provisions upon which the denial is based;
18.2.2.2. A description of any additional information or
material necessary for perfection of the application (together with
an explanation why the material or information is necessary); and
18.2.2.3. An explanation of the Plan's claim review procedure.
18.2.3. A claimant who wishes to contest the denial of his
application for benefits or to contest the amount of benefits payable to
him shall follow the procedures for an appeal of benefits as set forth
in Section 18.3. below, and shall exhaust such administrative procedures
prior to seeking any other form of relief.
18.3. APPEALS.
18.3.1. A claimant who does not agree with the decision rendered
with respect to his application may appeal the decision to the
Administration Committee. The appeal shall be made, in writing, within
sixty (60) days after the date of notice of the decision with respect to
the application. If the application has neither been approved nor denied
within the ninety-day period provided in Section 18.2. above, then the
appeal shall be made within sixty (60) days after the expiration of the
ninety-day period.
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18.3.2. The claimant may request that his application be given full
and fair review by the Administration Committee. The claimant may
review all pertinent documents and submit issues and comments in writing
in connection with the appeal.
18.3.3. The decision of the Administration Committee shall be made
promptly, and not later than sixty (60) days after the Administration
Committee's receipt of a request for review, unless special
circumstances require an extension of time for processing, in which case
a decision shall be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of a request for review.
18.3.4. The decision on review shall be in writing and shall
include specific reasons for the decision, written in a manner
calculated to be understood by the claimant with specific reference to
the pertinent Plan provisions upon which the decision is based.
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ARTICLE 19.
LIMITATIONS ON CONTRIBUTIONS
19.1. GENERAL RULE.
19.1.1. Notwithstanding anything to the contrary contained in this
Plan the total Annual Additions under this Plan to a Participant's Plan
Accounts for any Plan Year shall not exceed the lesser of:
19.1.1.1. Thirty Thousand Dollars ($30,000), as that amount may
be adjusted for cost of living increases in accordance with Section
415(d) of the Code; or
19.1.1.2. Twenty-five percent of the Participant's total
Compensation from the Employer and any Affiliated Companies for the
year, excluding amounts otherwise treated as Annual Additions under
Paragraph 19.2.1.3.
19.1.2. For purposes of this Article 19., the Employer has elected a
"Limitation Year" corresponding to the Plan Year.
19.2. ANNUAL ADDITIONS.
19.2.1. For purposes of Section 19.1., the term "Annual Additions"
shall mean, for any Plan Year, the sum of
19.2.1.1. the amount credited to the Participant's Accounts
from Employer contributions for such Plan Year, except that the
Annual Addition shall exclude the portion of the Employer
contribution (attributable to the Participant's Employer)
representing interest on an Exempt Loan, provided that no more than
one-third of the Employer contributions to the ASOP Fund deductible
under Section 404(a)(9) of the Code for a Limitation Year are
allocated to Highly Compensated Associates;
19.2.1.2. any Associate contributions for the Plan Year; and
19.2.1.3. any amounts described in Sections 415(l)(1) or
419(A)(d)(2) of the Code.
The term "Associate contributions," for purposes of the preceding
sentence, shall mean amounts considered contributed by the Associate and
which do not qualify for tax deferral treatment under Section 401(k) of
the Code.
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19.2.2. Notwithstanding anything to the contrary in this Section,
the Annual Addition for any Limitation Year beginning before January 1,
1987 shall not be recomputed to treat all Associate contributions as
Annual Additions.
19.3. OTHER DEFINED CONTRIBUTION PLANS. If the Employer or an Affiliated
Company is contributing to any other qualified defined contribution plan (as
defined in Section 415(k) of the Code) for its Associates, some or all of
whom may be Participants in this Plan, then contributions to the other plan
shall be aggregated with contributions under this Plan for the purposes of
applying the limitations of Section 18.1.
19.4. COMBINED PLAN LIMITATION (DEFINED BENEFIT PLAN). In the event a
Participant hereunder also is a participant in any qualified defined benefit
plan (within the meaning of Section 415(k) of the Code) of the Employer or an
Affiliated Company, then the benefit payable under such defined benefit plan,
or any of them, shall be reduced for so long and to the extent necessary to
provide that the sum of the "defined benefit fraction" and the "defined
contribution fraction" for any Plan Year, as defined below, shall not exceed
1.
19.4.1. "Defined Benefit Fraction" shall be a fraction, the
numerator of which is the projected benefit of a Participant under all
qualified defined benefit plans adopted by the Employer or an Affiliated
Company expressed as either an annual straight life annuity or a
qualified joint and survivor annuity providing the maximum permissible
survivor benefit (determined as of the close of the Plan Year), and the
denominator of which is the lesser of (i) the maximum dollar amount
otherwise allowable for such Plan Year under applicable law times 1.25
or (ii) the percentage of compensation limit for such Plan Year times
1.4.
19.4.2. "Defined Contribution Fraction" shall be a fraction, the
numerator of which is the sum of the annual additions to the
Participant's account under this Plan and any other defined contribution
plans adopted by the Employer or an Affiliated Company for each Plan
Year, and the denominator of which is the lesser for each such Plan Year
of (i) maximum Annual Addition which could have been made under this
Plan and any other defined contribution plans adopted by the Employer or
an Affiliated Company for such Plan Year and for each prior Plan Year of
service with the Employer or an Affiliated Company times 1.25 or (ii)
the amount determined under the percentage of compensation limit for
such Plan Year times 1.4.
19.5. ADJUSTMENTS FOR EXCESS ANNUAL ADDITIONS. In general, Annual
Additions for any Plan Year under this Plan and any other defined
contribution plan (as defined in Code Section 414(i)) or defined benefit plan
(as defined in Code Section 414(j)) maintained by the Employer or an
Affiliated Company will be determined so as to avoid Annual Additions in
excess of the limitations set forth in Sections 19.1. through 19.4. However,
if as a result of a reasonable error in estimating the amount of the Annual
Additions to a Participant's Accounts under this Plan, such Annual Additions
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(after giving effect to the maximum permissible adjustments under the other
plans) exceed the applicable limitations described in Sections 19.1. through
19.4., such excess Annual Additions shall be corrected as follows:
19.5.1. If the Participant made any voluntary after-tax
contributions to this or any other defined contribution plan that is
maintained by the Employer or an Affiliated Company, which after-tax
contributions were not matched by matching contributions, within the
meaning of Code Section 401(m), such after-tax contributions, and any
gains attributable thereto, shall be returned to the Participant to the
extent of any excess Annual Additions.
19.5.2. If excess Annual Additions remain after the application of
the above rule, if the Participant made any Pre-Tax (401(k))
Contributions to this or any other defined contribution plan that is
maintained by the Employer or an Affiliated Company, which Pre-Tax
(401(k)) Contributions were not matched by matching contributions,
within the meaning of Code Section 401(m), such Pre-Tax (401(k))
Contributions, and any gains attributable thereto, shall be returned to
the Participant to the extent of any excess Annual Additions.
19.5.3. If excess Annual Additions remain after the application of
the above rule, if the Participant made any after-tax contributions to
this or any other defined contribution plan that is maintained by the
Employer or an Affiliated Company, which after-tax contributions were
matched by matching contributions, within the meaning of Code Section
401(m), any such after-tax contributions, and any gains attributable
thereto, shall be returned to the Participant and any matching
contributions attributable thereto, and any gains attributable thereto,
shall be reduced to the extent necessary to eliminate any remaining
excess Annual Additions.
19.5.4. If excess Annual Additions remain after the application of
the above rule, if the Participant made any Pre-Tax (401(k))
Contributions to this or any other defined contribution plan that is
maintained by the Employer or an Affiliated Company, which Pre-Tax
(401(k)) Contributions were matched by matching contributions, within
the meaning of Code Section 401(m), any such Pre-Tax (401(k))
Contributions, and any gains attributable thereto, shall be returned to
the Participant and any matching contributions attributable thereto, and
any gains attributable thereto, shall be reduced to the extent necessary
to eliminate any remaining excess Annual Additions.
19.5.5. If excess Annual Additions remain after the application of
the above rule, any other Employer contributions, and any gains
attributable thereto, shall be reduced to the extent necessary to
eliminate any remaining excess Annual Additions.
19.6. DISPOSITION OF EXCESS EMPLOYER CONTRIBUTION AMOUNTS. Any excess
Annual Additions attributable to Employer contributions on behalf of a
Participant for
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any Plan Year, other than Pre-Tax (401(k)) Contributions returned to the
Participant in accordance with Section 19.5., shall be held unallocated in a
suspense account for the Plan Year and applied to reduce the Employer
contributions for the succeeding Plan Year, or Years, if necessary. No
investment gains or losses shall be allocated to a suspense account
established for this purpose.
19.7. AFFILIATED COMPANY. For purposes of this Article 19., the status
of an entity as an Affiliated Company shall be determined by reference to the
percentage tests set forth in Code Section 415(h).
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ARTICLE 20.
RESTRICTION ON ALIENATION
20.1 GENERAL RESTRICTIONS AGAINST ALIENATION.
20.1.1. The interest of any Participant or Beneficiary in the income,
benefits, payments, claims or rights hereunder, or in the Trust Fund shall
not in any event be subject to sale, assignment, hypothecation, or
transfer. Each Participant and Beneficiary is prohibited from
anticipating, encumbering, assigning, or in any manner alienating his or
her interest under the Trust Fund, and is without power to do so, except
as may otherwise be provided for in the Trust Agreement. The interest of
any Participant or Beneficiary shall not be liable or subject to his
debts, liabilities, or obligations, now contracted, or which may be
subsequently contracted. The interest of any Participant or Beneficiary
shall be free from all claims, liabilities, bankruptcy proceedings, or
other legal process now or hereafter incurred or arising; and the interest
or any part thereof, shall not be subject to any judgment rendered against
the Participant or Beneficiary.
20.1.2. In the event any person attempts to take any action
contrary to this Article 20., that action shall be void and the
Employers, the Administration Committee, the Trustees and all
Participants and their Beneficiaries, may disregard that action and are
not in any manner bound thereby, and they, and each of them separately,
shall suffer no liability for any disregard of that action, and shall be
reimbursed on demand out of the Trust Fund for the amount of any loss,
cost or expense incurred as a result of disregarding or of acting in
disregard of that action.
20.1.3. The preceding provisions of this Section 20.1. shall be
interpreted and applied by the Administration Committee in accordance
with the requirements of Code Section 401(a)(13) as construed and
interpreted by authoritative judicial and administrative rulings and
regulations.
20.2. NONCONFORMING DISTRIBUTIONS UNDER COURT ORDER.
20.2.1. In the event that a court with jurisdiction over the Plan
and the Trust Fund shall issue an order or render a judgment requiring
that all or part of a Participant's interest under the Plan and in the
Trust Fund be paid to a spouse, former spouse and/or children of the
Participant by reason of or in connection with the marital dissolution
and/or marital separation of the Participant and the spouse, and/or some
other similar proceeding involving marital rights and property
interests, then notwithstanding the provisions of Section 20.1. the
Administration Committee may, in its absolute discretion, direct the
applicable Trustee to comply with that court order or judgment and
distribute assets of the Trust Fund in accordance therewith.
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20.2.2. The Administration Committee's decision with respect to
compliance with any such court order or judgment shall be made in its
absolute discretion and shall be binding upon the Trustee and all
Participants and their Beneficiaries, provided, however, that the
Administration Committee in the exercise of its discretion shall not
make payments in accordance with the terms of an order which is not a
qualified domestic relations order or which the Administration Committee
determines would jeopardize the continued qualification of the Plan and
Trust under Section 401 of the Code. Notwithstanding the foregoing, if
a domestic relations order requires payment to an alternate payee prior
to the date the Participant attains age fifty (50), but otherwise
satisfies the requirements for a qualified domestic relations order
under Code Section 414(p), the Administration Committee may make a
distribution to the alternate payee prior to the date the Participant
attains age fifty (50) as if such distribution is required by a
qualified domestic relations order.
20.2.3. Neither the Plan, the Employers, the Administration
Committee nor the Trustee shall be liable in any manner to any person,
including any Participant or Beneficiary, for complying with any such
court order or judgment.
20.2.4. Nothing in this Section 20.2. shall be interpreted as
placing upon the Employers, the Administration Committee or any Trustee
any duty or obligation to comply with any such court order or judgment.
The Administration Committee may, if in its absolute discretion it deems
it to be in the best interests of the Plan and the Participants,
determine that any such court order or judgment shall be resisted by
means of judicial appeal or other available judicial remedy, and in that
event the Trustee shall act in accordance with the Administration
Committee's directions.
20.2.5. The Administration Committee shall adopt procedures and
provide notifications to a Participant and alternate payees in
connection with a qualified domestic relations order, to the extent
required under Code Section 414(p).
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ARTICLE 21.
PLAN AMENDMENTS
21.1. AMENDMENTS. The Company, acting through its Board of Directors may
at any time, and from time to time, amend the Plan by an instrument in
writing executed in the name of the Company and delivered to the applicable
Trustee. Notwithstanding the foregoing, to the extent required by law, no
amendment shall be made at any time, the effect of which would be:
21.1.1. To cause any assets of the Trust Fund to be used for or
diverted to purposes other than providing benefits to the Participants
and their Beneficiaries, and defraying reasonable expenses of
administering the Plan, except as provided in Section 5.12.;
21.1.2. To have any retroactive effect so as to deprive any
Participant or Beneficiary of any accrued benefit to which he would be
entitled under this Plan if his employment were terminated immediately
before the amendment, to the extent so doing would contravene Code
Section 411(d)(6);
21.1.3. To eliminate or reduce a subsidy or early retirement
benefit or an optional form of benefit to the extent so doing would
contravene Code Section 411(d)(6); or
21.1.4. To increase the responsibilities or liabilities of a
Trustee or an Investment Manager without his written consent.
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ARTICLE 22.
MISCELLANEOUS
22.1. NO ENLARGEMENT OF ASSOCIATE RIGHTS.
22.1.1. This Plan is strictly a voluntary undertaking on the part
of the Company and shall not be deemed to constitute a contract between
the Company or any Employer and any Associate, or to be consideration
for, or an inducement to, or a condition of, the employment of any
Associate.
22.1.2. Nothing contained in this Plan or the Trust shall be deemed
to give any Associate the right to be retained in the employ of the
Company or an Employer or to interfere with the right of the Company or
an Employer to discharge or retire any Associate at any time.
22.1.3. No Associate, nor any other person, shall have any right to
or interest in any portion of the Trust Fund other than as specifically
provided in this Plan.
22.2. MAILING OF PAYMENTS; LAPSED BENEFITS.
22.2.1. All payments under the Plan shall be delivered in person or
mailed to the last address of the Participant (or, in the case of the
death of the Participant, to the last address of any other person
entitled to such payments under the terms of the Plan) furnished
pursuant to Section 22.3. below.
22.2.2. In the event that a benefit is payable under this Plan to a
Participant or any other person and after reasonable efforts such person
cannot be located for the purpose of paying the benefit for a period of
three (3) consecutive years, the benefit shall be forfeited and as soon
thereafter as practicable shall be applied to reduce contributions by
the Employer who was the Employer of the Participant as of the
Participant's Severance Date. In the event any person entitled to
payment of a benefit that has been forfeited in accordance with this
Section 22.2. submits a claim for such benefit, payment shall be made to
such person out of current forfeitures, or if necessary, such Employer
shall make an additional contribution for purposes of paying such
benefit.
22.2.3. For purposes of this Section 22.2., the term "Beneficiary"
shall include any person entitled under Section 12.3. to receive the
interest of a deceased Participant or deceased designated Beneficiary.
It is the intention of this provision that the benefit will be
distributed to an eligible Beneficiary in a lower priority category
under Section 12.3. if no eligible Beneficiary in a higher priority
category can be located by the Administration Committee after reasonable
efforts have been made.
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22.2.4. The Accounts of a Participant shall continue to be
maintained until the amounts in the Accounts are paid to the Participant
or his Beneficiary. Notwithstanding the foregoing, in the event that the
Plan is terminated, the following rules shall apply:
22.2.4.1. All Participants (including Participants who have
not previously claimed their benefits under the Plan) shall be
notified of their right to receive a distribution of their
interests in the Plan;
22.2.4.2. All Participants shall be given a reasonable length
of time, which shall be specified in the notice, in which to claim
their benefits;
22.2.4.3. All Participants (and their Beneficiaries) who do
not claim their benefits within the designated time period shall be
presumed to be dead. The Accounts of such Participants shall be
forfeited at such time. These forfeitures shall be disposed of
according to rules prescribed by the Administration Committee,
which rules shall be consistent with applicable law.
22.2.4.4. The Administration Committee shall prescribe such
rules as it may deem necessary or appropriate with respect to the
notice and forfeiture rules stated above.
22.2.5. Should it be determined that the preceding rules relating to
forfeiture of benefits upon Plan termination are inconsistent with any of
the provisions of the Code and/or ERISA, these provisions shall become
inoperative without the need for a Plan amendment and the Administration
Committee shall prescribe rules that are consistent with the applicable
provisions of the Code and/or ERISA.
22.3. ADDRESSES. Each Participant shall be responsible for furnishing
the Administration Committee with his correct current address and the correct
current name and address of his Beneficiary or Beneficiaries.
22.4. NOTICES AND COMMUNICATIONS. All applications, notices,
designations, elections, investment directions, statements and other
communications from and to Participants shall be in writing, on forms
prescribed or approved by the Administration Committee. A communication from
a Participant shall be mailed or delivered to the Administration Committee or
such other place as the Administration Committee may have authorized in
writing, and shall be deemed to have been given when received by the
Administration Committee or such other place authorized by the Administration
Committee to receive such communication. A notice or communication to a
participant shall be deemed to have been delivered and received by the
Participant when it is deposited in the United States Mail with postage
prepaid, addressed to the Participant or Beneficiary at his/her last address
of record with the Administration Committee. Notwithstanding the foregoing,
to the extent permitted by applicable law, and not
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inconsistent with the terms of the Plan, the Administration Committee may
make telephonic or other electronic communication or filing methods available
for certain elections, designations, investment directions or applications
for benefits by Participants and for certain notices, statements or other
communications to Participants.
22.5. REPORTING AND DISCLOSURE. The Plan Administrator shall be
responsible for the reporting and disclosure of information required to be
reported or disclosed by the Plan Administrator pursuant to ERISA or any
other applicable law.
22.6. INTERPRETATION.
22.6.1. Article and Section headings are for convenient reference
only and shall not be deemed to be part of the substance of this
instrument or in any way to enlarge or limit the contents of any Article
or Section. Unless the context clearly indicates otherwise, masculine
gender shall include the feminine, and the singular shall include the
plural and the plural the singular.
22.6.2. The provisions of this Plan shall in all cases be
interpreted in a manner that is consistent with this Plan satisfying the
requirements (of Code Sections 401(a) and 401(k) and related statutes)
for qualification as a qualified cash or deferred arrangement.
22.7. WITHHOLDING FOR TAXES. Any payments out of the Trust Fund may be
subject to withholding for taxes as may be required by any applicable federal
or state law.
22.8. LIMITATION ON COMPANY AND EMPLOYER; ADMINISTRATION COMMITTEE AND
TRUSTEE LIABILITY. Any benefits payable under this Plan shall be paid or
provided for solely from the Trust Fund and neither any Employer, the ASOP
Committee, the Administration Committee nor the Trustee assume any
responsibility for the sufficiency of the assets of the Trust to provide the
benefits payable hereunder.
22.9. SUCCESSORS AND ASSIGNS. This Plan and the Trust established
hereunder shall inure to the benefit of, and be binding upon, the parties
hereto and their successors and assigns.
22.10. COUNTERPARTS. This Plan document may be executed in any number of
identical counterparts, each of which shall be deemed a complete original in
itself and may be introduced in evidence or used for any other purpose
without the production of any other counterparts.
22.11. RELEASES, CONSENTS. The Administration Committee may in its sole
discretion require such consents, releases or other documents or information
in connection with any distribution or other action affecting a Participant's
Accounts hereunder, including, but not limited to, the consent of a spouse in
connection with any election or direction by a Participant; provided,
however, that the Administration
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Committee shall have no obligation to require or obtain any such consent; and
provided further, that the Administration Committee may, with respect to
information pertaining to a Participant, including, but not limited to, the
Participant's marital status, rely on such information as the Participant
provides.
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ARTICLE 23.
TOP-HEAVY PLAN RULES
23.1. APPLICABILITY.
23.1.1. Notwithstanding any provision in this Plan to the contrary,
the provisions of this Article 23. shall apply in the case of any Plan
Year in which the Plan is determined to be a Top-Heavy Plan under the
rules of Section 23.3.
23.1.2. Except as is expressly provided to the contrary, the rules
of this Article 23. shall be applied after the application of the
Affiliated Company rules of Code Section 414.
23.2. DEFINITIONS.
23.2.1. For purposes of this Article 23., the term "Key Associate"
shall mean any Associate or former Associate who, at any time during the
Plan Year or any of the four (4) preceding Plan Years, is or was --
23.2.1.1. An officer of the Employer having an annual
compensation greater than fifty percent (50%) of the amount in
effect under Code Section 415(b)(1)(A) for this Plan Year.
However, no more than fifty (50) Associates (or, if lesser, the
greater of three (3) or ten percent (10%) of the Associates) shall
be treated as officers;
23.2.1.2. One of the ten (10) employees having annual
compensation from the Employer of more than the limitation in
effect under Code Section 415(c)(1)(A) and owning (or considered as
owning within the meaning of Code Section 318) the largest
interests in the Employer. For this purpose, if two (2) Associates
have the same interest in the Employer, the employee having greater
annual compensation from the Employer shall be treated as having a
larger interest;
23.2.1.3. A Five Percent Owner of the Employer; or
23.2.1.4. A One Percent Owner of the Employer having an annual
compensation from the Employer of more than one hundred fifty
thousand dollars ($150,000).
23.2.2. For purposes of this Section 23.2., the term "Five Percent
Owner" means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Employer. The rules of Subsections (b), (c), and (m) of Code Section
414 shall not apply for purposes of applying these
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ownership rules. Thus, this ownership test shall be applied separately with
respect to every Affiliated Company.
23.2.3. For purposes of this Section 23.2., the term "One Percent
Owner" means any person who would be described in Subsection 23.2.2. if
"one percent (1%)" were substituted for "five percent (5%)" each place
where it appears therein.
23.2.4. For purposes of this Section 23.2., the rules of Code
Section 318(a)(2)(C) shall be applied by substituting "five percent
(5%)" for "fifty percent (50%)."
23.2.5. For purposes of this Article 23., the term "Non-Key
Associate" shall mean any Associate who is not a Key Associate.
23.2.6. For purposes of this Article 23., the terms "Key Associate"
and "Non-Key Associate" include their Beneficiaries.
23.3. TOP-HEAVY STATUS.
23.3.1. The term "Top-Heavy Plan" means, with respect to any Plan
Year --
23.3.1.1. Any defined benefit plan if, as of the Determination
Date, the present value of the cumulative accrued benefits under
the Plan for Key Associates exceeds sixty percent (60%) of the
present value of the cumulative accrued benefits under the plan for
all Associates, and
23.3.1.2. Any defined contribution plan if, as of the
Determination Date, the aggregate of the account balances of Key
Associates under the Plan exceeds sixty percent (60%) of the
present value of the aggregate of the account balances of all
Associates under the plan.
For purposes of this Subsection 23.3.1., the term "Determination Date"
means, with respect to any Plan Year, the last day of the preceding Plan
Year. In the case of the first Plan Year of any plan, the term
"Determination Date" shall mean the last day of that Plan Year.
The present value of account balances under a defined contribution plan
shall be determined as of the most recent valuation date. The present
value of accrued benefits under a defined benefit plan shall be determined
as of the same valuation date as used for computing plan costs for minimum
funding. The present value of the cumulative accrued benefits of a
Non-Key Associate shall be determined under either:
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23.3.1.3. the method, if any, that uniformly applies for
accrual purposes under all plans maintained by affiliated
companies, within the meaning of Code Sections 414(b), (c), (m) or
(o); or
23.3.1.4. if there is no such method, as if such benefit
accrued not more rapidly than the lowest accrual rate permitted
under the fractional accrual rate of Section 411(b)(1)(C) of the
Code.
23.3.2. Each plan maintained by the Employer required to be
included in an Aggregation Group shall be treated as a Top-Heavy Plan if
the Aggregation Group is a Top-Heavy Group. If the Aggregation Group is
not a Top-Heavy Group no plan in such group shall be a Top-Heavy Plan.
23.3.2.1. The term "Aggregation Group" means --
23.3.2.1.1. Each Plan of the Employer in which a Key
Associate is a Participant, and
23.3.2.1.2. Each other plan of the Employer which enables
any plan described in Subparagraph 23.3.2.1.1. to meet the
requirements of Code Sections 401(a)(4) or 410.
Also, any plan not required to be included in an Aggregation Group
under the preceding rules may be treated as being part of such group
if the group would continue to meet the requirements of Code Sections
401(a)(4) and 410 with the plan being taken into account.
23.3.2.2. The term "Top-Heavy Group" means any Aggregation
Group if the sum (as of the Determination Date) of --
23.3.2.2.1. The present value of the cumulative accrued
benefits for Key Associates under all defined benefit plans
included in the group, and
23.3.2.2.2. The aggregate of the account balances of Key
Associates under all defined contribution plans included in
the group exceeds sixty percent (60%) of a similar sum
determined for all Associates.
23.3.2.3. For purposes of determining --
23.3.2.3.1. The present value of the cumulative accrued
benefit of any Associate, or
23.3.2.3.2. The amount of the account balance of any
Associate,
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such present value or amount shall be increased by the aggregate
distributions made with respect to the Associate under the plan
during the five (5) year period ending on the Determination Date.
The preceding rule shall also apply to distributions under a
terminated plan which, if it had not been terminated, would have been
required to be included in an Aggregation Group. Also, any rollover
contribution or similar transfer initiated by the Associate and made
after December 31, 1983 to a plan shall not be taken into account
with respect to the transferee plan for purposes of determining
whether such plan is a Top-Heavy Plan (or whether any Aggregation
Group which includes such plan is a Top-Heavy Group).
23.3.3. If any individual is a Non-Key Associate with respect to
any plan for any Plan Year, but the individual was a Key Associate with
respect to the plan for any prior Plan Year, any accrued benefit for the
individual (and the account balance of the individual) shall not be
taken into account for purposes of this Section 23.3.
23.3.4. If any individual has not performed any services for the
Employer at any time during the five (5) year period ending on the
Determination Date, any accrued benefit for such individual (and the
account balance of the individual) shall not be taken into account for
purposes of this Section 23.3.
23.4. MINIMUM CONTRIBUTIONS. For each Plan Year in which the Plan is
Top-Heavy, the minimum contributions for that year shall be determined in
accordance with the rules of this Section 23.4.
23.4.1. Except as provided below, the minimum contribution
(excluding amounts deferred under a cash or deferred arrangement under
Section 401(k) of the Code and any employer contributions taken into
account under Section 401(k)(3) or 401(m)(3) of the Code) for each
Non-Key Associate who has not separated from service as of the last day
of the Plan Year shall be not less than three percent (3%) of his
Compensation, regardless of whether the Non-Key Associate has less than
1,000 Hours of Service during such Plan Year or elected to make Pre-Tax
(401(k)) Contributions to the Plan for such year.
23.4.2. Subject to the following rules of this Subsection 23.4.2., the
percentage set forth in Subsection 23.4.1. above shall not be required to
exceed the percentage at which contributions (including amounts deferred
under a cash or deferred arrangement under Section 401(k) of the Code and
any employer contributions taken into account under Section 401(k)(3) or
401(m)(3) of the Code) are made (or are required to be made) under the
Plan for the year for the Key Associate for whom the percentage is the
highest for the year. This determination shall be made by dividing the
contributions for each Key Associate by so much of his total compensation
for the year as does not exceed two
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hundred thousand dollars ($200,000), as adjusted in accordance with Code
Section 401(a)(17). For purposes of this Subsection 23.4.1., all
defined contribution plans required to be included in an Aggregation
Group shall be treated as one plan. However, the rules of this
Subsection 23.4.1. shall not apply to any plan required to be included
in an Aggregation Group if the plan enables a defined benefit plan to
meet the requirements of Code Sections 401(a)(4) or 410.
23.4.3. The requirements of this Section 23.4. must be satisfied
without taking into account contributions under chapter 2 or 21 of the
Code, title II of the Social Security Act, or any other Federal or State
law.
23.4.4. In the event a Participant is covered by both a defined
contribution and a defined benefit plan maintained by the Employer, both
of which are determined to be Top Heavy Plans, the defined benefit
minimum, offset by the benefits provided under the defined contribution
plan, shall be provided under the defined benefit plan.
23.4.5. In no instance may the Plan take into account an Associate's
compensation in excess of the first two hundred thousand dollars
($200,000) (or such greater amount as may be permitted pursuant to Section
401(a)(17) of the Code). For purposes of this Section 23.4., an
Associate's Compensation shall be as defined in Section 2.15. for purposes
of this Article 23.
23.5. MAXIMUM ANNUAL ADDITION.
23.5.1. Except as set forth below, in the case of any Top-Heavy
Plan the rules of Code Section 415(e)(2)(B) and (3)(B) shall be applied
by substituting "1.0" for "1.25."
23.5.2. The rule set forth in Subsection 23.5.1. above shall not
apply if the requirements of both Paragraphs 23.5.2.1. and 23.5.2.2.,
below, are satisfied.
23.5.2.1. The requirements of this Paragraph 23.5.2.1. are
satisfied if the rules of Subsection 23.4.1. above would be
satisfied after substituting "four percent (4%)" for "three percent
(3%)" where it appears therein with respect to participants covered
only under a defined contribution plan.
23.5.2.2. The requirements of this Paragraph 23.5.2.2. are
satisfied if the Plan would not be a Top-Heavy Plan if "ninety
percent (90%)" were substituted for "sixty percent (60%)" each
place it appears in Subsection 23.3.1.
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23.5.3. The rules of Subsection 23.5.1. shall not apply with
respect to any Associate as long as there are no --
23.5.3.1. Profit Sharing Contributions, forfeitures, or voluntary
nondeductible contributions allocated to the Associate under a
defined contribution plan maintained by the Employer, or
23.5.3.2. Accruals by the Associate under a defined benefit plan
maintained by the Employer.
23.6. VESTING RULES. In the event that the Plan is determined to be
Top-Heavy in accordance with the rules of this Article 23., then the vested
status of each Non-Key Associate as of such date shall not be less than as
determined under the vesting schedule set forth below:
Years of Service Vested Interest
---------------- ---------------
2 20%
3 40%
4 60%
5 80%
6 or more 100%
If the Plan ceases to be a Top-Heavy Plan for any Plan Year, the election in
Section 9.3. shall apply.
23.7. NON-ELIGIBLE ASSOCIATES. The rules of this Article 23. shall not
apply to any Associate included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more employers if there
is evidence that retirement benefits were the subject of good faith
bargaining between such employee representatives and the employer or
employers.
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IN WITNESS WHEREOF, in order to record the adoption of this Plan, FCG
Enterprises, Inc. has caused this instrument to be executed by its duly
authorized officer this day of __________________, 1997.
FCG ENTERPRISES, INC.
By: ________________________________
Title: _____________________________
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FCG ENTERPRISES, INC.
FIRST AMENDMENT TO THE SECOND
AMENDED AND RESTATED ASSOCIATE 401(k)
AND STOCK OWNERSHIP PLAN
WHEREAS, FCG Enterprises, Inc., a California corporation (the "Company")
has established and maintains the Associate 401(k) and Stock Ownership Plan, as
amended and restated as of December 1, 1995 and as amended from time to time
thereafter (the "ASOP"); and
WHEREAS, the Board of Directors of the Company (the "Board") desires to
amend the ASOP in connection with the initial public offering of the Company's
common stock; and
WHEREAS, the Board desires to specify certain contributions that will be
made to the ASOP with respect to calendar year 1997;
NOW, THEREFORE, BE IT RESOLVED, that the ASOP is amended as follows,
effective as of the date this Fourth Amendment is approved by the Board:
1. Section 5.3.2 is amended to read as follows:
5.3.2. Notwithstanding the foregoing, the Company may, in its sole
discretion, cause the Employers in any Plan Year to make a First Share
Contribution on behalf of any or all Eligible Associates without regard to
whether such Eligible Associate has previously received a First Share
Contribution. Such First Share Contribution shall be allocated per capita
to the First Share Account of each Eligible Associate. In the event that
application of Section 401(a)(4) of the Internal Revenue Code would prevent
the allocation of First Share Contributions as provided herein for any Plan
Year, such Contributions shall be curtailed in such manner as the
Administration Committee determines in its discretion, including
curtailment of the contributions beginning with the Participant entitled to
an allocation whose compensation is greatest for such Plan Year.
2. The following text shall be added to the end of Section 5.3.3:
With respect to Plan Years 1996 and 1997, the Company made (or will make) a
First Share Contribution on behalf of each Eligible Associate hired in such
Plan Year. Such First Share Contributions were sufficient to provide for
the allocation of 50 shares of Company Stock (pre-split) to the First Share
Account of each such Eligible Associate. With respect to Plan Year 1997,
the Company shall make a First Share Contribution, designated as a loan
repayment contribution, sufficient to provide for the allocation of 250
shares of Company common stock (pre-split) to the First Share Account of
each Eligible Associate who was employed by the Employers on November 26,
1997 and who either is regularly employed for at least 30 hours per week or
has a Year of Vesting Service in such Plan Year. The Company shall make an
additional First Share Contribution for Limitation years after 1997, in a
manner consistent with Code Section
1.
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401(a)(4), in an amount sufficient to provide for the allocation to
Participants' accounts of any excess Annual Additions attributable to the
1997 First Share Contribution of 250 shares of Company Common Stock.
3. Sections 19.5.3, 19.5.4 and 19.5.5 shall be deleted, and a new Section
19.5.3 shall be added to read as follows:
If excess Annual Additions remain after the application of the above rule,
the excess amounts shall be used to reduce Employer contributions to the
ASOP for the Participant for the next Limitation Year (and succeeding
Limitation Years, as necessary) in accordance with Treas. Regs. section
1.415-6(b)(6)(ii); provided, however, if the Participant is not a
Participant at the end of such Limitation Year, then the excess amounts
shall be held unallocated in a suspense account for the Limitation Year and
allocated and reallocated in the next Limitation Year to all of the
remaining eligible Participants' Accounts (subject to the limitations of
this Section 19) before any other contributions constituting Annual
Additions may be made to the Plan for that Limitation Year.
2.
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FCG ENTERPRISES, INC.
NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN
(ADOPTED: AUGUST 22, 1997)
SECTION 1. PURPOSE
The purpose of the Non-Employee Director Restricted Stock Plan is to
provide incentives and rewards for Non-Employee Directors by making them
participants in The Company's success. Additionally, by virtue of the
mandatory nature of the Plan, each Participant will have a direct stake in
the Company's performance.
SECTION 2. DEFINITIONS
2.1 "Agreement" shall mean the Non-Employee Director Restricted Stock
Agreement attached hereto as Exhibit "A."
2.2 "BOARD" shall mean the Board of Directors of the Company.
2.3 "COMMON STOCK" or "STOCK" shall mean the Company's Common Stock
as described in the Company's Articles of Incorporation.
2.4 "COMPANY" shall mean FCG Enterprises, Inc., a California
corporation, or any successor thereof.
2.5 "DIRECTOR" shall mean a member of the Board.
2.6 "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board (or a
member of the Board of Directors of the Company's wholly owned subsidiaries
selected by the Board) who is not an employee of the Company;
2.7 "PARTICIPANT" shall mean those Non-Employee Directors who
participate in this Plan.
2.8 "PLAN" shall refer to the FCG Enterprises, Inc. Non-Employee
Director Restricted Stock Plan, as may be amended from time to time.
2.9 "VOTING STOCK" shall mean all shares of common stock of the
Company which have voting rights, regardless of the class thereof.
SECTION 3. ADMINISTRATION AND AUTHORIZATION
3.1 PLAN ADMINISTRATION. The Plan shall be administered by the
Board.
3.2 PARTICIPATION. All Non-Employee Directors shall participate in
the Plan, as provided in the Agreement.
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3.3 AUTHORIZATION. Any determination, decision, or action of the
Board in connection with the construction, interpretation, administration, or
application of the Plan shall be final, conclusive, and binding upon all
Participants and any person claiming under or through a Participant, unless
otherwise determined by the Board. No member of the Board shall be liable
for any determination, decision, or action made in good faith with respect to
the Plan or shares of Stock granted under the Plan. The Company shall
indemnify and hold harmless the members of the Board from and against any and
all liabilities, costs, and expenses incurred by such persons as a result of
any act, or omission, in connection with the performance of such persons'
duties, responsibilities, and obligations under the Plan, other than such
liabilities, costs, and expenses as may result from the bad faith, willful
misconduct, or criminal acts of such persons.
SECTION 4. STOCK SUBJECT TO PLAN
The stock to be issued under the Plan shall be the Company's Common
Stock.
SECTION 5. ELIGIBILITY
All Non-Employee Directors of the Company shall participate in the Plan.
SECTION 6. STOCK PURCHASE TERMS AND RESTRICTIONS
The terms and conditions under which shares of Common Stock will be
purchased and sold are as set forth in the form(s) of Agreement attached
hereto as Exhibit "A" and incorporated herein by reference. For a
Participant to participate in the Plan, both the Participant and the Company
must execute the Agreement.
SECTION 7. ADJUSTMENTS IN STOCK
7.1 If any change is made in the Stock subject to the Plan, or
subject to any Agreement (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the Company), the Plan will be appropriately
adjusted in the type(s) and maximum number of securities subject to the Plan,
and the outstanding Agreements will be appropriately adjusted in the type(s)
and number of securities and, if applicable, the price per share of Stock.
Such adjustments shall be made by the Board the determination of which shall
be final, binding and conclusive. (A "transaction not involving the receipt
of consideration by the Company" shall not include the conversion of any
convertible securities of the Company or a reincorporation of the Company.)
7.2 In the event of a Change in Control (as defined herein) either:
(i) any surviving corporation or acquiring corporation shall assume or
continue the Plan and all rights and obligations under outstanding Agreements
under the Plan, or
(ii) in the event any surviving corporation or acquiring corporation
refuses to assume or continue the Plan and such rights and obligations, the
Stock subject to each outstanding
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Agreement shall be fully vested immediately prior to such Change in Control
and the Plan and all related Agreements terminated after such event.
7.3 For purposes of the Plan, a "Change in Control" shall mean: (1)
a dissolution, liquidation or sale of all or substantially all of the assets
of the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise; or (4) the
acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any comparable successor provisions (excluding any
employee benefit plan, or related trust, sponsored or maintained by the
Company or any affiliate of the Company) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in the election
of directors.
SECTION 8. MISCELLANEOUS PROVISIONS
8.1 NON-TRANSFERABILITY OF SHARES OF STOCK. Except as otherwise set
forth in the Agreement, no shares of Stock issued pursuant to the Plan may be
sold, transferred, pledged or hypothecated (collectively "Transfer") without
the prior written consent of the Company. Any Transfer in violation of the
foregoing shall be void ab initio.
8.2 RESTRICTIONS ON ISSUANCE OF SHARES OF STOCK. No shares of Stock
shall be issued or delivered unless and until there shall have been
compliance with all applicable requirements (including exemptions) of the
Securities Act of 1933, as amended, all applicable state securities laws, and
any other requirement of law or of any regulatory body having jurisdiction
over such issuance and delivery. The inability of the Company to obtain any
required permits, authorizations, or approvals necessary for the lawful
issuance and sale of any shares of Stock hereunder on terms deemed reasonable
by the Board shall relieve the Company, the Board, and the Committee of any
liability in respect of the non-issuance or sale of such shares of Stock as
to which such requisite permits, authorizations, or approvals shall not have
been obtained.
As a condition to the granting of shares of Stock under the Plan, the
Board may require the person receiving the shares of Stock to make such
representations and/or warranties to the Company as may be required under any
applicable law or regulation, including but not limited to a representation
that the shares of Stock are being acquired only for investment and without
any present intention to sell or distribute such shares of Stock.
8.3 TAX WITHHOLDING. The Board shall make such provisions and take
such steps as it deems necessary or appropriate for the withholding of any
federal, state, local, and other tax required by law to be withheld with
respect to the issuance of shares of Stock under the Plan, including, but
without limitation, the deduction of the amount of any such withholding tax
from any compensation or other amounts payable to the Participant by the
Company, or requiring a Participant (or the Participant's beneficiary or
legal representative) as a condition of issuing the shares of Stock, to pay
to the Company any amount required to be withheld, or to execute such
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other documents as the Board deems necessary or desirable in connection with
the satisfaction of any applicable withholding obligation.
8.4 LEGENDS ON STOCK CERTIFICATES. Each share certificate
representing shares of Stock acquired under this Plan shall be endorsed with
all legends, if any, required by applicable federal and state securities laws
to be placed on the certificate. The determination of which legends, if any,
shall be placed upon the share certificates shall be made by the Board in its
sole discretion and such decision shall be final and binding.
8.5 TERMINATION, SUSPENSION, AND AMENDMENT. The Board may amend,
alter, and/or terminate the Plan at any time, prospectively or retroactively,
and may amend the form of Agreement; provided, however, that unless required
by applicable law, rule, or regulation, no amendment of the Plan or of the
Agreement shall affect in a material and adverse manner any awards of shares
of Stock granted prior to the date of any such amendment without the consent
of the affected Participant(s).
8.6 GOVERNING LAW. The Plan shall be governed by, construed and
enforced in accordance with the internal laws of the State of California,
provided that the Agreements may be governed by other applicable law
specified in the Agreements.
8.7 BINDING UPON SUCCESSORS. The terms and provisions of the Plan
shall be binding upon the heirs, executors, administrators, personal
representatives, and permitted successors and assigns of a Participant.
8.8 NUMBER AND GENDER. As used in this Plan, words in the singular
shall include the plural and words in a particular gender shall include
either or both genders when the context in which such words are used
indicates that such is the intent.
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NON-EMPLOYEE DIRECTOR
RESTRICTED STOCK AGREEMENT
FCG ENTERPRISES, INC.
THIS RESTRICTED STOCK AGREEMENT ("Agreement") is made as of the 22nd day
of August, 1997, by and between FCG ENTERPRISES, INC., a California
corporation (the "Company") and _________________ ("Participant"). This
Agreement shall be effective for the period commencing on the date of
execution; provided that certain provisions of this Agreement shall be
amended upon the effectiveness of the Company's S-1 Registration Statement as
described in Appendix A hereto.
WHEREAS, the Board of the Company previously approved and adopted the
Company's Non-Employee Director Restricted Stock Plan, as amended (the
"Plan") and the Board has approved a form of Restricted Stock Agreement
pursuant to the Plan; and
WHEREAS, the Board considers it desirable and in the Company's best
interest that Participant acquire a proprietary interest in the Company.
NOW, THEREFORE, in consideration of the foregoing recitals, the parties
hereto agree as follows:
1. (a) PURPOSE OF PLAN. The purpose of the Plan is to provide
incentives and rewards for Non-Employee Directors of the Company by making
them participants in the Company's success. Additionally, by virtue of the
mandatory nature of the Plan, Participant will have a direct stake in the
Company's performance.
(b) DEFINITIONS. Certain terms used herein shall have the
following meanings:
(i) "AGREEMENT" shall mean this Restricted Stock Agreement;
(ii) "APPROVED PARTICIPANT" shall mean a Non-Employee
Director of the Company who has signed and is bound by this form of
Restricted Stock Agreement, as may be amended from time to time, or an
officer of the Company who has entered into a restricted stock agreement
under the 1994 Restricted Stock Bonus Plan;
(iii) "APPROVED SHAREHOLDER" shall mean the ASOP, a
Transferee Entity and an Approved Participant;
(iv) "APPLICABLE YEAR" shall mean the calendar year in which
the Purchase Event occurs;
(v) "ASOP" shall mean the Company's Associate 401(k) and
Stock Ownership Plan (effective December 1, 1995), as may be amended from
time to time;
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(vi) "BORROWING RATE" shall mean the average interest rate
the Company pays to a commercial lending institution in a calendar quarter.
In the event the Company has no borrowings for a particular quarter, then the
rate shall be the prime rate on the first day of the quarter, as announced in
the Wall Street Journal or if the Wall Street Journal discontinues such
announcements, then the reference lending rate as announced by Bank of
America;
(vii) "BOARD" shall mean the Board of Directors of the
Company;
(viii) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(ix) "COMPANY" shall mean FCG Enterprises, Inc., a
California corporation, or its successor in interest;
(x) "ELECTION TO SELL" shall mean a written notice given to
the Company by Participant, whereby Participant elects to commence selling
shares of Stock in accordance with and subject to the provisions of Section 7;
(xi) "NON-EMPLOYEE DIRECTORS" shall mean a member of the
Board who is not an employee of the Company;
(xii) "FINAL PRINCIPAL AMOUNT" shall mean the principal
amount of any promissory note given in connection with a purchase of Stock,
based upon the Final Purchase Price;
(xiii) "FINAL PURCHASE PRICE" shall mean the purchase price
for Stock as determined by the Valuation Report for the Applicable Year;
(xiv) "GROWTH FACTOR" shall have the same meaning as
"Borrowing Rate," compounded on a quarterly basis;
(xv) "MARKET VALUE" shall mean
(1) Before the effectiveness of the Company's S-1
Registration Statement, the per share value of the Stock determined as of the
end of each calendar year (or other period selected by the Board) by a market
valuation specialist selected by the Board, and
(2) After the effectiveness of the Company's S-1
Registration Statement, the closing sales price for the Stock (or the closing
bid, if no sales were reported) as quoted on the specific Public Trading
Market on which the Stock is traded (or the Public Trading Market with the
highest trading volume in the Stock if the Stock is traded on more than one
exchange or market) on the relevant date, as reported in The Wall Street
Journal or such other source as the Board deems reliable;
(xvi) "MINIMUM SHAREHOLDINGS" shall be as defined in Section 2.
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(xvii) "PARTICIPANT" shall mean the individual Non-Employee
Director of Company executing this Agreement;
(xviii) "PLAN" shall mean the Non-Employee Director Restricted
Stock Plan, as amended;
(xix) "PRELIMINARY PURCHASE PRICE" shall mean the purchase
price for Stock as determined by the most recent Valuation Report as opposed
to the Valuation Report for the Applicable Year;
(xx) "PRELIMINARY PRINCIPAL AMOUNT" shall mean the initial
principal amount of any promissory note given in connection with a purchase
of Stock, based upon the Preliminary Purchase Price;
(xxi) "PUBLIC TRADING MARKET" shall mean that shares of
Stock are actively traded on an established stock exchange, including but not
limited to a national securities exchange, the Nasdaq National Market, and/or
The Nasdaq SmallCap Market;
(xxii) "PURCHASE EVENT" shall mean the event causing a
purchase or sale under this Agreement, Election to Sell and any other
required or permitted disposition of Stock under this Agreement;
(xxiii) "STOCK" shall mean the Company's Class A Common Stock,
no par value;
(xxiv) "TRANSFEREE ENTITY" shall be as defined in Section 12.
(xxv) "VALUATION REPORT" shall mean the report of the market
valuation specialist as to the Market Value of the Stock.
2. PARTICIPANT STOCK PURCHASE REQUIREMENTS.
Participant shall purchase shares of Stock from (i) the Company, (ii)
with the prior written consent of the Company, an Approved Shareholder, or
(iii) on a Public Trading Market at the time Participant is elected to be a
Non-Employee Director of the Company with a then Market Value equal to the
annual compensation payable for Participant's services as a Non-Employee
Director (the "Minimum Shareholdings").
3. DETERMINATION OF STOCK VALUE.
Prior to the effectiveness of the Company's S-1 Registration Statement,
the Market Value per share of the Stock will be determined annually, as of
the end of the calendar year, by a market valuation specialist selected by
the Board. It is expected that the Valuation Report will be available
approximately three months after the end of the calendar year. Each year the
value of the shares of Stock owned by Participant, as of the end of the
calendar year, will be determined by multiplying the number of shares of
Stock owned by Participant by the Market Value.
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4. TRANSFER RESTRICTIONS.
(a) Participant shall be permitted to transfer his or her shares
to a Transferee Entity, in accordance with the provisions of Section 12, and
as permitted by this Agreement, to the ASOP, an Approved Participant or on a
Public Trading Market. Shares of Stock transferred to the ASOP in accordance
with the terms of this Agreement will not thereafter be subject to the
provisions of this Agreement.
(b) Without the prior written consent of the Company (which may be
given or withheld in its sole discretion), at no time may any of the shares
of Stock owned by Participant or a Transferee Entity that comprise
Participant's Minimum Shareholdings, or any interest therein, be pledged or
encumbered.
(c) None of the shares of Stock of the Company, held as collateral
or required to meet the Minimum Shareholdings, regardless of when or how
obtained or the class thereof, may be transferred, sold, or assigned to any
person, or hypothecated, except as otherwise provided for in this Section 4
and in Section 12.
(d) Any transfer, sale, assignment, hypothecation, encumbrance, or
alienation of any of the shares of Stock of the Company other than expressly
permitted by, and according to the terms of, this Agreement is void and
transfers no right, title, or interest in or to those shares, or any of them,
to the purported transferee, buyer, assignee, pledgee, or encumbrance holder.
(e) Notwithstanding any other provision of this Agreement to the
contrary, Participant agrees that the Company (or a representative of the
underwriters) may, in connection with the first underwritten registration of
the offering of any securities of the Company under the Securities Act of
1933, as amended (the "Act"), require that Participant not sell or otherwise
transfer or dispose of any shares of Stock or other securities of the
Company, both those securities subject to this Agreement and otherwise,
during such period (not to exceed five hundred forty (540) days) following
the effective date of the registration statement of the Company filed under
the Act as may be requested by the Company or the representative of the
underwriters. Participant further agrees that the Company may impose
stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
5. VESTING.
The shares of Stock purchased by Participant from the Company will be fully
vested at all times.
6. PRELIMINARY AND FINAL DETERMINATION OF PURCHASE PRICE.
(a) All purchases and sales of shares of Stock under this
Agreement where either the Company is required to purchase the shares at
Market Value or the ASOP decides to purchase shares at Market Value, unless
otherwise agreed in writing between the parties, shall be based upon the
Market Value (as determined by the Valuation Report for the Applicable Year).
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(b) The Preliminary Purchase Price and the Preliminary Principal
Amount of any promissory note ("Note") given as part or all of the purchase
price will initially be calculated based upon the Market Value as determined
by the most recent Valuation Report. At such time as the Valuation Report
for the Applicable Year is issued, the Company shall calculate the Final
Purchase Price, and the Final Principal Amount of the note, and the
Preliminary Purchase Price and Preliminary Principal Amount shall be adjusted
to their final values, based upon the Market Value as determined by the
Valuation Report for the Applicable Year (see Section 11(b)).
7. REQUIRED HOLDINGS AND SALE OF SHARES.
(a) Sales of shares of Stock, unless otherwise agreed in writing
between seller and purchaser, shall be at Market Value (see Sections 3 and
6). Provided that Participant at all times owns Stock with a Market Value in
excess of the amount equal to the annual compensation payable for
Participant's services as a Non-Employee Director, the Participant may sell
shares of Stock to an Approved Shareholder, subject to the written consent of
the Company. Such consent will not be unreasonably withheld and a response
will be promptly given. To obtain the written consent of the Company, the
Participant must first give an Election to Sell notice to the Company.
(b) Upon the death of Participant, or upon the termination of a
Participant's continuing relationship with the Company for any reason, the
estate of Participant, Participant, and/or all Transferee Entities with
respect to such Participant, as the case may be, shall sell, and the Company
shall purchase, all of the shares of Stock of the Company owned by
Participant, Participant's estate or Transferee Entity, respectively.
8. PROCEDURE FOR SALES AND PURCHASES OF STOCK INVOLVING THE COMPANY
AND/OR AN APPROVED SHAREHOLDER.
Any Approved Shareholder desiring to purchase shares of the
Company's Stock may notify the Secretary of the Company as to the number of
shares that the shareholder is interested in buying. Any Participant
desiring to sell shares under Section 7 shall notify the Secretary of the
Company of such Participant's desire or requirement to sell shares. The
Secretary of the Company shall keep a list of those Participants desiring, or
required to sell, and those Approved Shareholders wishing to buy, which list
shall be made available to the respective parties upon request. Subject to
approval of the Company, which approval will not be unreasonably withheld
(and a response will be promptly given), those Participants desiring or
required to sell and those Approved Shareholders desiring to purchase may
agree between themselves as to the terms of a purchase and sale. Any such
purchase shall be for cash at the time of sale and no installment purchase
program is permitted, unless otherwise determined by the Company in its sole
discretion. While no consent of the Company shall be required for the ASOP
to purchase shares, the consent of the ASOP Committee shall be required.
9. PAYMENT TERMS FOR THE PURCHASE PRICE OF STOCK.
(a) Upon the death of Participant, unless otherwise agreed in
writing between the Company and the seller, the purchase price for shares of
Stock to be purchased by the Company, shall be paid at the Closing (as
defined in Section 11), by way of a Note in the form of
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Exhibit A hereto, in the principal amount of the Preliminary Purchase Price,
which Note shall not bear interest. The Note shall be due and payable on the
earlier of (i) sixteen (16) months after the date of the Closing (see Section
11) or (ii) thirty (30) days after the date of issuance of the Valuation
Report for the Applicable Year (see Section 6). Upon receipt of any
insurance proceeds received by the Company with respect to the death of
Participant (the purpose of which is to redeem Participant's shares), and to
the extent of such proceeds, subject to compliance with the provisions of
Section 11, the Company shall pre-pay the Note to the extent of the proceeds
received.
(b) Upon sale of shares of Stock under Section 7 while Participant
is still a Non-Employee Director of the Company, and unless otherwise agreed
in writing between the Company and Participant, at the Closing the purchase
price for shares of Stock to be purchased by the Company, shall be paid
eighty percent (80%) (based upon the Preliminary Purchase Price (see Section
6)) in cash, and the balance by way of a non-negotiable unsecured Note (in
the form of Exhibit A attached hereto), which Note shall not bear interest.
The Note shall be due and payable on the earlier of (i) sixteen (16) months
after the date of the Closing or (ii) thirty (30) days after the date of
issuance of the Valuation Report for the Applicable Year.
(c) Upon termination of Participant's service as a Non-Employee
Director for any reason, at the Closing the Company will pay twenty percent
(20%) (based upon the Preliminary Purchase Price) in cash, and the balance by
way of a non-negotiable unsecured promissory note (in the form of Exhibit B
attached hereto), payable over a period of five (5) years from the date of
the Closing, in quarterly payments in accordance with the provisions of
Exhibit B. The Note shall bear interest commencing on January 1 of the
calendar year immediately following the Applicable Year, at the Borrowing
Rate in effect on that date.
10. LIMITATIONS ON PAYMENTS BY THE COMPANY. Notwithstanding any other
provision of this Agreement, if the Company is required to purchase shares of
Stock under Section 7(b) of this Agreement, in no event shall the Company be
obligated to pay in the aggregate, during any fiscal year, more than twenty
percent (20%) of its retained earnings for the immediately preceding fiscal
year, nor during any one month period more than one and two-thirds percent
(1-2/3%) of such retained earnings, with respect to any and all purchases of
its capital stock. In the event the payment or payments for such purchases
exceeds the foregoing limitations, then at the Company's election, the
payment to each shareholder or former shareholder whose shares are being
purchased shall be proportionately reduced and the time for payment
correspondingly increased; provided, however, that the following categories
of purchases of shares of Stock shall have the priority indicated at the time
each payment is to be made:
(a) First priority: Purchases on death to the extent of insurance
proceeds.
(b) Second priority: Purchases on death to the extent there are no
insurance proceeds.
(c) Third priority: All other purchases.
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Notwithstanding the foregoing, at no time shall the Company purchase any
shares of its capital stock if such purchase would violate state or federal
law.
11. CLOSING.
(a) With respect to any shares of Stock being purchased by the
Company pursuant to this Agreement, payment by the Company and delivery and
transfer of the shares of Stock to the Company (the "Closing") shall take
place within thirty (30) days after the occurrence of the Purchase Event. At
the Closing the following provisions shall be applicable to any and all
purchases of shares of Stock by the Company:
(i) At the Closing, the Company shall deliver the
applicable Note representing all or a portion of the Preliminary Purchase
Price, and any required down payment.
(ii) Participant or his or her estate, conservator,
guardian, or Transferee Entity, as the case may be, shall deliver to the
Company the share certificate or certificates for all of the shares being
purchased, duly endorsed for transfer.
(iii) The Company's duty to close any purchase, including
the duty to pay any portion of the Preliminary Purchase Price, and deliver
the Note, is expressly subject to full performance or satisfaction of all
terms and conditions that are required to be performed or satisfied by any
other person or entity other than the Company.
(b) Within thirty (30) days after the Valuation Report for the
Applicable Year is received and the calculations made in accordance with
Section 6(b), the Company shall give written notice to any affected Note
holder as to the Final Purchase Price and the Final Principal Amount of any
Note given in connection with the purchase of shares of Stock. The Note shall
then be paid in accordance with the adjusted terms. The Note may, but need
not, be replaced with a new Note incorporating the adjusted terms. If at the
time of the adjustment, the Company has previously paid any sums to the Note
holder based upon the Preliminary Purchase Price, and the Final Purchase
Price exceeds the Preliminary Purchase Price, then at the time of the
adjustment the Company shall pay the Note holder the difference between the
amount that was paid and the amount that would have been paid based upon the
Final Purchase Price. For example, if the Preliminary Purchase Price was
$100,000 and a $20,000 down payment was made, and the Final Purchase Price is
$120,000, so that the true down payment would have been $24,000, then the
Company shall pay the additional $4,000 to the Note holder at the time the
adjustment is made. If at the time of the adjustment, the Company has
previously paid any sums to the Note holder based upon the Preliminary
Purchase Price, and the Final Purchase Price is less than the Preliminary
Purchase Price, the Note holder shall pay the Company the amount of the
overpayment within thirty (30) days of demand therefor by the Company, or the
Company may offset such overpayment against future payments to Participant,
if any.
(c) Unless otherwise agreed in writing between the parties, the
Closing shall take place at 111 West Ocean Boulevard, Suite 400, Long Beach,
California 90802, or such other place designated by the Company at 10:00 A.M.
on a date mutually satisfactory to the parties within the aforesaid thirty
(30)-day period. If the parties are unable to agree upon a mutually
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satisfactory date within said thirty (30)-day period, then the Closing shall
occur on the thirtieth (30th) day following the date of the Purchase Event,
or if the thirtieth (30th) day is a Saturday, Sunday, or legal holiday, then
the Closing shall occur on the next business day.
(d) Notwithstanding any other provision of this Agreement, if a
Purchase Event results due to death or permanent disability of Participant,
the Closing Date shall be extended for such period of time as may be
reasonably required for the appointment of a personal representative of the
deceased or disabled shareholder, and for the obtaining of probate court
instructions, approvals, or confirmations required by law, or until such time
as full legal and equitable tax-free title to the shares of Stock can be
transferred to the Company. Participant shall be deemed to be permanently
disabled when a medical doctor, reasonably acceptable to the Company,
certifies in writing ("Physician's Certificate") that Participant is
permanently disabled and unable to carry on his or her normal duties as a
Non-Employee Director.
(e) Further, notwithstanding any other provision of this
Agreement, the Closing of the purchase shall be subject to any approvals as
may be required from federal and/or state regulatory authorities.
12. TRANSFERS TO A REVOCABLE LIVING TRUST, FAMILY LIMITED LIABILITY
COMPANY, FAMILY LIMITED PARTNERSHIP, PRIVATE FOUNDATION, OR SIMILAR ESTATE
PLANNING ENTITY OR CHARITABLE GIFT PLANNING ENTITY. Notwithstanding anything
in this Agreement to the contrary, Participant may make a gift of his or her
shares of Stock to: (i) an irrevocable living grantor trust established for
the benefit of the Participant or his or her family, (ii) a family limited
liability company established for the benefit of the Participant or his or
her family, (iii) a family limited partnership established for the benefit of
the Participant or his or her family, or (iv) a private foundation
established by Participant or with respect to which Participant is a
"disqualified person" within the meaning of Section 4946 of the Code, or
similar estate planning entity or charitable gift planning entity
("Transferee Entity"), subject to the satisfaction, as applicable, of all of
the following:
(a) The trustee, manager, general partner, president, or
comparable authorized person of the Transferee Entity shall, prior to
obtaining possession of shares of such Stock, sign a copy of this Agreement
or other document signifying that the entity and all persons having an
economic ownership interest thereunder are bound by the terms of this
Agreement, and shall make no further distribution, conveyance, or transfer
other than as herein provided.
(b) Concurrent with the transfer or gift, the trustee, manager,
general partner, president, or comparable authorized person of the Transferee
Entity shall execute an irrevocable proxy granting the transferor of the
Stock the right to vote the Stock transferred for the maximum period
permitted under the then existing California law; and which proxy, shall be
renewed for like periods so long as the Transferee Entity is a shareholder of
the Company, and so long as this Agreement is in force, in order to carry out
the purposes of this Agreement.
(c) With respect to transfers to a trust, Participant shall at all
times retain the right, during his or her lifetime, to re-acquire the shares
of Stock transferred to the trust, except to the extent that such
reacquisition would be a violation of federal or state law.
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(d) Upon the occurrence of a Purchase Event, the Transferee
Entity, if then the owner of shares of Stock, shall transfer and sell all of
the shares of Stock transferred to the Transferee Entity by Participant, upon
the same terms and conditions that would have applied had the Stock been
owned by Participant at the time of such Purchase Event.
(e) As a condition to the transfer to the Transferee Entity,
Participant may, at the Company's option, be required to provide a copy of
the governing documents for such Transferee Entity to the Company, and to
certify that the Transferee Entity satisfies all applicable legal and tax
requirements for such type of entity.
(f) Any transfer of shares of Stock to a Transferee Entity which
does not satisfy all the applicable requirements set forth in this Section
12, as determined in the sole discretion of the Company, may be declared by
the Company to be void, and the Company shall not be required to reflect the
attempted change of ownership in the books and records of the Company.
13. REPRESENTATIONS AND WARRANTIES OF PARTICIPANT. As an inducement to
the Company to issue and sell the shares of Stock to Participant, Participant
represents, warrants and covenants to Company, which shall be continuing
representations, warranties and covenants applicable at any time Participant
purchases shares of Stock:
(a) That any shares of Stock acquired by Participant will be
acquired for Participant's own account, for investment, and not with a view
to or for sale in connection with any distribution of such shares.
(b) (1) That Participant has a preexisting business relationship
with Company and/or one or more of its officers or directors; or
(2) By reason of Participant's business or financial
experience or the business experience of his professional advisors who are
unaffiliated with and who are not compensated by the Company or any affiliate
or selling agent of the Company, directly or indirectly, Participant has the
capacity to protect his own interests in connection with the acquisition of
such shares of Stock and to evaluate the risks and rewards of investing in
such shares of Stock.
(c) That Participant is an Non-Employee Director of the Company.
(d) That Participant has reviewed the Company's financial
statements and such other information as Participant deemed important and
that Participant has had the opportunity to and has asked questions of
representatives of the Company pertaining to such financial statements and
other information and has received satisfactory answers to such questions.
(e) That the offer and sale of the shares of Stock was not
accomplished by the publication of any advertising.
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14. LEGEND ON STOCK CERTIFICATES; ESCROW AND PLEDGE AGREEMENT.
(a) Participant acknowledges and agrees that certificates for
shares of Stock to be issued to Participant may bear some or all of the
following legends as determined by the Company in its sole discretion, and
such additional or modified legends as the Company shall determine are
appropriate to put potential transferees of one or more certificates
representing shares of Stock subject to this Agreement on notice of the terms
and conditions of this Agreement and applicable law affecting such shares.
"The sale, transfer, assignment or hypothecation of the shares
represented by this certificate are subject to substantial
restrictions as set forth in that certain Restricted Stock
Agreement and any amendments thereto ("Agreement") dated __________,
199_, between the Issuer of these shares and the owner of these
shares. All of the provisions of said Agreement are incorporated
herein by this reference."
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and have not been
qualified under the California Corporate Securities Law of 1968, as
amended, or the securities laws of any other state. Such shares may
not be sold, transferred, assigned or hypothecated in the absence of
such registration or qualification, or an exemption from such
registration and qualification, the availability of which shall be
established to the satisfaction of counsel for the Company."
(b) If requested by the Company, Participant agrees to deliver
three (3) stock assignments in the form of Exhibit C, duly endorsed (with
date and number of shares left blank), and if some or all of the total
purchase price is to be paid by promissory Note, an executed pledge agreement
in the form of Exhibit D (the "Pledge Agreement") under which all shares of
the Stock acquired by Note shall be pledged as collateral security for the
payment of the indebtedness represented by the Note; and including, if
requested by the Company, endorsed certificates representing the appropriate
number of shares of Stock.
15. ARBITRATION. The parties shall submit any dispute concerning the
interpretation of or the enforcement of rights and duties under this
Agreement to final and binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, in Los Angeles,
California. At the request of any party, the arbitrators, attorneys, parties
to the arbitration, witnesses, experts, court reporters, or other persons
present at the arbitration shall agree in writing to maintain the strict
confidentiality of the arbitration proceedings. Arbitration shall be
conducted by a single, neutral arbitrator, or, at the election of any party,
three neutral arbitrators, appointed in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator(s)
shall be attorneys in practice for at least ten years, and experienced in the
matter(s) being arbitrated. In any such arbitration, California Code of
Civil Procedure Section 1283.05 (Right to Discovery; Procedure and
Enforcement) shall be applicable. The award of the arbitrator(s) shall be
enforceable according to the applicable provisions of the California Code of
Civil Procedure. The arbitrator(s) shall have the same powers as those of a
judge of the Superior Court of the State of California, and shall render a
decision as would a judge of a Superior Court of the State of California;
provided, however, the arbitrator(s) shall not
10
<PAGE>
have the authority or power to award punitive or exemplary damages, and
specifically shall have the authority to grant equitable and injunctive
relief. If proper notice of any hearing has been given, the arbitrator(s)
will have full power to proceed to take evidence or to perform any other acts
necessary to arbitrate the matter in the absence of any party who fails to
appear.
16. JURY TRIAL WAIVERS. TO THE FULLEST EXTENT PERMITTED BY LAW, AND AS
SEPARATELY BARGAINED-FOR CONSIDERATION, EACH PARTY HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY HEREBY EXPRESSLY
ACKNOWLEDGES THE INCLUSION OF THIS JURY TRIAL WAIVER BY ITS OR HIS INITIALS
SET FORTH BELOW.
"Company" "Participant"
Initials Initials
---------------- ----------------
Initials Initials
17. PLAN INCORPORATED BY REFERENCE. This Agreement is subject to all
of the terms and conditions of the Plan, all of which are incorporated herein
by reference. Participant acknowledges having received and reviewed a copy
of the Plan.
18. REPORTS TO PARTICIPANTS. The Company shall provide Participant
with audited financial statements concerning the Company on an annual basis
as soon as reasonably practical after the close of a fiscal year and shall
also provide such other materials as shall be required by law to be provided
to shareholders of the Company.
19. BINDING UPON SUCCESSORS. Subject to the restrictions on transfer
set forth in this Agreement, the provisions of this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, legal representatives, trustees,
successors and assigns.
20. CERTAIN ADJUSTMENTS. If from time to time during the term of this
Agreement there is any stock dividend, stock split or other change in the
Stock subject to this Agreement, then, in such event, any securities to which
Participant is entitled through ownership of Stock subject to this Agreement
will be immediately subject to this Agreement and be included in the word
"Stock" for all purposes of this Agreement with the same force and effect as
the shares of Stock then subject to this Agreement. As provided in the Plan,
if any change is made in the Stock subject to this Agreement (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by
the Company), this Agreement will be appropriately adjusted in the type(s)
and number of securities and price per share of Stock.
11
<PAGE>
21. GOVERNING LAW, INTERPRETATION AND VENUE. This Agreement shall be
interpreted and enforced in accordance with the internal laws of the State of
California. The provisions of this Agreement shall be interpreted in
accordance with their plain meaning. No provision of this Agreement shall be
interpreted against a party as a consequence of that party having drafted
said provision. It is the intent of the parties that all issues concerning
this Agreement be arbitrated in accordance with the provisions of Section 15.
Nevertheless, should any legal action or proceeding be brought arising out of
or related to this Agreement, the parties agree and irrevocably consent to
the exclusive jurisdiction of the courts of the State of California and the
federal courts located in the State of California, County of Los Angeles,
with respect to any such legal action or proceeding. Participant waives any
objection based on forum non conveniens or improper venue in connection with
any such action or proceeding.
22. SPECIFIC PERFORMANCE. Each party's obligation under this Agreement
is unique. If any party should default in its obligations under this
Agreement, the parties each acknowledge that it would be extremely
impracticable to measure the resulting damages; accordingly, without
prejudice to its rights to seek and recover monetary damages, the
non-defaulting party shall be entitled to sue in equity for specific
performance of this Agreement, and the parties each hereby expressly waive
the defense that a remedy in damages would be adequate.
23. TERMINATION. This Agreement shall terminate upon the earliest of
the following events:
(a) The written agreement of the Company and Participant to
terminate this Agreement.
(b) The termination of the Plan; provided that any such
termination shall not affect shares of Stock which Participant has previously
purchased.
(c) The liquidation or dissolution of the Company.
24. AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement shall be effective unless and until an instrument reflecting
the amendment or waiver has been executed by the party or parties charged
with such amendment or waiver.
25. CAPTIONS. The captions of sections in this Agreement are provided
for ease of reference only and shall not be used to interpret or modify the
provisions of this Agreement.
26. NOTICES. Any notices to be given hereunder shall be deemed given
upon personal delivery or three business days after mailing, if mailed by
certified mail, return receipt requested, postage prepaid. Notices to
Company shall be addressed to FCG Enterprises, Inc., 111 West Ocean
Boulevard, Suite 400, Long Beach, California 90807, Attention: Corporate
Secretary or to any subsequent address of the Company's headquarters which
Participant could be reasonably expected to be aware of. Notices to
Participant shall be addressed to Participant at his or her last known
address shown on the books and records of the Company. Either party may
change his or its address for notices by giving notice of change of address
in accordance herewith.
12
<PAGE>
27. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument.
28. TAX IMPLICATIONS. Participant understands, acknowledges and agrees
that (a) the purchase of shares of Stock has certain tax consequences; and
(b) prior to any purchase or transfer of shares of Stock, Participant will
obtain advice from his or her own tax advisor with respect to such
consequences.
29. ENTIRE AGREEMENT; SUPERSEDES PRIOR AGREEMENT. This Agreement
supersedes any prior Restricted Stock Agreement between the undersigned and
the Company. All shares of the Company's Stock owned by Participant (or a
Transferee Entity with respect to such Participant) at the time this
Agreement is signed, as well as all acquisitions of the Company's Stock
subsequent thereto, shall be subject to the provisions of this Agreement.
All prior promises, negotiations, representations or agreements concerning
the subject matter of this Agreement not expressly set forth in this
Agreement are of no force or effect. All references in any document or
instrument referring to the Restricted Stock Agreement shall be deemed to
include a reference to this Agreement. This Agreement shall cover all shares
of Stock or other securities of the Company owned by Participant as of the
date of execution of this Agreement, regardless of the manner in which
Participant acquired such shares of Stock or other securities of the Company,
excluding (unless otherwise specifically provided for in this Agreement):
(i) shares of Stock held by or for Participant's benefit in the ASOP, and
(ii) shares of Stock acquired upon exercise of a stock option granted by the
Company pursuant to an option agreement that expressly indicates that such
shares shall not be covered by the Agreement.
30. GENDER. As used herein, whenever the context so requires, the
masculine gender shall include the feminine and the neuter.
31. SEVERABILITY. Should any provision or portion of this Agreement be
held unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
"PARTICIPANT" "COMPANY"
FCG ENTERPRISES, INC.
By:
- ------------------------------ ------------------------------
(Signature) (Authorized Officer)
Title:
- ------------------------------ ------------------------------
(Name Printed)
NOTE: Please initial as indicated in Section 16.
14
<PAGE>
CONSENT OF SPOUSE
I, the undersigned, agree and certify that:
1. I am married to _________________________, who signed the foregoing
Restricted Stock Agreement ("Agreement"), and who has the right to become a
shareholder and/or is a shareholder of FCG Enterprises, Inc. (the "Company").
2. I have read and approve the provisions of said Agreement including
those relating to the purchase and sale of the shares of Stock of the Company
owned by a deceased, disabled, terminated or terminating shareholder. I
understand that the Agreement supersedes and replaces the Restricted Stock
Agreement, previously executed by my spouse.
3. I agree to be bound by all of the provisions of said Agreement,
including but not limited to the provisions regarding the purchase and sale
of shares of Stock, regardless of any interest I may have in said shares of
Stock or rights I may have to purchase or sell shares of Stock of the Company
owned by my spouse, be such interest community property or otherwise. In
consenting hereto, I have either been advised by an attorney of my own
choosing, or personally decided not to seek such advice.
4. In consideration of the execution of said Agreement by the parties
thereto, I agree that if my spouse, the Company, other shareholders or the
ASOP elect(s) to purchase any interest of mine in the said shares of Stock in
accordance with the provisions of said Agreement, I shall execute any and all
documents, and do all acts necessary, to effect such purchase and sale in
accordance with the provisions of the Agreement.
5. This Consent shall be interpreted and enforced under the laws of
the State of California. Capitalized terms used in this consent shall have
the same meaning set forth in the Agreement.
Dated: , 1997
----------------
-------------------------------------------
(Signature of Spouse)
-------------------------------------------
(Typed name of Spouse)
15
<PAGE>
APPENDIX A
Upon the effectiveness of the Company's S-1 Registration Statement, the
following modifications to the Agreement shall automatically be effective:
1. Sections 6 through 11 shall be deleted, new Section 6 shall be
added to read as set forth below, and the section references in the Agreement
shall be renumbered accordingly.
2. Section 6 shall be added to read as follows:
6. Required Holdings and Sale of Vested Shares.
Sales of vested shares of Stock shall be completed upon the
following terms and conditions:
(a) Provided that Participant continues, after the time of a
sale of vested shares of Stock, to own sufficient shares of Stock to satisfy
his or her Minimum Shareholdings requirement Participant may sell vested
shares of Stock through an investment banking or brokerage firm designated by
the Company.
(b) Notwithstanding the foregoing, Participant may not sell
shares of Stock which have been pledged or are otherwise being held as
collateral for a loan from the Company and/or a loan to purchase such shares
of Stock. Such pledged or collateralized shares of Stock may only be
released from such security interest under the terms of that written
instrument setting forth the terms of such security interest.
16
<PAGE>
EXHIBIT A
NON-NEGOTIABLE
PROMISSORY NOTE
$ Long Beach, California
------------------ , 1997
----------------
FOR VALUE RECEIVED, FCG ENTERPRISES, INC., a California corporation
("Maker"), promises to pay to ________________________________________________
("Payee"), at Long Beach, California, the sum of
___________________________________________________________ ($____________),
without interest. The principal amount of this note ("Note") shall be due and
payable on the earlier of (i) sixteen months after the date hereof or (ii)
thirty (30) days after the issuance of the Valuation Report, as referred to
in that certain Restricted Stock Agreement, by and between Maker and Payee,
dated ______________, 199__ ("Agreement"). The principal amount of this Note
is subject to adjustments in accordance with the provisions of Paragraph
13(b) of the Agreement. Capitalized terms not defined in this Note shall
have the same meaning ascribed to them in the Agreement. All payments shall
be made in legal tender of the United States.
Maker and Payee understand that certain adverse tax consequences may
result pursuant to Sections 483 and 7872 of the Internal Revenue Code of
1986, as amended.
The undersigned and every person who assumes or guarantees the
obligations of this Note waives presentment, demand, notice of demand,
protest, notice of protest, notice of dishonor and notice of non-payment.
Any dispute concerning this Note, including the enforcement or
interpretation of this Note, shall be subject to binding arbitration in
accordance with the provisions of Paragraph 15 of the Agreement. The
provisions of said Paragraph 15 are incorporated herein by reference. THE
PARTIES TO THIS NOTE HEREBY EXPRESSLY WAIVE THE RIGHT TO A JURY TRIAL.
In the event arbitration or any other proceeding is instituted to
enforce or interpret this Note, the undersigned agree to pay such reasonable
attorneys' fees, costs and expenses as may be incurred by the holder of this
note in connection with the collection of any sum or sums due hereunder or
the enforcement or interpretation of this Note.
The parties intend that binding arbitration apply to any dispute
concerning the interpretation or enforcement of this Note. Nevertheless, if
any legal action or suit is brought pertaining to this Note, it shall be
brought and maintained only in a court of competent jurisdiction within the
State of California, County of Los Angeles. Maker and Payee irrevocably
consent to the jurisdiction of the courts of the State of California or the
United States District Court, located within said county, and to venue in Los
Angeles County, California.
17
<PAGE>
This Note is not negotiable and may not be sold, transferred or
conveyed, voluntarily or involuntarily.
This Note shall be interpreted and enforced in accordance with the laws
of the State of California.
"MAKER"
FCG ENTERPRISES, INC.
By:
--------------------------------
(Authorized Officer)
Title:
------------------------------
18
<PAGE>
EXHIBIT B
NON-NEGOTIABLE
INSTALLMENT PROMISSORY NOTE
$ Long Beach, California
------------------ , 199
--------------- --
FOR VALUE RECEIVED, FCG ENTERPRISES, INC., a California corporation
("Maker"), promises to pay to ______________________________ ("Payee"), at
Long Beach, California, the sum of ____________________________________________
__________________________________________________ ($_____) with interest at
the rate of _______________ (____%) percent per annum simple interest,
commencing on January 1, 199__. This note ("Note") shall be payable in equal
quarterly installments of $_________________, principal and interest
included, commencing on July 1,199_, and continuing on October 1, January 1,
April 1 and July 1, of each year thereafter until this Note is paid in full.
Additionally, all accrued interest from January 1, 199__ through June 30,
199__, shall be due and payable as a separate and additional component of the
first installment due hereunder. Notwithstanding any provision hereof, in no
event shall the interest rate hereunder exceed the maximum rate permitted by
law.
1. REFERENCE TO AGREEMENT. This Note is made and given pursuant to
that certain Restricted Stock Agreement, by and between Maker and Payee,
dated ______________, 199__ ("Agreement"). The principal amount of this
Note, payments and payment schedule, are subject to adjustments in accordance
with the provisions of Paragraph 13(b) of the Agreement. Capitalized terms
not defined in this Note shall have the same meaning ascribed to them in the
Agreement.
2. ACCELERATION. In the event that any payment of principal or
interest is not made when due, all principal and interest hereunder shall
become immediately due and payable at the option of Payee. All payments shall
be made in legal tender of the United States.
3. WAIVERS. The undersigned and every person who assumes or guarantees
the obligations of this Note waives presentment, demand, notice of demand,
protest, notice of protest, notice of dishonor and notice of non-payment.
4. INTERPRETATION; LEGAL FEES. This Note shall be interpreted and
enforced in accordance with the laws of the State of California. In the
event arbitration or any other proceeding is instituted to enforce or
interpret this Note, the undersigned agree to pay such reasonable attorneys'
fees, costs and expenses as may be incurred by the holder of this Note in
connection with the collection of any sum or sums due hereunder or the
enforcement or interpretation of this Note.
5. ARBITRATION OF DISPUTES. Any dispute concerning this Note,
including the enforcement or interpretation of this Note, shall be subject to
binding arbitration in accordance with the provisions of Paragraph 15 of the
Agreement. The provisions of said Paragraph 15 are
19
<PAGE>
incorporated herein by reference. THE PARTIES TO THIS NOTE HEREBY EXPRESSLY
WAIVE THE RIGHT TO A JURY TRIAL.
6. JURISDICTION AND VENUE. The parties intend that binding
arbitration apply to any dispute concerning the interpretation or enforcement
of this Note. Nevertheless, if any legal action or suit is brought pertaining
to this Note, it shall be brought and maintained only in a court of competent
jurisdiction within the State of California, County of Los Angeles. Maker and
Payee irrevocably consent to the jurisdiction of the courts of the State of
California or the United States District Court, located within said county,
and to venue in Los Angeles County, California.
"MAKER"
FCG ENTERPRISES, INC.
By:
-------------------------------
(Authorized Officer)
Title:
----------------------------
20
<PAGE>
EXHIBIT C
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto FCG ENTERPRISES, INC., a California corporation (the
"Company"), pursuant to the Stock Pledge Agreement under that certain
Non-Employee Director Restricted Stock Agreement, dated ____________, ____,
by and between the undersigned and the Company (the "Agreement"),
______________ (________) shares of Common Stock of the Company standing in
the undersigned's name on the books of the Company represented by Certificate
No(s). _____________ and does hereby irrevocably constitute and appoint the
Company's Secretary attorney to transfer said stock on the books of the
Company with full power of substitution in the premises. This Assignment may
be used only in accordance with and subject to the terms and conditions of
the Agreement and the Stock Pledge Agreement and only to the extent that such
shares remain subject to the Stock Pledge Agreement.
Dated: ____________________
_______________________________________
(Signature)
_______________________________________
(Print Name)
21
<PAGE>
EXHIBIT D
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by
______________, an individual with a residence at ____________ ("Pledgor"),
in favor of FCG ENTERPRISES, INC., a California corporation with its
principal place of business at Long Beach, California ("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note (the "Note") in favor of Pledgee in the amount of
______________($________) in payment of the purchase price of
___________________ (_____) shares of the Common Stock of Pledgee; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and
delivered to Pledgee this Pledge Agreement and the Collateral (as defined
below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and
performance when due (whether by stated maturity, by acceleration or
otherwise) of all indebtedness of Pledgor to Pledgee created under the Note
(all such indebtedness being the "Liabilities"), together with, without
limitation, the prompt payment of all expenses, including, without
limitation, reasonable attorneys' fees and legal expenses, incidental to the
collection of the Liabilities and the enforcement or protection of Pledgee's
lien in and to the collateral pledged hereunder, Pledgor hereby pledges to
Pledgee, and grants to Pledgee, a first priority security interest in all of
the following (collectively, the "Pledged Collateral"):
(a) ____________________ (________) shares of Common Stock of
Pledgee represented by Certificates numbered ________________ (the "Pledged
Shares"), and all dividends, cash, instruments, and other property or
proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the
right to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time
to time acquired by Pledgor in any manner (which additional shares shall be
deemed to be part of the Pledged Shares), and the certificates representing
such additional shares, and all dividends, cash, instruments, and other
property or proceeds from time to time received, receivable, or otherwise
distributed in respect of or in exchange for any or all of such shares.
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent,
22.
<PAGE>
liquidated or unliquidated, determined or undetermined, and whether recovery
upon such indebtedness may be or hereafter becomes unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to
or affecting the Pledged Collateral, and in connection therewith may deposit
or surrender control of such Pledged Collateral thereunder, accept other
property in exchange for such Pledged Collateral and do and perform such acts
and things as it may deem proper, and any money or property received in
exchange for such Pledged Collateral shall be applied to the indebtedness or
thereafter held by it pursuant to the provisions hereof; (3) insure, process
and preserve the Pledged Collateral; (4) cause the Pledged Collateral to be
transferred to its name or to the name of its nominee; (5) exercise as to
such Pledged Collateral all the rights, powers and remedies of an owner,
except that so long as no default exists under the Note or hereunder Pledgor
shall retain all voting rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges,
liens and assessments against the Pledged Collateral, and upon the failure of
Pledgor to do so, Pledgee at its option may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due
and payable irrespective of any agreed maturity, upon the happening of any of
the following events: (1) failure to keep or perform any of the terms or
provisions of this Pledge Agreement; (2) failure to pay any installment of
principal or interest on the Note when due; (3) the levy of any attachment,
execution or other process against the Pledged Collateral; or (4) the
insolvency, commission of an act of bankruptcy, general assignment for the
benefit of creditors, filing of any petition in bankruptcy or for relief
under the provisions of Title 11 of the United States Code of, by, or against
Pledgor.
5. In the event of the nonpayment of any indebtedness when due,
whether by acceleration or otherwise, or upon the happening of any of the
events specified in the last preceding paragraph, Pledgee may then, or at any
time thereafter, at its election, apply, set off, collect or sell in one or
more sales, or take such steps as may be necessary to liquidate and reduce to
cash in the hands of Pledgee in whole or in part, with or without any
previous demands or demand of performance or notice or advertisement, the
whole or any part of the Pledged Collateral in such order as Pledgee may
elect, and any such sale may be made either at public or private sale at its
place of business or elsewhere, or at any broker's board or securities
exchange, either for cash or upon credit or for future delivery; provided,
however, that if such disposition is at private sale, then the purchase price
of the Pledged Collateral shall be equal to the public market price then in
effect, or, if at the time of sale no public market for the Pledged
Collateral exists, then, in recognition of the fact that the sale of the
Pledged Collateral would have to be registered under the Securities Act of
1933 and that the expenses of such registration are commercially unreasonable
for the type and amount of collateral pledged hereunder, Pledgee and
23.
<PAGE>
Pledgor hereby agree that such private sale shall be at a purchase price
mutually agreed to by Pledgee and Pledgor or, if the parties cannot agree
upon a purchase price, then at a purchase price established by a majority of
three independent appraisers knowledgeable of the value of such collateral,
one named by Pledgor within 10 days after written request by the Pledgee to
do so, one named by Pledgee within such 10 day period, and the third named by
the two appraisers so selected, with the appraisal to be rendered by such
body within 30 days of the appointment of the third appraiser. The cost of
such appraisal, including all appraiser's fees, shall be charged against the
proceeds of sale as an expense of such sale. Pledgee may be the purchaser of
any or all Pledged Collateral so sold and hold the same thereafter in its own
right free from any claim of Pledgor or right of redemption. Demands of
performance, notices of sale, advertisements and presence of property at sale
are hereby waived, and Pledgee is hereby authorized to sell hereunder any
evidence of debt pledged to it. Any sale hereunder may be conducted by any
officer or agent of Pledgee.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the
Pledged Collateral, to the payment of any other costs, charges, attorneys'
fees or expenses mentioned herein, and to the payment of the indebtedness or
any part hereof, all in such order and manner as Pledgee in its discretion
may determine. Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee
may transfer all or any part of the Pledged Collateral and shall be fully
discharged thereafter from all liability and responsibility with respect to
such Pledged Collateral so transferred, and the transferee shall be vested
with all the rights and powers of Pledgee hereunder with respect to such
Pledged Collateral so transferred; but with respect to any Pledged Collateral
not so transferred Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of
sale and all other rights, powers and remedies granted to Pledgee hereunder
shall continue to exist and may be exercised by Pledgee at any time and from
time to time irrespective of the fact that the indebtedness or any part
thereof may have become barred by any statute of limitations, or that the
personal liability of Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as the indebtedness is paid. Such releases shall be at the rate
of one share for each ___________________ ($______) of principal amount of
indebtedness paid. Release from pledge, however, shall not result in release
from the provisions of those certain Joint Escrow Instructions, if any, of
even date herewith among the parties to this Pledge Agreement and the Escrow
Agent named therein.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
24.
<PAGE>
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure
or delay by Pledgee in exercising any right, power or remedy hereunder shall
not be deemed to be a waiver of such right, power or remedy, and any single
or partial exercise of any right, power or remedy hereunder shall not
preclude the further exercise thereof; and every right, power and remedy of
Pledgee shall continue in full force and effect until such right, power or
remedy is specifically waived by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Pledge Agreement shall be deemed
valid and enforceable to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State.
Dated: _________________
PLEDGOR:
_______________________________________
Printed Name: _________________________
25.
<PAGE>
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of December 18, 1997, by and between FCG
ENTERPRISES, INC., a California corporation ("Borrower"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
Borrower has requested from Bank the credit accommodations described below
(each, a "Credit" and collectively, the "Credits"), and Bank has agreed to
provide the Credits to Borrower on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including December 1, 1998, not to exceed at any time the aggregate
principal amount of Six Million Dollars ($6,000,000.00) ("Line of Credit"), the
proceeds of which shall be used for working capital requirements. Borrower's
obligation to repay advances under the Line of Credit shall be evidenced by a
promissory note substantially in the form of Exhibit A attached hereto ("Line of
Credit Note"), all terms of which are incorporated herein by this reference.
(b) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above. Notwithstanding the foregoing, Borrower shall maintain a zero balance on
advances under the Line of Credit for a period of at least thirty (30)
consecutive days during the term of the Line of Credit.
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SECTION 1.2. TERM LOAN A.
(a) TERM LOAN A. Bank has made a loan to Borrower in the original
principal amount of Three Hundred Five Thousand Dollars ($305,000.00) ("Term
Loan A"), on which the outstanding principal balance as of the date hereof is
$292,292.00. Borrower's obligation to repay Term Loan A is evidenced by a
promissory note substantially in the form of Exhibit B attached hereto ("Term
Note A"), all terms of which are incorporated herein by this reference. Any
reference in Term Note A to any prior loan agreement between Bank and Borrower
shall be deemed a reference to this Agreement. Subject to the terms and
conditions of this Agreement, Bank hereby confirms that Term Loan A remains in
full force and effect.
(b) REPAYMENT. The principal amount of Term Loan A shall be repaid in
accordance with the provisions of Term Note A.
(c) PREPAYMENT. Borrower may prepay principal on Term Loan A at any time,
in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.
SECTION 1.3. TERM LOAN B.
(a) TERM LOAN B. Bank has made a loan to Borrower in the original
principal amount of Four Million Dollars ($4,000,000.00) ("Term Loan B"), on
which the outstanding principal balance as of the date hereof is $2,777,768.00.
Borrower's obligation to repay Term Loan B is evidenced by a promissory note
substantially in the form of Exhibit C attached hereto ("Term Note B"), all
terms of which are incorporated herein by this reference. Any reference in Term
Note B to any prior loan agreement between Bank and Borrower shall be deemed a
reference to this Agreement. Subject to the terms and conditions of this
Agreement, Bank hereby confirms that Term Loan B remains in full force and
effect.
(b) REPAYMENT. The principal amount of Term Loan B shall be repaid in
accordance with the provisions of Term Note B.
(c) PREPAYMENT. Borrower may prepay principal on Term Loan B at any time,
in any amount and without penalty. All prepayments of principal shall be
applied on the most remote principal installment or installments then unpaid.
SECTION 1.4. STANDBY LETTER OF CREDIT.
(a) STANDBY LETTER OF CREDIT. Bank has issued a standby letter of credit
for the account of Borrower and for the benefit of Metropolitan Transportation
Authority as security for Borrower's office location in New York (the "Standby
Letter of
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Credit") in the principal amount of Seventeen Thousand Three Hundred Forty-three
and 75/100 Dollars ($17,343.75). The Standby Letter of Credit has an expiration
date of March 2, 1998, and is subject to the additional terms of the Application
and Agreement for Standby Letter of Credit required by Bank in connection with
the issuance thereof (the "Letter of Credit Agreement"). Subject to the terms
and conditions of this Agreement, Bank hereby confirms that the Standby Letter
of Credit remains in full force and effect.
(b) REPAYMENT OF DRAFTS. Each draft paid by Bank under the Standby Letter
of Credit shall be repaid by Borrower in accordance with the provisions of the
Letter of Credit Agreement.
SECTION 1.5. INTEREST/FEES.
(a) INTEREST. The outstanding principal balances of the Line of Credit,
Term Loan A and Term Loan B shall bear interest at the rates of interest set
forth in the Line of Credit Note, Term Note A and Term Note B (collectively, the
"Notes").
The amount of each draft paid by Bank under the Standby Letter of
Credit shall bear interest from the date such draft is paid by Bank to the date
such amount is fully repaid by Borrower at a rate per annum equal to the Prime
Rate in effect from time to time.
(b) PRIME RATE. The term "Prime Rate" shall mean at any time the rate of
interest most recently announced within Bank at its principal office as its
Prime Rate, with the understanding that the Prime Rate is one of Bank's base
rates and serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto, and is evidenced by the
recording thereof in such internal publication or publications as Bank may
designate. Each change in the rate of interest shall become effective on the
date each Prime Rate change is announced within Bank.
(c) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Notes.
(d) COMMITMENT FEE. Borrower shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $500.00, which fee shall be due
and payable in full upon execution of this Agreement.
(e) UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to
one-quarter percent (.25%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a quarterly basis by Bank and shall be due and
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payable by Borrower in arrears on the last day of each calendar quarter.
(f) LETTER OF CREDIT FEES. Borrower shall pay to Bank (i) fees upon the
issuance of the Standby Letter of Credit equal to two percent (2.0%) per annum
(computed on the basis of a 360-day year, actual days elapsed) of the face
amount thereof, and (ii) fees upon the payment or negotiation by Bank of each
draft under the Standby Letter of Credit and fees upon the occurrence of any
other activity with respect to the Standby Letter of Credit (including without
limitation, the transfer, amendment or cancellation of the Standby Letter of
Credit) determined in accordance with Bank's standard fees and charges then in
effect for such activity.
SECTION 1.6. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under each Credit by charging Borrower's
demand deposit account number 4624-028767 with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit account
to pay all such sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower.
SECTION 1.7. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's accounts receivable and other rights to payment, general intangibles
and equipment.
All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank within five (5) days of Bank's demand, therefor,
for all reasonable costs and expenses incurred by Bank in connection with any of
the foregoing security, including without limitation, filing and recording fees
and costs of appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
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SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of it's state of incorporation, and
is qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required, reasonably be expected to, or in which the failure to so
qualify or to be so licensed could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower, enforceable in accordance with their
respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any material provision of
any law or regulation, or contravene any provision of the Articles of
Incorporation or By-Laws of Borrower, or result in any breach of or default
under any contract, obligation, indenture or other instrument to which Borrower
is a party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could reasonably be expected to have a material
adverse effect on the financial condition or operation of Borrower other than
those disclosed by Borrower to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated September 30, 1997, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower as of that date, (b)
discloses all liabilities of Borrower that are required to be reflected or
reserved against under generally accepted accounting principles, whether
liquidated or unliquidated, fixed or contingent, and (c) has been prepared in
accordance with generally accepted accounting principles consistently applied.
Since the date of such financial statement there has been no material adverse
change in the financial condition of Borrower, nor has Borrower mortgaged,
pledged, granted a security interest in or otherwise encumbered any of its
assets or properties except in favor of Bank or as otherwise permitted by Bank
in writing.
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SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending penalty assessments or adjustments of its income tax payable with
respect to any prior year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all material permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is now
engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA).
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
material obligation for borrowed money, any purchase money obligation or any
other material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, to the best of Borrower's knowledge,
Borrower is in compliance in all material respects with all applicable federal
or state environmental, hazardous waste, health and safety statutes, and any
rules or regulations adopted pursuant thereto, which govern or affect any of
Borrower's operations and/or properties, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control
Act, as any of the same may be amended, modified or supplemented from time to
time. To the best of Borrower's knowledge, none of the operations of Borrower
is the subject of any federal or state investigation evaluating whether any
remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
SECTION 2.12. LEGAL STATUS OF THE ASOP. ASOP is a plan qualified under
Sections 401 (a) and (k) of the Internal Revenue Code ("Code") and an employee
stock ownership plan as
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described in Section 4975 (e) (7) of the Code and Section 407 (d) (6) of
ERISA and has been duly established by the Board of Directors of Borrower.
SECTION 2.13. EXEMPT TRANSACTIONS. Neither the sale of stock to ASOP
under the Associate Profit Sharing 401 (k) and Stock Ownership Plan dated
December 1, 1995, ("ASOP Agreement"), nor the financing of such purchase
pursuant to ASOP Loan Agreement ("ASOP Loan Agreement"), dated December 18,
1995, by and between Borrower and ASOP and the related promissory note ("ASOP
Note") constitute prohibited transactions under Section 4975 (c) of the Code,
Sections 406 and 407 of ERISA, or the regulations thereunder. The loan
evidenced by the ASOP Loan Agreement will constitute an "exempt loan" under
Treasury Reg. Section 54.4975-7 (b)(1)(iii). The use of the proceeds of the
Term Loan by Borrower will not violate any federal or state tax, labor,
securities or other law, including, but not limited to, the provisions of the
Code or ERISA or any regulations thereunder.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes.
(ii) Corporate Resolution: Borrowing.
(iii) Certificate of Incumbency.
(iv) Articles of Incorporation.
(v) Continuing Security Agreement Rights to Payment.
(vi) Security Agreement Equipment.
(vii) UCC-1 Financing Statements.
(viii) ASOP Loan Agreement and Stock Purchase Agreement.
(ix) Resolution of the ASOP's ASOP Committee approving the transactions
involving ASOP described herein.
(x) Financial opinion from ASOP's valuation adviser.
(xi) Such other documents as Bank may reasonably require under any other
Section of this Agreement.
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(c) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
(d) INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's reasonable satisfaction of each of the
following conditions:
(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, except as disclosed to Bank in writing or except to the extent
that such represetatives and warranties expressly refer to an earlier date, in
which case they shall be true and correct as of such earlier date, with the same
effect as though such representations and warranties had been made on and as of
each such date, and on each such date, no Event of Default as defined herein,
and no condition, event or act which with the giving of notice or the passage of
time or both would constitute such an Event of Default, shall have occurred and
be continuing or shall exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner
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specified therein, and immediately upon demand by Bank, the amount by which the
outstanding principal balance of any of the Credits at any time exceeds any
limitation on borrowings applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time during business
hours, to inspect, audit and examine such books and records, to make copies of
the same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail reasonably satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year, an
audited financial statement of Borrower, prepared by an independent certified
public accountant reasonably acceptable to Bank, to include balance sheet,
income statement, statement of cash flow and source and application of funds
statement;
(b) not later than 45 days after and as of the end of each fiscal quarter,
a financial statement of Borrower, prepared by Borrower, to include balance
sheet and income statement;
(c) if Borrower is a public company, not later than 5 days of filing,
copies of all report on Form 10-K, 10-Q and 8K filed with Securities and
Exchange Commission;
(d) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all material licenses,
permits, governmental approvals, rights, privileges and franchises necessary for
the conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, property damage and worker's compensation, with all such insurance
carried with companies and in amounts reasonably satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
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SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may reasonably arise, and (b) for
which Borrower has made provision, to Bank's satisfaction, for eventual payment
thereof in the event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or to Borrower's knowledge threatened against Borrower.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):
(a) Current Ratio not less than 1.5 to 1.0, determined as of each fiscal
quarter end, with "Current Ratio" defined as total current assets divided by
total current liabilities.
(b) Tangible Net Worth not less than $10,000,000.00, determined as of each
fiscal quarter end, with "Tangible Net Worth" defined as the aggregate of total
stockholders' equity plus subordinated debt less any intangible assets.
(c) Total Senior Liabilities divided by Tangible Net Worth not greater
than 2.0 to 1.0, determined as of each fiscal quarter end, with "Total
Liabilities" defined as the aggregate of current liabilities and non-current
liabilities less subordinated debt, and with "Tangible Net Worth" as defined
above.
(d) (i) Net income after taxes, plus compensation expenses related to
stock issuance, not less than $2,500,000.00, for the fiscal year ending December
31, 1997, (ii) net income after taxes not less than $2,500,000.00 on an annual
basis thereafter, determined as of each fiscal year end, and (iii) net income
before taxes and vice president bonuses not less than $1,000,000.00 on a
quarterly basis, determined as of each fiscal quarter end.
(e) EBITDA Coverage Ratio not less than 3.5 to 1.0 as of each fiscal year
end, with "EBITDA" defined as net profit before
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tax plus interest expense (net of capitalized interest expense), depreciation
expense and amortization expense, and with "EBITDA Coverage Ratio" defined as
EBITDA divided by the aggregate of total interest expense plus the prior period
current maturity of long-term debt and the prior period current maturity of
subordinated debt.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5)
business days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or the
passage of time or both would constitute an Event of Default; (b) any change in
the name or the organizational structure of Borrower; (c) the occurrence and
nature of any Reportable Event or Prohibited Transaction, each as defined in
ERISA, or any funding deficiency with respect to any Plan, or any investigation
or audit of the ASOP by the Department of Labor or the Internal Revenue Service;
or (d) any termination or cancellation of any insurance policy which Borrower is
required to maintain, or any uninsured or partially uninsured loss exceeding
$50,000.00 through liability or property damage, or through fire, theft or any
other cause affecting Borrower's property. For purposes of this Agreement,
"Business Day" means any day except a Saturday, Sunday or any other day
designated as a holiday under Federal or California statute or regulation.
SECTION 4.11. EXISTENCE AND QUALIFICATION OF ASOP. Preserve and maintain
the existence and qualified status of the ASOP under Sections 401(a) and (k) and
4975(e)(7) of the Code, and comply in all material respects with the applicable
requirements of ERISA. Borrower shall file complete Applications for
Determination (on Forms 5300 and 5309) with the Internal Revenue Service ("IRS")
on or before the due date for filing Borrower's tax return (including
extensions) for the fiscal year ending December 31, 1996, and, with respect to
ASOP shall amend the provisions of the ASOP in such manner as the IRS may
require in order to obtain a favorable determination letter. Borrower shall
supply Bank with a copy of such determination letter within ten days of receipt
by Borrower.
SECTION 4.12. ASOP CONTRIBUTIONS. Borrower shall cause the ASOP to promptly
use all cash contributed to the ASOP to make payments on the loan under the ASOP
Loan Agreement, unless Borrower shall have first obtained Bank's written consent
which shall not be unreasonably withheld.
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ARTICLE V
NEGATIVE COVENANTS
Borrower, further covenants that so long as Bank remains Committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, and (b) any
other liabilities of Borrower existing as of, and disclosed to Bank prior to,
the date hereof, (c) trade payables incurred in the ordinary course of business,
and (d) other indebtedness or liabilities not to exceed $100,000.00 in the
aggregate outstanding at any time.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity where the Borrower is not the surviving
entity, or unless such other surviving entity (a) is reasonably acceptable to
Bank, (b) assumes all of Borrower's liabilities in connection herewith, and
executes any documents, and (c) takes all further actions reasonably required by
Bank to effect such assumption; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity in an aggregate amount
exceeding $1,000,000.00; nor sell, lease, transfer or otherwise dispose of all
or a substantial or material portion of Borrower's assets except in the ordinary
course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
SECTION 5.5. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any
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class of Borrower's stock now or hereafter outstanding except in connection with
Borrower's 1994 Restricted Stock Bonus Plan and Agreement, the FCG/JAR Buy-Sell
and Redemption Agreement, and transactions with the ASOP established by Borrower
on or about December 5, 1995.
SECTION 5.6 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets
pledged to Bank under this Agreement, except any of the foregoing in favor of
Bank or which is existing as of, and disclosed to Bank in writing prior to, the
date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of thirty (30) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, where the total of such obligations
and/or face amount of such contracts or instruments exceeds an aggregate of
$1,000,000.00.
(e) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to Bank, except where a bonafide dispute exists.
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(f) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower; in each case
when the total amount involved in any of the foregoing exceeds an aggregate of
$500,000.00.
(g) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as
they become due, or shall make a general assignment for the benefit of
creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors
or any other relief under the Bankruptcy Reform Act, Title 11 of the United
States Code, as amended or recodified from time to time ("Bankruptcy Code"),
or under any state or Federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to
the Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower and is not dismissed within 60 days following date of filing
thereof, or Borrower shall file an answer admitting the jurisdiction of the
court and the material allegations of any involuntary petition; or Borrower
shall be adjudicated a bankrupt, or an order for relief shall be entered
against Borrower by any court of competent jurisdiction under the Bankruptcy
Code or any other applicable state or Federal law relating to bankruptcy,
reorganization or other relief for debtors which such adjudication or order
for relief is not reversed, vacated or dismissed within 60 days following the
date of filing thereof.
(h) There shall exist or occur any event or condition which Bank in good
faith believes materially impairs, or is substantially likely to materially
impair, the prospect of payment or performance by Borrower of its obligations
under any of the Loan Documents.
(i) The dissolution or liquidation of Borrower; or any of its directors,
stockholders or members, shall take action seeking to effect the dissolution or
liquidation of Borrower.
(i) Any change in ownership during the term of this Agreement of an
aggregate of fifty percent (50%) or more of the common stock of Borrower other
than in connection with an intitial public offering of Borrower's stock.
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(k) Any violation of the Code, ERISA, any regulations thereunder or any
laws or regulations applicable to the ASOP which is deemed by Bank, in the good
faith exercise of its discretion, to have a material adverse effect upon
Borrower or ASOP, including, but not limited to, the occurrence of a prohibited
transaction within the meaning of Section 4975(c) of the Code or Sections 406 or
407 of ERISA.
(l) The determination by any court or governmental agency or authority
that ASOP is not a qualified plan under Sections 401 (a) or (k) of the Code or
an ESOP under Section 4975 (e) (7) of the Code or that the Term Loan or any of
the related transactions violate the Code, ERISA or any regulation thereunder,
or constitute a prohibited transaction within the meaning of Section 4975(c) of
the Code or Section 406 or 407 of ERISA.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a) all
indebtedness of Borrower under each of the Loan Documents, any term thereof to
the contrary notwithstanding, shall at Bank's option and without notice become
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are hereby expressly waived by Borrower; (b) the
obligation, if any, of Bank to extend any further credit under any of the Loan
Documents shall immediately cease and terminate; and (c) Bank shall have all
rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any of the Credits and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law. All rights, powers and
remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other
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party under any provision of this Agreement must be in writing delivered to each
party at the following address:
BORROWER: FCG ENTERPRISES, INC.
111 W. OCEAN BLVD., SUITE 400
LONG BEACH, CA 90802
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
SOUTH BAY REGIONAL COMMERCIAL BANKING OFFICE
111 W. OCEAN BLVD., SUITE 300
LONG BEACH, CA 90802
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) Business days after
deposit in the U.S. mail, certified return receipt requested; and (c) if sent by
telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
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<PAGE>
acquire relating to any of the Credits, Borrower or its business, or any
collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only in writing signed by each party
hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
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connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section 91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE.
No provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
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effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state
of California, and (iii) the parties shall have in addition to the grounds
referred to in the Federal Arbitration Act for vacating, modifying or correcting
an award the right to judicial review of (A) whether the findings of fact
rendered by the arbitrators are supported by substantial evidence, and
(B) whether the conclusions of law are erroneous under the substantive law of
the state of California. Judgment confirming an award in such a proceeding may
be entered only if a court determines the award is supported by substantial
evidence and not based on legal error under the substantive law of the state of
California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in
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accordance with California Code of Civil Procedure Section 638 et seq., and
this general reference agreement is intended to be specifically enforceable in
accordance with said Section 638. A referee with the qualifications required
herein for arbitrators shall be selected pursuant to the AAA's selection
procedures. Judgment upon the decision rendered by a referee shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
FCG ENTERPRISES, INC. NATIONAL ASSOCIATION
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] for
--------------------------- ---------------------------
Joelle Martin
Title: Vice President, Finance Relationship Manager
------------------------
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<PAGE>
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$6,000,000.00 LONG BEACH, CALIFORNIA
DECEMBER 18, 1997
FOR VALUE RECEIVED, the undersigned FCG ENTERPRISES, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at SOUTH BAY RCBO, 111 WEST OCEAN BLVD SUITE 300, LONG BEACH, CA
90802, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of $6,000,000.00, or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum equal to the prime rate in effect from time to time. The "Prime
Rate" is a base rate that Bank from time to time establishes and which serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto. Each change in the rate of interest hereunder shall
become effective on the date each Prime Rate change is announced within Bank.
(b) PAYMENT OF INTEREST. Interest accrued on this Note shall be payable on
the 6TH day of each month, commencing JANUARY 6, 1998.
(c) DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of the Credit Agreement between Borrower and Bank
defined below; provided however, that the total outstanding borrowings under
this Note shall not at any time exceed the principal amount stated above. The
unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on JULY 6, 1998.
(b) ADVANCES. Advances hereunder, to the total amount of the principal
sum available hereunder, may be made by the holder at the oral or written
request of (1) JAMES A. REEP OR THOMAS A. REEP OR LUTHER J. NUSSBAUM, any one
acting alone, who are authorized to request advances and direct the
disposition of any advances until written notice of the revocation of such
authority is received by the holder at the office designated above, or (ii)
any person, with respect to advances deposited to the credit of any account
of any Borrower with the holder, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each
Borrower regardless of the fact that persons other than those authorized to
request advances may have authority to draw against such account. The holder
shall have no obligation to determine whether any person requesting an
advance is or has been authorized by any Borrower.
(c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of
that certain Credit Agreement between Borrower and Bank dated as of DECEMBER 18,
1997, as amended from time to time (the "Credit Agreement"). Any default in the
payment or performance of any obligation under this Note, or any defined event
of default under the Credit Agreement, shall constitute an "Event of Default"
under this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the occurrence of any Event of Default as defined in
the Credit Agreement, the holder of this Note, at the holder's option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, notice of
nonperformance, notice of protest, protest or notice of dishonor, all of
which are expressly waived by each Borrower, and the obligation, if any, of
the holder to extend any further credit hereunder shall immediately cease and
terminate. Each Borrower shall pay to the holder immediately upon demand the
full amount of all payments, advances, charges, costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of the holder's in-house counsel), expended or incurred by the holder
in connection with the enforcement of the holder's rights and/or the
collection of any amounts which become due to the holder under this Note, and
the prosecution or defense of any action in any
Revolving Line of Credit Note (08/96), Page 1
<PAGE>
way related to this Note, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower of any other person or entity.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
FCG ENTEPRISES, INC.
By: /s/ Thomas A. Reep
-----------------------------------
Title: Vice President, Finance
--------------------------------
Revolving Line of Credit Note (08/96), Page 2
<PAGE>
CONTINUING SECURITY AGREEMENT
WELLS FARGO BANK RIGHTS TO PAYMENT
- -------------------------------------------------------------------------------
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned FCG ENTERPRISES, INC., or any of them ("Debtor"), hereby grants and
transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security interest
in all accounts, deposit accounts, chattel paper, instruments, documents and
general intangibles (collectively called "Collateral"), now existing or at any
time hereafter, and prior to the termination hereof, arising (whether they arise
from the sale, lease or other disposition of inventory or from performance of
contracts for service, manufacture, construction, repair or otherwise or from
any other source whatsoever), including all securities, guaranties, warranties,
indemnity agreements, insurance policies and other agreements pertaining to the
same or the properly described therein, and in all goods returned by or
repossessed from Debtor's customers, together with whatever is receivable or
received when any of the Collateral or proceeds thereof are sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary, including without limitation, all rights to payment, including
returned premiums, with respect to any insurance relating to any of the
foregoing, and all rights to payment with respect to any cause of action
affecting or relating to any of the foregoing (hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to Bank;
(b) all obligations of Debtor and rights of Bank under this Agreement; and (c)
all present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such Indebtedness
may be or hereafter becomes unenforceable.
3. TERMINATION. This agreement will terminate upon the performance of all
obligations of Debtor to Bank, including without limitation, the payment of all
Indebtedness of Debtor to Bank, and the termination of all commitments of Bank
to extend credit to Debtor, existing at the time Bank receives written notice
from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans
hereunder. Any money received by Bank in respect of the Collateral may be
deposited, at Bank's option, into a non-interest bearing account over which
Debtor shall have no control, and the same shall, for all purposes, be deemed
Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds: (b) Debtor has the right to grant a security
interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are
genuine. free from liens, adverse claims, setoffs, default, prepayment,
defenses and conditions precedent of any kind or character, except the lien
created hereby or as otherwise agreed to by Bank, or heretofore disclosed by
Debtor to Bank, in writing; (d) all statements contained herein and, where
applicable, in the Collateral are true and complete in all materials
respects; (e) no financing statement covering any of the Collateral or
Proceeds, and naming any secured party other than Bank, is on file in any
public office; (f) all persons appearing to be obligated on Collateral and
Proceeds have authority and capacity to contract and are bound as they appear
to be; (g) all property subject to chattel paper has been properly registered
and filed in compliance with law and to perfect the interest of Debtor in
such property; and (h) all Collateral and Proceeds comply with all applicable
laws concerning form, content and manner of preparation and execution,
including where applicable Federal Reserve Regulation Z and any State
consumer credit laws.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in general: (i) to pay Indebtedness secured hereby when
due; (ii) to indemnify Bank against all losses, claims, demands, liabilities and
expenses of every kind caused by property subject hereto: (iii) to pay all costs
and expenses, including reasonable attorneys' fees, incurred by Bank in the
perfection and preservation of the Collateral or Bank's interest therein and/or
the realization, enforcement and exercise of Bank's rights, powers and remedies
hereunder; (iv) to permit Bank to exercise its powers; (v) to execute and
deliver such documents as Bank deems necessary to create, perfect and continue
the security interests contemplated hereby; and (vi) not to change its chief
place of business (or personal residence, if applicable) or the places where
Debtor keeps any of the Collateral or Debtor's records concerning the Collateral
and Proceeds without first giving Bank written notice of the address to which
Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank
agrees otherwise in writing: (i) where applicable, to insure the Collateral with
Bank as loss payee, in form, substance and amounts, under agreements, against
risks and liabilities, and with insurance companies satisfactory to Bank; (ii)
not to permit any security interest in or lien on the Collateral or Proceeds,
except in favor of Bank; (iii) not to sell, hypothecate or otherwise dispose of,
nor permit the transfer by operation of law of, any of the Collateral or
Proceeds or any interest therein; (iv) to keep, in accordance with generally
accepted accounting principles, complete and accurate records regarding all
Collateral and Proceeds, and to permit Bank to inspect the same and make copies
thereof at any reasonable time; (v) if requested by Bank, to receive and use
reasonable diligence to collect Proceeds, in trust and as the property of Bank,
and to immediately endorse as appropriate and deliver such Proceeds to Bank
daily in the exact form in which they are received together with a collection
report in form satisfactory to Bank; (vi) not to commingle Collateral or
Proceeds, or collections thereunder, with other property; (vii) to give only
normal allowances and credits and to advise Bank thereof immediately in writing
if they affect any Collateral or Proceeds in
Continuing Security Agreement (06/97), Page 1
<PAGE>
any material respect; (viii) on demand, to deliver to Bank returned property
resulting from, or payment equal to, such allowances or credits on any
Collateral or Proceeds or to execute such documents and do such other things as
Bank may reasonably request for the purpose of perfecting, preserving and
enforcing its security interest in such returned property, (ix) from time to
time, when requested by Bank, to prepare and deliver a schedule of all
Collateral and Proceeds subject to this Agreement and to assign in writing and
deliver to bank all accounts, contracts, leases and other chattel paper,
instruments, documents and other evidences thereof; (x) not to allow any
financing statement covering any of Debtor's inventory or proceeds thereof to be
on file in any public office without Bank's prior written consent; (xi) in the
event Bank elects to receive payments or Collateral or Proceeds hereunder, to
pay all expenses incurred by Bank in connection therewith, including expenses of
accounting, correspondence, collection efforts, reporting to account or
contract debtors, filing, recording, record keeping and expenses incidental
thereto; and (xii) to provide any service and do any other acts which may be
necessary to keep all Collateral and Proceeds free and clear of all defenses,
rights of offset and counterclaims.
7. POWERS OF BANK. Debtor appoints bank its true attorney-in-fact to
perform any of the following powers, which are coupled with an interest, are
irrevocable until termination of this Agreement and may be exercised from
time to time by Bank's officers and employees, or any or them, whether or not
Debtor is in default: (a) to perform any obligation of Debtor hereunder in
Debtor's name or otherwise; (b) to give notice to account debtors or others
of Bank's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Collateral or Proceeds and to give receipts and acquittances and compromise
disputes in connection therewith; (d) to release security; (e) to resort to
security in any order; (f) to prepare, execute, file, record or deliver
notes, assignments, schedules, designation statements, financing statements,
continuation statements, termination statements, statements of assignment,
applications for registration or like papers to perfect, preserve or release
Bank's interest in the Collateral and Proceeds; (g) to receive, open and read
mail addressed to Debtor; (h) to take cash, instruments for the payment of
money and other property to which Bank is entitled; (i) to verify facts
concerning the Collateral and Proceeds by Inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute,
deliver and receive payment under insurance claims, and to collect and
receive payment of and endorse any instrument in payment of loss or returned
premiums or any other insurance refund or return, and to apply such amounts
received by Bank, at Bank's sole option, toward repayment of the
Indebtedness: (l) to exercise all rights, powers and remedies which Debtor
would have, but for this Agreement, with respect to all Collateral and
Proceeds subject hereto; and (m) to do all acts and things and execute all
documents in the name of Debtor or otherwise, deemed by Bank as necessary,
proper and convenient in connection with the preservation, perfection or
enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAKES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Bank at its option may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount necessary to discharge
the same. Any such payments made by Bank shall be obligations of Debtor to Bank,
due and payable immediately upon demand, together with interest at a rate
determined in accordance with the provisions of Section 15 herein, and shall be
secured by the Collateral and Proceeds, subject to all terms and conditions of
this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any default in the
payment or performance of any obligation, or any defined event of default,
under (i) any contract or instrument evidencing any Indebtedness, or (ii) any
other agreement between any Debtor and Bank, including without limitation any
loan agreement, relating to or executed in connection with any indebtedness;
(b) any representation or warranty made by any Debtor herein shall prove to
be incorrect in any material respect when made; (c) any Debtor shall fail to
observe or perform any obligation or agreement contained herein; (d) any
attachment or like levy on any property of any Debtor; and (e) Bank, in good
faith, believes any or all of the Collateral and/or Proceeds to be in danger
of misuse, dissipation, commingling, loss, theft, damage or destruction, or
otherwise in jeopardy or unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall
have the right to declare immediately due and payable all or any indebtedness
secured hereby and to terminate any commitments to make loans or otherwise
extend credit to Debtor. Bank shall have all other rights, powers, privileges
and remedies granted to a secured party upon default under the California
Uniform Commerical Code or otherwise provided by law, including without
limitation, the right to contact all persons obligated to Debtor on any
Collateral or Proceeds and to instruct such persons to deliver all Collateral
and/or Proceeds directly to Bank. All rights, powers, privileges and remedies
of Bank shall be cumulative. No delay, failure or discontinuance of Bank in
exercising any right, power, privilege or remedy hereunder shall affect or
operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or
the exercise of any other right, power, privilege or remedy. Any waiver,
permit, consent or approval of any kind by Bank of any default hereunder, or
any such waiver of any provisions or conditions hereof. must be in writing
and shall be effective only to the extent set forth in writing, It is agreed
that public or private sales, for cash or on credit, to a wholesaler or
retailer or investor, or user of property of the types subject to this
Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks
of such sales.
While an Event of Default exists: (a) Debtor will deliver to Bank from time to
time, as requested by Bank, current lists of all Collateral and Proceeds; (b)
Debtor will not dispose of any of the Collateral or Proceeds except on terms
approved by Bank; and (c) at Bank's request, Debtor will assemble and deliver
all Collateral and Proceeds, and books and records pertaining thereto, to Bank
at a reasonably convenient place designated by Bank.
Continuing Security Agreement (06/97), Page 2
<PAGE>
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Indebtedness, Bank may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Bank hereunder with respect to any of the foregoing so transferred; but with
respect to any Collateral or Proceeds not so transferred Bank shall retain all
rights, powers, privileges and remedies herein given. Any proceeds of any
disposition of any of the Collateral or Proceeds, or any part thereof, may be
applied by Bank to the payment of expenses incurred by Bank in connection with
the foregoing, including reasonable attorneys' fees, and the balance of such
proceeds may be applied by Bank toward the payment of the Indebtedness in such
order of application as Bank may from time to time elect.
12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid
in full and all commitments by Bank to extend credit to Debtor have been
terminated, the power of sale and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be
exercised by Bank at any time and from time to time irrespective of the fact
that the Indebtedness or any part thereof may have become barred by any
statute of limitations, or that the personal liability of Debtor may have
ceased, unless such liability shall have ceased due to the payment in full of
all Indebtedness secured hereunder.
13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several;
(b) Debtor hereby waives any right (i) to require Bank to make any
presentment or demand, or give any notice of nonpayment or nonperformance,
protest, notice of protest or notice of dishonor hereunder, (ii) to direct
the application of payments or security for Indebtedness of Debtor or
Indebtedness of customers of Debtor, or (iii) to require proceedings against
others or to require exhaustion of security; and (c) Debtor hereby consents
to extensions, forbearances or alterations of the terms of Indebtedness, the
release or substitution of security, and the release of any guarantors;
provided however, that in each instance, Bank believes in good faith that the
action in question is commercially reasonable in that it does not
unreasonably increase the risk of nonpayment of the Indebtedness to which the
action applies. Until all Indebtedness shall have been paid in full, no
Debtor shall have any right of subrogation or contribution, and each Debtor
hereby waives any benefit of or right to participate in any of the Collateral
or Proceeds or any other security now or hereafter held by Bank.
14. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Bank at the address specified in
any other loan documents entered into between Debtor and Bank and to Debtor
at the address of its chief executive office (or personal residence, if
applicable) specified below or to such other address as any party may
designate by written notice to each other party, and shall be deemed to have
been given or made as follows: (a) if personally delivered, upon delivery:
(b) if sent by mail, upon the earlier of the date of receipt or 3 days after
deposit in the U. S., mail, first class and postage prepaid; and (c) if sent
by telecopy, upon receipt.
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in exercising any right, power, privilege or remedy
conferred by this Agreement or in the enforcement thereof, whether incurred
at the trial or appellate level, in an arbitration proceeding or otherwise,
and including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to Debtor or
in any way affecting any of the Collateral or Bank's ability to exercise any
of its rights or remedies with respect thereto. All of the foregoing shall be
paid by Debtor with interest from the date of demand until paid in full at a
rate per annum equal to the greater of ten percent (10%) or the Prime Rate in
effect from time to time. The "Prime Rate" is a base rate that Bank from time
to time establishes and which serves as the basis upon which effective rates
of interest are calculated for those loans making reference thereto.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and may be amended or
modified only in writing signed by Bank and Debtor.
17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Agreement as Debtor hereby expressly agrees that recourse may be had against his
or her separate property for all his or her Indebtedness to Bank secured by the
Collateral and Proceeds under this Agreement.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California.
Debtor warrants that its chief executive office (or personal residence, if
applicable) is located at the following address: 111 W. OCEAN BLVD., SUITE 400,
LONG BEACH, CA 90802
Continuing Security Agreement (06/97), Page 3
<PAGE>
SECURITY AGREEMENT
WELLS FARGO BANK EQUIPMENT
- --------------------------------------------------------------------------------
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned FCG ENTERPRISES, INC., or any of them ("Debtor"), hereby grants and
transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security interest
in all goods, tools, machinery, furnishings, furniture and other equipment, now
or at any time hereafter, and prior to the termination hereof, owned or acquired
by Debtor, wherever located, whether in the possession of Debtor or any other
person and whether located an Debtor's property or elsewhere, and all
improvements, replacements, accessions and additions thereto (collectively
called "Collateral"), together with whatever is receivable or received when any
of the Collateral or proceeds thereof are sold, leased, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary,
including without limitation, (a) all accounts, contract rights, chattel paper,
instruments, documents, general intangibles and rights to payment of every kind
now or at any time hereafter arising from any such sale, lease, collection,
exchange or other disposition of any of the foregoing, (b) all rights to
payment, including returned premiums, with respect to any insurance relating to
any of the foregoing, and (c) all rights to payment with respect to any cause
of action affecting or relating to any of the foregoing (hereinafter called
"Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to Bank,
(b) all obligations of Debtor and rights of Bank under this Agreement; and (c)
all present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such Indebtedness
may be or hereafter becomes unenforceable.
3, TERMINATION. This Agreement will terminate upon the performance of all
obligations of Debtor to Bank, including without limitation, the payment of all
Indebtedness of Debtor to Bank, and the termination of all commitments of Bank
to extend credit to Debtor, existing at the time Bank receives written notice
from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans
hereunder. Any money received by Bank in respect of the Collateral may be
deposited, at Bank's option, into a non-interest bearing account over which
Debtor shall have no control, and the same shall, for all purposes, be deemed
Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security
interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are
genuine, free from liens, adverse claims, setoffs, default, prepayment,
defenses and conditions precedent of any kind or character, except the lien
created hereby or as otherwise agreed to by Bank, or heretofore disclosed by
Debtor to Bank, in writing; (d) all statements contained herein are true and
complete in all material respects; (e) no financing statement covering any of
the Collateral or Proceeds, and naming any secured party other than Bank, is
on file in any public office; and (f) Debtor is not in the business of
selling goods of the kind included within the Collateral subject to this
Agreement, and Debtor acknowledges that no sale of any Collateral, including
without limitation, any Collateral which Debtor may deem to be surplus, has
been or shall be consented to or acquiesced in by Bank, except as
specifically set forth in writing by Bank.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in general: (i) to pay Indebtedness secured hereby when
due; (ii) to indemnify Bank against all losses, claims, demands, liabilities and
expenses of every kind caused by property subject hereto; (iii) to pay all costs
and expenses, including reasonable attorneys' fees, incurred by Bank in the
perfection and preservation of the Collateral or Bank's interest therein and/or
the realization, enforcement and exercise of Bank's rights, powers and remedies
hereunder; (iv) to permit Bank to exercise its powers; (v) to execute and
deliver such documents as Bank deems necessary to create, perfect and continue
the security interests contemplated hereby; and (vi) not to change its chief
place of business (or personal residence, if applicable) or the places where
Debtor keeps any of the Collateral or Debtor's records concerning the Collateral
and Proceeds without first giving Bank written notice of the address to which
Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank
agrees otherwise in writing: (i) to insure the Collateral with Bank as loss
payee, in form, substance and amounts, under agreements, against risks and
liabilities, and with insurance companies satisfactory to Bank; (ii) to operate
the Collateral in accordance with all applicable statutes, rules and regulations
relating to the use and control thereof, and not to use the Collateral for any
unlawful purpose or in any way that would void any insurance required to be
carried in connection therewith: (iii) not to permit any security interest in or
lien on the Collateral or Proceeds, including without limitation, liens arising
from repairs to or storage of the Collateral, except in favor of Bank; (iv) to
pay when due all license fees, registration fees and other charges in connection
with any Collateral; (v) not to remove the Collateral from Debtor's premises
unless the Collateral consists of mobile goods as defined in the California
Uniform Commerical Code, in which case Debtor agrees not to remove or permit the
removal of the Collateral from its state of domicile for a period in excess
of 30 calendar days; (vi) not to sell, hypothecate or otherwise dispose of, nor
permit the transfer by operation of law of, any of the Collateral or Proceeds or
any interest therein; (vii) not to rent, lease or charter the Collateral; (viii)
to permit Bank to inspect the Collateral at any time; (ix) to keep, in
accordance with generally accepted accounting
Security Agreement (06/97), Page 1
<PAGE>
principles, complete and accurate records regarding all Collateral and Proceeds,
and to permit Bank to inspect the same and make copies thereof at any reasonable
time; (x) if requested by Bank, to receive and use reasonable diligence to
collect Proceeds, in trust and as the property of Bank, and to immediately
endorse as appropriate and deliver such Proceeds to Bank daily in the exact form
in which they are received together with a collections report in form
satisfactory to Bank; (xi) not to commingle Proceeds or collections thereunder
with other property; (xii) to give only normal allowances and credits and to
advise Bank thereof immediately in writing if they affect any Collateral or
Proceeds in any material respect; (xiii) in the event Bank elects to receive
payments of Proceeds hereunder, to pay all expenses incurred by Bank in
connection therewith, including expenses of accounting, correspondence,
collection efforts, reporting to account or contract debtors, filing, recording,
record keeping and expenses incidental thereto; and (xiv) to provide any service
and do any other acts which may be necessary to maintain, preserve and protect
all Collateral and, as appropriate and applicable, to keep the Collateral in
good and saleable condition and repair, to deal with the Collateral in
accordance with the standards and practices adhered to generally by owners of
like property, and to keep all Collateral and Proceeds free and clear of all
defenses, rights of offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to
perform any of the following powers, which are coupled with an interest, are
irrevocable until termination of this Agreement and may be exercised from time
to time by Bank's officers and employees, or any of them, whether or not Debtor
is in default: (a) to perform any obligation of Debtor hereunder in Debtor's
name or otherwise; (b) to give notice to account debtors or others of Bank's
rights in the Collateral and Proceeds, to enforce the same and make extension
agreements with respect thereto; (c) to release persons liable on Proceeds and
to give receipts and acquittances and compromise disputes in connection
therewith; (d) to release security; (e) to resort to security in any order; (f)
to prepare, execute, file, record or deliver notes, assignments, schedules,
designation statements, financing statements, continuation statements,
termination statements, statements of assignment, applications for registration
or like papers to perfect, preserve or release Bank's interest in the Collateral
and Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to
take cash, instruments for the payment of money and other property to which Bank
is entitled; (i) to verify facts concerning the Collateral and Proceeds by
inquiry of obligors thereon, or otherwise, in its own name or a fictitious name;
(j) to endorse, collect, deliver and receive payment under instruments for the
payment of money constituting or relating to Proceeds; (k) to prepare, adjust,
execute, deliver and receive payment under insurance claims, and to collect and
receive payment of and endorse any instrument in payment of loss or returned
premiums or any other insurance refund or return, and to apply such amounts
received by Bank, at Bank's sole option, toward repayment of the Indebtedness or
replacement of the Collateral; (l) to exercise all rights, powers and remedies
which Debtor would have, but for this Agreement, with respect to all Collateral
and Proceeds subject hereto; (m) to enter onto Debtor's premises in inspecting
the Collateral; and (n) to do all acts and things and execute all documents in
the name of Debtor or otherwise, deemed by Bank as necessary, proper and
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Bank at its option may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount necessary to discharge
the same. Any such payments made by Bank shall be obligations of Debtor to Bank,
due and payable immediately upon demand, together with interest at a rate
determined in accordance with the provisions of Section 15 herein, and shall be
secured by the Collateral and Proceeds, subject to all terms and conditions of
this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any default in the
payment or performance of any obligation, or any defined event of default, under
(i) any contract or instrument evidencing any Indebtedness, or (ii) any other
agreement between any Debtor and Bank, including without limitation any loan
agreement, relating to or executed in connection with any indebtedness; (b) any
representation or warranty made by any Debtor herein shall prove to be incorrect
in any material respect when made; (c) any Debtor shall fail to observe or
perform any obligation or agreement contained herein; (d) any attachment or like
levy on any property of any Debtor; and (e) Bank, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have
the right to declare immediately due and payable all or any Indebtedness secured
hereby and to terminate any commitments to make loans or otherwise extend credit
to Debtor. Bank shall have all other rights, powers, privileges and remedies
granted to a secured party upon default under the California Uniform Commercial
Code or otherwise provided by law, including without limitation, the right to
contact all persons obligated to Debtor on any Collateral or Proceeds and to
instruct such persons to deliver all Collateral and/or Proceeds directly to
Bank. All rights, powers, privileges and remedies of Bank shall be cumulative.
No delay, failure or discontinuance of Bank in exercising any right, power,
privilege or remedy hereunder shall affect or operate as a waiver of such right,
power, privilege or remedy; nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power, privilege
or remedy. Any waiver, permit, consent or approval of any kind by Bank of any
default hereunder, or any such waiver of any provisions or conditions hereof,
must be in writing and shall be effective only to the extent set forth in
writing. It is agreed that public or private sales, for cash or on credit, to a
wholesaler or retailer or investor, or user of property of the types subject to
this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales.
While an Event of Default exists: (a) Debtor will deliver to Bank from time to
time, as requested by Bank, current lists of all Collateral and Proceeds; (b)
Debtor will not dispose of any of the Collateral or Proceeds except on terms
Security Agreement (06/97), Page 2
<PAGE>
approved by Bank; (c) at Bank's request, Debtor will assemble and deliver all
Collateral and Proceeds, and books and records pertaining thereto, to Bank at a
reasonably convenient place designated by Bank; and (d) Bank may, without notice
to Debtor, enter onto Debtor's premises and take possession of the Collateral.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Indebtedness, Bank may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Bank hereunder with respect to any of the foregoing so transferred; but with
respect to any Collateral or Proceeds not so transferred Bank shall retain all
rights, powers, privileges and remedies herein given. Any proceeds of any
disposition of any of the Collateral or Proceeds, or any part thereof, may be
applied by Bank to the payment of expenses incurred by Bank in connection with
the foregoing, including reasonable attorneys' fees, and the balance of such
proceeds may be applied by Bank toward the payment of the Indebtedness in such
order of application as Bank may from time to time elect.
12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in
full and all commitments by Bank to extend credit to Debtor have been
terminated, the power of sale and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be exercised
by Bank at any time and from time to time irrespective of the fact that the
Indebtedness or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Indebtedness
secured hereunder.
13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several;
(b) Debtor hereby waives any right (i) to require Bank to make any presentment
or demand, or give any notice of nonpayment or nonperformance, protest, notice
of protest or notice of dishonor hereunder, (ii) to direct the application of
payments or security for Indebtedness of Debtor or indebtedness of customers of
Debtor, or (iii) to require proceedings against others or to require exhaustion
of security; and (c) Debtor hereby consents to extensions, forbearances or
alterations of the terms of Indebtedness, the release or substitution of
security, and the release of any guarantors; provided however, that in each
instance, Bank believes in good faith that the action in question is
commercially reasonable in that it does not unreasonably increase the risk of
nonpayment of the Indebtedness to which the action applies. Until all
Indebtedness shall have been paid in full, no Debtor shall have any right of
subrogation or contribution, and each Debtor hereby waives any benefit of or
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Bank.
14. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Bank at the address specified in any
other loan documents entered into between Debtor and Bank and to Debtor at the
address of its chief executive office (or personal residence, if applicable)
specified below or to such other address as any party may designate by written
notice to each other party, and shall be deemed to have been given of made as
follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon
the earlier of the date of receipt or 3 days after deposit in the U.S. mail,
first class and postage prepaid; and (c) if sent by telecopy, upon receipt.
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in exercising any right, power, privilege or remedy conferred
by this Agreement or in the enforcement thereof, whether incurred at the trial
or appellate level, in an arbitration proceeding or otherwise, and including any
of the foregoing incurred in connection with any bankruptcy proceeding
(including without limitation, any adversary proceeding, contested matter or
motion brought by Bank or any other person) relating to Debtor or in any way
affecting any of the Collateral or Bank's ability to exercise any of its rights
or remedies with respect thereto. All of the foregoing shall be paid by Debtor
with interest from the date of demand until paid in full at a rate per annum
equal to the greater of ten percent (10%) or the Prime Rate in effect from time
to time. The "Prime Rate" is a base rate that Bank from time to time establishes
and which serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and may be amended or
modified only in writing signed by Bank and Debtor.
17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Agreement as Debtor hereby expressly agrees that recourse may be had against his
or her separate property for all his or her Indebtedness to Bank secured by the
Collateral and Proceeds under this Agreement.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California.
Debtor warrants that its chief executive office (or personal residence, if
applicable) is located at the following address: 111 W. OCEAN BLVD., SUITE 400,
LONG BEACH, CA 90802
Debtor warrants that the Collateral (except goods in transit) is located or
domiciled at the following additional addresses: NONE
Security Agreement (06/97), Page 3
<PAGE>
Exhibit 11.1
(amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss)................................................................ $ (1,534) $ 393 $ 1,883
Weighted average common shares used for basic net income (loss) per share
(excludes unreleased ASOP shares)............................................... 8,850 8,624 7,477
Effect of applying rules pursuant to Staff Accounting Bulletin No. 83 (SAB 83)
for stock issuances and option grants within one year of the filing of the
registration statement using the treasury stock method.......................... 2,284 2,284 2,284
--------- --------- ---------
Weighted average common shares used for basic net income (loss) per share
adjusted for effect of SAB 83 (excludes unreleased ASOP shares)................. 11,134 10,908 9,761
Basic net income (loss) per share................................................ $ (0.14) $ 0.04 $ 0.19
--------- --------- ---------
--------- --------- ---------
Net income (loss)................................................................ $ (1,534) $ 393 $ 1,883
Weighted average common shares used for basic net income (loss) per share
(excludes unreleased ASOP shares)............................................... 8,850 8,624 7,477
Effect of stock options using treasury stock method.............................. -- 210 --
Effect of applying rules pursuant to Staff Accounting Bulletin No. 83 (SAB 83)
for stock issuances and option grants within one year of the filing of the
registration statement using the treasury stock method.......................... 2,284 2,284 2,284
--------- --------- ---------
Weighted average common shares used for diluted net income (loss) per share
adjusted for effect of SAB 83 (excludes unreleased ASOP shares)................. 11,134 11,118 9,761
Diluted net income (loss) per share.............................................. $ (0.14) $ 0.04 $ 0.19
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
CONSENT OF GRANT THORNTON LLP
EXHIBIT 23.1
We have issued our report dated January 17, 1998 (except for Note K, as to which
the date is , 1998), accompanying the consolidated financial statements
of FCG Enterprises, Inc. and subsidiaries (d.b.a. First Consulting Group)
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 "Experts" and "Selected
Consolidated Financial Data".
Los Angeles, California
, 1998
- --------------------------------------------------------------------------------
The above consent is in the form that will be signed upon completion of the
4-for-1 stock split described in Note K to the financial statements.
/s/ GRANT THORNTON LLP
Los Angeles, California
January 22, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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8,099
0
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