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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1998
REGISTRATION NO. 333-59909
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONLEY, CANITANO & ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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OHIO 34-1375019 7373
(State or Other Jurisdiction of (I.R.S. Employer (Primary Standard Industrial
Incorporation or Organization) Identification Number) Classification Code Number)
</TABLE>
CCAI RENAISSANCE CENTRE
5800 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
TELEPHONE: (440) 684-6600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
PAUL A. FARMER
CHIEF FINANCIAL OFFICER
CCAI RENAISSANCE CENTRE
5800 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
TELEPHONE: (440) 684-6600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Copies to:
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DAVID P. PORTER, ESQ. ELLEN B. CORENSWET, ESQ.
JONES, DAY, REAVIS & POGUE BABAK YAGHMAIE, ESQ.
NORTH POINT, 901 LAKESIDE AVENUE BROBECK, PHLEGER & HARRISON LLP
CLEVELAND, OHIO 44114 1633 BROADWAY, 47TH FLOOR
NEW YORK, NEW YORK 10019
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED , 1999
PROSPECTUS
, 1999
5,000,000 SHARES
CCAI LOGO
COMMON STOCK
Of the 5,000,000 shares (the "Shares") of common stock, no par value (the
"Common Stock"), being offered hereby (the "Offering"), 4,000,000 shares are
being sold by Conley, Canitano & Associates, Inc. ("CCAi" or the "Company") and
1,000,000 shares are being sold by certain shareholders (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders.
Prior to the Offering, there has been no public market for the Shares. It
is currently anticipated that the initial offering price will be between $10.00
and $12.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "CCAI."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total (3)........................... $ $ $ $
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $1,250,000, payable by the Company.
(3) The Company and certain Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to an aggregate of 750,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Shareholders will be $ , $ , $ and $ , respectively.
See "Principal and Selling Shareholders" and "Underwriting."
The Shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the Shares will be made in New York, New York, on or
about , 1999.
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
MCDONALD INVESTMENTS INC.
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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This Prospectus includes forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify forward-
looking statements. These forward-looking statements speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
------------------------
CCAi and FIRM are trademarks of the Company. This Prospectus also includes
names, trademarks, service marks and registered trademarks and service marks of
companies other than the Company.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements and Notes thereto included
elsewhere in this Prospectus. The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors" beginning on page 8. Unless otherwise
indicated, all information contained in this Prospectus: (i) assumes no exercise
of the Underwriters' over-allotment option; (ii) reflects the conversion of all
of the outstanding shares of the Company's Convertible Preferred Stock, $0.01
par value per share (the "Convertible Preferred Stock") into 2,504,000 shares of
Common Stock and 250,400 shares of Series A Redeemable Preferred Stock, $0.01
par value per share (the "Redeemable Preferred Stock"), all to be effected
immediately prior to the consummation of the Offering; (iii) reflects a 10-for-1
split of the Company's Common Stock and an increase in the Company's authorized
Common Stock and preferred stock effective as of July 24, 1998. Unless otherwise
indicated, the terms "Company" and "CCAi" refer to Conley, Canitano &
Associates, Inc.
THE COMPANY
CCAi is a leading provider of rapid implementations of Enterprise Resource
Planning ("ERP") applications. CCAi also offers its clients a comprehensive
range of related services, including post-implementation and platform
independent services, such as network and Windows NT support, custom application
development, mainframe and legacy application support, Year 2000 compliance and
remote support. The Company's services are primarily targeted at middle market
organizations, or divisions of larger organizations, with annual revenues
between $200 million and $2.5 billion. The Company's rapid ERP implementation
services enable its clients to reduce the length and risks of implementations,
lower overall costs and achieve early realization of ERP-related benefits. The
Company provides its services to clients across a broad spectrum of industries,
including aerospace, automotive, chemical process, communications, consumer
products, energy, financial and professional services, health care, industrial,
publishing, retail and technology. CCAi's clients include Aluminum Company of
America, BP America Inc., Brush Wellman Inc., Dow Chemical Co., Eaton
Corporation, General Motors Corporation ("GM"), Goodyear Tire & Rubber Co.,
KeyCorp, Master Builders, Inc. and OfficeMax, Inc.
CCAi has established strategic relationships with leading software
application vendors, hardware vendors and other information technology ("IT")
service providers, including multinational consulting firms. For example, the
Company has a relationship with SAP America, Inc. ("SAP") dating from 1989 and
has been an SAP National Implementation Partner since 1994. In addition, the
Company is a member of SAP's National Advisory Board and was involved in the
development of SAP's Accelerated SAP methodology ("ASAP"), which has become an
industry standard for rapid SAP implementations. In 1997, the Company became one
of SAP's first ASAP Partners and has since become one of the first organizations
to certify 100 consultants in the ASAP methodology. CCAi recently received the
1998 Partner Award of Excellence from SAP. Also, CCAi has been an Oracle
Corporation ("Oracle") Alliance Member since 1997 and utilizes its own rapid
implementation methodology, known as Fast Implementation Roadmap Methodology
("FIRM"), for Oracle ERP applications. In 1998, CCAi was named by Compaq
Computer Corporation ("Compaq") as one of its first regional configuration
support centers to provide rapid implementation and related services in
connection with R/3PAQ, a preconfigured ERP solution jointly developed by Compaq
and SAP. In addition, the Company has been an integral member of implementation
teams managed by Andersen Consulting LLP ("Andersen Consulting"), Electronic
Data Systems Corporation ("EDS"), Ernst & Young LLP ("Ernst & Young") and SAP.
The successful implementation of ERP applications requires extensive
resources, specific software expertise, end-user training and significant
ongoing modifications to support an organization's evolving business processes.
Organizations are increasingly using third-party service providers to implement
ERP applications in order to reduce the length and risks of implementations,
lower overall costs and achieve early realization of ERP-related benefits.
According to Forrester Research, Inc., a market research company, the worldwide
market for ERP applications and services totaled approximately $15 billion in
1997 and is projected to grow to approximately $32 billion by 2000, representing
a compound annual growth rate of approximately 29%. In addition, according to
industry sources, for every dollar spent on ERP applications, four to six
dollars are spent on ERP implementation and related services. The Company
believes that a large portion of this market is represented by
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middle market organizations and that the need for third-party ERP implementation
and related services is particularly acute among these organizations. Middle
market organizations expect timely and substantial economic returns from their
ERP investments and are particularly sensitive to the risk of cost overruns and
delays associated with poorly managed ERP implementations. In addition, these
organizations are under growing pressure from their Fortune 500 customers to
rapidly implement compatible ERP applications.
CCAi is a "company of employees" and has adopted a business model focused
on establishing and maintaining long-term relationships with its employees. The
Company believes, that in a resource constrained industry, it distinguishes
itself from its competitors by recruiting and retaining consultants with both
practical business and relevant IT experience, thereby enhancing the Company's
ability to identify industry-specific business issues and develop practical IT
solutions to address such issues. CCAi's consultants who perform ERP
implementations generally have 10 to 15 years of business or IT experience,
including three to five years of ERP implementation experience.
The Company's objective is to be a leading provider of IT solutions to the
middle market by continuing to deliver rapid ERP implementations and related
services. CCAi intends to achieve this objective by (i) expanding its base of
highly skilled employees and promoting an entrepreneurial culture; (ii)
leveraging its existing strategic relationships and seeking new relationships
with leading developers of complementary enterprise-wide applications; (iii)
broadening its presence in targeted geographic regions; (iv) expanding its
service offerings; and (v) pursuing strategic acquisitions. In April 1998, the
Company completed the acquisition of Kelly-Levey & Associates, Inc. ("KLA"), a
Kentucky-based provider of ERP implementation services, which enabled the
Company to acquire a staff of highly skilled ERP consultants, obtain additional
recruiting and sales and marketing opportunities, gain ERP implementation
expertise in the automotive and financial services industries and enhance its
presence in the Cincinnati market. For a description of the consideration paid
in the KLA acquisition, see "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Overview."
The Company is an Ohio corporation formed in 1983 and maintains its
principal executive office at the CCAi Renaissance Centre, 5800 Landerbrook
Drive, Mayfield Heights, Ohio 44124. The Company's telephone number is (440)
684-6600.
THE OFFERING
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Common Stock offered by the Company......................... 4,000,000 shares
Common Stock offered by the Selling Shareholders............ 1,000,000 shares
Common Stock to be outstanding after the Offering........... 13,326,950 shares (1)
Use of Proceeds............................................. To redeem all outstanding shares
of Redeemable Preferred Stock
for approximately $15.8 million,
to repay indebtedness of
approximately $5.5 million and
for general corporate purposes,
including working capital. See
"Use of Proceeds."
Nasdaq National Market symbol............................... CCAI
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(1) Excludes (i) 64,734 shares of Common Stock subject to outstanding
compensatory options as of September 30, 1998 issued in connection with the
KLA acquisition (the "KLA Options"); (ii) 195,266 shares of Common Stock
subject to outstanding warrants as of September 30, 1998 issued in
connection with the KLA acquisition (the "KLA Warrants"); (iii) 350,300
shares of Common Stock subject to options outstanding under the Company's
1997 Equity and Performance Incentive Plan (the "1997 Equity and Performance
Plan"); (iv) 2,072,750 additional shares of Common Stock reserved for
issuance under the 1997 Equity and Performance Plan; and (v) 500,000
additional shares of Common Stock reserved for issuance pursuant to the
Company's Employee Stock Purchase Plan (the "Purchase Plan"). See
"Management -- Employee Benefits Plans" and Notes 11 and 12 of Notes to
Financial Statements.
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SUMMARY FINANCIAL DATA
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YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues........... $ 11,107 $ 17,994 $ 32,218 $ 40,672 $ 23,205 $ 35,988 $ 38,401
Cost of revenues... 6,985 10,978 19,222 25,539 13,372 21,493 22,878
Gross profit....... 4,122 7,016 12,996 15,133 9,833 14,495 15,523
Income from
operations....... 380 1,135 3,706 2,151 2,688 3,402 3,380
Net income per
share (prior to
accretion):
Basic............ $ 0.01 $ 0.04 $ 0.16 $ 0.06 $ 0.11 $ 0.14 $ 0.13
Diluted.......... $ 0.01 $ 0.04 $ 0.15 $ 0.06 $ 0.11 $ 0.13 $ 0.12
Net income per
share:
Basic............ $ 0.01 $ 0.04 $ 0.15 $ 0.05 $ 0.11 $ 0.11 $ 0.10
Diluted.......... $ 0.01 $ 0.04 $ 0.15 $ 0.05 $ 0.11 $ 0.11 $ 0.10
Weighted average
shares
outstanding:
Basic............ 13,836,080 13,836,080 13,579,423 13,579,423 13,666,370 13,326,950 13,326,950
Diluted.......... 14,097,742 14,097,742 13,841,085 13,841,085 13,928,032 13,588,612 13,588,612
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AS OF SEPTEMBER 30, 1998
-----------------------------
AS ADJUSTED
ACTUAL (UNAUDITED)(2)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 1,415 $19,835
Working capital........................................... 2,421 20,841
Total assets.............................................. 20,682 38,727
Line of credit............................................ 5,500 --
Redeemable securities..................................... 18,312 --
Total shareholders' equity (deficit)...................... (11,835) 30,022
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(1) The pro forma statements of summary financial data for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 are
presented as if the acquisition of KLA had been consummated as of January 1,
1997. See "Unaudited Pro Forma Statements of Operations Data" and Notes
thereto.
(2) As adjusted to give effect to (i) the conversion of all outstanding shares
of Convertible Preferred Stock into 2,504,000 shares of Common Stock and
250,400 shares of Redeemable Preferred Stock immediately prior to the
consummation of the Offering; (ii) the sale of 4,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $11.00
per share, after deducting estimated underwriting discounts and commissions
and Offering expenses payable by the Company; and (iii) the application of
the estimated net proceeds of the Offering, including the redemption of the
250,400 shares of Redeemable Preferred Stock. See "Use of Proceeds" and
"Capitalization."
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RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
Dependence on SAP and Other Relationships. The Company has historically
derived, and expects to continue to derive, a significant portion of its
revenues from implementations of SAP's ERP applications and related services.
For the three years ended December 31, 1995, 1996 and 1997 and for the nine
months ended September 30, 1998, approximately 55%, 69%, 75% and 80%,
respectively, of CCAi's revenues were derived from engagements in which the
Company implemented SAP applications. CCAi's future success depends largely on
its continued relationship with SAP, including its continued status as an SAP
National Implementation Partner and as an ASAP Partner. CCAi's status as an SAP
National Implementation Partner is awarded by SAP on an annual basis pursuant to
contract. To achieve such status, CCAi was required to demonstrate: (i) customer
satisfaction with the Company's SAP-related services; (ii) expertise with SAP
software; and (iii) an employee base containing an appropriate number of
SAP-experienced consultants. Annual renewal of CCAi's contract and its National
Implementation Partner status is subject to SAP's review of the Company's
performance according to certain criteria, including: (i) customer satisfaction;
(ii) number and scope of engagements completed; and (iii) thoroughness of
consultant training. There can be no assurance that the Company's contract and
its National Implementation Partner status will be renewed or amended by SAP on
terms acceptable to the Company, if at all.
The Company has recently established a strategic relationship with Oracle
and has been an Oracle Alliance Member since 1997. CCAi's future success in its
Oracle-related services depends on its continued relationship with Oracle and
its continued status as an Oracle Alliance Member. This status is awarded by
Oracle pursuant to contract and may be terminated by Oracle upon 30 days' notice
to the Company. The Company also maintains relationships with software and
hardware vendors and other IT service providers, such as multinational
consulting firms. These relationships, whether contractual or otherwise, may be
terminated by either party with little or no notice. There can be no assurance
that CCAi's relationship with Oracle or with these other vendors and IT service
providers will continue under terms acceptable to the Company, if at all.
If CCAi's relationship with SAP, Oracle or the other organizations with
which the Company maintains strategic relationships deteriorates, or if SAP,
Oracle or one of the other organizations with which the Company maintains
strategic relationships elects to compete directly with the Company, the
Company's business, operating results and financial condition could be
materially adversely affected. Moreover, in the event that the demand for such
organizations' products and services lessens or fails to grow, the Company's
business, operating results and financial condition could be materially
adversely affected. The Company also intends to pursue other strategic
relationships with leading client/server software solution providers. There can
be no assurance that CCAi will be successful in establishing relationships with
the vendors of such software or that such relationships will be successful once
established. The Company's failure to establish or maintain any such
relationships could materially adversely affect the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business -- The
CCAi Solution" and " -- Competition."
Dependence on Recruiting and Retaining Consultants. CCAi's business entails
the delivery of professional IT services, and its success depends in large part
upon its ability to recruit, motivate and retain highly skilled consultants with
the functional and technical skills and experience necessary to deliver the
Company's services. Because there is a limited pool of such qualified employee
candidates, competition for such consultants is intense and is likely to remain
so. There can be no assurance that the Company will be able to recruit, motivate
and retain sufficient numbers of highly skilled consultants in the future. A
failure to do so could materially adversely affect the Company's business,
operating results and financial condition, including its ability to secure and
complete engagements. See "Business -- Human Resources" and "-- Competition."
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Management of Growth. CCAi has experienced, and expects to continue to
experience, rapid growth that has challenged, and may continue to challenge, the
Company's managerial and other resources. Between September 30, 1997 and
September 30, 1998, the number of consultants employed by the Company increased
to 261 from 177, and further significant increases are anticipated. In addition,
the Company's revenues increased 55.1% from $23.2 million for the nine months
ended September 30, 1997 to $36.0 million for the nine months ended September
30, 1998. The Company has recently opened offices in Cincinnati, Dallas and San
Francisco and plans to open additional offices over the next 12 months. The
Company's inability to generate sufficient additional revenues to offset the
costs associated with such expansion, or to successfully integrate these offices
into the Company's operations, could materially adversely affect the Company's
business, operating results and financial condition. CCAi's success in managing
its growth will depend on its ability to continue to enhance its operating,
financial and managerial resources and to recruit, motivate and retain its
expanding work force. If CCAi is unable to manage growth effectively, the
quality of the Company's services, its ability to retain key employees and its
business, operating results and financial condition could be materially
adversely affected. Moreover, there can be no assurance that CCAi's business
will continue to grow. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Strategy" and "-- Human
Resources."
Variability and Seasonality of Quarterly Operating Results. CCAi's revenues
and operating results are subject to significant variation from
quarter-to-quarter as a result of a number of factors, including employee
hiring, consultant billing and utilization rates, the mix, size and timing of
client engagements commenced and completed during a quarter, the number of
billable days in a quarter, the timing of office and service expansion and the
timing of expenditures. Because a high percentage of CCAi's expenses are
relatively fixed, a variation in the number of engagements or the timing of the
initiation or the completion of such engagements, particularly at or near the
end of any quarter, can cause significant variations in operating results from
quarter-to-quarter and could result in losses to the Company. In addition,
CCAi's engagements are generally terminable by the client without penalty.
Unanticipated termination of an engagement, a client's decision not to proceed
to the next phase of an engagement as anticipated by the Company, completion
during a quarter of several engagements without the deployment of consultants to
new engagements or expansion of existing engagements could result in the
Company's underutilization of employees and could, therefore, materially
adversely affect the Company's business, operating results and financial
condition. To the extent that increases in the number of employees do not result
in corresponding increases in revenues, the Company's business, operating
results and financial condition could be materially adversely affected. Further,
it is difficult for the Company to forecast the timing of revenues because
engagement cycles depend on factors such as the size and scope of engagements
and circumstances specific to particular clients. Because the Company derives
revenues only when its consultants are billing on engagements, its business,
operating results and financial condition are materially adversely affected due
to vacations, training schedules, sick days, holidays, inclement weather or
other similar events. For example, the Company has historically generated lower
margins during the second and fourth quarters of the year due to a lower number
of billable days resulting from training schedules and the number of vacations
and holidays in those quarters. Given all of the foregoing, the Company believes
that quarter-to-quarter comparisons of its operating results are not necessarily
meaningful, and that such results for one quarter should not be relied upon as
an indication of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Demand for IT consulting services is also significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of IT consultants. The Company is
unable to predict the level of economic activity at any particular time, and
fluctuations in the general economy could materially adversely affect the
Company's business, operating results and financial condition.
Risks Associated With Acquisition of KLA. The Company acquired KLA in April
1998. The success of the acquisition will depend on a number of factors,
including the Company's ability to integrate the business and operations of KLA
with those of the Company, to retain certain key employees formerly employed by
KLA and to preserve and expand the business and operations of KLA. There can be
no assurance that the Company will be able to successfully integrate and operate
the business of KLA or that it will not experience losses as a result of the
acquisition. Failure to achieve the anticipated benefits of the acquisition or
to successfully integrate the
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operations of KLA could materially adversely affect the business, operating
results and financial condition of the Company. Moreover, goodwill as a result
of the KLA acquisition is being amortized by the Company on a straight-line
basis over 20 years. In accordance with Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, the Company will continually
evaluate whether later events and circumstances have occurred that indicate the
remaining goodwill may warrant revision. There can be no assurance that the
Company will not be required to undertake such revisions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risks of Acquisition Strategy. The Company intends to further expand its
business and operations by pursuing acquisitions of complementary ERP
implementation and IT consulting businesses. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
predicted. CCAi expects to face competition for acquisition candidates, which
may limit the number of acquisition opportunities available to the Company and
may lead to higher purchase prices or transaction costs. There can be no
assurance that CCAi will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses without
substantial costs, including costs in pursuing and negotiating with acquisition
candidates, delays in consummating such acquisitions or other operational or
financial difficulties. In addition, such a strategy involves a number of other
risks, including failure of the acquired businesses to achieve expected results,
diversion of management's attention and resources to acquisitions, failure to
retain key clients or personnel of the acquired businesses and risks associated
with unanticipated events, liabilities or contingencies. Client dissatisfaction
or performance problems relating to an acquired business could negatively affect
the reputation of CCAi as a whole. Acquisitions accounted for under the purchase
method of accounting may result in substantial annual noncash amortization
charges for goodwill and other intangible assets in the Company's statements of
operations. In addition, the Company could be obligated to make substantial cash
payments related to any such acquisition. There can be no assurance that the
Company will derive any value or benefit from any such payments. If CCAi is
unable to acquire complementary ERP implementation and IT consulting businesses
on reasonable terms or successfully integrate and manage acquired companies, or
if performance problems occur at acquired companies, CCAi's business, operating
results and financial condition may be materially adversely affected. See "Use
of Proceeds" and "Business -- Growth Strategy."
Rapid Technological Change; Dependence on New Solutions. The IT industry is
characterized by rapid technological change, evolving industry standards,
changing client preferences and new and frequent product and service
introductions. CCAi's continued success is dependent in part on its ability to
stay abreast of such continuing changes. There can be no assurance that CCAi
will be successful in identifying and addressing these developments on a timely
basis or that, if CCAi does identify and address such developments, CCAi will be
successful in the marketplace. In addition, there can be no assurance that
products, technologies or services developed or offered by others will not
render the Company's services noncompetitive. CCAi's failure to identify and
address these developments could materially adversely affect the Company's
business, operating results and financial condition.
Highly Competitive Information Technology Services Industry. The market for
CCAi's services is highly competitive. CCAi believes that its principal
competitors include the internal information systems groups of its prospective
clients, IT consulting companies, systems integration firms and the consulting
divisions of software applications vendors, some of which are also clients of
the Company. Many of CCAi's competitors have longer operating histories, possess
greater industry and name recognition and have significantly greater financial,
technical and marketing resources than the Company. In addition, there are
relatively low barriers to entry into CCAi's market, and the Company has faced,
and expects to continue to face, additional competition from new entrants into
its market, including new entrants operating offshore who may have lower fixed
operating costs than the Company and new entrants who may develop new or
innovative means of delivering IT services.
CCAi believes that the principal competitive factors in its market include
quality of service, speed of development and implementation, price, engagement
management capability, technical and business expertise and reputation. The
Company believes it competes favorably with respect to such factors. The Company
believes its ability to compete also depends in part on a number of competitive
factors outside its control. These include
10
<PAGE> 12
the ability of its competitors to recruit, motivate and retain project managers
and other senior professionals, develop services that are competitive with the
Company's services and respond to customer needs. There can be no assurance that
the Company will be able to compete successfully with its competitors. See
"Business -- The CCAi Solution" and "-- Competition."
Engagement Risks. Many of CCAi's engagements are critical to the operations
of its clients' businesses and provide benefits that may be difficult to
quantify. The Company's inability to meet a client's expectations in any
engagement, especially in performing mission and time critical projects such as
Year 2000 compliance services, could have a material adverse effect on the
client and, therefore, could give rise to claims against the Company or damage
the Company's reputation, which could in turn materially adversely affect the
Company's business, operating results and financial condition. In addition, most
of the Company's contracts are terminable by its clients with little or no
notice to the Company and without penalty. The cancellation or a significant
change in the scope of engagements could materially adversely affect the
Company's business, operating results and financial condition.
The Company faces increased pressure to undertake engagements on a
fixed-fee basis, instead of on a time and materials basis. The failure of the
Company to complete a fixed-fee engagement within budget could expose the
Company to risks associated with cost overruns, which could materially adversely
affect the Company's business, operating results and financial condition. These
risks may be heightened if the Company acts as a subcontractor on a fixed-fee
engagement because of its limited ability to control engagement variables and to
negotiate directly with the client.
Concentration of Revenues. Since its inception, the Company has derived a
significant portion of its revenues from a relatively limited number of clients.
For example, for the years ended December 31, 1995, 1996 and 1997 and for the
nine months ended September 30, 1998, the Company's 10 largest clients accounted
for approximately 51%, 43%, 39% and 41% of its revenues, respectively. For the
nine months ended September 30, 1998, one of the Company's clients accounted for
11% of revenues. There can be no assurance that these clients will continue to
hire the Company for additional engagements or do so at the same revenue levels.
Clients engage the Company on an engagement-by-engagement basis, and a client
can generally terminate a contract with little or no notice to the Company and
without penalty. The loss of any such client, or a reduction in the scope of
engagements undertaken for such a client, could materially adversely affect the
Company's business, operating results and financial condition. In addition,
there can be no assurance that the portion of the Company's revenues
attributable to a relatively limited number of clients will not increase in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Clients and Representative Engagements."
Reliance on Key Executives. The success of CCAi has been highly dependent
upon certain key executives and senior managers, particularly the Company's
founders, Nicholas A. Canitano, Kenneth L. Conley, Karen M. Conley and Annette
M. Canitano (collectively, the "Founders"). None of these individuals has
entered into an employment agreement with CCAi, and there is no guarantee that
any of these individuals will continue his or her employment with the Company.
The loss of the services of any of these persons for any reason could materially
adversely affect the Company's business, operating results and financial
condition. The Company maintains, and is the beneficiary of, key person life
insurance on the lives of Nicholas A. Canitano and Kenneth L. Conley, each in
the face amount of $2,000,000, and on the lives of Karen M. Conley and Annette
M. Canitano, each in the face amount of $1,000,000. In the event of the death of
any of the Founders, the applicable sum would be paid to the Company to offset
the financial effect of such death. No assurance can be given, however, that
such amount of insurance would be adequate for that purpose. The Company does
not maintain key life insurance on any of its other executive officers or
employees. See "Management."
Government Regulation of Immigration. The Company recruits certain of its
IT professionals from countries outside the United States to avail itself of the
best available consulting talent and, therefore, must comply with the
immigration laws in the countries in which it operates, particularly in the
United States and Canada. There is a limit on the number of new H-1B permits
that may be approved in any year. In years in which this limit is reached, the
Company may be unable to obtain enough H-1B permits to meet its requirements. If
the
11
<PAGE> 13
Company were unable to obtain H-1B permits for its employees in sufficient
quantities or at a sufficient rate, the Company's business, operating results
and financial condition could be materially adversely affected. Furthermore,
Congress and administrative agencies with jurisdiction over immigration matters
have periodically expressed concerns over the levels of legal and illegal
immigration into the U.S. These concerns have often resulted in proposed
legislation, rules and regulations aimed at reducing the number of work permits
that may be issued. Any changes in such laws and regulations that make it more
difficult to hire foreign nationals or that limit the ability of the Company to
retain employees who are foreign nationals could require the Company to incur
additional unexpected labor costs and other expenses and limit the Company's
ability to implement its expansion strategy. Any such restrictions or
limitations on the Company's ability to hire professionals from countries
outside the United States could materially adversely affect the Company's
business, operating results and financial condition. See "Business -- Human
Resources."
Significant Influence of Principal Shareholders. Upon consummation of the
Offering, the executive officers and directors of the Company and their
affiliates will beneficially own approximately 40% of the outstanding shares of
Common Stock. While there is no agreement among the executive officers and
directors of the Company regarding the voting of their Common Stock, if voted
together, they will effectively control the outcome of any matters requiring
shareholder approval, including the election of the members of the Board of
Directors. Such influence could materially adversely affect the market price of
the Common Stock or delay or prevent a change in control of the Company. See
"Principal and Selling Shareholders."
Dependence on Intellectual Property Rights. CCAi's success is dependent
upon certain methodologies and other proprietary intellectual property rights.
Software developed by the Company for a client is typically assigned to the
client. CCAi also independently develops certain foundation and application
software products, or software "tools" that remain the property of the Company.
CCAi relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. CCAi enters into confidentiality
agreements with its employees and limits distribution of proprietary
information. There can be no assurance that the steps taken by CCAi in this
regard will be adequate to deter misappropriation of the Company's proprietary
information, that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights or that such steps
will prevent the Company's employees from using intellectual property belonging
to others. Although CCAi believes its services do not infringe on the
intellectual property rights of others and it has all rights necessary to
utilize the intellectual property employed in its business, the Company is
subject to the risk of claims alleging infringement of third-party intellectual
property rights, including the rights of its clients. Any such claims could
require CCAi to expend significant resources in litigation, pay damages, cease
using infringing intellectual property, develop non-infringing intellectual
property or acquire licenses to the intellectual property that is the subject of
asserted infringement. See "Business -- Intellectual Property Rights."
Risks Associated With Year 2000 Compliance. Many existing computer systems
and applications, and other control devices, use only two digits to identify a
year in the date code field, and were not designed to account for the upcoming
change in the century. As a result, such systems and applications could fail or
create erroneous results unless corrected so that they can process dates in the
Year 2000 and beyond. The Company and its clients rely on their systems,
applications and devices in operating and monitoring all major aspects of their
businesses, including financial systems (such as general ledger, accounts
payable and accounts receivable modules), customer services, infrastructure,
embedded computer chips, networks and telecommunications equipment and end
products. The Company and its clients also rely directly and indirectly, on
external systems of business enterprises such as customers, suppliers,
creditors, financial organizations, and of governmental entities, both domestic
and international, for accurate exchange of data.
The Company's Year 2000 assessment is conducted by the Company's IT
department and executive management. The Company's assessment of the Year 2000
issue has been broadly divided among hardware systems, software systems,
telecommunications, data communications, facilities, internal business
applications, external business applications and services offered by CCAi. All
hardware systems are being inventoried, audited and tested for Year 2000
compliance. All personal computer systems are in material compliance or will be
12
<PAGE> 14
replaced in 1999. Software systems include operating systems, applications and
utilities. All business critical software systems have been assessed and are in
material compliance. The telecommunications systems in use at CCAi are comprised
of voice, facsimile, voice mail and video teleconferencing. All
telecommunications systems have been assessed and are in material compliance.
The data communications systems employed by CCAi include local area as well as
wide area networking. The Company's data communications systems are in material
compliance.
CCAi employs two major internal business applications, which are
significant in its business operations. These applications are its financial and
payroll systems, which are commercial off-the-shelf items and include ongoing
support. Both the systems have been assessed for Year 2000 compliance and are in
material compliance. CCAI has an aggressive training program and has created an
environment in which issues and solutions relating to Year 2000 problems are
exchanged and implemented. The Year 2000 issues with regard to CCAi's facilities
have also been assessed and found to be in material compliance. There is a
combination of hardware, software and communications elements involved with
CCAI's headquarters and other offices. These are broadly grouped into physical
security systems, fire alarm and fire control systems, heating and cooling
systems, elevator systems, irrigation systems, lighting and emergency services.
Based on the information currently available, the Company does not
anticipate any significant investments and therefore, believes that the costs
associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results and financial condition. However,
there can be no assurance that the Company, or its clients, will not encounter
unexpected costs or disruption in their businesses as a result of the Year 2000
issue. In addition, even if the internal system of the Company are not
materially affected by the Year 2000 issue, the Company's business, operating
results and financial condition could be materially adversely affected through
disruption in the operation of the enterprises with which the Company interacts.
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for the Common Stock, and there is no
assurance an active trading market will develop or be sustained after the
Offering. The initial public offering price will be determined through
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the market price of the Common Stock after the
Offering. The trading price of the Common Stock is likely to be highly volatile
and may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to patents, copyrights or proprietary rights,
conditions and trends in the IT consulting industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the public equity markets from time to time have experienced
significant price and volume fluctuations that particularly have affected the
stock prices of technology companies. These broad market fluctuations, as well
as shortfalls in sales or earnings as compared with securities analysts'
expectations, changes in such analysts' recommendations or projections and
general economic and market conditions, may materially adversely affect the
market price of the Common Stock. See "Underwriting."
Certain Anti-Takeover Effects. Certain provisions of the Company's Second
Amended and Restated Articles of Incorporation (the "Articles of Incorporation")
and Amended and Restated Code of Regulations (the "Code of Regulations"), as
well as Ohio statutes, may be deemed to have certain anti-takeover effects. Such
provisions, including those providing for the possible issuance of preferred
stock, and the division of the Company's Board of Directors into two classes of
directors, may make it more difficult for other persons, without the approval of
the Company's Board of Directors, to make a tender offer or acquisitions of
substantial amounts of the Common Stock or to launch other takeover attempts
that a shareholder might consider to be in such shareholder's best interest.
These provisions could limit the price that certain investors might be willing
to pay in the future for shares of Common Stock. See "Description of Capital
Stock -- Certain Articles of Incorporation and Code of Regulations Provisions
and Ohio Law; Anti-Takeover Provisions."
Shares Eligible for Future Sale; Registration Rights Agreements. Sales of
significant amounts of Common Stock in the public market after the Offering or
the perception that such sales will occur could materially adversely affect the
market price of the Common Stock or the future ability of the Company to raise
capital
13
<PAGE> 15
through an offering of its equity securities. Of the 13,326,950 shares of Common
Stock to be outstanding upon completion of the Offering, the 5,000,000 shares
offered hereby will be eligible for immediate sale in the public market without
restriction unless such Shares are purchased by "affiliates" of the Company
within the meaning of Rule 144 ("Rule 144") under the Securities Act of 1933, as
amended (the "Securities Act").
The remaining 8,326,950 shares of Common Stock held by existing
shareholders upon completion of the Offering will be "restricted securities" as
that term is defined in Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Directors, officers and certain
shareholders of the Company holding an aggregate of 8,299,450 shares of Common
Stock have agreed that they will not sell, directly or indirectly, any Common
Stock without the prior consent of Donaldson, Lufkin & Jenrette Securities
Corporation for a period of 180 days from the date of this Prospectus (the
"Lock-up Agreements"). Subject to these Lock-up Agreements, additional shares of
Common Stock will be available for sale in the public market (subject in the
case of shares held by affiliates in compliance with certain volume
restrictions) as follows: (i) 27,500 shares will be available for immediate sale
in the public market on the date of this Prospectus; and (ii) 8,248,150 shares
will be eligible for sale upon the expiration of the Lock-Up Agreements 180 days
after the date of this Prospectus.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 up to 3,000,000 shares of Common
Stock issuable under the 1997 Equity and Performance Plan and the Purchase Plan
(collectively, the "Stock Plans"). Of the 3,000,000 shares of Common Stock
issuable under the Stock Plans, 350,300 shares are subject to outstanding
options as of September 30, 1998, none of which will be exercisable at the time
of the Offering. The Company also has reserved 195,266 shares of Common Stock
for issuance upon exercise of the KLA Warrants and 64,734 shares of Common Stock
for issuance upon exercise of the KLA Options.
Upon completion of the Offering, the holders of 2,873,527 shares of Common
Stock will be entitled to certain registration rights with respect to such
shares. If such holders, by exercising their registration rights, cause a large
number of shares of Common Stock to be registered and sold in the public market,
such sales could have an adverse effect on the market price of the Common Stock.
In addition, if the Company is required, pursuant to such registration rights,
to include shares held by such persons in a registration statement, which the
Company files to raise additional capital, the inclusion of such shares could
adversely affect the Company's ability to raise needed capital. See "Certain
Transactions," "Management -- Employee Benefit Plans," "Shares Eligible for
Future Sale," and "Principal and Selling Shareholders."
Significant Unallocated Net Proceeds. The principal purposes of the
Offering are to obtain additional working capital, create a public market for
the Common Stock, provide liquidity to the Company's shareholders, enhance the
Company's ability to use its Common Stock as a means of recruiting, motivating
and retaining key employees and facilitate the Company's future access to public
equity markets. A substantial portion of the anticipated net proceeds of the
Offering has not been designated for specific uses. CCAi expects to use the net
proceeds from the Offering for: (i) redemption of all outstanding shares of
Redeemable Preferred Stock for approximately $15.8 million; (ii) repayment in
full of existing indebtedness of approximately $5.5 million; and (iii) general
corporate purposes, including working capital. Although the Company has no
plans, commitments or agreements with respect to any material acquisitions as of
the date of this Prospectus, the Company may seek acquisitions of businesses or
service offerings that are complementary to those of the Company, and a portion
of the net proceeds may be used for such acquisitions. Accordingly, the Company
will have significant flexibility in applying the net proceeds of the Offering.
See "Use of Proceeds."
Benefits Of Offering To Current Shareholders. In addition to the Selling
Shareholders receiving an estimated $10.2 million in net proceeds from the
Offering, the Offering will benefit the current shareholders by establishing a
public market for the Common Stock and providing significantly increased
liquidity to current shareholders for the shares of Common Stock they will own
after the Offering. See "Dilution" and "Principal and Selling Shareholders."
Dilution. Investors participating in the Offering will incur immediate and
substantial dilution of net tangible book value per share of $9.30 from an
assumed initial public offering price of $11.00 per share. To the
14
<PAGE> 16
extent outstanding options to purchase shares of Common Stock are exercised,
there will be further dilution to investors participating in the Offering. There
can be no assurance that the Company will not require additional funds to
support its working capital requirements or for other purposes, in which case
the Company may seek to raise such additional funds through public or private
equity financing or from other sources. There can be no assurance that such
additional financing will be available or that, if available, such financing
will be obtained on terms favorable to the Company and would not result in
additional dilution of the Company's shareholders. See "Dilution."
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to CCAi from the sale of the 4,000,000 shares offered by
the Company pursuant to the Offering are estimated to be approximately $39.7
million ($45.8 million if the Underwriters' over-allotment option is exercised
in full), at an assumed offering price of $11.00 per share after deducting the
estimated underwriting discounts and commissions and Offering expenses payable
by the Company. The principal purposes of the Offering are to obtain additional
working capital, create a public market for the Common Stock, provide liquidity
to the Company's shareholders, enhance the Company's ability to use its Common
Stock as a means of attracting, motivating and retaining key employees and
facilitate the Company's future access to public equity markets. CCAi expects to
use the net proceeds from the Offering: (i) to redeem all outstanding shares of
Redeemable Preferred Stock for approximately $15.8 million; (ii) to repay in
full existing indebtedness, used to refinance its prior line of credit in
conjunction with the acquisition of KLA, under the Company's revolving line of
credit ($5.5 million at September 30, 1998) with Fleet National Bank ("Fleet
Bank") with an interest rate equal to LIBOR (5.625% at September 30, 1998) plus
up to 2.25% or the bank's prime rate (8.5% at September 30, 1998) plus up to
0.75%; and (iii) for general corporate purposes, including working capital. The
Company may also use a portion of the net proceeds to fund acquisitions of
complementary businesses or service offerings. Although the Company may
periodically review potential acquisition opportunities, there are no current
agreements with respect to any such transactions. Pending such uses, the Company
intends to invest the net proceeds from the Offering in short-term,
investment-grade, interest-bearing securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never declared or paid any dividends. The Company does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business. The payment of dividends in the future,
if any, will be at the discretion of the Board of Directors.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 and as adjusted to give effect to (i) the conversion of all
outstanding shares of Convertible Preferred Stock into 2,504,000 shares of
Common Stock and 250,400 shares of Redeemable Preferred Stock immediately prior
to the consummation of the Offering, (ii) the redemption of the 250,400
outstanding shares of Redeemable Preferred Stock to be effected immediately upon
consummation of the Offering, (iii) the amendment to the Articles of
Incorporation adopted by the Company's Board of Directors and shareholders
increasing the number of authorized shares of preferred stock and Common Stock,
(iv) the sale of 4,000,000 shares offered hereby at an assumed initial public
offering price of $11.00 per share, after deducting estimated underwriting
discounts and commissions and Offering expenses payable by the Company and (v)
the application of the estimated net proceeds of the Offering. See "Use of
Proceeds." The information set forth below should be read in conjunction with
the Financial Statements and related Notes thereto included elsewhere in this
Prospectus:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------
AS ADJUSTED
ACTUAL (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Line of credit.............................................. $ 5,500 $ --
Redeemable securities....................................... 18,312 --
Shareholders' equity (deficit):
Preferred Stock, voting, $.01 par value, authorized
500,800 shares, 250,400 issued and outstanding as of
September 30, 1998
Preferred Stock, non-voting no par value, authorized
5,000,000 shares, none issued
Preferred Stock, voting, no par value, authorized
5,000,000 shares, none issued
Common Stock, no par value, authorized 45,000,000
shares, issued and outstanding 7,255,130 shares at
December 31, 1996, 6,746,000 shares at December 31,
1997, 6,822,950 shares at September 30, 1998 (1)...... 8 51
Additional paid-in capital............................. 359 39,989
Retained earnings (accumulated deficit)................ (11,843) 9,659
Less: note receivable from shareholder................. (359) (359)
-------- -------
Total shareholders' equity (deficit)................. (11,835) 30,022
-------- -------
Total capitalization.............................. $ 11,977 $30,022
======== =======
</TABLE>
- ---------------
(1) Excludes (i) 64,734 shares of Common Stock subject to the KLA Options, (ii)
195,266 shares subject to the KLA Warrants, (iii) 350,300 shares of Common
Stock subject to options outstanding under the 1997 Equity and Performance
Plan; (iv) 2,072,750 additional shares of Common Stock reserved for issuance
pursuant to the 1997 Equity and Performance Plan; and (v) 500,000 additional
shares of Common Stock reserved for issuance pursuant to the Purchase Plan.
See "Management -- Employee Benefits Plans" and Notes 11 and 12 of Notes to
Financial Statements.
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<PAGE> 19
DILUTION
As of September 30, 1998, the net tangible book value (deficit) of the
Company was $(19.2 million) or $(2.81) per share of Common Stock. Net tangible
book value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of the 4,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $11.00 per
share, and after deducting the underwriting discounts and commissions and
estimated Offering expenses payable by the Company, the pro forma net tangible
book value of the Company as of September 30, 1998 would have been $22.7
million, or $1.70 per share of Common Stock. This represents an immediate
increase in net tangible book value of $4.51 per share of Common Stock to
existing shareholders and an immediate dilution of $9.30 per share to new
shareholders. The following table illustrates this dilution on a per share
basis.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
------
Net tangible deficit per share before the Offering........ $(2.81)
Increase per share attributable to new investors.......... 4.51
------
Pro forma net tangible book value per share after the
Offering.................................................. 1.70
------
Dilution per share to new investors......................... $ 9.30
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1998, the difference between the existing shareholders and new shareholders with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price paid per share by
existing shareholders and by new shareholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. 9,326,950 70.0% $16,244,235 27.0% $ 1.74
New shareholders....................... 4,000,000 30.0 44,000,000 73.0 11.00
---------- ----- ----------- -----
Total........................ 13,326,950 100.0% $60,244,235 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables and calculations assume no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants. As of September 30, 1998, there were 64,734 shares of Common Stock
subject to the KLA Options; 195,266 shares of Common Stock subject to the KLA
Warrants; 350,300 shares of Common Stock subject to options outstanding under
the 1997 Equity and Performance Plan; 2,072,750 additional shares of Common
Stock reserved for issuance pursuant to such plan; and 500,000 additional shares
of Common Stock reserved for issuance pursuant to the Purchase Plan. See
"Management -- Employee Benefit Plans," and "Shares Eligible for Future Sale."
18
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and the Company's financial
statements and Notes thereto included elsewhere in this Prospectus. The
Statements of Income Data presented below for each of the years in the three
year period ended December 31, 1997 and the nine months ended September 30, 1998
and the Balance Sheet Data, as of December 31, 1996 and 1997 and September 30,
1998, have been derived from the Company's financial statements included
elsewhere in this Prospectus, which have been audited by PricewaterhouseCoopers
LLP, whose report with respect thereto is included elsewhere in this Prospectus.
The Balance Sheet Data as of December 31, 1995 and 1994 has been derived from
audited financial statements not included herein. The Balance Sheet Data as of
December 31, 1993 and the Statements of Income Data for the ten months ended
December 31, 1993, for the year ended December 31, 1994 and for the nine months
ended September 30, 1997 have been derived from the unaudited financial
statements of the Company. In the opinion of management, the unaudited financial
statements include all adjustments (consisting only of normal and recurring
adjustments) necessary for a fair presentation of its financial position and
operating results for such periods. The selected financial data for the nine
months ended September 30, 1998 are not necessarily indicative of the results to
be expected for the year ending December 31, 1998 or any other future period.
See the financial statements and the related Notes thereto included elsewhere in
the Prospectus.
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS ENDED
ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31,(1) --------------------------------------------- ----------------------------
1993 1994 1995 1996 1997 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................. $4,559 $6,149 $11,107 $17,994 $32,218 $23,205 $35,988
Cost of revenues......... 2,968 3,977 6,985 10,978 19,222 13,372 21,493
------ ------ ------- ------- ------- ------- -------
Gross profit............. 1,591 2,172 4,122 7,016 12,996 9,833 14,495
Selling, general and
administrative
expenses............... 1,428 2,066 3,038 4,204 6,555 4,929 7,454
Incentive compensation... 258 216 678 1,647 2,700 2,191 2,586
Acquisition
compensation........... -- -- -- -- -- -- 725
Depreciation and
amortization........... 39 22 26 30 35 25 328
------ ------ ------- ------- ------- ------- -------
(Loss) income from
operations............. (134) (132) 380 1,135 3,706 2,688 3,402
Interest income.......... 1 0 3 6 20 13 21
Interest expense......... (27) (40) (38) (89) (107) (87) (230)
------ ------ ------- ------- ------- ------- -------
(Loss) income before
provision for income
taxes.................. (160) (172) 345 1,052 3,619 2,614 3,193
(Benefit from) provision
for income taxes....... (69) (80) 180 461 1,495 1,080 1,393
------ ------ ------- ------- ------- ------- -------
Net (loss) income........ $ (91) $ (92) $ 165 $ 591 $ 2,124 $ 1,534 $ 1,800
====== ====== ======= ======= ======= ======= =======
Accretion to redemption
value of redeemable
securities............. -- -- -- -- (92) -- (342)
------ ------ ------- ------- ------- ------- -------
Net (loss) income
available to common
shareholders........... $ (91) $ (92) $ 165 $ 591 $ 2,032 $ 1,534 $ 1,458
====== ====== ======= ======= ======= ======= =======
Net (loss) income per
share:
Basic.................. $(0.01) $(0.01) $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
Diluted................ $(0.01) $(0.01) $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
Weighted average shares
outstanding:
Basic.................. 13,836,080 13,836,080 13,836,080 13,836,080 13,579,423 13,666,370 13,326,950
Diluted................ 14,097,942 14,097,742 14,097,742 14,097,742 13,841,085 13,928,032 13,588,612
</TABLE>
- ---------------
(1) Reflects a change in the Company's fiscal year to the calendar year
effective as of December 31, 1993.
19
<PAGE> 21
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 66 $ 109 $ 100 $ 362 $ 2,174 $ 1,415
Working capital (deficit)...... 11 (142) (170) 429 2,119 2,421
Total assets................... 1,175 1,164 2,054 3,697 7,712 20,682
Line of credit................. -- -- -- 704 698 5,500
Redeemable securities.......... -- -- -- -- 15,970 18,312
Total shareholders' equity
(deficit).................... 59 (33) (25) 723 (13,294) (11,835)
</TABLE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
The following Unaudited Pro Forma Statements of Operations Data gives pro
forma effect to the acquisition of KLA by CCAi on April 8, 1998. The Unaudited
Pro Forma Statements of Operations Data for the year ended December 31, 1997 and
for the nine months ended September 30, 1998 combine the historical statements
of income of CCAi and the historical statements of operations of KLA as if the
acquisition had been completed on January 1, 1997. The Unaudited Pro Forma
Statement of Operations Data for the nine months ended September 30, 1998
reflects the last full quarter of KLA operations prior to being acquired by CCAi
on April 8, 1998. This pro forma data should be read in conjunction with the
respective historical financial statements (including Notes thereto) of CCAi and
KLA, Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Notes to Unaudited Pro Forma Statements of Operations Data
presented below and other financial information of CCAi and KLA appearing
elsewhere herein.
The pro forma adjustments reflecting the consummation of the KLA
acquisition are based on the purchase method of accounting, available financial
information and certain estimates and assumptions set forth in the Notes to the
Unaudited Pro Forma Statements of Operations Data. The Unaudited Pro Forma
Statements of Operations Data reflects CCAi's best estimates; however, the
actual financial position and results of operations may differ significantly
from the pro forma amounts reflected herein due to various factors, including,
without limitation, access to additional information and changes in value. The
pro forma adjustments do not reflect any operating efficiencies or cost savings
that may be achievable with respect to the combined business of CCAi and KLA.
The following data is not necessarily indicative of the future financial
position or operating results of the combined businesses or the financial
position or operating results of the combined businesses had the acquisition
occurred at the beginning of 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------------------
KLA
THREE
MONTHS
YEAR ENDED DECEMBER 31, 1997 ENDED
--------------------------------------------------- MARCH 31,
PRO FORMA PRO FORMA 1998 PRO FORMA PRO FORMA
CCAI KLA ADJUSTMENTS COMBINED CCAI HISTORICAL ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (UNAUDITED) (UNAUDITED) HISTORICAL (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $32,218 $8,726 $ (272)(1) $ 40,672 $ 35,988 $2,570 $(157)(1) $ 38,401
Cost of revenues..... 19,222 6,589 (272)(1) 25,539 21,493 1,542 (157)(1) 22,878
------- ------ ------- ----------- -------- ------ ----- -----------
Gross profit......... 12,996 2,137 -- 15,133 14,495 1,028 -- 15,523
Selling, general and
administrative
expenses........... 6,555 2,238 (818)(2) 7,975 7,454 925 (250)(2) 8,129
Incentive
compensation....... 2,700 -- -- 2,700 2,586 -- -- 2,586
Acquisition
compensation....... -- -- 1,825(3,4) 1,825 725 -- 263(3,4) 988
Depreciation and
amortization....... 35 74 373(5) 482 328 19 93(5) 440
------- ------ ------- ----------- -------- ------ ----- -----------
Income (loss) from
operations......... 3,706 (175) (1,380) 2,151 3,402 84 (106) 3,380
Transaction costs.... -- -- -- -- -- 302 (302)(6) --
Net interest
expense............ 87 29 469(7) 585 209 4 120(7) 333
------- ------ ------- ----------- -------- ------ ----- -----------
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------------------
KLA
THREE
MONTHS
YEAR ENDED DECEMBER 31, 1997 ENDED
--------------------------------------------------- MARCH 31,
PRO FORMA PRO FORMA 1998 PRO FORMA PRO FORMA
CCAI KLA ADJUSTMENTS COMBINED CCAI HISTORICAL ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (UNAUDITED) (UNAUDITED) HISTORICAL (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
provision for
(benefit from)
income taxes....... 3,619 (204) (1,849) 1,566 3,193 (222) 76 3,047
Provision for
(benefit from)
income taxes....... 1,495 (64) (630)(8) 801 1,393 (83) 61(8) 1,371
------- ------ ------- ----------- -------- ------ ----- -----------
Net income (loss).... $ 2,124 $ (140) $(1,219) $ 765 $ 1,800 $ (139) $ 15 $ 1,676
======= ====== ======= =========== ======== ====== ===== ===========
Accretion to
redemption value of
redeemable
securities......... (92) -- -- (92) (342) -- -- (342)
------- ------ ------- ----------- -------- ------ ----- -----------
Net income (loss)
available to common
shareholders....... $ 2,032 $ (140) $(1,219) $ 673 $ 1,458 $ (139) $ 15 $ 1,334
======= ====== ======= =========== ======== ====== ===== ===========
Net income per share:
Basic.............. $ 0.05 $ 0.10
Diluted............ $ 0.05 $ 0.10
Weighted average
shares outstanding:
Basic.............. 13,579,423 13,326,950
Diluted............ 13,841,085 13,588,612
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA:
(1) Reflects the elimination of contractual sales and cost of sales that had
been transacted between CCAi and KLA before the acquisition date.
(2) Reflects the elimination of KLA expenses, which consist of the salary
related to an officer of KLA who was not retained by CCAi and certain
nonrecurring travel expenses incurred by KLA officers and employees, that
will no longer be incurred as a result of the KLA acquisition.
(3) Reflects pro forma adjustment to acquisition compensation in the amount of
$0.3 million and $0.1 million for the year ended December 31, 1997 and for
the nine months ended September 30, 1998, respectively, for the amortization
of $0.5 million of compensation expense resulting from the issuance of the
KLA Options. The expense associated with the KLA Options is amortized on a
straight-line basis over the 24 month vesting period for such options. In
connection with the Offering, the KLA Options will fully vest and the
unamortized balance will be included in acquisition compensation. See Note
12 of Notes to Financial Statements.
(4) Reflects pro forma adjustment to acquisition compensation in the amount of
$1.6 million and $0.1 million for the year ended December 31, 1997 and for
the nine months ended September 30, 1998, respectively, for bonus retention
pool payments to an escrow account for KLA employees retained by CCAi. See
Note 12 of Notes to Financial Statements.
(5) Reflects the pro forma increase in amortization expenses associated with the
amortization of goodwill of $7.5 million resulting from the KLA acquisition,
on a straight-line basis over 20 years.
(6) Reflects transaction costs, which consist of professional services expenses,
incurred by KLA resulting from the KLA acquisition. Transaction costs
incurred by CCAi are included in goodwill. Amortization of goodwill is
included in depreciation and amortization.
(7) Reflects the pro forma increase in interest expense associated with the
borrowings by CCAi in connection with the KLA acquisition. The borrowings
are assumed to have an interest rate of 8.5%.
(8) Reflects pro forma adjustments to provision for (benefit from) income taxes
assuming an effective income tax rate of 51.1% and 45.0% for the year ended
December 31, 1997 and for the nine months ended September 30, 1998,
respectively. The difference between the effective income tax rate from the
federal statutory rate is primarily due to nondeductible goodwill
amortization and, to a lesser extent, state taxes.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of this Prospectus contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
section, the words "anticipate," "believe," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results,
performance or achievements expressed in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
CCAi is a leading provider of rapid implementations of ERP applications.
CCAi also offers its clients a comprehensive range of related services,
including post-implementation and platform independent services, such as network
and Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance and remote support. The Company's
services are primarily targeted at middle market organizations, or divisions of
larger organizations, with annual revenues between $200 million and $2.5
billion. The Company's rapid ERP implementation services enable its clients to
reduce the length and risks of implementations, lower overall costs and achieve
early realization of ERP-related benefits. The Company provides its services to
clients across a broad spectrum of industries, including aerospace, automotive,
chemical process, communications, consumer products, energy, financial and
professional services, health care, industrial, publishing, retail and
technology.
From its inception through 1989, CCAi was engaged in the implementation of
mainframe and minicomputer software applications, as well as the development of
custom applications and software products for mainframe and minicomputer
systems. In 1989, the Company participated in one of the first mainframe SAP
implementations in the U.S. and thereafter continued to provide its clients with
mainframe ERP implementations and related services for SAP applications
throughout the early 1990s. With the advent of client/server architecture and
the availability of affordable personal computers, the Company began to develop
custom applications for client/server environments and subsequently began to
participate in SAP client/server ERP implementations undertaken by larger IT
service providers at Fortune 500 companies.
Since 1994, when the Company became an SAP National Implementation Partner,
CCAi has differentiated itself by developing expertise as a provider of rapid
ERP implementation services and developing its own rapid implementation
methodology. The Company was involved in the development of SAP's ASAP
methodology, which has become an industry standard for rapid SAP
implementations. In 1997, CCAi became one of SAP's first ASAP Partners and has
since become one of the first organizations to certify 100 consultants in the
ASAP methodology. Also during 1997, the Company expanded its ERP implementation
capabilities by becoming an Oracle Alliance Member and has since developed its
own proprietary rapid implementation methodology, known as FIRM, for Oracle ERP
applications. Since 1997, the Company has increasingly undertaken the management
of engagements for middle market clients. With the continuing growth in demand
for ERP solutions among middle market organizations, the Company has focused on
providing rapid ERP implementations and related services for such organizations.
In 1998, the Company was one of the first organizations named by Compaq as a
regional configuration support center to provide rapid implementation and
related services in connection with R/3PAQ, a preconfigured ERP solution jointly
developed by Compaq and SAP.
In April 1998, the Company, in an arms-length transaction with parties not
affiliated with the Company, purchased all of the capital stock of KLA by paying
$3.9 million in cash, by issuing the KLA Warrants and by agreeing to make
additional cash payments of (i) $3.4 million, subject to certain revenue targets
and contribution margins during the two-year period following the acquisition
and (ii) $1.1 million in three equal annual installments beginning April 1999.
In addition, the Company agreed to grant the KLA Options and to pay $3.5 million
in retention bonuses at certain intervals to an escrow account which benefits
former KLA employees who remain employees of the Company at such intervals.
Goodwill from the acquisition is being amortized on a straight-line basis over
20 years. In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived
22
<PAGE> 24
Assets and for Long-Lived Assets to be Disposed of, the Company will continually
evaluate whether later events and circumstances have occurred that indicate the
acquired goodwill may warrant revision. See Note 12 of Notes to Financial
Statements.
The Company generates revenues by providing professional services for ERP
implementations and platform independent services. Revenues are recognized as
services are performed. The Company's ERP implementation services are typically
billed at a higher rate than its other services. The Company undertakes
engagements in a variety of roles, including: (i) as the lead consulting firm on
its own engagements; (ii) as a lead consulting firm on a part of larger
engagements undertaken by multinational IT consulting firms or other large
service providers or (iii) as an integral member of a joint engagement team on
such engagements. The Company provides services to its clients predominantly on
a time and materials basis pursuant to written contracts, which can be
terminated with little or no notice, typically not more than 30 days, and
without penalty. The Company typically bills on a bi-weekly basis to monitor
client satisfaction and manage its outstanding accounts receivable balances.
Substantially all of the Company's revenues are derived from clients located in
the U.S. and Canada. Revenues generated in connection with SAP implementations
and related services for the years ended December 31, 1995, 1996 and 1997 and
for the nine months ended September 30, 1998 accounted for approximately 55%,
69%, 75% and 80%, of revenues, respectively. Revenues derived from services
provided to the Company's 10 largest clients for the years ended December 31,
1995, 1996 and 1997 and for the nine months ended September 30, 1998, were
approximately 51%, 43%, 39% and 41% of revenues, respectively. During each of
the years ended December 31, 1995, 1996 and 1997, none of the Company's clients
individually accounted for 10% or more of the Company's revenues. For the nine
months ended September 30, 1998, one of the Company's clients accounted for 11%
of revenues. See "Risk Factors -- Dependence on SAP and Other Relationships" and
"-- Concentration of Revenues."
Gross profit is derived from revenues less the cost of revenues, which
includes salaries, bonuses and benefits paid to consultants. The Company's
financial performance is primarily based upon billing margin (billable hourly
rate less the consultant's hourly cost) and personnel utilization rates
(billable hours divided by paid hours). Generally, clients are billed for
expenses incurred by the Company on the clients' behalf. To date, the Company
has been able to maintain its billing margins by offsetting increases in
salaries with increases in its hourly rates. Because most of the Company's
engagements are billed on a time and materials basis, increases in its cost of
revenues are generally passed along to the Company's clients. In addition, the
Company closely monitors and attempts to control expenses that are not passed
through to its clients.
The Company continuously monitors its engagements in order to effectively
manage billing and utilization rates. Actual billing rates are established on an
engagement-by-engagement basis. Over the last three years, the Company's average
hourly billing rate has steadily increased. The growth in average hourly billing
rates reflects both an increase in billing rates and a shift towards a higher
percentage of billable hours related to ERP implementations, which command
higher billing rates. The Company assigns consultants to engagements according
to the size, duration, status and degree of complexity of each engagement.
Selling, general and administrative expenses consists of salaries,
benefits, training and travel expenses and other promotional costs. These
expenses are associated with the Company's development of new business and with
the Company's management, finance, marketing and administrative activities.
Incentive compensation consists of amounts paid for non-consultant
discretionary bonuses, sales commissions and company-wide profit sharing to
employees who provide exceptional service to clients or the Company. Incentive
compensation expenses have a large variable component relating to revenue and
profit and, therefore vary based upon the Company's ability to achieve its
operating objectives.
Acquisition compensation consists of bonus retention pool payments to be
made by the Company in connection with the KLA acquisition. In addition,
amortization of the $0.5 million of compensation attributed to the KLA Options
is included in acquisition compensation and is being amortized over the 24 month
vesting period of the options. As a result of the Offering, the KLA Options will
fully vest and, accordingly, the unamortized balance of the compensation will be
charged to acquisition compensation in the quarter in which the Offering is
consummated.
23
<PAGE> 25
The Company's income tax rates vary from the federal statutory rate of 34%
predominately due to state and local taxes and nondeductible meal expenses. The
decrease in the Company's effective tax rate for the year ended December 31,
1996 relative to the year ended December 31, 1995 was predominantly due to
nondeductible goodwill amortization and meal expenses becoming a smaller
percentage of taxable income. The effective income tax rate for the nine months
ended September 30, 1998 reflects nondeductible goodwill amortization.
RESULTS OF OPERATIONS
The following table sets forth the Statements of Income Data of the
Company, expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 62.9 61.0 59.7 57.6 59.7
----- ----- ----- ----- -----
Gross profit.......................... 37.1 39.0 40.3 42.4 40.3
Selling, general and administrative
expenses................................ 27.4 23.4 20.3 21.3 20.7
Incentive compensation..................... 6.1 9.2 8.4 9.4 7.3
Acquisition compensation................... -- -- -- -- 2.0
Depreciation and amortization.............. 0.2 0.1 0.1 0.1 0.9
----- ----- ----- ----- -----
Income from operations................ 3.4 6.3 11.5 11.6 9.4
Interest income............................ 0.0 0.0 0.1 0.1 0.1
Interest expense........................... (0.3) (0.5) (0.4) (0.4) (0.6)
----- ----- ----- ----- -----
Income before provision for income
taxes.............................. 3.1 5.8 11.2 11.3 8.9
Provision for income taxes................. 1.6 2.6 4.6 4.7 3.9
----- ----- ----- ----- -----
Net income............................ 1.5% 3.2% 6.6% 6.6% 5.0%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Revenues increased 55.1% to $36.0 million for the nine months
ended September 30, 1998 from $23.2 million for the nine months ended September
30, 1997. This increase was predominantly due to the increase in ERP
implementation services provided to clients. The increase in services was made
possible through the increase in the number of consultants to 261 at September
30, 1998 from 177 at September 30, 1997.
Gross Profit. Gross profit increased 47.4% to $14.5 million for the nine
months ended September 30, 1998 from $9.8 million for the nine months ended
September 30, 1997. Gross margin decreased to 40.3% for the nine months ended
September 30, 1998 from 42.4% for the nine months ended September 30, 1997. The
dollar increase was the result of increased revenues, partially offset by
increased cost of revenues. The decrease in gross margin was primarily due to
lower consultant utilization in the nine months ended September 30, 1998
resulting from the time devoted to the KLA acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 51.2% to $7.5 million for the nine months
ended September 30, 1998 from $4.9 million for the nine months ended September
30, 1997. As a percentage of revenues, such expenses decreased to 20.7% for the
nine months ended September 30, 1998 from 21.3% for the nine months ended
September 30, 1997. The dollar increase was predominantly due to the increased
personnel costs needed to support the increase in revenues. The decrease in
selling, general and administrative expenses as a percentage of revenues was
primarily due to an increase in revenues.
Incentive Compensation. Incentive compensation increased 18.0% to $2.6
million for the nine months ended September 30, 1998 from $2.2 million for the
nine months ended September 30, 1997. As a percentage of revenues, such expenses
decreased to 7.3% for the nine months ended September 30, 1998 from 9.4% for the
nine months ended September 30, 1997. The dollar increase in incentive
compensation was due to the increase in
24
<PAGE> 26
revenues. The decrease in incentive compensation as a percent of revenues was
primarily related to reduced incentive compensation payable to the Founders
since October 1997.
Acquisition Compensation. Acquisition compensation in the nine months ended
September 30, 1998 includes $0.6 million related to the KLA retention pool and
$0.1 million for compensation amortization related to the KLA Options. The KLA
acquisition was completed in April 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$0.3 million for the nine months ended September 30, 1998 from $25,000 for the
nine months ended September 30, 1997. The increase was primarily due to goodwill
amortization related to the KLA acquisition. The remaining increase was the
result of depreciation associated with furniture, equipment and leasehold
improvements acquired in conjunction with the Company's relocation to new
corporate facilities in January 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues increased 79.1% to $32.2 million for the year ended
December 31, 1997 from $18.0 million for the year ended December 31, 1996. This
increase was predominantly due to the increase in ERP implementation services
provided to clients. The increase in services was made possible through the
increase of consultants to 191 at December 31, 1997 from 122 at December 31,
1996.
Gross Profit. Gross profit increased 85.3% to $13.0 million for the year
ended December 31, 1997 from $7.0 million for the year ended December 31, 1996.
Gross margin increased to 40.3% for the year ended December 31, 1997 from 39.0%
for the year ended December 31, 1996. Both the dollar and percentage increases
were the result of increased revenues, partially offset by increased cost of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 55.9% to $6.6 million for the year ended
December 31, 1997 from $4.2 million for the year ended December 31, 1996. As a
percentage of revenues, such expenses decreased to 20.3% for the year ended
December 31, 1997 from 23.4% for the year ended December 31, 1996. The dollar
increase was predominantly due to the increased personnel costs needed to
support the increase in revenues. The decrease in selling, general and
administrative expenses as a percentage of revenues was primarily due to an
increase in revenues.
Incentive Compensation. Incentive compensation increased 63.9% to $2.7
million for the year ended December 31, 1997 from $1.6 million for the year
ended December 31, 1996. As a percentage of revenues, such expenses decreased to
8.4% for the year ended December 31, 1997 from 9.2% for the year ended December
31, 1996. The dollar increase in incentive compensation was due to the increase
in revenues. The decrease in incentive compensation as a percentage of revenues
was primarily due to the increase in revenues.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues. Revenues increased 62.0% to $18.0 million for the year ended
December 31, 1996 from $11.1 million for the year ended December 31, 1995. This
increase was predominantly due to the increase in ERP implementation services
provided to clients. The increase in services was made possible through the
increase of consultants to 122 at December 31, 1996 from 100 at December 31,
1995.
Gross Profit. Gross profit increased 70.2% to $7.0 million in the year
ended December 31, 1996 from $4.1 million for the year ended December 31, 1995.
Gross margin increased to 39.0% for the year ended December 31, 1996 from 37.1%
for the year ended December 31, 1995. Both the dollar and percentage increases
were the result of increased revenues, partially offset by increased cost of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 38.4% to $4.2 million for the year ended
December 31, 1996 from $3.0 million for the year ended December 31, 1995. As a
percentage of revenues, such expenses decreased to 23.4% for the year ended
December 31, 1996 from 27.4% for the year ended December 31, 1995. The dollar
increase was predominantly due to increased personnel costs needed to support
the increase in revenues. The decrease in selling, general and administrative
expenses as a percentage of revenues was primarily due to an increase in
revenues.
25
<PAGE> 27
Incentive Compensation. Incentive compensation increased 142.9% to $1.6
million for the year ended December 31, 1996 from $0.7 million for the year
ended December 31, 1995. As a percentage of revenues, such expenses increased to
9.2% for the year ended December 31, 1996 from 6.1% for the year ended December
31, 1995. Both the dollar and percentage increases were the result of increased
revenues.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly operating
results for each of the quarters for the years ended December 31, 1996 and 1997
and for the nine months ended September 30, 1998. In management's opinion, this
unaudited information has been prepared on the same basis as the audited
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented when read in conjunction with the financial statements
and Notes thereto included elsewhere in this Prospectus. The Company believes
that quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $3,926 $3,943 $4,822 $5,302 $6,535 $7,799 $8,871 $9,013 $9,902
Cost of revenues....... 2,255 2,550 2,826 3,347 3,548 4,643 5,181 5,850 5,762
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 1,671 1,393 1,996 1,955 2,987 3,156 3,690 3,163 4,140
Selling, general and
administrative
expenses............. 838 936 1,194 1,236 1,380 1,600 1,949 1,626 2,017
Incentive
compensation......... 433 286 337 591 601 658 932 509 984
Acquisition
compensation......... -- -- -- -- -- -- -- -- --
Depreciation and
amortization......... 7 7 7 9 8 8 9 10 24
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations........... 393 164 458 119 998 890 800 1,018 1,115
Interest income........ 1 1 2 2 4 4 5 7 7
Interest expense....... (18) (26) (23) (21) (35) (21) (31) (20) (12)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
provisions for income
taxes................ 376 139 437 100 967 873 774 1,005 1,110
Provision for income
taxes................ 165 61 192 43 399 361 320 415 471
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income............. $ 211 $ 78 $ 245 $ 57 $ 568 $ 512 $ 454 $ 590 $ 639
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
QUARTERS ENDED
--------------------
JUNE 30, SEPT. 30,
1998 1998
-------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues............... $12,122 $13,964
Cost of revenues....... 7,565 8,166
------- -------
Gross profit........... 4,557 5,798
Selling, general and
administrative
expenses............. 2,340 3,097
Incentive
compensation......... 607 995
Acquisition
compensation......... 362 363
Depreciation and
amortization......... 151 153
------- -------
Income from
operations........... 1,097 1,190
Interest income........ 8 6
Interest expense....... (120) (98)
------- -------
Income before
provisions for income
taxes................ 985 1,098
Provision for income
taxes................ 434 488
------- -------
Net income............. $ 551 $ 610
======= =======
</TABLE>
26
<PAGE> 28
The following table sets forth certain unaudited quarterly operating
results as a percentage of revenues, as applicable, for each of the quarters for
the years ended December 31, 1996 and 1997 and for the nine months ended
September 30, 1998:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....... 57.4 64.7 58.6 63.1 54.3 59.5 58.4 64.9 58.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit........... 42.6 35.3 41.4 36.9 45.7 40.5 41.6 35.1 41.8
Selling, general and
administrative
expenses............. 21.4 23.7 24.8 23.3 21.1 20.5 22.0 18.0 20.4
Incentive
compensation......... 11.0 7.3 7.0 11.1 9.2 8.4 10.5 5.7 9.9
Acquisition
compensation......... -- -- -- -- -- -- -- -- --
Depreciation and
amortization......... 0.2 0.1 0.1 0.2 0.1 0.2 0.1 0.1 0.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from
operations........... 10.0 4.2 9.5 2.3 15.3 11.4 9.0 11.3 11.3
Interest income........ 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.0
Interest expense....... (0.4) (0.7) (0.4) (0.4) (0.5) (0.3) (0.3) (0.3) (0.1)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before
provisions for income
taxes................ 9.6 3.5 9.1 1.9 14.8 11.2 8.8 11.1 11.2
Provision for income
taxes................ 4.2 1.5 4.0 0.8 6.1 4.6 3.7 4.6 4.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income............. 5.4% 2.0% 5.1% 1.1% 8.7% 6.6% 5.1% 6.5% 6.4%
===== ===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
QUARTERS ENDED
--------------------
JUNE 30, SEPT. 30,
1998 1998
-------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues............... 100.0% 100.0%
Cost of revenues....... 62.4 58.5
----- -----
Gross profit........... 37.6 41.5
Selling, general and
administrative
expenses............. 19.3 22.2
Incentive
compensation......... 5.0 7.1
Acquisition
compensation......... 3.0 2.6
Depreciation and
amortization......... 1.3 1.1
----- -----
Income from
operations........... 9.0 8.5
Interest income........ 0.1 0.1
Interest expense....... (1.0) (0.7)
----- -----
Income before
provisions for income
taxes................ 8.1 7.9
Provision for income
taxes................ 3.6 3.5
----- -----
Net income............. 4.5% 4.4%
===== =====
</TABLE>
The Company's quarter-to-quarter increase in revenues was primarily due to
increased business activity. This increase was predominantly due to the increase
in ERP implementation services provided to clients. Cost of revenues increased
due to the growing number of consultants needed to support the growing demand
for the Company's services.
Variable utilization rates and average billing rates cause quarterly
fluctuations in cost of revenues as a percent of revenues. For the quarters
ended June 30, 1996, December 31, 1996, June 30, 1997, December 31, 1997 and
June 30, 1998, gross margins were adversely affected by lower utilization rates.
Lower utilization rates during the second and fourth quarters are primarily due
to a lower number of billable days resulting from training schedules and the
number of vacations and holidays in those quarters. Utilization rates may
continue to cause gross margins to vary in the future based on factors such as
training schedules, vacations, sick days, holiday schedules, recruiting
requirements, start-up of new engagements and administrative requirements of the
Company's employees.
Selling, general and administrative expenses have increased in absolute
dollars over the quarters presented due to increased salaries, benefits,
training and travel expenses and other promotional costs. Selling, general and
administrative expenses have varied from quarter-to-quarter as a percent of
revenues primarily due to the timing of training or promotional conferences
attended by Company personnel.
CCAi's revenues and operating results are subject to significant variation
from quarter-to-quarter as a result of a number of factors, including employee
hiring, consultant billing and utilization rates, the mix, size and timing of
engagements commenced and completed during a quarter, the number of billable
days in a quarter, the timing of office and service expansion, training
schedules and the timing of expenditures. Because a high percentage of CCAi's
expenses are relatively fixed, a variation in the number of engagements or the
timing of the initiation or the completion of engagements, particularly at or
near the end of any quarter, can cause significant variations in operating
results from quarter-to-quarter and could result in losses to the Company. In
addition, CCAi's engagements are generally terminable by the client without
penalty.
Unanticipated termination of an engagement, a client's decision not to
proceed to the next phase of an engagement as anticipated by the Company,
completion during a quarter of several client engagements without the deployment
of consultants to new engagements or expansion of existing engagements could
result in the Company's underutilization of employees and could, therefore,
materially adversely affect the Company's
27
<PAGE> 29
business, operating results and financial condition. To the extent that
increases in the number of consultants do not result in corresponding increases
in revenues, the Company's business, operating results and financial condition
could be materially adversely affected. Further, it is difficult for the Company
to forecast the timing of revenues because engagement cycles depend on factors
such as the size and scope of assignments and circumstances specific to
particular clients. Because the Company derives revenues only when its
consultants are billing on engagements, its business, operating results and
financial condition are materially adversely affected due to vacations, training
schedules, holidays, inclement weather or other similar events. For example, the
Company has generated lower operating margins during the second and fourth
quarters of the year due to a lower number of billable days resulting from
training schedules and the number of vacations and holidays in those quarters.
Given all of the foregoing, the Company believes that quarter-to-quarter
comparisons of its operating results of preceding quarters are not necessarily
meaningful, and that such results for one quarter should not be relied upon as
an indication of future performance.
Demand for IT consulting services is also significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of IT consultants. The Company is
unable to predict the level of economic activity at any particular time, and
fluctuations in the general economy could materially adversely affect the
Company's business, operating results and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations primarily through internally
generated funds. Working capital needs have been periodically supplemented by
borrowings under the Company's revolving credit facilities. Working capital was
$0.4 million, $2.1 million and $2.4 million at December 31, 1996 and 1997 and
September 30, 1998, respectively.
Net cash provided by operating activities was $0.2 million, $2.1 million
and $0.7 million for the years ended December 31, 1996 and 1997 and for the nine
months ended September 30, 1998, respectively. The increase in cash provided by
operating activities in the nine months ended 1998 and the year ended 1997
compared to 1996 was primarily the result of the increased net income and due to
increases in accruals and other current liabilities, partially offset increases
in accounts receivable. Accounts receivable increased from December 31, 1997 to
September 30, 1998 primarily as a result of increased revenue and the timing of
billings.
Net cash used in investing activities was $51,700, $0.4 million and $5.0
million for the years ended December 31, 1996 and 1997 and for the nine months
ended September 30, 1998, respectively. In April 1998, the Company completed the
KLA acquisition with a net cash outlay of $3.9 million. See Note 12 of Notes to
Financial Statements. During the year ended December 31, 1997 and the nine
months ended September 30, 1998, net cash used in investing activities reflected
the Company's use of $0.4 million and $1.1 million, respectively, of funds for
furniture, equipment and leasehold improvements in a new corporate facility.
In April 1998, in order to finance the KLA acquisition, the Company
refinanced its then existing revolving credit facility with a line of credit
from Fleet Bank. The Fleet Bank line of credit permits the Company to borrow up
to $15 million and is collateralized by substantially all of CCAi's assets.
Borrowings under the line of credit are limited to two and one-half times the
Company's latest aggregated four quarters' earnings before interest, taxes,
depreciation, amortization and other non-cash expenses. The interest rate is
LIBOR to the extent the Company borrows funds for a certain period of time, and
the bank's prime rate (8.5% at September 30, 1998) plus up to 0.75%, on the
remaining outstanding balance. The line of credit contains various financial and
operating covenants and restricts, among other things, the Company's ability to
incur additional indebtedness, sell or transfer assets or make investments and
pay dividends. At September 30, 1998, $5.5 million was outstanding under the
Fleet Bank line of credit. The Company intends to use a portion of the net
proceeds of the Offering to repay amounts outstanding under the line of credit.
See "Use of Proceeds" and Note 4 of Notes to Financial Statements.
Net cash provided by financing activities totaled $0.1 million, $0.1
million and $3.5 million for the years ended December 31, 1996 and 1997 and for
the nine months ended September 30, 1998, respectively. In October 1997, the
Company sold certain shares of Common Stock and Convertible Preferred Stock for
an aggregate purchase price of $17.5 million ($15.9 million, net of $1.6 million
of transaction expenses).
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<PAGE> 30
Contemporaneously with such sale, the Company paid $15.9 million to purchase
shares of Common Stock from affiliates of the Founders. See "Certain
Transactions" and Note 9 of Notes to Financial Statements.
The Company believes that the proceeds from the sale of the Shares offered
hereby together with the cash provided from the operations will be sufficient to
meet the Company's working capital and capital expenditure requirements for the
foreseeable future. At September 30, 1998, the Company had no material
commitments for capital expenditures. To the extent the Company is unable to
fund its operations from cash flows, the Company may need to obtain financing
from external sources in the form of either additional equity or indebtedness.
There can be no assurance that additional financing will be available at all, or
that, if available, such financing will be obtainable on terms favorable to the
Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128 ("SFAS 128") Earnings per Share, which changes the method of
calculating earnings per share. SFAS 128 requires the presentation of "basic"
earnings per share and "diluted" earnings per share on the face of the income
statement. Basic earnings per share is computed by dividing the net income
available to common shareholders by the weighted average shares of outstanding
common stock. The calculation of diluted earnings per share is similar to basic
earnings per share except that the denominator includes dilutive common stock
equivalents such as stock options and warrants. The statement is effective for
financial statements for periods ending after December 15, 1997 and has been
adopted by the Company in the quarter ended December 31, 1997. The Company
adopted SFAS No. 128 for all periods reported herein.
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), Reporting
Comprehensive Income, and No. 131 ("SFAS 131"), Disclosures about Segments of an
Enterprise and Related Information. SFAS 130 establishes standards for reporting
comprehensive income and SFAS 131 establishes standards for reporting
information about operating segments. In February 1998, the FASB issued
Statement No. 132 ("SFAS 132"), Employers' Disclosures about Pension and Other
Postretirement Benefits. SFAS 132 establishes standards for reporting
information regarding disclosures about pensions and other postretirement
benefits. The Company is required to adopt these statements in 1998. In June
1998, the FASB issued Statement No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes standards for reporting
derivative instruments and hedging activities. The Company does not believe the
adoption of the above SFAS statements will have a significant impact on the
Company's financial statements or related disclosures.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date code field, and were not
designed to account for the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless corrected
so that they can process dates in the Year 2000 and beyond. The Company and its
clients rely on their systems, applications and devices in operating and
monitoring all major aspects of their businesses, including financial systems
(such as general ledger, accounts payable and accounts receivable modules),
customer services, infrastructure, embedded computer chips, networks and
telecommunications equipment and end products. The Company and its clients also
rely directly and indirectly, on external systems of business enterprises such
as customers, suppliers, creditors, financial organizations, and of governmental
entities, both domestic and international, for accurate exchange of data.
The Company's Year 2000 assessment is conducted by the Company's IT
department and executive management. The Company's assessment of the Year 2000
issue has been broadly divided among hardware systems, software systems,
telecommunications, data communications, facilities, internal business
applications, external business applications and services offered by CCAi. All
hardware systems are being inventoried, audited and tested for Year 2000
compliance. All personal computer systems are in material compliance or will be
replaced in 1999. Software systems include operating systems, applications and
utilities. All business critical software systems have been assessed and are in
material compliance. The telecommunications systems in use at CCAi are comprised
of voice, facsimile, voice mail and video teleconferencing. All
telecommunications systems
29
<PAGE> 31
have been assessed and are in material compliance. The data communications
systems employed by CCAi include local area as well as wide area networking. The
Company's data communications systems are in material compliance.
CCAi employs two major internal business applications, which are
significant in its business operations. These applications are its financial and
payroll systems, which are commercial off-the-shelf items and include ongoing
support. Both the systems have been assessed for Year 2000 compliance and are in
material compliance. CCAI has an aggressive training program and has created an
environment in which issues and solutions relating to Year 2000 problems are
exchanged and implemented. The Year 2000 issues with regard to CCAi's facilities
have also been assessed and found to be in material compliance. There is a
combination of hardware, software and communications elements involved with
CCAi's headquarters and other offices. These are broadly grouped into physical
security systems, fire alarm and fire control systems, heating and cooling
systems, elevator systems, irrigation systems, lighting and emergency services.
Based on the information currently available, the Company does not
anticipate any significant investments and therefore, believes that the costs
associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results and financial condition. However,
there can be no assurance that the Company, or its clients, will not encounter
unexpected costs or disruption in their businesses as a result of the Year 2000
issue. In addition, even if the internal system of the Company are not
materially affected by the Year 2000 issue, the Company's business, operating
results and financial condition could be materially adversely affected through
disruption in the operation of the enterprises with which the Company interacts.
30
<PAGE> 32
BUSINESS
CCAi is a leading provider of rapid implementations of ERP applications.
CCAi also offers its clients a comprehensive range of related services,
including post-implementation and platform independent services, such as network
and Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance and remote support. The Company's
services are primarily targeted at middle market organizations, or divisions of
larger organizations, with annual revenues between $200 million and $2.5
billion. The Company's rapid ERP implementation services enable its clients to
reduce the length and risks of implementations, lower overall costs and achieve
early realization of ERP-related benefits.
CCAi has established numerous strategic relationships with leading software
application vendors, hardware vendors and other IT service providers, including
multinational consulting firms. The Company has a relationship with SAP dating
from 1989 and has been an SAP National Implementation Partner since 1994. In
addition, the Company is a member of SAP's National Advisory Board and was
involved in the development of ASAP, which has become an industry standard for
rapid SAP implementations. In 1997, the Company became one of SAP's first ASAP
Partners and has since become one of the first organizations to certify 100
consultants in SAP's ASAP methodology. CCAi recently received the 1998 Partner
Award of Excellence from SAP. Also, CCAi has been an Oracle Alliance Member
since 1997 and utilizes its own rapid implementation methodology, known as FIRM,
for Oracle ERP applications. In addition, the Company has been an integral
member of implementation teams managed by Andersen Consulting, EDS, Ernst &
Young and SAP. In 1998, the Company was one of the first organizations named by
Compaq as a regional configuration support center to provide rapid
implementation and related services in connection with R/3PAQ, a preconfigured
ERP solution jointly developed by Compaq and SAP.
CCAi is a "company of employees" and has adopted a business model focused
on establishing and maintaining long-term relationships with its employees. The
Company believes, in a resource constrained industry, it distinguishes itself
from its competitors by recruiting and retaining consultants with practical
business and relevant IT experience, which enhance the Company's ability to
identify industry-specific business issues and develop practical IT solutions to
address such issues. CCAi's consultants who perform ERP implementations
generally have 10 to 15 years of business or IT experience, including three to
five years of ERP implementation experience.
INDUSTRY BACKGROUND
Today's global business environment is rapidly changing due to increased
competition, deregulation and technological advances. In this environment,
organizations are constantly assessing the need for fundamental improvements in
such core business functions as product development, service delivery,
manufacturing, human resources, finance and accounting. To meet this need and
succeed in the marketplace, organizations are increasingly turning to IT
solutions that can be easily adapted to changing business requirements in order
to improve the quality of products and services, shorten time to market and
reduce costs. As a result, IT-related decisions have become mission critical
within an organization's overall strategy.
Recent technological advancements have caused many organizations to migrate
from legacy mainframe systems running proprietary software to open systems and
scalable client/server architectures based on personal computers using local and
wide area networks, running shared databases and packaged software applications.
For many organizations, an integral part of this migration is the implementation
of complementary, fully-integrated, enterprise-wide applications developed and
marketed by leading vendors such as SAP and Oracle. ERP applications address
enterprise-wide management needs, including product development, distribution
and logistics, finance and accounting, human resources and electronic data
interchange. ERP applications greatly enhance operational efficiencies by
enabling an organization to access and utilize information across the
enterprise. Moreover, when implemented successfully, ERP applications enable the
cost-effective redesign of critical business processes.
According to International Data Corp., a market research company, the
worldwide market for IT services is estimated to be $250 billion in 1997 and is
projected to increase to over $370 billion by 2000. According to industry
sources, the demand for ERP applications and services represent two of the
fastest growing segments of
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<PAGE> 33
this market. According to Forrester Research, Inc., a market research company,
the worldwide market for ERP applications and services totaled approximately $15
billion in 1997 and is projected to grow to approximately $32 billion by 2000,
representing a compound annual growth rate of approximately 29%. In addition,
according to industry sources, for every dollar spent on ERP applications, four
to six dollars are spent on ERP implementation and related services. The Company
believes that a large portion of this growth is represented by middle market
companies.
The successful implementation of ERP applications requires extensive
resources, specific software expertise, end-user training and significant
ongoing modifications to support an organization's evolving business processes.
In addition, ERP implementations and related services typically require a large
number of highly specialized consultants with industry and ERP application
knowledge necessary to successfully configure the application to the
organization's needs. Implementations also require ongoing modifications to
continuously support an organization's evolving business processes. Generally,
internal IT departments do not have the resources required to successfully
manage the complex task of implementing and supporting such industry specific IT
solutions. Moreover, external competitive pressures are driving many
organizations to focus on their critical business processes and to control
expenses, including those associated with IT. As a result, organizations are
increasingly using third-party service providers to implement ERP applications
in order to reduce the length and risks of implementations, lower overall costs
and achieve early realization of ERP-related benefits.
The Company believes the need for third-party ERP implementation and
related services is particularly acute among middle market organizations. Such
organizations are directing substantial resources to their ERP implementations
and are particularly sensitive to the risk of cost overruns and delays
associated with poorly managed ERP implementations. Such organizations expect
timely and substantial economic returns from their ERP investments in the form
of lower costs and early realization of ERP-related benefits. In addition, these
organizations are under growing pressure from their Fortune 500 customers to
rapidly implement compatible ERP solutions. As a result, middle market
organizations are selective in identifying third-party ERP implementation
partners. Large IT service providers, such as multinational consulting firms,
however, typically do not target middle market organizations, but instead focus
on system implementations and related consulting engagements with Fortune 500
companies and other large organizations. Conversely, most small IT service
providers lack sufficient breadth of services, ERP implementation expertise,
financial resources or industry knowledge to adequately address the needs of
middle market organizations.
THE CCAI SOLUTION
CCAi provides its clients with a broad range of highly specialized IT
solutions that enable the rapid and cost-effective implementation of ERP
applications and facilitate the early realization of ERP-related benefits. Key
elements of the CCAi solution include the following:
Rapid, Cost-Effective Implementations. The Company uses rapid SAP
implementation methodologies and experienced consultants to deliver on-time and
on-budget implementations. The Company's consultants combine both ERP
implementation expertise and industry knowledge to deliver rapid configurations
and implementations that address each client's particular needs. The Company has
focused on providing ERP implementation services since 1994 when it developed
its own rapid implementation methodology. More recently, CCAi was involved in
the development of SAP's ASAP methodology, which has become an industry standard
for rapid SAP implementations. CCAi utilizes the ASAP methodology for
predominantly all of the SAP implementations it manages, and the Company
believes, among SAP's National Implementation Partners, it has one of the
largest groups of certified ASAP implementation consultants. In addition, in
1997, the Company became an Oracle Alliance Member and now utilizes its own
rapid implementation methodology, known as FIRM, for Oracle ERP implementations.
Highly Skilled Functional and Technical Consultants. The Company provides
value-added ERP implementation and related services through a combination of
highly skilled functional and technical consultants. CCAi's functional
consultants typically have 10 to 15 years of business experience in areas such
as finance, accounting, logistics, manufacturing, operations and engineering,
including three to five years of ERP implementation experience. CCAi's technical
consultants typically have 10 to 15 years of IT experience, including IT
32
<PAGE> 34
management, programming, systems analysis, application development and ERP
implementation. The Company assigns its consultants to engagements that leverage
their industry, implementation and technical experience to reduce ERP
implementation times, lower overall engagement costs and increase returns on ERP
investments.
Strong Strategic Relationships. CCAi has strong strategic relationships
with some of the world's leading developers of software applications, hardware
vendors, and other IT service providers, such as multinational consulting firms.
The Company's relationships with organizations such as SAP, Oracle, Microsoft
Corporation ("Microsoft"), Compaq, Data General Corp. ("Data General") and
Sterling Software, Inc. provide it with early exposure to new products, services
and enhancements in implementation methodologies and enable the Company to offer
its clients a greater variety of services. For example, the Company was named by
Compaq as one of its first regional configuration support centers to provide
rapid implementation services in connection with R/3PAQ, a preconfigured ERP
solution jointly developed by Compaq and SAP. In addition, the Company's
relationships with other IT service providers offer the Company early exposure
to evolving business processes as tested and adopted in the Fortune 500
marketplace, which in turn allows the Company to offer such services on a more
cost-effective basis to its middle market clients.
Employee Focused, Scalable Business Model. CCAi is a "company of employees"
and has adopted a scalable business model focused on supporting long-term
relationships with its employees. The Company has developed a flat, flexible and
scalable management organization designed to provide each CCAi consultant with
access to substantial administrative and practice support resources and training
and career development guidance. The Company believes it has a lower consultant
turnover rate than the industry average and accordingly is able to offer its
clients a stable team of consultants that provide superior services and greatly
enhance client satisfaction. As a result, the Company rarely utilizes
independent contractors.
Broad Range of Complementary Services. CCAi provides a broad range of
complementary services. The Company's consultants have expertise in IT services
ranging from the implementations of SAP and Oracle applications, including
interface design and development and process re-engineering, to an array of
post-implementation and platform independent services, such as network and
Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance, on-site knowledge transfer, systems
level technical support, network level technical and installation support and
remote support.
GROWTH STRATEGY
CCAi's objective is to be a leading provider of IT solutions to the middle
market by continuing to deliver rapid ERP implementations and related services.
CCAi's growth strategy emphasizes the following key elements:
Expand Base of Highly Skilled Employees. The Company believes significant
demand exists for its ERP implementation and related services. In order to meet
such demand, CCAi intends to continue to invest significant financial and
management resources to expand its base of highly skilled employees. By
continuing to promote and enhance a corporate culture that rewards creativity
and an entrepreneurial spirit, the Company believes it can recruit and retain
the employees required to meet its clients' growing demands. Key elements of the
Company's recruiting and retention package include competitive base salary and
incentive compensation. In addition, the Company's flexible and scalable
management organization is designed to provide consultants with administrative
and practice support resources as well as training and career development
guidance.
Leverage Strategic Relationships. The Company intends to leverage its
strategic relationships with its clients and leading software and hardware
vendors to maximize marketing and sales opportunities, refine rapid
implementation and pre-configured ERP methodologies and enhance its consultants'
relevant technical knowledge. For example, CCAi often participates with software
vendors such as SAP and Oracle in pre-sale activities and in the design of
appropriate ERP solutions. The Company intends to form similar relationships
with other software developers of complementary enterprise-wide applications,
including supply chain management, sales force automation and process control
automation. In addition, the Company intends to continue to leverage its
relationships with other IT service providers to pursue opportunities within
market segments that may not otherwise be available to the Company on its own.
33
<PAGE> 35
Broaden Geographic Presence. The Company intends to establish offices in
targeted geographic regions where CCAi has established a significant local
presence in terms of consultants, clients, or both. The Company has recently
opened offices in Cincinnati, Dallas and San Francisco and plans to open
additional offices over the next 12 months. CCAi believes that establishing and
maintaining local offices will help the Company recruit and retain consultants
with strong ties to local markets, as well as attracting clients who prefer to
engage a services firm with a local presence. The Company also believes a local
presence in these markets will enable it to strengthen relationships with local
representatives of SAP, Oracle and other software application vendors, as well
as hardware vendors. The Company's new offices will be organized to provide
sales, marketing and recruiting support services for its consultants in the
targeted regions.
Expand Service Offerings. The Company believes it can increase revenues
from existing clients and attract new clients by selectively expanding its
service offerings. In order to capitalize on the full advantages of
enterprise-wide capabilities, organizations are seeking complementary
applications with customer interfaces such as supply chain management, sales
force automation, customer asset management and process control automation. The
Company intends to offer additional value-added services to assist its clients
in adopting such applications. The Company also believes it can leverage its
relationships with industry-leading companies in the automotive, aerospace and
financial services industries to provide implementation and related services to
such companies' supply chain. For example, CCAi believes that its experience in
assisting in the implementation of SAP at GM provides CCAi with a competitive
advantage in obtaining implementations for GM's direct and indirect vendors. The
Company intends to offer prospective clients in such industries, particularly
suppliers of its clients, the latest in pre-configured ERP applications and
standardized implementation services for such industries.
Pursue Strategic Acquisitions. The Company intends to continue to pursue
strategic acquisitions that will provide additional well-trained, high-quality
professionals, new service offerings, additional industry expertise, a broader
client base and an expanded geographic presence. The Company recently completed
the acquisition of KLA, which enabled the Company to acquire a staff of highly
skilled ERP consultants, obtain additional recruiting and sales and marketing
opportunities, gain SAP implementation expertise in the automotive and financial
services industries, and enhance its presence in the Cincinnati market.
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<PAGE> 36
SERVICES
CCAi's services are focused on reducing the time and cost associated with
implementing and integrating IT solutions. CCAi undertakes engagements in a
variety of roles including: (i) as the lead consulting firm on its own
engagements, (ii) as the lead consulting firm on a part of larger engagements
undertaken by multinational IT consulting firms or other large service providers
or (iii) as an integral member of a joint engagement team on such engagements.
In almost all cases, the Company provides its services on a time and materials
basis. The Company's services include:
<TABLE>
<CAPTION>
CCAI SERVICES DESCRIPTION
<S> <C> <C> <C>
Engagement Management - Develop engagement scope and budget
- Manage implementation engagements and budgets
Process Re-engineering - Analyze and prioritize current business
processes
- Focus clients on processes yielding greatest
business benefits
- Map to proven solutions and best business
practices
- Provide functional consulting expertise
Interface Design and Development - Analyze existing legacy applications
- Design database conversion interfaces
On-site Knowledge Transfer and Training - Create knowledge transfer programs for clients'
employees
- Develop customized training programs
- Provide product training
Systems Level Technical Support - Coordinate hardware and operating system
installations
- Provide system upgrades and configurations
- Integrate back-office products with ERP
solutions
Network Level Technical Support - Install and configure networks
- Manage installed networks
Programming Services - Provide services for full range of programming
languages, including Visual Basic, C, C++ and
COBOL
- Provide experts in use of various tools and
database products, including Access,
PowerBuilder, Developer 2000 and COOL:Gen
- Develop Internet-based applications utilizing
HTML, ActiveX and Java
- Support legacy applications
Outsourced/Remote Support - Offer support center based implementation teams
- Offer help-desk and upgrade support
- Provide platform outsourcing
</TABLE>
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<PAGE> 37
CCAi offers its clients ERP implementation and platform independent
services. The following is a description of such services:
ERP Implementation Services. The Company provides a full range of ERP
implementation services in both rapid and traditional ERP engagements. The
Company has a relationship with SAP dating from 1989 and has been an SAP
National Implementation Partner since 1994. In addition, the Company is a member
of SAP's National Advisory Board and was involved in the development of SAP's
ASAP methodology, which has become an industry standard for rapid SAP
implementations. In 1997, the Company became one of SAP's first ASAP Partners
and has since become one of the first organizations to certify 100 consultants
in the ASAP methodology. In addition to rapid implementations, the Company also
performs traditional ERP implementation engagements, which typically are
conducted over a more extended period of time, with larger teams of consultants
and greater customization.
Rapid ERP implementation has become a central focus of CCAi's service
offerings and has been a growing part of its business since 1994. Because of the
importance of rapid ERP implementations to the Company's middle market clients,
CCAi has consultants with expertise in Oracle's FastForward methodology and
SAP's ASAP methodology. The Company utilizes its own rapid implementation
methodology, known as FIRM, for Oracle ERP applications. CCAi utilizes the ASAP
methodology for predominantly all the SAP implementations it manages and
believes that, among SAP's National Implementation Partners, it has one of the
largest groups of certified ASAP consultants.
CCAi's ASAP implementations utilize SAP's five-phased ASAP approach. The
first phase, Project Preparation, provides initial planning and preparation for
SAP's R/3 implementation. The second phase, Business Blueprint, involves the
detailed documentation of the business process requirements of the client. In
the third phase, Realization, all of the business and process requirements are
implemented in two work packages. The fourth phase, Final Preparation, entails
complete testing, end-user training, system management and cut over activities
and resolution of all critical open issues. In phase five, Go Live and Support,
the project is transitioned to a live, productive operation.
Platform Independent Services. The Company provides platform independent
services both on a stand-alone basis and in conjunction with ERP
implementations. These services are designed to assist organizations in software
application design, development and maintenance across a broad spectrum of
computing environments. These services span client/server, midrange, mainframe
and Internet-based solutions. The Company's consultants and software developers
typically are engaged for part or all of the lifecycle of application
development, from requirements analysis and systems planning through coding,
testing, deployment and maintenance. The Company uses rapid prototyping and
application development tools, commercially available database software and
other standard development tools.
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<PAGE> 38
The following chart details the Company's platform independent services:
<TABLE>
<CAPTION>
CCAI SERVICES DESCRIPTION
<S> <C> <C> <C>
IT Consulting - Assist organizations in reengineering business
processes
- Plan migration of clients' legacy systems to
networked, distributed, client/server
architectures
- Model core systems, including architecture,
design, gap analysis, testing and engagement
management functions
Application Development - Develop software applications in a full range
of programming languages including Visual
Basic, C, C++ and COBOL
- Design systems using rapid prototyping and
application development tools (Developer 2000
and COOL:Gen), database software (Access and
SQL Server) and standard development tools
(PowerBuilder)
- Upgrade and maintain software applications
Outsourcing, Training and Remote Support - Augment clients' internal resources with
skilled IT professionals
- Provide outsourced IT support
- Provide consulting services for Year 2000
compliance
- Support databases and operating systems
- Train clients' personnel in packaged and custom
software applications
</TABLE>
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<PAGE> 39
CLIENTS AND REPRESENTATIVE ENGAGEMENTS
CCAi provides its services to a diverse group of organizations across a
broad spectrum of industries. These clients generally have substantial recurring
requirements for IT services and products and have typically maintained ongoing,
long-term relationships with the Company. The Company had no client that
represented more than 10% of its annual revenues in each of the three years
ended December 31, 1995, 1996 and 1997. For the nine months ended September 30,
1998, one of the Company's clients, Brush Wellman Inc., accounted for 11% of the
Company's revenues. The following table presents a representative list of
clients that have directly engaged CCAi to perform a variety of IT services:
<TABLE>
<CAPTION>
AEROSPACE AND AUTOMOTIVE CHEMICAL PROCESS COMMUNICATIONS
------------------------ ---------------- --------------
<S> <C> <C>
Aircraft Braking Systems Corp. Akzo Nobel N.V. GTE Corp.
Aluminum Company of America Dow Chemical Co. Reltec Corp.
General Motors Corporation Henkel Corp. Voice-Tel Enterprises, Inc.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL AND PROFESSIONAL
CONSUMER PRODUCTS ENERGY SERVICES
----------------- ------ --------------------------
<S> <C> <C>
American Greetings Corp. BP America Inc. Andersen Consulting LLP
ChemRex, Inc. Lockheed Martin Energy Electronic Data Systems
Master Builders, Inc. Systems, Inc. Corporation
Ernst & Young LLP
KeyCorp
</TABLE>
<TABLE>
<CAPTION>
HEALTH CARE INDUSTRIAL PUBLISHING
----------- ---------- ----------
<S> <C> <C>
Medical Mutual of Ohio Alcan Aluminum Company Antioch Publishing Co.
University Hospitals of Cleveland Brush Wellman Inc. Simon & Schuster Inc.
Continental General Tire Bantam Doubleday Dell Publishing
Inc. Group Inc.
Eaton Corporation
Goodyear Tire & Rubber Co.
OwensCorning
Tremco, Inc.
USS/Kobe Steel Co.
</TABLE>
<TABLE>
<CAPTION>
RETAIL TECHNOLOGY
------ ----------
<S> <C> <C>
Cole National Corp. Compaq Computer
OfficeMax, Inc. Corporation
SAP America, Inc.
</TABLE>
Three examples of the Company's engagements include the following:
SAP Implementation and Platform Independent Services. A manufacturer of
specialty metals and alloys, with approximately $400 million in annual revenues,
engaged CCAi to revitalize its implementation initiative. The SAP implementation
was complex because of the involvement of four service centers, two large
manufacturing plants, four specialty division sites, a mining operation and the
corporate headquarters. CCAi was engaged because of its implementation plan
using SAP's ASAP methodology and its stable team of highly-skilled consultants.
The initial implementation phase included traditional financials and logistics
modules along with more complex modules such as variant configuration, product
costing and process industry production. The client currently has five of its
facilities live on SAP and is on-time and on-budget to complete the
implementation for the entire organization by the end of 1998. CCAi also
provided the client with Year 2000 compliance services with respect to the
client's AS400 legacy system.
ASAP Implementation. CCAi successfully implemented SAP in one of the first
ASAP implementations in the Midwest. The client is a manufacturer of concrete
add mixtures and specialty sealants with approximately $250 million in annual
revenues. To support its growth strategy, the client needed to replace a
customized legacy system. CCAi was engaged to help implement SAP's R/3 on a new
HP-Unix platform. Besides the standard suite
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<PAGE> 40
of applications, this implementation included the new environmental, health and
safety module as well as plant maintenance, quality management and process
industry production modules. Over an eight month period, eight to 10 CCAi
consultants implemented the applications on-time and on-budget, earning a
performance bonus.
Oracle Implementation. An international manufacturer, with approximately
$8.7 billion in annual revenues, retained CCAi to help implement their Oracle
human resource and payroll system as part of one of the largest implementation
of Oracle applications in North America. The client has 145 divisions in 28
countries and an employee base of over 49,000. The client instituted a global
ERP project to develop a "service center" concept to provide operations
consolidation, standardization and cost reductions. CCAi provided the strategy
and frame-work to design, convert and implement human resource and payroll
systems from a legacy base to a reengineered ERP process. CCAi consultants used
an innovative translation system to match and convert payroll and taxing
procedures while creating a foundation for rapid installations for successive
implementations. CCAi also developed and performed a strategic volume and stress
process to scope the impact of scaling the client's full HR/Payroll system.
HUMAN RESOURCES
CCAi's success depends in large part upon its ability to recruit, motivate
and retain highly skilled IT professionals. These professionals are in great
demand and are likely to remain a limited resource for the foreseeable future.
As of September 30, 1998, the Company had 315 employees, 261 of whom were
consultants. The Company believes that its employee-focused culture and
organization, including its recruiting, training, compensation, support and
mentoring programs, are directly related to its ability to recruit, train,
motivate and retain its consultants.
Recruiting. CCAi dedicates significant resources to recruiting highly
motivated and skilled consultants with functional, consulting and technology
business experience. The Company recruits and employs consultants with a range
of diverse business backgrounds, including accounting, finance, engineering,
logistics, manufacturing and operations. The technical experience of the
Company's consultants is equally wide ranging, covering areas such as IT
management, programming, systems analysis and application development. CCAi
maintains a rigorous hiring program administered by its in-house recruiters.
Before employment determinations are made, applicants are screened in a highly
selective process by several levels of management for technical skills,
functional business expertise and cultural fit.
Compensation. The Company offers competitive base salary and incentive
compensation packages. As part of their compensation package, the Company's
consultants are eligible for monthly and quarterly cash bonuses and participate
in the 1997 Equity and Performance Plan. The cash bonuses earned by the
Company's consultants are based on a percentage of the revenue the individual
consultant contributes to the Company. See "Management -- Employee Benefit
Plans."
Career Development, Support and Training. The Company focuses significant
resources on the career development of its consultants. The Company has
developed a flat, flexible and scalable management organization designed to
provide each CCAi consultant with access to substantial administrative and
practice support resources and training and career development guidance. The
Company is organized so that each consultant is mentored and supervised by two
senior consultants: a Managing Associate, who focuses on the consultant's
performance and administrative needs, and an Advisory Associate, who provides
technical expertise and guidance and focuses on the consultant's training and
career development needs. Each CCAi consultant is also assigned an Advocate
responsible for assisting the consultant with travel arrangements, time and
expense reports and other administrative matters. The Company provides an
extensive training program for its consultants focused on "best of breed"
technologies and practices. The program includes in-house instruction and
external training often offered in conjunction with one of the software
application vendors with whom the Company maintains a strategic relationship.
Quality Assurance. CCAi has developed a formal quality assurance program
led by a full-time quality program manager. The program, which is fully
automated, measures both client and employee satisfaction and is a tool used for
employee and manager performance reviews. The quality assurance process
commences at the
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<PAGE> 41
beginning of an engagement. The Account Executives and project managers assigned
to a particular engagement work closely with the client to document the clients'
expectations for the engagement. Subsequently, performance audits of each
consultant assigned to such engagement are conducted every 90 days. These audits
are then used in each consultant's annual performance review. CCAi recently
received the 1998 Partner Award of Excellence from SAP.
SALES AND MARKETING
CCAi markets and sells its ERP implementation and related services
predominantly in the U.S. and Canada through its network of strategic
relationships and its direct sales force. The Company's sales organization
leverages CCAi's referenceable client portfolio to acquire new clients. Multiple
engagements from current or prior clients, and the reputation of CCAi's
consultants and management, are also meaningful sources of new business for the
Company.
Strategic Relationships. The Company has established a number of formal and
informal marketing relationships with leading software and hardware vendors.
CCAi derives a substantial number of leads for new engagements from such
relationships. In addition, its strategic relationships with SAP and Oracle
involve coordinated sales and marketing efforts, as well as trade show
activities specifically targeted to the ERP implementation industry. The
Company's other strategic relationships with Compaq, Data General, Microsoft and
Sterling Software, Inc. also offer opportunities for joint marketing activities.
The Company also has strategic relationships with multinational consulting firms
and other IT service providers. These relationships give CCAi access to
engagement opportunities in geographic locations and within certain market
segments that might otherwise be unavailable to the Company.
Direct Sales. The Company's direct sales force includes account executives
who are responsible for developing, maintaining and managing long-term client
and strategic relationships. The account executives are also responsible for
identifying new engagement opportunities directly with clients or through
strategic relationships. Account executives rely on continual communications
with clients, prospective clients and the organizations with which the Company
maintains strategic relationships to build CCAi's relationships and also work
with CCAi's consultants to analyze prospective client needs and demonstrate the
Company's services.
Marketing. The Company supports its sales efforts with a comprehensive
marketing program that features its alliances with SAP, Oracle and Microsoft and
includes trade shows, contributing articles to industry publications, public
relations, ERP industry meetings and conferences, the creation of collateral
marketing materials and the Company's Internet site. The program is designed to
strengthen the CCAi brand name and generate new client and strategic
relationships.
COMPETITION
The market for CCAi's services is highly competitive. CCAi believes that
its principal competitors include the internal information systems groups of its
prospective clients, IT consulting companies, systems integration firms and the
consulting divisions of software applications vendors, some of which are also
clients of the Company. Many of CCAi's competitors have longer operating
histories, possess greater industry and name recognition and have significantly
greater financial, technical and marketing resources than the Company. In
addition, there are relatively low barriers to entry into CCAi's market, and the
Company has faced, and expects to continue to face, additional competition from
new entrants into its market, including new entrants offshore who may have lower
fixed operating costs than the Company and new entrants who may develop new or
innovative means of delivering IT services.
CCAi believes that the principal competitive factors in its market include
quality of service, speed of development and implementation, price, engagement
management capability, technical and business expertise and reputation. The
Company believes it competes favorably with respect to such factors. The Company
believes its ability to compete also depends in part on a number of competitive
factors outside its control. These include the ability of its competitors to
recruit, motivate and retain project managers and other senior professionals,
develop services competitive with the Company's services and respond to customer
needs. There can be no
40
<PAGE> 42
assurance that the Company will be able to compete successfully with its
competitors. See "Business -- The CCAi Solution" and "Risk Factors -- Highly
Competitive Information Technology Services Industry."
INTELLECTUAL PROPERTY RIGHTS
CCAi's success is dependent upon certain methodologies and other
proprietary intellectual property rights. Software developed by the Company for
a client is typically assigned to the client. CCAi also independently develops
certain foundation and application software products, or software "tools," that
remain the property of the Company. CCAi relies upon a combination of
nondisclosure and other contractual arrangements and trade secret, copyright and
trademark laws to protect its proprietary rights and the proprietary rights of
third parties from whom the Company licenses intellectual property. CCAi enters
into confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by CCAi
in this regard will be adequate to deter misappropriation of the Company's
proprietary information, that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights or
that such steps will prevent the Company's employees from using intellectual
property belonging to others. Although CCAi believes that its services do not
infringe on the intellectual property rights of others and it has all rights
necessary to utilize the intellectual property employed in its business, the
Company is subject to the risk of claims alleging infringement of third-party
intellectual property rights, including the rights of its clients. Any such
claims could require CCAi to expend significant resources in litigation, pay
damages, cease using infringing intellectual property, develop non-infringing
intellectual property or acquire licenses to the intellectual property that is
the subject of asserted infringement. See "Risk Factors -- Dependence on
Intellectual Property Rights."
PROPERTY
The Company's corporate headquarters is located in Mayfield Heights, Ohio.
Currently, the Company's lease on these premises covers approximately 27,000
square feet and expires in January, 2003, with three renewal options for five
years each. The lease provides for payments of approximately $412,000 annually.
The Founders have a 30% ownership interest in the entity that owns the Company's
corporate headquarters. The Company also leases additional facilities in
Cincinnati, Cleveland, Dallas and San Francisco. The Company believes that its
properties are adequate for its needs and suitable additional or replacement
space will be available when required on terms acceptable to the Company. See
"Certain Transactions -- Corporate Headquarters Lease."
LEGAL PROCEEDINGS
The Company is not involved in any legal proceeding that the Company's
management believes is likely to have a material adverse effect on the Company.
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<PAGE> 43
MANAGEMENT
The directors, executive officers and other senior managers of the Company
and their respective ages as of September 30, 1998, and positions are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Directors and Executive Officers:
Nicholas A. Canitano...................... 50 Chairman of the Board and Chief Executive
Officer
Kenneth L. Conley......................... 54 President, Chief Operating Officer and Director
Karen M. Conley........................... 43 Executive Vice President, Treasurer and
Director
Annette M. Canitano....................... 48 Executive Vice President, Secretary and
Director
Paul A. Farmer............................ 40 Chief Financial Officer and Vice President
A. Bruce Johnston (1)(2).................. 38 Director
Kenneth T. Schiciano (1)(2)............... 36 Director
Ivan J. Winfield (1)(2)................... 64 Director
Other Senior Managers:
Jack L. Rhyne............................. 51 Vice President of Enterprise Systems
Ronnie K. Crumpler........................ 50 Vice President of Vertical Market Development
Timothy S. Flowers........................ 43 Vice President of Sales and Marketing
Susan V. Lebas............................ 38 Vice President of Recruiting
Timothy M. May............................ 39 Vice President of Sales and Marketing
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS
Nicholas A. Canitano is currently serving in the capacity of Chairman and
Chief Executive Officer of the Company and has held various management positions
with the Company since its inception in 1983. Prior to founding CCAi, he was
employed in a variety of information systems managerial positions.
Kenneth L. Conley is currently serving in the capacity of President and
Chief Operating Officer of the Company and has held various management positions
with the Company since its inception. Prior to founding CCAi, he was employed by
International Business Machines Corporation ("IBM") in a variety of sales and
marketing positions.
Karen M. Conley is currently serving in the capacity of Executive Vice
President and Treasurer and has held various management positions with the
Company since its inception. Prior to founding CCAi, she was employed by IBM as
a Marketing Representative.
Annette M. Canitano is currently serving in the capacity of Executive Vice
President and Secretary and has held various management positions with the
Company since its inception. Prior to founding CCAi, she was employed by a
financial services company.
Paul A. Farmer joined the Company in April 1998 as the Chief Financial
Officer and also currently serves as Vice President, Assistant Secretary and
Assistant Treasurer. Mr. Farmer is a certified public accountant and, prior to
joining CCAi, held various positions, including Chief Financial Officer, Chief
Administrative Officer, Treasurer and Secretary with TCSI Corporation, a
telecommunications software service provider, from 1993 to 1997; Vice President,
Secretary, Treasurer and Corporate Controller with Technology Solutions Company,
an IT consulting firm, from 1990 to 1993; and Senior Audit Manager with Price
Waterhouse from 1982 to 1990.
A. Bruce Johnston has served as a Director of the Company since October
1997 and has been a principal of TA Associates since January 1996. Mr. Johnston
was a Vice President of TA Associates, a venture capital firm, from June 1992 to
December 1995. Mr. Johnston serves as Director of Expert Software Inc., a
software company, Restrac Inc., a software company, and several privately-held
companies.
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<PAGE> 44
Kenneth T. Schiciano has served as a Director of the Company since October
1997 and has been a principal of TA Associates since January 1995. Mr. Schiciano
was a Vice President of TA Associates from August 1989 to December 1994. Mr.
Schiciano serves as a Director of Galaxy Telecom LP, a cable television
multi-systems operator, and several privately held companies.
Ivan J. Winfield has served as a Director of the Company since August 1998
and is currently Associate Professor and Executive in Residence at Baldwin
Wallace College in Berea, Ohio. Mr. Winfield retired as a partner from Coopers &
Lybrand, L.L.P. in 1994 where he practiced since 1970. He is also a Director of
OfficeMax, Inc., a discount office product merchandiser, Rainbow Rentals, Inc.,
a consumer product merchandiser, Boykin Lodging Company, a real estate
investment trust, HMI Industries, Inc., primarily a manufacturer of consumer
products, and International Total Service, Inc., a provider of aviation contract
support services.
Jack L. Rhyne joined CCAi in 1994 as the Manager of SAP Enterprise Systems
and is currently Vice President of Enterprise Systems. Prior to joining CCAi,
Mr. Rhyne was employed by ICI Explosives Environmental Co., a chemical and
explosives company, from 1990 to 1994 in a variety of positions including as a
Technical Project Manager implementing SAP solutions at various sites in the
U.S. and Canada. Prior to 1990, Mr. Rhyne held a variety of executive positions
in IT-related companies, OEM distributors and software development
organizations.
Ronnie K. Crumpler joined CCAi in April 1998 as part of the acquisition of
KLA and is currently the Company's Vice President of Vertical Market
Development. Prior to joining CCAi, Mr. Crumpler was Chairman of the Board and
Chief Operating Officer of KLA from November 1996 to April 1998. Prior to his
employment with KLA, Mr. Crumpler held a variety of positions with several
management consulting firms, including A.T. Kearney from January 1996 to
November 1996, Enterprise Solutions Management Consulting from June 1995 to
January 1996 and Ernst & Young from June 1993 to June 1995. Prior to this, Mr.
Crumpler served as president of a private consulting firm and held a variety of
positions with Dow Chemical Co. for 19 years.
Timothy S. Flowers joined CCAi in 1990 and is currently a Vice President of
Sales and Marketing. Prior to joining CCAi, Mr. Flowers was employed by
Automated Data Processing, Inc., a payroll services provider, from 1982 to 1989
in a variety of management and marketing positions, including Technical Support
and Implementation Manager for a variety of accounting software products.
Susan V. Lebas joined CCAi in 1987 and is currently the Vice President of
Recruiting. Prior to joining CCAi, Ms. Lebas served in a variety of industries
in an administrative capacity.
Timothy M. May joined CCAi in 1995 and is currently a Vice President of
Sales and Marketing for the Company. From 1994 to 1995, Mr. May was the Vice
President of Marketing for Enterprise Network Services, Inc., network management
provider. From 1992 to 1994, Mr. May was employed as an Area Sales Manager by
Global Software, Inc., a software company. Prior to 1992, Mr. May was employed
by IBM for 10 years in a variety of marketing positions.
BOARD OF DIRECTORS
The Company's Articles of Incorporation and Code of Regulations provide
that the Company's Board of Directors be comprised of not less than six and not
more than 16 directors. The Board is currently comprised of seven members. The
Company's Board of Directors is divided into two classes and the Company intends
to designate the terms of each of the Directors prior to the consummation of the
Offering. Each director holds office until his or her successor is duly elected
and qualified, or until such Director's earlier death, resignation or removal.
Two of the Company's current directors, Messrs. Johnston and Schiciano,
were nominated and elected to the Company's Board of Directors as designees of
TA Associates in accordance with a voting agreement contained in the Stock
Purchase and Shareholders Agreement dated October 15, 1997. The voting
provisions of this agreement terminate upon consummation of the Offering.
Executive officers of the Company are appointed by, and serve at
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<PAGE> 45
the discretion of, the Board of Directors. Nicholas A. Canitano and Annette M.
Canitano are husband and wife, and Kenneth L. Conley and Karen M. Conley are
husband and wife. See "Certain Transactions."
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Messrs. Johnston,
Schiciano and Winfield, makes recommendations concerning the engagement of
independent public accountants, reviews the scope and results of the audit with
the independent public accountants, reviews the Company's annual operating
results with management and the independent accountants, considers the adequacy
of the internal accounting procedures and considers the effect of such
procedures on the accountants' independence.
The Compensation Committee, consisting of Messrs. Johnston, Schiciano and
Winfield, reviews and recommends the compensation arrangements for officers and
other employees, determines the options or stock to be granted to eligible
persons under the 1997 Equity and Performance Plan and takes such other actions
as may be required in connection with the Company's compensation and incentive
plans.
DIRECTOR COMPENSATION
The Code of Regulations provide that the non-employee directors may receive
compensation and expense reimbursement for serving on the Company's Board of
Directors, including committees thereof, and for other services related to a
director's membership.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation earned for the year ended December 31, 1997
for the Company's Chief Executive Officer and the Company's three other
executive officers during 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------- OPTIONS (# OF ALL OTHER
NAME AND POSITION SALARY BONUS SHARES) COMPENSATION (1)
<S> <C> <C> <C> <C>
Nicholas A. Canitano..................... $224,200 $465,935 -- $4,750
Chairman of the Board and Chief Executive
Officer
Kenneth L. Conley........................ 198,539 476,486 -- 4,750
President and Chief Operating Officer
Karen M. Conley.......................... 211,382 93,959 -- 4,750
Executive Vice President and Treasurer
Annette M. Canitano...................... 185,720 103,362 -- 4,750
Executive Vice President and Secretary
</TABLE>
- ---------------
(1) Represents matching payments under the Company's 401(k) Plan.
EMPLOYEE BENEFIT PLANS
1997 Equity and Performance Incentive Plan. Upon the consummation of the
Offering, the Company will have an aggregate of 2,072,750 shares of Common Stock
reserved for issuance under the 1997 Equity and Performance Plan, which may be
granted to directors, consultants, key employees and officers of the Company.
The 1997 Equity and Performance Plan is administered by the Compensation
Committee and provides for awards, including restricted shares of Common Stock,
deferred shares of Common Stock and options to purchase
44
<PAGE> 46
shares of Common Stock, including Incentive Stock Options ("ISOs") (as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")).
The exercise price for options may be paid as follows: (i) in cash or check
payable to the Company; (ii) by actual or constructive transfer to the Company
of Common Stock owned by the optionee having a value at the time of exercise
equal to the option price and which have been held by the optionee for at least
six months; or (iii) by a combination of such methods of payment. In the case of
a stock option that is not an ISO, the exercise price per share of Common Stock
may be less than the fair market value per share of Common Stock on the date of
the grant. Any grant may provide for payment of the option price in
installments, upon terms determined by the Board of Directors, including,
without limitation, pursuant to a promissory note. ISOs to be granted under the
1997 Equity and Performance Plan must be exercised within 10 years from the date
of grant. Each option will become exercisable over a period of time as the
optionee provides services to the Company; provided, however, that each option
will accelerate in the event of a sale of a majority of the outstanding Common
Stock of the Company, a sale of substantially all of the Company's assets or
other similar transactions and events as determined by the Board of Directors of
the Company (a "Change in Control"). Each grant or sale of restricted stock will
vest over a period of not less than two years to be determined by the Board of
Directors at the date of the grant or issuance; provided, however, that the
Board of Directors of the Company may accelerate vesting upon a Change in
Control or public offering. Each grant or sale of deferred shares of Common
Stock entitles the recipient to receive Common Stock (or equivalent in other
property, including cash) upon the fulfillment of specified objectives over a
period of not less than one year, except, if the Board of Directors so
determines, each payment may be accelerated in the event of a Change in Control
or public offering.
The Board of Directors can amend or terminate the 1997 Equity and
Performance Plan at any time. In the event of any change in the capital
structure of the Company, such as a stock dividend or stock split, the Board of
Directors may make equitable adjustments to outstanding unexercised awards and
to the provisions of the 1997 Equity and Performance Plan so that the net value
of the award is not changed. If the Company becomes a party to a merger,
reorganization, liquidation or similar transaction, the Board of Directors may
make such arrangements it deems advisable regarding outstanding awards, such as
substituting new awards for outstanding awards, assuming outstanding awards or
terminating or paying for outstanding awards.
No awards were made under the 1997 Equity and Performance Plan in 1997, and
none were outstanding at December 31, 1997. At September 30, 1998, options for
350,300 shares were outstanding under the 1997 Equity and Performance Plan.
Currently, no grants or issuances under the 1997 Equity and Performance
Plan have been made to executive officers other than Paul A. Farmer. On May 11,
1998, Mr. Farmer was issued 76,950 shares of restricted Common Stock under the
1997 Equity and Performance Plan for a purchase price of $4.67 per share. See
"Certain Transactions."
401(k) Plan. The Company maintains a 401(k) profit sharing and defined
contribution plan (the "401(k) Plan"). All employees of the Company who have
reached 21 years of age and have completed six months of service are eligible to
participate in the 401(k) Plan, pursuant to which each participant may
contribute up to 15% of eligible compensation (up to a statutorily prescribed
annual limit of $10,000 in 1998). The Company currently matches contributions
made by employees to the 401(k) Plan. The amount of the match is determined at
the discretion of the Company. A profit sharing contribution may also be made
each year at the discretion of the Company. All amounts contributed by employee
participants and earnings on these contributions are fully vested at all times.
Employee participants may elect to invest their account balances in various
established funds. During 1997, each of the Named Executive Officers
participated in the 401(k) Plan as indicated in the Summary Compensation Table.
1998 Employee Stock Purchase Plan. In December 1998, the Company
established the Purchase Plan and reserved an aggregate of 500,000 shares of
Common Stock for issuance under the Purchase Plan. Currently, no shares of
Common Stock have been issued under the Purchase Plan. The Purchase Plan will be
intended to qualify under Section 423 of the Code and will permit eligible
employees of the Company whose customary employment is a minimum of 20 hours per
week to purchase shares of Common Stock through payroll
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<PAGE> 47
deductions of up to 10% of the employee's gross regular earnings on an
annualized basis, provided that no employee may purchase more than 5,000 shares
of Common Stock on any Purchase Date (as defined in the Purchase Plan), with the
first offering period commencing on the first day of the first quarter following
the Offering. The price of shares of Common Stock purchased under the Purchase
Plan will be 85% of the fair market value of the Common Stock (as calculated in
the Purchase Plan). The Purchase Plan will be administered by the Compensation
Committee. The Board of Directors will be able to amend or terminate the
Purchase Plan at any time.
Other. The Company maintains customary health and benefit plans for its
employees. The Company does not maintain any defined benefit pension plans.
BONUSES
The Company grants annual bonuses to its executive officers. These bonuses
are determined by the Compensation Committee of the Board of Directors of the
Company and are based on the attainment of individual performance targets and
the financial performance of the Company.
CERTAIN TRANSACTIONS
The 1997 Transactions. In July 1997, the Company repurchased 509,130 shares
of Common Stock owned by Joseph Minadeo for an aggregate amount of $171,429. Mr.
Minadeo is the brother of Annette M. Canitano, the Company's Executive Vice
President, Secretary and a Director, and was an original investor in the
Company.
In October 1997, the Company entered into a series of transactions
(collectively, the "1997 Transactions") wherein TA Associates, including the
following affiliated groups: TA/Advent VIII L.P., Advent Atlantic and Pacific
III, L.P. and TA Venture Investors Limited Partnership (collectively, the "TA
Investors"), and McDonald & Company Securities, Inc., including the following
affiliated groups: McD Venture Capital Fund, L.P. and GHK Investments, L.L.C.
(collectively, the "McDonald Investors") purchased a total of 250,400 shares of
Convertible Preferred Stock and 1,350,000 shares of Common Stock from the
Company for an aggregate purchase price of $17.5 million ($15.9 million, net of
$1.6 million of transaction expenses). Immediately prior to the consummation of
the Offering, the Convertible Preferred Stock sold by the Company in the 1997
Transactions will be converted into 2,504,000 shares of Common Stock and 250,400
shares of Redeemable Preferred Stock. Upon consummation of the Offering, the
Redeemable Preferred Stock will be redeemed for $15.8 million, using a portion
of the net proceeds from the Offering. See "Use of Proceeds."
As part of the 1997 Transactions and under the terms of the Stock Purchase
and Shareholders Agreement, dated October 15, 1997 (the "1997 Agreement"), among
TA Investors, McDonald Investors, the Founders, NAC Enterprises, Inc., CKCK
Enterprises, Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M. Conley
Charitable Remainder Trust and the Company, each of TA Investors and McDonald
Investors was granted certain demand and "piggyback" registration rights and
certain other preferential rights, including: (i) rights to participate in sales
of additional shares; and (ii) rights of first refusal and co-sale involving the
Company's securities. In addition, TA Investors, McDonald Investors, the Company
and the Founders entered into a voting agreement whereby the parties agreed to
vote all shares of the Company's capital stock held by them (and any other
securities over which the Founders exercise voting control) as to cause the
Board of Directors of the Company to include Messrs. Johnston and Schiciano (so
long as each remains in the employ of TA Associates) and one independent
director nominated by TA Associates. Except for the registration rights granted
to each of TA Investors and McDonald Investors, the preferential rights
contained in the 1997 Agreement terminate upon consummation of the Offering.
Also as part of the 1997 Transactions, the Company repurchased an aggregate
of 1,350,000 shares of Common Stock for $15.9 million from the Founders,
including: (i) 675,000 shares of Common Stock from NAC Enterprises, Inc., of
which the Annette M. Canitano Trust and the Nicholas A. Canitano Trust,
affiliates of Mr. and Mrs. Canitano, directors of the Company, are the sole
shareholders; (ii) 610,000 shares of Common Stock from CKCK Enterprises, Inc.,
of which the Karen M. Conley Trust and the Kenneth L. Conley Trust, affiliates
of Mr. and Mrs. Conley, directors of the Company, are the sole shareholders;
(iii) 32,500 shares of Common Stock
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<PAGE> 48
from the Kenneth L. Conley Charitable Remainder Trust, a charitable remainder
trust established by Kenneth L. Conley, a director of the Company; and (iv)
32,500 shares of Common Stock from the Karen M. Conley Charitable Remainder
Trust, a charitable remainder trust established by Karen M. Conley, a director
of the Company.
Upon the consummation of the 1997 Transactions, the Company paid Mr.
Minadeo an additional $205,000 in accordance with the terms of certain change of
control provisions contained in the documentation of the July 1997 repurchase of
shares of Common Stock from Mr. Minadeo.
Employment Agreement. The Company is party to an employment agreement with
Paul A. Farmer, pursuant to which Mr. Farmer serves as Chief Financial Officer
and Vice President of the Company. The agreement provides for an annual base
salary of $165,000, an annual bonus up to a maximum of 50% of base salary to be
determined by the Compensation Committee, benefits under the Company's benefit
plans and payment of all reasonable relocation costs incurred by Mr. Farmer.
Although Mr. Farmer's employment may be terminated at any time, the agreement
also provides that upon the termination of Mr. Farmer's employment with the
Company, other than for cause or retirement, the Company shall pay Mr. Farmer an
amount equal to the greater of six months' salary, or the value of his unvested
restricted stock at the time of the termination. Mr. Farmer is also subject to
noncompetition, nondisclosure and nonsolicitation covenants.
In May 1998, Mr. Farmer was issued 76,950 shares of restricted Common Stock
under the 1997 Equity and Performance Plan. On each anniversary of the grant
date, one third of Mr. Farmer's restricted stock will vest. Mr. Farmer paid the
purchase price for the restricted stock by executing and delivering to the
Company a promissory note (the "Note") in the principal amount of $359,356. The
Note is due and payable on June 30, 2004, and accrues interest on the unpaid
principal amount at 6% per annum until the Note is paid in full. Accrued
interest is payable in June and December of each year during the term of the
Note, including June 30, 2004. The Note also becomes due and payable six months
after any date on which Mr. Farmer ceases to be employed for any reason by the
Company. See "Management -- Employee Benefit Plans."
Employment of Related Individuals. Brian Conley, Kenneth L. Conley's son,
who is employed as a consultant with the Company, received cash compensation of
$126,000 in 1997 and is expected to receive similar cash compensation in 1998 as
well as options to purchase 1,500 shares of Common Stock under the 1997 Equity
and Performance Plan. Linda Neumann, Karen M. Conley's sister, who serves as the
Company's Controller, received cash compensation of $51,000 in 1997 and is
expected to receive similar cash compensation in 1998 as well as options to
purchase 2,000 shares of Common Stock under the 1997 Equity and Performance
Plan. Donald Neumann, Linda Neumann's husband, who is employed as a consultant
with the Company, received cash compensation of $75,000 in 1997 and is expected
to receive similar cash compensation in 1998 as well as options to purchase
1,500 shares of Common Stock under the 1997 Equity and Performance Plan.
Loans. Various other loans have periodically been made by the Company to
the Founders. In April 1997, the Company made loans to Nicholas A. and Annette
M. Canitano and Kenneth L. and Karen M. Conley each in an amount of $44,500. In
March 1998, the Company made loans to Mmes. Canitano and Conley, each in an
amount of $64,092. Each such loan bore interest at 10% and such loans have been
repaid in full.
Corporate Headquarters Lease. The Company leases its corporate headquarters
in Mayfield Heights, Ohio, from an entity that is 30% owned by the Founders with
rental payments of approximately $412,000 annually. The term of the lease, which
commenced in January 1998, expires in January 2003 and includes three five-year
renewal options. The Company believes that the terms of the lease are no less
favorable to the Company than those that could have been obtained from an
independent third party lessor at the time the lease was executed. See
"Business -- Property."
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<PAGE> 49
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of November 30,
1998, after giving effect to the conversion of Convertible Preferred Stock into
shares of Common Stock, by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock; (ii) each
of the Company's executive officers; (iii) each director of the Company; and
(iv) all directors and executive officers of the Company as a group. The address
of each of the officers and directors of the Company is c/o Conley, Canitano &
Associates, Inc., CCAi Renaissance Centre, 5800 Landerbrook Drive, Mayfield
Heights, Ohio 44124.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING (1) NUMBER AFTER OFFERING
--------------------- OF SHARES ---------------------
NUMBER BEING NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT OFFERED OF SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Nicholas A. Canitano (2)............... 1,749,000 18.8% -- 1,749,000 13.1%
Kenneth L. Conley (3).................. 1,697,750 18.2 -- 1,697,750 12.7
Karen M. Conley (4).................... 1,397,750 15.0 -- 1,397,750 10.5
Annette M. Canitano (5)................ 1,349,000 14.5 -- 1,349,000 10.1
Paul A. Farmer (6)..................... 76,950 * -- 76,950 *
A. Bruce Johnston (7).................. 8,960 * -- 8,960 *
Kenneth A. Schiciano (8)............... 10,560 * -- 10,560 *
TA Associates, Inc. (9)................ 3,743,890 40.1 971,430 2,772,460 20.8
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
McDonald Investments Inc.(10).......... 110,110 1.1 28,570 81,540 *
Other Selling Shareholders as a group
( persons)(11)...................... -- -- --
All executive officers and directors as
a group (7 persons).................. 5,464,970 58.6% -- 5,464,970 41.0%
</TABLE>
- ---------------
* Indicates beneficial ownership of less than 1.0% of the outstanding Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise of stock options or exercisable within 60 days hereof are deemed
outstanding and to be beneficially owned by the person holding such option
for purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except for shares held jointly with a person's spouse
or subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
the sole voting and disposition power with respect to all shares of Common
Stock shown as beneficially owned by such shareholder.
(2) Nicholas A. Canitano has beneficial ownership of 400,000 shares of Common
Stock held in trusts for which he is trustee and has sole power of voting
and for which Annette M. Canitano, his wife, has sole power of disposition
and 400,000 shares held in trusts for which he is trustee and has sole
power of disposition. Except as noted, the shares shown do not include
shares owned by Annette M. Canitano.
(3) Kenneth L. Conley has beneficial ownership of 300,000 shares of Common
Stock held in trust for which he is trustee and has sole power of voting
and for which Karen M. Conley, his wife, has sole power of disposition,
400,000 shares held in trusts for which he has sole power of disposition
and 125,000 shares held in trust for which he has shared power of
disposition with Karen M. Conley. Except as noted, the shares shown do not
include shares owned by Karen M. Conley.
(4) Karen M. Conley has beneficial ownership of 300,000 shares of Common Stock
held in trust for which she is trustee and has sole power of disposition
and 125,000 shares held in trusts for which she has shared power of
disposition with Kenneth L. Conley. Except as noted, the shares shown do
not include shares owned by Kenneth L. Conley.
(5) Annette M. Canitano has beneficial ownership of 400,000 shares of Common
Stock held in trusts for which she is trustee and has sole power of
disposition and for which Nicholas A. Canitano, her husband, has sole power
of voting. Except as noted, the shares shown do not include shares owned by
Nicholas A. Canitano.
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<PAGE> 50
(6) All shares owned by Mr. Farmer are restricted Common Stock issued pursuant
to the Company's 1997 Equity and Performance Plan. See "Certain
Transactions."
(7) Includes 8,960 shares of Common Stock beneficially owned by Mr. Johnston
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,743,890 shares described in footnote (9) below and does
not include any shares beneficially owned by TA Associates, TA/Advent VIII
L.P. or Advent Atlantic and Pacific III, L.P., of which Mr. Johnston
disclaims beneficial ownership.
(8) Includes 10,560 shares of Common Stock beneficially owned by Mr. Schiciano
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,743,890 shares described in footnote (9) below and does
not include any shares beneficially owned by TA Associates, TA/Advent VIII
L.P. or Advent Atlantic and Pacific III, L.P., of which Mr. Schiciano
disclaims beneficial ownership.
(9) Includes shares of Common Stock beneficially owned by affiliates of TA
Associates as follows: (i) 61,980 shares held by TA Venture Investors
Limited Partnership; (ii) 3,100,070 shares held by TA/Advent VIII L.P.; and
(iii) 581,840 shares held by Advent Atlantic and Pacific III, L.P.
(10) Includes (i) 77,090 shares of Common Stock held by McDonald Investments
Inc.; (ii) 22,020 shares held by McD Venture Capital Fund, L.P., an
affiliate of McDonald Investments Inc.; and (iii) 11,000 shares held by GHK
Investments, L.L.C., an affiliate of McDonald Investments Inc.
(11) Each other Selling Shareholder beneficially owns less than 1% of the
outstanding shares of Common Stock.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the consummation of the Offering, the Articles of Incorporation will
provide that the Company may issue up to 45,000,000 shares of Common Stock, and
(i) 500,800 shares of preferred stock, par value $.01 per share, (ii) 5,000,000
shares of non-voting "preferred stock", no par value, and (iii) 5,000,000 shares
of voting preferred stock, no par value (collectively, the "Preferred Stock").
As of November 30, 1998, there were 6,822,950 shares of Common Stock issued and
outstanding which were held by 32 shareholders of record, and there were 250,400
shares of Convertible Preferred Stock issued and outstanding which were held by
six shareholders of record.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the shareholders and do not
have preemptive rights. The Articles of Incorporation do not provide for
cumulative voting for the election of directors. Subject to preferences that may
be applicable to any outstanding shares of Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors of the Company out of funds legally
available therefor. All outstanding shares of Common Stock are, and the Common
Stock to be sold in the Offering, when issued and paid for, will be, fully paid
and nonassessable. In the event of any liquidation, dissolution or winding-up of
the affairs of the Company, holders of Common Stock are entitled to share
ratably in the assets of the Company remaining after payment or provision for
payment of all of the Company's debts and obligations and liquidation payments
to holders of outstanding shares of Preferred Stock. See "Dividend Policy" and
"Description of Capital Stock -- Ohio Law and Certain Articles of Incorporation
and Code of Regulations Provisions; Anti-Takeover Effects."
PREFERRED STOCK
Shares of Preferred Stock may be issued by the Company in series with such
preferences and designations as the Board of Directors of the Company may from
time to time determine. The Board of Directors of the Company can, without
shareholder approval, issue Preferred Stock with voting, dividend, liquidation
and conversion rights, which could dilute the voting strength of the holders of
the Common Stock and may assist management in impeding a takeover or attempted
change in control. In connection with the 1997 Transactions, the Board of
Directors of the Company created the Convertible Preferred Stock. Immediately
prior to consummation of the Offering, the 250,400 issued and outstanding shares
of Convertible Preferred Stock will automatically convert into 2,504,000 shares
of Common Stock and 250,400 shares of Redeemable Preferred Stock. Upon
consummation of the Offering, all 250,400 then issued and outstanding shares of
Redeemable Preferred Stock will immediately be redeemed by the Company for
approximately $15.8 million using a portion
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<PAGE> 51
of the net proceeds of the Offering. As a result, subsequent to the Offering,
there will be no shares of Preferred Stock outstanding. See "Use of Proceeds."
CERTAIN ARTICLES OF INCORPORATION AND CODE OF REGULATIONS PROVISIONS AND OHIO
LAW; ANTI-TAKEOVER EFFECTS
Certain Articles of Incorporation and Code of Regulations Provisions. The
Articles of Incorporation provide for a classified Board of Directors. Other
than those who may be expressly elected by virtue of the terms of any preferred
stock designation, the directors are divided into two classes. The directors are
elected for terms that are staggered so that the terms of one-half of the
directors expire each year. Except as may be provided in any preferred stock
designation, the Code of Regulations do not permit the shareholders to remove a
director.
The above-described provisions of the Articles of Incorporation and Code of
Regulations may have certain anti-takeover effects. Such provisions, in addition
to the provisions described below and the possible issuance of Preferred Stock
discussed above, may make it more difficult for other persons, without the
approval of the Company's Board of Directors, to make a tender offer or
acquisitions of substantial amounts of the Common Stock or to launch other
takeover attempts that a shareholder might consider to be in such shareholder's
best interests.
Ohio Law. The Company is subject to several anti-takeover provisions under
Ohio law that apply to Ohio public corporations. These provisions make it more
difficult for other persons, without the approval of the Company's Board of
Directors, to make a tender offer or acquisitions of substantial amounts of the
Common Stock or to launch other takeover attempts that a shareholder might
consider in such shareholder's best interests.
Ohio Control Share Acquisition Act. Under Ohio's Control Share Acquisition
Act (the "Acquisition Act"), any "control share acquisition" of an Ohio public
corporation may be made only with the prior authorization of the shareholders of
the corporation in accordance with the provisions of the Acquisition Act. A
"control share acquisition" is defined under the Acquisition Act to mean the
acquisition, directly or indirectly, by any person of shares of a public
corporation that, when added to all other shares of the corporation such person
owns, would entitle such person, directly or indirectly, to exercise voting
power in the election of directors within the following ranges: more than 20%,
more than 33% and a majority.
The Acquisition Act further specifies that the shareholders of the
corporation must approve the proposed control share acquisition by certain
percentages at a special meeting of shareholders at which a quorum is present.
In order to comply with the Acquisition Act, the acquiring person may only
acquire the stock of the Ohio public corporation upon the affirmative vote of:
(i) a majority of the voting power of the corporation that is represented in
person or by proxy at the special meeting; and (ii) a majority of the voting
power of the corporation that is represented in person or by proxy at the
special meeting, excluding those shares of the corporation deemed to be
"interested shares" for purposes of the Acquisition Act.
"Interested shares" are defined under the Acquisition Act to mean shares in
respect of which the voting power is controlled by any of the following persons:
(i) an acquiring person; (ii) any officer of the Ohio public corporation; and
(iii) any employee who is also a director of the corporation. "Interested
shares" also include shares of the corporation that are acquired by any person
after the date of the first public disclosure of the proposed acquisition and
prior to the record date for the applicable special meeting, if either (i) the
aggregate consideration paid by such person, and any person acting in concert
with him or her, for such shares of the Ohio public corporation exceeds $250,000
or (ii) the number of shares acquired by such person, and any person acting in
concert with him or her, exceeds 1.5% of the outstanding shares of the
corporation, or if shares are acquired after the record date for the applicable
special meeting accompanied by the voting power for such special meeting.
Ohio Merger Moratorium Act. The Company is also subject to Ohio's Merger
Moratorium Act. The Merger Moratorium Act generally prohibits a wide range of
business combinations and other transactions (including mergers, consolidations,
asset sales, loans, disproportionate distributions of property and
disproportionate issuances or transfers of shares or rights to acquire shares)
between an Ohio corporation and a person that owns beneficially (within the
meaning of the Securities Act), alone or with other related parties, shares
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<PAGE> 52
representing at least 10% of the voting power of the corporation (an "Interested
Shareholder") for a period of three years after such person becomes an
Interested Shareholder, unless, prior to the date that the Interested
Shareholder became such, the directors approve either the transaction or the
acquisition of the corporation's shares that resulted in the person becoming an
Interested Shareholder. Following the three-year moratorium period, the
corporation may engage in covered transactions with an Interested Shareholder
only if, among other things, (i) the transaction receives the approval of the
holders of two-thirds of all the voting shares and the approval of the holders
of a majority of the voting shares held by persons other than an Interested
Shareholder or (ii) the remaining shareholders receive an amount for their
shares equal to the higher of the highest amount paid in the past by the
Interested Shareholder for the corporation's shares or the amount that would be
due the shareholders if the corporation were to dissolve.
Ohio Control Bid Statute. The Company is also subject to Ohio's Control Bid
Statute. Ohio's Control Bid Statute provides that no offeror may make a "control
bid" pursuant to a tender offer or a request or invitation for tenders unless,
on the day the offeror commences a control bid, it files with the Ohio Division
of Securities (the "Securities Division") and the target company certain
information in respect of the offeror, his or her ownership of the corporation's
shares and his or her plans for the corporation (including, among other things,
plans to terminate employee benefits plans, close any plant or facility or
reduce the work force). If the Securities Division determines that the offeror's
disclosures are inadequate, it must act within five calendar days from the date
of the offeror's filing to issue a suspension order. If a bid is suspended, a
hearing must be held within 10 calendar days from the date of the Securities
Division's suspension order. The hearing procedure must be completed no later
than 14 calendar days after the date on which the suspension was imposed.
A "control bid" under Ohio's Control Bid Statute is defined as the purchase
of or an offer to purchase an equity security of an issuer with certain
connections to Ohio from a resident of Ohio if (i) after the purchase of such
security, the offeror would directly or indirectly be the beneficial owner of
more than 10% of any class of the issued and outstanding equity securities of
the issuer or (ii) the offeror as the issuer, there is a pending control bid by
a person other than the issuer and the number of issued and outstanding shares
of the corporation will be reduced by more than 10%.
Fiduciary Duty Statute. Ohio law also provides for the right of the Board
of Directors to consider the interests of various constituencies, including
employees, customers, suppliers and creditors of the Company, as well as the
communities in which the Company is located, in addition to the interest of the
Company and its shareholders, in discharging their duties in determining what is
in the Company's best interests.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Generally, a director of an Ohio corporation will not be found to have
violated his fiduciary duties unless there is proof by clear and convincing
evidence that the director has not acted in good faith, in a manner such
director reasonably believes to be in or not opposed to the best interests of
the corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In general, a director is liable
for monetary damages for any action or omission as a director only if it is
approved by clear and convincing evidence that such act or omission was
undertaken either with deliberate intent to cause injury to the corporation or
with reckless disregard for the best interests of the corporation.
Under Ohio law, a corporation must indemnify its directors, as well as its
offices, employees and agents, against expenses where any such person is
successful on the merits or otherwise in defense of an action, suit or
proceeding. A corporation may indemnify such persons in actions, suits and
proceedings (including derivative suits) if the individual has acted in good
faith and in a manner that such director believes to be in or not opposed to the
best interests of the corporation. In the case of a criminal proceeding, the
individual must also have no reasonable cause to believe that his or her conduct
was unlawful. Indemnification may be made only if ordered by a court or if
authorized in a specific case upon a determination that the applicable standard
of conduct has been met. Such a determination may be made by a majority of the
disinterested directors, by independent legal counsel or by the shareholders. In
order to obtain reimbursement for expenses in advance of the final disposition
of any action, the individual must provide an undertaking to repay the amount if
it is ultimately determined that such director is not entitled to be
indemnified.
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In general, Ohio law requires that all expenses, including attorneys fees,
incurred by a director in defending any action, suit or proceeding to be paid by
the corporation as they are incurred in advance of final disposition if the
director agrees to repay such amounts if it is proved by clear and convincing
evidence that his action or omission was undertaken with deliberate intent to
cause injury to the corporation or with reckless disregard for the best
interests of the corporation and if the director reasonably cooperates with the
corporation concerning the action, suit or proceeding.
The Code of Regulations provides for indemnification, which is coextensive
with that permitted under Ohio law. These provisions do not alter a director's
liability under federal securities laws. The Code of Regulations authorizes the
Company to enter into indemnification agreements with each present and future
director and such officers, employees or agents as specified in the Code of
Regulations. The Code of Regulations also authorizes the Company to enter into
agreements to indemnify such persons to the maximum extent permitted by
applicable law.
REGISTRATION RIGHTS
Under the terms of the 1997 Agreement, at any time after the earlier of
December 31, 1998 or the effective date of an initial public offering by the
Company, the holders of at least 50% of registrable securities (as defined in
the 1997 Agreement), including any shares of Common Stock or any securities
convertible into shares of Common Stock, have the right to require the Company
to register under the Securities Act any or all of such registrable securities,
subject to the conditions and limitations contained in the 1997 Agreement. In
addition, under the terms of the 1997 Agreement, each of TA Investors and
McDonald Investors was granted demand registration rights once the Company
becomes eligible to register securities on Form S-3 under the Securities Act,
subject to conditions and limitations contained in the 1997 Agreement. Also,
each of TA Investors and McDonald Investors was granted certain "piggyback"
registration rights, subject to the conditions and limitations contained in the
1997 Agreement, at any time that the Company undertakes a public offering.
In connection with the KLA acquisition, the Company entered into Warrant
Agreements, dated April 3, 1998 (the "1998 Warrant Agreements") with each of
Ronnie Crumpler, Gary Levey and Anthony Kelly (individually, a "Warrant Holder"
and collectively, the "Warrant Holders") granting the Warrant Holders the right
to purchase an aggregate of 195,266 shares of Common Stock at $0.001 per share.
Upon consummation of the Offering, the Warrants will be exercisable until April
2008. In addition, under the 1998 Warrant Agreements, each Warrant Holder was
granted certain "piggyback" registration rights, subject to the conditions and
limitations contained in the 1998 Warrant Agreements, at any time the Company
undertakes a public offering.
Subsequent to the KLA acquisition, the Company granted the KLA Options to
certain employees of the Company formerly employed by KLA (individually, an
"Option Holder" and collectively, the "Option Holders"). Pursuant to the Option
Agreements (the "Option Agreements" and together with the 1997 Agreement and the
1998 Warrant Agreements, the "Registration Agreements"), the Option Holders were
granted options to purchase an aggregate of 64,734 shares of Common Stock at a
price of $0.001 per share. Upon the consummation of the Offering, the options
will be exercisable. In addition, each Option Holder was granted certain
"piggyback" registration rights, subject to the conditions and limitations
contained in the Option Agreements, at any time the Company undertakes a public
offering.
Pursuant to the Registration Agreements, but subject to the conditions and
limitations set forth in such agreements, the Company is required to: (i) pay
registration expenses (exclusive of underwriting discounts and commissions) in
connection with certain registrations of the Company's securities; (ii) use its
best efforts to effect such registrations; and (iii) indemnify TA Investors,
McDonald Investors, the Warrant Holders and the Option Holders, including
certain of their affiliates, against certain liabilities, including liabilities
under the Securities Act, in connection with the registration of their shares of
Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is National
City Bank in Cleveland, Ohio.
52
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have an aggregate of
13,326,950 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants to purchase shares of Common Stock. Of these shares of Common Stock,
the 5,000,000 shares sold in the Offering are freely tradeable without
restriction or further registration under the Securities Act, except that any
Shares held by "affiliates" of the Company, as that term is defined in Rule 144,
may generally be sold only in compliance with the limitations of Rule 144
described below.
SALES OF RESTRICTED SHARES
The remaining 8,326,950 shares of Common Stock are deemed "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Subject to the Lock-Up Agreements
described below, additional shares of Common Stock will be available for sale in
the public market (subject in the case of shares held by affiliates to
compliance with certain volume restrictions) as follows: (i) 27,500 shares will
be available for immediate sale in the public market on the date of this
Prospectus, (ii) 8,248,150 shares will be eligible for sale upon the expiration
of the Lock-up Agreements 180 days after the date of this Prospectus.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 133,000 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person, who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations described above.
An employee, officer or director of or consultant to the Company who
purchased his or her 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 non-affiliates to sell their Rule 701 shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits 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.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common
Stock, and no precise prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares of Common
Stock for sale will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sale of substantial amounts of Common Stock in the
public market could adversely effect prevailing market prices and could impair
the Company's future ability to raise capital through the sale of its equity
securities.
LOCK-UP AGREEMENTS
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
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, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to
53
<PAGE> 55
be settled by the delivery of Common Stock, or such other securities, in cash or
otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, during such period, the Company has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and certain shareholders of Company (including the Selling
Shareholders) has agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock without
Donaldson, Lufkin & Jenrette Securities Corporation's prior written consent.
54
<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1999 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), BancBoston Robertson Stephens, Lehman Brothers Inc. and McDonald
Investments Inc. (collectively, the "Representatives"), have severally agreed to
purchase from the Company the respective number of shares of Common Stock set
forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens...............................
Lehman Brothers Inc.........................................
McDonald Investments Inc....................................
Total............................................. 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company and certain shareholders of the Company have granted to the
Underwriters an option, exercisable within 30 days after the date of this
Prospectus, to purchase, from time to time, in whole or in part, up to an
aggregate of 750,000 additional shares of Common Stock at the initial public
offering price less underwriting discounts and commissions. The Underwriters may
exercise such option solely to cover overallotments, if any, made in connection
with the Offering. To the extent that the Underwriters exercise such option,
each Underwriter will become obligated, subject to certain conditions, to
purchase its pro rata portion of such additional shares based on such
Underwriter's percentage underwriting commitment as indicated in the preceding
table.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
McDonald Investments Inc., one of the Representatives, and one of its
affiliates, are among the Selling Shareholders.
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
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, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any
55
<PAGE> 57
swap or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to be settled
by the delivery of Common Stock, or such other securities, in cash or otherwise)
for a period of 180 days after the date of this Prospectus without the prior
written consent of DLJ. In addition, during such period, the Company has also
agreed not to file any registration statement with respect to, and each of its
executive officers, directors and certain shareholders of Company (including the
Selling Shareholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the prospects for future earnings of the Company,
the recent market prices of securities of generally comparable companies and the
general condition of the securities markets at the time of the Offering.
Other than in the United States, no action has been taken by the Company,
the Selling Shareholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The legality of the issuance of the Shares offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio. Certain
legal matters will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, New York, New York.
EXPERTS
The Financial Statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997
included herein and elsewhere in the Registration Statement and the Financial
Statements of KLA as of December 31, 1996, December 31, 1997 and September 30,
1998, and for each of the years in the two-year period ended December 31, 1997
and for the nine months ended September 30, 1998 included herein and elsewhere
in the Registration Statement, have been included herein in reliance upon the
reports of PricewaterhouseCoopers LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
56
<PAGE> 58
ADDITIONAL INFORMATION
The Company has filed with the Commission Registration Statements on Form
S-1 under the Securities Act, with respect to the Shares. This Prospectus does
not contain all of the information set forth in the Registration Statements,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statements,
including the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract, agreement or any other document
referred to herein are not necessarily complete; with respect to each such
contract, agreement or document filed as an exhibit to the Registration
Statements, reference is made to such exhibit for a more complete description of
the matters involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statements, including the exhibits
and schedules thereto, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of
either of them or any part thereof may be obtained from such office, upon
payment of the fees prescribed by the Commission. The Registration Statements,
including the exhibits and schedules thereto, are also available on the
Commission's Web site at http://www.sec.gov.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy materials and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Company's Common Stock is listed in the Nasdaq
National Market, and such reports, proxy materials and other information can
also be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20549.
Copies of reports, proxy and information statements and other information
regarding registrants that file electronically are available on the Commission's
Web site.
57
<PAGE> 59
CONLEY, CANITANO & ASSOCIATES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REGISTRANT
Conley, Canitano & Associates, Inc.
Report of Independent Certified Public Accountants........ F-2
Balance Sheets -- December 31, 1996 and 1997, September
30, 1998 and pro forma September 30, 1998
(unaudited)............................................ F-3
Statements of Income -- For the years ended December 31,
1995, 1996 and 1997 and for the nine months ended
September 30, 1997 (unaudited) and 1998................ F-4
Statements of Shareholders' Equity (Deficit) -- For the
years ended December 31, 1995, 1996 and 1997 and for
the nine months ended September 30, 1998............... F-5
Statements of Cash Flows -- For the years ended December
31, 1995, 1996 and 1997 and for the nine months ended
September 30, 1997 (unaudited) and 1998................ F-6
Notes to Financial Statements............................. F-7
BUSINESS ACQUIRED IN 1998
Kelly-Levey & Associates, Inc.
Report of Independent Certified Public Accountants........ F-17
Balance Sheets -- December 31, 1996 and 1997 and March 31,
1998 (unaudited)....................................... F-18
Statements of Operations -- For the years ended December
31, 1996 and 1997 and for the three months ended March
31, 1997 and 1998 (unaudited).......................... F-19
Statements of Shareholders' Equity (Deficit) -- For the
years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1998 (unaudited).......... F-20
Statements of Cash Flows -- For the years ended December
31, 1996 and 1997 and for the three months ended March
31, 1997 and 1998 (unaudited).......................... F-21
Notes to Financial Statements............................. F-22
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
CONLEY, CANITANO & ASSOCIATES, INC.
We have audited the accompanying balance sheets of Conley, Canitano &
Associates, Inc. as of December 31, 1996, December 31, 1997 and September 30,
1998, and the related statements of income, shareholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1997 and
the nine months ended September 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Conley, Canitano &
Associates, Inc. as of December 31, 1996, December 31, 1997 and September 30,
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 and the nine months ended September
30, 1998, in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Cleveland, Ohio
December 3, 1998
F-2
<PAGE> 61
CONLEY, CANITANO & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------
AS OF DECEMBER 31, PRO FORMA
------------------ (UNAUDITED)
1996 1997 ACTUAL (NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 362 $ 2,174 $ 1,415 $ 1,415
Accounts receivable, less allowance for doubtful
accounts of $110 in 1996, $175 in 1997 and
$327 in 1998................................. 2,794 4,281 7,971 7,971
Deferred taxes.................................. 154 384 745 745
Other........................................... 68 88 196 196
------ -------- ------- -------
Total current assets......................... 3,378 6,927 10,327 10,327
Goodwill, net..................................... -- -- 7,345 7,345
Property and equipment, net....................... 151 549 1,784 1,784
Other............................................. 168 236 1,226 851
------ -------- ------- -------
Total assets................................. $3,697 $ 7,712 $20,682 $20,307
====== ======== ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Line of credit.................................. $ 704 $ 698 $ -- $ --
Current portion of long-term obligations........ -- 100 374 374
Accounts payable................................ 237 457 1,337 1,337
Accrued payroll, taxes and benefits............. 1,747 2,773 4,992 4,992
Income taxes payable............................ 237 468 601 601
Other........................................... 24 312 602 602
------ -------- ------- -------
Total current liabilities.................... 2,949 4,808 7,906 7,906
Line of Credit.................................... -- -- 5,500 5,500
Deferred taxes.................................... 25 32 50 50
Long-term obligations, less current portion....... -- 196 749 749
------ -------- ------- -------
Total liabilities............................ 2,974 5,036 14,205 14,205
------ -------- ------- -------
Commitments and contingencies..................... -- -- -- --
Redeemable securities (Note 9).................... -- 15,970 18,312 15,750
------ -------- ------- -------
Shareholders' equity (deficit):
Preferred Stock, voting, $.01 par value,
authorized 500,800 shares, 250,400 issued and
outstanding as of September 30, 1998......... -- -- -- --
Preferred Stock, non-voting no par value,
authorized 5,000,000 shares, none issued..... -- -- -- --
Preferred Stock, voting, no par value,
authorized 5,000,000 shares, none issued..... -- -- -- --
Common stock, no par value, authorized
45,000,000 shares, issued and outstanding
7,255,130 shares at December 31, 1996,
6,746,000 shares at December 31, 1997,
6,822,950 shares at September 30, 1998 and
9,326,950 shares pro forma................... 8 7 8 11
Additional paid-in capital...................... -- -- 359 359
Retained earnings (accumulated deficit)......... 715 (13,301) (11,843) (9,659)
------ -------- ------- -------
723 (13,294) (11,476) (9,289)
Less: note receivable from shareholder.......... -- -- (359) (359)
------ -------- ------- -------
Total shareholders' equity (deficit)......... 723 (13,294) (11,835) (9,648)
------ -------- ------- -------
Total liabilities and shareholders' equity
(deficit).................................. $3,697 $ 7,712 $20,682 $20,307
====== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 62
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ------------------------
1995 1996 1997 1997
(UNAUDITED) 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 11,107 $ 17,994 $ 32,218 $ 23,205 $ 35,988
Cost of revenues................. 6,985 10,978 19,222 13,372 21,493
---------- ---------- ---------- ---------- ----------
Gross profit................ 4,122 7,016 12,996 9,833 14,495
Selling, general and
administrative expenses........ 3,038 4,204 6,555 4,929 7,454
Incentive compensation........... 678 1,647 2,700 2,191 2,586
Acquisition compensation......... -- -- -- -- 725
Depreciation and amortization.... 26 30 35 25 328
---------- ---------- ---------- ---------- ----------
Income from operations...... 380 1,135 3,706 2,688 3,402
Interest income.................. 3 6 20 13 21
Interest expense................. (38) (89) (107) (87) (230)
---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes.............. 345 1,052 3,619 2,614 3,193
Provision for income taxes....... 180 461 1,495 1,080 1,393
---------- ---------- ---------- ---------- ----------
Net income.................. $ 165 $ 591 $ 2,124 $ 1,534 $ 1,800
---------- ---------- ---------- ---------- ----------
Accretion to redemption value of
redeemable securities.......... -- -- (92) -- (342)
---------- ---------- ---------- ---------- ----------
Net income available to
common shareholders....... $ 165 $ 591 $ 2,032 $ 1,534 $ 1,458
========== ========== ========== ========== ==========
Net income per share:
Basic.......................... $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
Diluted........................ $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
Weighted average shares
outstanding:
Basic.......................... 13,836,080 13,836,080 13,579,423 13,666,370 13,326,950
Diluted........................ 14,097,742 14,097,742 13,841,085 13,928,032 13,588,612
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 63
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK NOTE
(AT STATED VALUE) ADDITIONAL RETAINED RECEIVABLE
------------------ PAID-IN EARNINGS FROM
SHARES AMOUNT CAPITAL (DEFICIT) SHAREHOLDER
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994.................... 7,255,130 $ 8 $ -- $ (41) $ --
Net income................ 165
--------- --- ---- -------- -----
Balance, December 31,
1995.................... 7,255,130 8 -- 124 --
Net income................ 591
--------- --- ---- -------- -----
Balance, December 31,
1996.................... 7,255,130 8 -- 715 --
Purchase and retirement of
common stock............ (509,130) (1) (171)
Treasury shares
purchased...............
Redeemable securities
issued.................. (15,877)
Accretion to redemption
value of redeemable
securities.............. (92)
Net income................ 2,124
--------- --- ---- -------- -----
Balance, December 31,
1997.................... 6,746,000 7 -- (13,301) --
Sale of shares to
officer................. 76,950 1 359
Note receivable from
shareholder............. (359)
Accretion to redemption
value of redeemable
securities.............. (342)
Net income................ 1,800
--------- --- ---- -------- -----
Balance, September 30,
1998.................... 6,822,950 $ 8 $359 $(11,843) $(359)
========= === ==== ======== =====
Pro forma balance,
September 30, 1998 (Note
1) (unaudited).......... 9,326,950 $11 $359 $ (9,659) $(359)
========= === ==== ======== =====
<CAPTION>
TOTAL
TREASURY STOCK SHAREHOLDERS'
---------------------- EQUITY
SHARES AMOUNT (DEFICIT)
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, December 31,
1994.................... -- $ -- $ (33)
Net income................ 165
---------- -------- --------
Balance, December 31,
1995.................... -- -- 132
Net income................ 591
---------- -------- --------
Balance, December 31,
1996.................... -- -- 723
Purchase and retirement of
common stock............ (172)
Treasury shares
purchased............... (1,350,000) (15,877) (15,877)
Redeemable securities
issued.................. 1,350,000 15,877 --
Accretion to redemption
value of redeemable
securities.............. (92)
Net income................ 2,124
---------- -------- --------
Balance, December 31,
1997.................... -- -- (13,294)
Sale of shares to
officer................. 360
Note receivable from
shareholder............. (359)
Accretion to redemption
value of redeemable
securities.............. (342)
Net income................ 1,800
---------- -------- --------
Balance, September 30,
1998.................... -- $ -- $(11,835)
========== ======== ========
Pro forma balance,
September 30, 1998 (Note
1) (unaudited).......... -- $ -- $ (9,648)
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 64
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1995 1996 1997 1997
(UNAUDITED) 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 165 $ 591 $ 2,124 $ 1,534 $ 1,800
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization.............. 26 30 35 26 328
Deferred taxes............................. (171) (83) (223) (75) (293)
Incentive option amortization.............. -- -- -- -- 125
Change in assets and liabilities:
Accounts receivable...................... (907) (1,147) (1,488) (1,660) (1,528)
Other assets............................. 61 (58) (87) (100) (718)
Accounts payable......................... 132 (66) 219 150 (107)
Accrued payroll, taxes and benefits...... 575 790 1,027 278 745
Income taxes payable..................... 76 139 232 322 182
Other liabilities........................ (76) 4 289 215 215
------- -------- -------- -------- --------
Net cash (used in) provided by
operating activities................ (119) 200 2,128 690 749
------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment............ (79) (52) (434) (42) (1,109)
Acquisition of KLA............................ -- -- -- -- (3,905)
------- -------- -------- -------- --------
Net cash used in investing
activities.......................... (79) (52) (434) (42) (5,014)
------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from line of credit.................. 7,920 18,681 28,785 23,535 29,289
Payments on line of credit.................... (7,708) (18,463) (28,792) (23,388) (25,487)
(Payments on) proceeds from long-term
obligations................................ -- -- 296 183 (296)
Net proceeds from sale of redeemable
securities................................. -- -- 15,878 -- --
Purchase of common stock...................... -- -- (16,049) (172) --
Other......................................... (24) (104) -- -- --
------- -------- -------- -------- --------
Net cash provided by financing
activities.......................... 188 114 118 158 3,506
------- -------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents................................... (10) 262 1,812 806 (759)
Cash and cash equivalents, at beginning of
period........................................ 110 100 362 362 2,174
------- -------- -------- -------- --------
Cash and cash equivalents, at end of period..... $ 100 $ 362 $ 2,174 $ 1,168 $ 1,415
======= ======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................... $ 38 $ 93 $ 109 $ 76 $ 208
======= ======== ======== ======== ========
Taxes...................................... $ 270 $ 431 $ 1,485 $ 838 $ 1,498
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 65
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Nine Months
Ended September 30, 1997 and for Pro Forma Information are Unaudited)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Conley, Canitano & Associates, Inc. (the "Company") is a provider of rapid
implementations of Enterprise Resource Planning applications. The Company also
offers its clients a comprehensive range of related services. The Company
provides its services predominately in the United States and Canada. For the
years ended December 31, 1995, 1996 and 1997, approximately 55%, 69% and 75%,
respectively, of the Company's revenues were derived from engagements in which
the Company implemented SAP applications. For the nine months ended September
30, 1997 and 1998, revenues derived from SAP implementations approximated 74%
and 80%, respectively. During the nine months ended September 30, 1998, one of
the Company's clients accounted for approximately 11% of the Company's revenues.
The Company's results of operations include those of Kelly-Levey & Associates,
Inc. ("KLA") since April 8, 1998 (See Note 12).
Interim Unaudited Financial Information
The interim financial statements of the Company as of September 30, 1997
and for the nine month period ended September 30, 1997 have been prepared
without audit. These interim financial statements reflect all normal and
recurring adjustments, which in the opinion of Company management, are necessary
for a fair presentation of the financial position of the Company and its results
of operations for the interim period set forth herein.
Revenue Recognition
Revenues are recognized as services are performed. Accounts receivable
includes services performed but not yet billed of $185 and $418 as of December
31, 1996 and 1997, respectively, and $1,186 as of September 30, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents
The Company considers all restricted cash and money market funds with an
original maturity of three months or less to be cash equivalents. The carrying
amount of these instruments approximates fair value.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding accounts receivable.
Amounts related to doubtful accounts that were charged to expense for the
years ended December 31, 1995, 1996 and 1997 totaled $49, $40 and $109,
respectively, and for the nine months ended September 30, 1997 and 1998 totaled
$49 and $45, respectively.
F-7
<PAGE> 66
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
Depreciation is provided using accelerated and straight-line methods over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 10 years
Computer equipment and software............................. 3 to 6 years
Leasehold improvements...................................... 10 years
</TABLE>
Goodwill
Goodwill resulting from the April 1998 acquisition of KLA is amortized over
20 years which represents management's estimate of the customer relationships
and industry expertise acquired, using the straight-line method. For the nine
months ended September 30, 1998, amortization expense was $180. The Company will
continually evaluate whether later events and circumstances have occurred that
indicate the remaining goodwill may warrant revision.
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of the Company's
assets and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws. Valuation allowances have been established when
necessary to reduce tax assets to the amount expected to be realized.
Earnings Per Share
Computations of basic and diluted earnings per share of common stock have
been made in accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings
Per Share. Basic earnings per share is computed by dividing income available to
common shareholders (the numerator) by the weighted average number of common
shares outstanding (the denominator) during the period. Shares issued during the
period are weighted for the portion of the period that they are outstanding. The
computation of diluted earnings per share is similar to the computation of basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued.
F-8
<PAGE> 67
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Earnings per common share ("EPS") were computed as follows:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Net income.................................. $ 165 $ 591 $ 2,124 $ 1,534 $ 1,800
Accretion to redemption value............... -- -- (92) -- (342)
---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders.............................. $ 165 $ 591 $ 2,032 $ 1,534 $ 1,458
========== ========== ========== ========== ==========
Basic EPS:
Weighted average common shares
outstanding............................. 13,836,080 13,836,080 13,579,423 13,666,370 13,326,950
========== ========== ========== ========== ==========
Earnings per share........................ $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
========== ========== ========== ========== ==========
Diluted EPS:
Weighted average common shares
outstanding............................. 13,836,080 13,836,080 13,579,423 13,666,370 13,326,950
Shares applicable to dilutive options and
warrants................................ 261,662 261,662 261,622 261,662 261,662
---------- ---------- ---------- ---------- ----------
Shares applicable to diluted earnings..... 14,097,742 14,097,742 13,841,085 13,928,032 13,558,612
========== ========== ========== ========== ==========
Earnings per share........................ $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
========== ========== ========== ========== ==========
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and other
liabilities, a line of credit and long-term debt. The fair value of these
financial instruments approximates their carrying value.
Accretion to Redemption Value of the Redeemable Securities
As more fully discussed in Note 9, redeemable securities includes 250,400
shares of Convertible Preferred Stock and 1,350,000 shares of Common Stock with
put rights. The 250,400 shares of Convertible Preferred Stock are convertible
into 250,400 shares of Redeemable Preferred Stock and 2,504,000 shares of Common
Stock with put rights, which can be exercised at various times after 2001, 2002
and 2003. All such rights terminate upon the consummation of the proposed
initial public offering of the Company's Common Stock (the "Offering").
Accretion to redemption value represents accretion to the redemption dates
utilizing the interest method from October 1997 (See Note 9).
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). These warrants and compensatory options may be put to
the Company for an aggregate of $2,000. All such put rights terminate upon the
consummation of the Offering. The warrants are exercisable 24 months after the
closing of the KLA acquisition or upon the consummation of the Offering. The
acquisition compensation expense related to the compensatory options is being
amortized over a 24 month vesting period. The compensatory options vest upon the
consummation of the Offering.
Total accretion for the year ended December 31, 1997 and for the nine
months ended September 30, 1998 was $92 and $342, respectively.
Unaudited Pro Forma Balance Sheet
In conjunction with the Offering, all of the 250,400 shares of Convertible
Preferred Stock will convert into 2,504,000 shares of Common Stock and 250,400
shares of Redeemable Preferred Stock (See Note 9). The unaudited pro forma
balance sheet as of September 30, 1998 reflects the reclassification of the
1,350,000 shares of Common Stock included in the redeemable securities to
shareholders equity as a result of the termination of
F-9
<PAGE> 68
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the put rights and as a result of the conversion of the Convertible Preferred
Stock into 2,504,000 shares of Common Stock and 250,400 shares of Redeemable
Preferred Stock. The unaudited pro forma balance sheet assumes the redemption of
the 250,400 shares of the Redeemable Preferred Stock to be redeemed upon the
consummation of the Offering for $62.90 per share.
Also upon the Offering, the remaining compensatory options (See Note 12)
fully vest and therefore the related unamortized acquisition compensation
recorded in other assets in the amount of $375 has been expensed for purposes of
the September 30, 1998 pro forma balance sheet presentation.
2. NOTES RECEIVABLE
The Company has a $359 promissory note receivable due from an officer of
the Company. The note was issued in exchange for Restricted Stock (See Note 11)
and is treated as a non-cash item for purposes of the statements of cash flow.
Interest at 6% per annum and principal are due and payable on June 30, 2004. The
note provides for accelerated payment if the officer ceases to be employed by
the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER
31, AS OF
-------------- SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Furniture and fixtures................................ $199 $ 382 $ 974
Computer equipment.................................... 452 492 773
Leasehold improvements................................ 12 223 296
---- ------ ------
663 1,097 2,043
Less: accumulated depreciation........................ 512 548 259
---- ------ ------
Property and equipment, net........................... $151 $ 549 $1,784
==== ====== ======
</TABLE>
4. LINE OF CREDIT
Prior to April 8, 1998, the Company had a $2,500 bank line of credit
expiring May 31, 1998. Interest was payable monthly at the bank's prime rate
(8.25% and 8.5% at December 31, 1996 and 1997, respectively) plus 1.75% through
December 31, 1996 and 1.5% thereafter.
On April 8, 1998, the Company refinanced the line of credit with a line of
credit/term note from another bank simultaneously with the acquisition of KLA
(See Note 12). The line of credit/term note is collateralized by substantially
all the Company's assets. The borrowings are limited to the lesser of $15,000 or
a multiple of 2.5 times the latest aggregated four quarters' EBITDA as defined
in the agreement. The interest rate is LIBOR (5.625% at September 30, 1998) plus
up to 2.25% or the bank's prime rate (8.5% at September 30, 1998) plus up to
0.75%. The line of credit/term note contains various covenants that restrict,
among other things, the Company's ability to incur additional indebtedness, sell
or transfer assets, make investments and pay dividends and requires the Company
to meet various financial covenants. The line of credit/term note converts to a
term note to the extent the balance exceeds $5,000 on June 30, 1999. The term
portion then matures as follows: 5% quarterly on June 30, 1999 through June 30,
2000; 5.83% quarterly on June 30, 2000 through September 30, 2001; 6.66%
quarterly on June 30, 2001 through June 30, 2002; 7.51% quarterly on June 30,
2002 through March 31, 2003; and the remainder on June 30, 2003.
F-10
<PAGE> 69
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM OBLIGATIONS
On June 25, 1997, the Company entered into a variable rate note agreement
with a bank for up to $700 at the bank's prime rate (8.5% at December 31, 1997).
Interest only was paid on this note through March 31, 1998 in accordance with
the terms of the note. The Company repaid the note in April 1998.
As part of the KLA acquisition, the Company agreed to pay $1,100 to one of
the KLA majority shareholders in three equal annual installments beginning on
April 3, 1999.
6. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Current:
Federal................................ $275 $426 $1,332 $ 985 $1,323
State and local........................ 76 118 386 170 363
---- ---- ------ ------ ------
351 544 1,718 1,155 1,686
Deferred................................. (171) (83) (223) ( 75) (293)
---- ---- ------ ------ ------
$180 $461 $1,495 $1,080 $1,393
==== ==== ====== ====== ======
</TABLE>
The Company estimates the effective income tax rate quarterly using
annualized estimated financial data. The estimated effective income tax rate for
the nine months ended September 30, 1997 was 41.3%. A reconciliation of the
provision for income taxes at the federal statutory rate to that included in the
statements of income is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31, FOR THE
-------------------- NINE MONTHS ENDED
1995 1996 1997 SEPTEMBER 30, 1998
<S> <C> <C> <C> <C>
Tax at federal statutory rate................ 34.0% 34.0% 34.0% 34.0%
Increases in taxes resulting from:
State income taxes, net of federal
benefit................................. 6.8 6.2 6.1 6.2
Goodwill amortization...................... -- -- -- 2.2
Meals and entertainment.................... 7.3 3.6 1.1 1.0
Other...................................... 4.1 0.0 0.1 0.2
---- ---- ---- ----
52.2% 43.8% 41.3% 43.6%
==== ==== ==== ====
</TABLE>
F-11
<PAGE> 70
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax asset are comprised of the
following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------ SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts....................... $ 44 $ 71 $124
Accrued compensation and benefits..................... 107 232 355
Other................................................. 3 81 266
---- ---- ----
Deferred tax assets........................... 154 384 745
---- ---- ----
Gross deferred tax liability:
Depreciation.......................................... (25) (32) (50)
---- ---- ----
Deferred tax liability........................ (25) (32) (50)
---- ---- ----
Deferred tax asset, net................................. $129 $352 $695
==== ==== ====
</TABLE>
7. PROFIT SHARING AND 401(k) SAVINGS PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code (the "401(k) Plan") that covers
substantially all the employees of the Company. Under the 401(k) Plan, the
Company may make a matching contribution as well as a discretionary
contribution. The Company's contributions totaled $84, $303 and $596, for the
years ended December 31, 1995, 1996 and 1997, respectively, and totaled $269 and
$456 for the nine months ended September 30, 1997 and 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES
As of September 30, 1998, the Company leased office space and certain
equipment under various noncancelable operating leases. Lease payments for the
years ended December 31, 1995, 1996 and 1997, were $175, $253 and $358,
respectively, and $281 and $540 for the nine months ended September 30, 1997 and
1998, respectively. On January 3, 1997, the Company entered into an additional
office lease, with a leasing company partially owned by affiliates of the
Company's management and principal shareholders. This lease extends through
December 31, 2002. The lease provides for three successive renewal periods of 60
months each at the Company's option. The monthly lease payment will be adjusted
prior to each annual anniversary date of the lease based on increases in the
consumer price index. The maximum annual increase is 2%. Future minimum lease
payments required under all operating leases are as follows:
<TABLE>
<S> <C>
1998(3 months).................................... $ 237
1999.............................................. 854
2000.............................................. 649
2001.............................................. 619
2002.............................................. 613
------
$2,972
</TABLE>
9. REDEEMABLE SECURITIES
On October 15, 1997, the Company's Amended and Restated Articles of
Incorporation ("Articles") were amended to authorize 500,800 shares of $0.01 par
value Preferred Stock.
On October 15, 1997, the Company purchased 1,350,000 shares of its Common
Stock from certain shareholders for $15,877. The Company then issued 250,400
shares of Convertible Preferred Stock for $17,500 and 1,350,000 shares of Common
Stock for $1, for an aggregate consideration of $17,501 ($15,877, net of $1,624
of related expenses). The 1,350,000 shares of Common Stock may be put back to
the Company on or after
F-12
<PAGE> 71
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
October 15, 2003, if the Company has not completed an offering, for the greater
of $0.4541 per share or fair market value. The Company accounted for these
transactions using the cost method.
The 250,400 shares of Convertible Preferred Stock have certain voting and
other rights and privileges set forth in the Company's Articles. On or after
October 15, 2001 and October 15, 2002, 50% and 100% of the shares, respectively,
can be redeemed by the Company at the option of the holders for the greater of
$69.89 per share or their fair market value as provided for in the Articles.
Holders of Convertible Preferred Stock are entitled to receive dividends, if
declared by the Board of Directors, on an equal basis with the holders of Common
Stock. In connection with the Offering, the 250,400 shares of Convertible
Preferred Stock automatically convert into 2,504,000 shares of Common Stock and
250,400 shares of Redeemable Preferred Stock, and the Redeemable Preferred Stock
will be redeemed for $62.90 per share.
The authorized Preferred Stock also includes 250,400 shares of Redeemable
Preferred Stock that contain similar voting and liquidation preferences as the
Convertible Preferred Stock. The Redeemable Preferred Stock will pay cumulative
dividends at the per share rate per annum of 7% of $62.90. None of the
Redeemable Preferred Stock has been issued.
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). These warrants and compensatory options may be put to
the Company for an aggregate of $2,000. All such put rights terminate upon the
consummation of the Offering. The warrants are exercisable 24 months after the
closing of the KLA acquisition or upon the consummation of the Offering. The
acquisition compensation expense related to the compensatory options is being
amortized over a 24 month vesting period. The compensatory options vest upon the
consummation of the Offering.
10. COMMON STOCK
In July 1997, the Company purchased 509,130 shares of its Common Stock from
a shareholder for $171. The Company subsequently retired these shares.
In October 1997, the Company effected a 6,364.151-for-1 common stock split.
In addition, in July 1998, the Company effected a 10-for-1 common stock split.
All share and per share amounts herein have been restated to reflect such stock
splits.
In July 1998, the Company's shareholders granted approval to increase
authorized shares of stock to the following:
<TABLE>
<S> <C>
Preferred Stock, voting, $.01 par value........ 500,800
Preferred Stock, non-voting, no par value...... 5,000,000
Preferred Stock, voting, no par value.......... 5,000,000
Common Stock, no par value..................... 45,000,000
</TABLE>
11. STOCK OPTIONS AND WARRANTS
During October 1997, the Company and its shareholders adopted the 1997
Equity and Performance Incentive Plan (the "Plan") to attract and retain
directors, officers, employees and consultants. Under the terms of the Plan,
2,072,750 shares of the Company's Common Stock are available for grant. Future
grants, and the provisions thereof, are at the discretion of the Company's Board
of Directors (See Note 14).
On May 11, 1998, options were granted under the Plan to purchase 321,400
shares of Common Stock at $4.67 per share. On August 15, 1998, options were
granted under the Plan to purchase 37,600 shares of Common Stock at $9.35 per
share. Options vest evenly over three to five-year periods. Following each
anniversary date of the grant, 20% of the options may be exercised.
F-13
<PAGE> 72
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In May 1998, an officer of the Company was granted 76,950 shares of
Restricted Stock under the Plan at a purchase price of $4.67 per share. The
officer paid for the shares with a promissory note (See Note 2).
In December 1998, the Company established the 1998 Employee Stock Purchase
Plan, which reserves an aggregate of 500,000 shares of Common Stock for issuance
under the plan. No shares have been issued under this plan (See Note 14).
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations in accounting for its
stock option plan and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock-
Based Compensation.
Had compensation cost been determined based on the estimated fair value at
the grant date consistently with the provisions of SFAS No. 123, net income and
net income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Net income available to common shareholders -- as
reported.................................................. $1,458
Net income available to common shareholders -- pro forma.... $1,397
Net income per share -- as reported:
Basic..................................................... $ 0.11
Diluted................................................... $ 0.11
Net income per share -- pro forma:
Basic..................................................... $ 0.10
Diluted................................................... $ 0.10
</TABLE>
The fair value of each option grant and restricted share is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for the grant: dividend yield of 0%;
expected volatility of 47%; risk-free interest rate of 5%; and expected lives of
the options of five years from the date of vesting.
A summary of the status of stock options is presented below:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1998
-----------------------------
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding, beginning of period...................... -- $ --
Granted............................................... 359,000 5.16
Exercised and converted............................... -- --
Forfeited............................................. 8,700 4.94
--------- -----
Outstanding, end of period............................ 350,300 5.17
Options available for grant, end of period............ 2,072,750 --
--------- -----
Options exercisable, end of period.................... -- --
========= =====
</TABLE>
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). The warrants and compensatory options are exercisable
at $0.001 per share of Common Stock 24 months after the closing of the KLA
acquisition or upon the consummation of the
F-14
<PAGE> 73
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Offering. The acquisition compensation expense related to the compensatory
options is being amortized over a 24 month vesting period. The compensatory
options vest upon the consummation of the Offering.
12. KLA ACQUISITION
On April 8, 1998, the Company purchased all of the outstanding capital
stock of KLA for a purchase price consisting of $3,552 in cash, the issuance of
warrants to purchase 195,265.98 shares of Common Stock and certain other
consideration. Of the total consideration, $3,377 is subject to certain revenue
targets and contribution margins during the two-year period following April 8,
1998 and $1,123 is payable in three equal annual installments beginning April 3,
1999. In addition, the Company agreed to grant the KLA compensatory options and
to pay $3,500 in retention bonuses at certain intervals to an escrow account
which benefits former KLA employees who remain employees of the Company at such
intervals.
The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Assets acquired............................................. $2,378
Liabilities assumed......................................... (3,374)
Goodwill.................................................... 7,524
Compensatory options........................................ 500
Earn-out liability.......................................... (1,123)
------
5,905
Less: non-cash warrants and options......................... 2,000
Cash paid for acquisition................................... $3,905
</TABLE>
Compensatory options are amortized on a straight-line basis over their 24
month vesting period. Amortization expense for the nine months ended September
30, 1998 was $125 and is included in acquisition compensation. In connection
with the Offering, the compensatory options will fully vest, and the unamortized
balance will be included in acquisition compensation.
As of September 30, 1998, the Company was obligated to make retention bonus
payments to the escrow account as follows:
<TABLE>
<S> <C>
October 3, 1998............................................. $ 700
April 3, 1999............................................... 875
April 3, 2000............................................... 875
October 3, 2000............................................. 1,050
------
$3,500
======
</TABLE>
Compensation expense is recorded as the bonuses are earned. Compensation
expense for these retention bonuses for the nine months ended September 30, 1998
was $600 and is included in acquisition compensation.
13. RELATED PARTY TRANSACTIONS
The Company has a $359 promissory note receivable due from an officer of
the Company (See Note 2).
In July 1997, the Company purchased 509,130 shares of its Common Stock from
a related party (See Note 10).
F-15
<PAGE> 74
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On October 15, 1997, the Company purchased 1,350,000 shares of its Common
Stock from certain majority shareholders. Simultaneously, the Company issued
1,350,000 shares of its Common Stock and 250,400 shares of Convertible Preferred
Stock (See Note 9).
The Company leases office space from a company owned partially by the
Company's management and principal shareholders (See Note 8).
14. SUBSEQUENT EVENTS
The Company's Board of Directors has authorized management of the Company
to file a Registration Statement with the Securities and Exchange Commission to
sell up to 4,000,000 shares of the Company's Common Stock in the Offering. CCAi
expects to use the net proceeds from the Offering to redeem all outstanding
shares of Redeemable Preferred Stock (See Note 9), to repay in full existing
indebtedness (See Note 4) and for general corporate purposes, including working
capital. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary businesses and service offerings. Although the
Company may periodically review potential acquisition opportunities, there are
no current agreements with respect to any such transactions. Pending their
application as described above, the proceeds will be invested in short-term,
investment grade, interest-bearing securities.
In December 1998, the Company's Board of Directors authorized an increase
in Company common shares available for grant under the Company's 1997 Equity and
Performance Incentive Plan to 2,500,000 shares (See Note 11).
In December 1998, the Company established the Employee Stock Purchase Plan
(See Note 11).
F-16
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE OWNERS
KELLY-LEVEY & ASSOCIATES, INC.
We have audited the accompanying balance sheets of Kelly-Levey &
Associates, Inc. as of December 31, 1996 and 1997, and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kelly-Levey & Associates,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
On April 8, 1998, all of the Kelly-Levey & Associates, Inc. common stock
was acquired by Conley, Canitano & Associates, Inc. (See Note 7).
PricewaterhouseCoopers LLP
Cleveland, Ohio
June 8, 1998
F-17
<PAGE> 76
KELLY-LEVEY & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------ MARCH 31,
1996 1997 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 54 $ 176 $ --
Accounts receivable, less allowance for doubtful accounts
of $125 in 1998........................................ 882 1,764 2,425
Deferred taxes............................................ 50
Other..................................................... -- 12 39
---- ------ ------
Total current assets.............................. 936 1,952 2,514
Property and equipment, net................................. 33 262 266
Deferred taxes.............................................. -- 16 49
Other....................................................... 4 11 2
---- ------ ------
Total assets...................................... $973 $2,241 $2,831
==== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ $ -- $ 298 $1,000
Accounts payable.......................................... 41 447 1,012
Accrued payroll, taxes and benefits....................... 676 1,419 878
Income taxes payable...................................... 48 -- --
Other..................................................... -- 1 --
---- ------ ------
Total current liabilities......................... 765 2,165 2,890
Shareholders' equity (deficit):
Common stock, no par value, authorized 1,000,000 shares,
issued and outstanding 321,200 shares at December 31,
1996, issued 329,550 and outstanding 322,850 shares at
December 31, 1997 and issued 331,900 shares and
outstanding 325,200 shares at March 31, 1998........... 2 24 28
Retained earnings (deficit)............................... 206 66 (73)
Treasury stock, 6,700 shares at cost...................... -- (14) (14)
---- ------ ------
Total shareholders' equity (deficit).............. 208 76 (59)
---- ------ ------
Total liabilities and shareholders' equity
(deficit)....................................... $973 $2,241 $2,831
==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 77
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
------------------ --------------------------
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................... $3,951 $8,726 $1,819 $2,570
Cost of revenues................................... 2,727 6,589 1,434 1,542
------ ------ ------ ------
Gross profit..................................... 1,224 2,137 385 1,028
Selling, general and administrative expenses....... 838 2,238 429 925
Depreciation....................................... 27 74 17 19
------ ------ ------ ------
Income (loss) from operations.................... 359 (175) (61) 84
Transaction costs.................................. -- -- -- 302
Interest expense................................... -- 29 16 4
------ ------ ------ ------
Income (loss) before provision for (benefit from)
income taxes.................................. 359 (204) (77) (222)
Provision for (benefit from) income taxes.......... 153 (64) (28) (83)
------ ------ ------ ------
Net income (loss)................................ $ 206 $ (140) $ (49) $ (139)
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 78
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
(AT STATED VALUE) RETAINED TREASURY STOCK TOTAL
------------------ EARNINGS --------------- SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) SHARES AMOUNT EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......... 321,200 $ 2 $ 53 -- $ -- $ 55
Dividends........................... (53) (53)
Net income.......................... 206 206
------- --- ---- ----- ---- ----
Balance, December 31, 1996.......... 321,200 2 206 -- -- 208
Sale of common shares to
employees......................... 8,350 22 22
Treasury shares purchased from
employees......................... 6,700 (14) (14)
Net loss............................ (140) (140)
------- --- ---- ----- ---- ----
Balance, December 31, 1997.......... 329,550 24 66 6,700 (14) 76
Sale of common shares to employees
(unaudited)....................... 2,350 4 4
Net loss (unaudited)................ (139) (139)
------- --- ---- ----- ---- ----
Balance, March 31, 1998
(unaudited)....................... 331,900 $28 $(73) 6,700 $(14) $(59)
======= === ==== ===== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 79
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- --------------------------
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 206 $ (140) $ (49) $ (139)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation.................................. 27 74 18 19
Deferred taxes................................ -- (16) (29) (83)
Change in assets and liabilities:
Accounts receivable......................... (763) (882) (254) (661)
Other assets................................ (1) (19) 2 (18)
Accounts payable............................ (4) 406 314 565
Accrued payroll, taxes and benefits......... 588 743 80 (541)
Income taxes payable........................ 48 (48) (48) --
Other liabilities........................... -- 1 -- (1)
----- ------- ----- -------
Net cash provided by (used in) operating
activities............................. 101 119 34 (859)
----- ------- ----- -------
Cash flows from investing activities:
Purchase of property and equipment............... (59) (303) (56) (23)
----- ------- ----- -------
Net cash used in investing activities.... (59) (303) (56) (23)
----- ------- ----- -------
Cash flows from financing activities:
Proceeds from line of credit..................... -- 5,079 350 1,868
Payments on line of credit....................... -- (4,781) (350) (1,166)
Purchase of common stock......................... -- (14) -- --
Proceeds from sale of common stock............... -- 22 -- 4
Dividends paid................................... (53) -- -- --
----- ------- ----- -------
Net cash (used in) provided by financing
activities............................. (53) 306 -- 706
----- ------- ----- -------
Net (decrease) increase in cash.................... (11) 122 (22) (176)
Cash, at beginning of period....................... 65 54 54 176
----- ------- ----- -------
Cash, at end of period............................. $ 54 $ 176 $ 32 $ --
===== ======= ===== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest...................................... $ -- $ 26 $ 16 $ 4
===== ======= ===== =======
Taxes......................................... $ 57 $ 5 $ 48 $ --
===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 80
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 are Unaudited)
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Kelly-Levey & Associates, Inc. ("KLA") is a Kentucky-based provider of
Enterprise Resource Planning implementation services. KLA provides services to
clients predominately in the United States. Substantially all of KLA's revenues
are derived from services provided as a contractor or a subcontractor to
Electronic Data Systems Corporation ("EDS") and its affiliates for the years
ended December 31, 1996 and 1997 and for the three months ended March 31, 1997
and 1998.
Interim Unaudited Financial Information
The interim statements of operations, shareholders' equity (deficit) and
cash flows of KLA for the three month periods ended March 31, 1997 and 1998 have
been prepared without audit. These interim financial statements reflect all
normal and recurring adjustments, which in the opinion of KLA management, are
necessary for a fair presentation of the financial position of KLA and its
results of operations for the interim periods set forth herein. The results for
the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
Revenue Recognition
Revenues are recognized as services are performed. Accounts receivable
includes services performed but not yet billed of $354 and $43 as of December
31, 1996 and 1997, respectively, and $332 as of March 31, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding receivables.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
Depreciation is provided using accelerated and straight-line methods over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5 years
Equipment......................................... 3 years
</TABLE>
F-22
<PAGE> 81
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of KLA's assets
and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws. Valuation allowances have been established when
necessary to reduce tax assets to the amount expected to be realized.
Fair Value of Financial Instruments
KLA's financial instruments consist principally of cash, accounts
receivable, accounts payable, accrued expenses and other liabilities, a line of
credit and long-term debt. The fair value of these financial instruments
approximates their carrying value.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------ MARCH 31,
1996 1997 1998
<S> <C> <C> <C>
Furniture and fixtures..................................... $11 $ 32 $ 32
Equipment.................................................. 53 334 357
--- ---- ----
64 366 389
Less: accumulated depreciation............................. 31 104 123
--- ---- ----
Property and equipment, net................................ $33 $262 $266
=== ==== ====
</TABLE>
3. LINE OF CREDIT
As of March 31, 1998, KLA had a $1,000 bank line of credit. Interest was
payable monthly at the lending bank's prime rate (8.5% at December 31, 1997 and
March 31, 1998), plus 0.75%. Borrowings under the line of credit were due on
demand, were personally guaranteed by the shareholders and were collateralized
by substantially all assets of KLA. The line of credit contained restrictive
terms and covenants which imposed certain maintenance of asset requirements.
This line of credit was repaid and cancelled (See Note 8).
4. INCOME TAXES
The provision for (benefit from) income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE THREE
ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------- --------------
1996 1997 1997 1998
<S> <C> <C> <C> <C>
Current:
Federal.............................................. $126 $(39) $ -- $ --
State and Local...................................... 27 (9) -- --
---- ---- ---- ----
153 (48) -- --
Deferred............................................... -- (16) (28) (83)
---- ---- ---- ----
$153 $(64) $(28) $(83)
==== ==== ==== ====
</TABLE>
KLA estimates the effective income tax rate quarterly using annualized
estimated financial data. The estimated effective income tax rate for the three
months ended March 31, 1997 and 1998 was 37.3% and 32.6%,
F-23
<PAGE> 82
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively. A reconciliation of the provision for (benefit from) income taxes
at the federal statutory rate to that included in the Statements of Operations
is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
--------------
1996 1997
<S> <C> <C>
Tax (benefit) at federal statutory rate..................... 34.0% (34.0)%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit................ 4.9 (4.5)
Meals and entertainment................................... 3.6 5.6
Other..................................................... .2 1.4
---- ------
42.7% (31.5)%
==== ======
</TABLE>
The components of deferred tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------ MARCH 31,
1996 1997 1998
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $-- $-- $50
Operating loss carryforwards.............................. -- 15 48
Other..................................................... -- 1 1
-- --- ---
Deferred tax assets............................... $-- $16 $99
== === ===
</TABLE>
Operating loss carryforwards are available through December 2017.
5. PROFIT SHARING AND 401(K) SAVINGS PLAN
KLA maintains a qualified cash or deferred compensation plan under section
401(k) of the Internal Revenue Code that covers substantially all the employees
of KLA. Under the Plan, KLA may make a matching contribution as well as a
discretionary contribution. KLA's contributions totaled $46 and $344 for the
years ended December 31, 1996 and 1997, respectively, and $75 for the three
months ended March 31, 1997. No contributions were made during the three months
ended March 31, 1998.
6. COMMITMENTS AND CONTINGENCIES
As of March 31, 1998, KLA leased office space and certain equipment under
various noncancelable operating leases. Lease expense for the years ended
December 31, 1996 and 1997 was $8 and $38, respectively, and for the three
months ended March 31, 1997 and 1998 was $6 and $14, respectively. Future
minimum lease payments required under all operating leases are as follows:
<TABLE>
<S> <C>
1998 (9 months)................................. $ 71
1999............................................ 68
2000............................................ 55
2001............................................ 18
--------
$ 212
========
</TABLE>
7. SUBSEQUENT EVENT
On April 8, 1998, Conley, Canitano & Associates, Inc. purchased all of the
capital stock of KLA.
F-24
<PAGE> 83
- ------------------------------------------------------------
- ------------------------------------------------------------
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 OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 5
Risk Factors.............................. 8
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Financial Data................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 21
Business.................................. 29
Management................................ 40
Certain Transactions...................... 44
Principal and Selling Shareholders........ 46
Description of Capital Stock.............. 47
Shares Eligible for Future Sale........... 51
Underwriting.............................. 53
Legal Matters............................. 54
Experts................................... 54
Additional Information.................... 54
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
5,000,000 SHARES
CCAI LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
MCDONALD INVESTMENTS INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of estimated expenses to be incurred by the Company
in connection with the issuance and distribution of the Common Shares being
registered hereby.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 18,376
NASD filing fee............................................. 6,729
NASDAQ National Market listing fee.......................... 2,000
Printing engraving, postage and mailing costs............... 275,000
Accounting fees and expenses................................ 454,000
Legal fees and expenses..................................... 362,000
Transfer agent fees and expenses............................ 5,000
Miscellaneous expenses...................................... 126,895
----------
Total............................................. $1,250,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Code of Regulations, consistent with that permitted by the General
Corporation Law of the State of Ohio, as the same may be amended from time to
time, contains provisions eliminating a director's personal liability for
monetary damages resulting from certain breaches of fiduciary duty. These
provisions do not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief, such as an injunction or recision, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
Section 1701.13(E) of the Ohio Revised Code provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any person who was
or is a party or is threatened to be made a party, to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, member, manager, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
limited liability company, or a partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgement, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of it self, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit or for
profit, limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, if he
II-1
<PAGE> 85
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to
the corporation unless, and only to the extent that, the court of common
pleas or the court in which such action or suit was brought determines,
upon application, that, despite the adjudication of liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common pleas or
such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the Securities Action, suit, or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, member, manager, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
division (E)(1) or (2) of this section. Such determination shall be made as
follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened
with any such action, suit, or proceeding referred to in division (E)(1) or
(2) of this section;
(b) If the quorum described in division (E)(4) (a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors
so directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation or any person
to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the Securities
Action, suit, or proceeding referred to in division (E)(1) or (2) of this
section was brought.
Any determination made by the disinterested directors under division (E)(4)
(a) or by independent legal counsel under division (E)(4)(b) of this section
shall be promptly communicated to the person who threatened or brought the
Securities Action or suit by or in the right of the corporation under division
(E)(2) of this section, and within ten days after receipt of such notification,
such person shall have the right to petition the court of common pleas or the
court in which such action or suit was brought to review the reasonableness of
such determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding refereed to in division (E)(1) or (2)
of this section, the articles or the regulations of a corporation state, by
specific reference to this division, that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
Securities Action, suit, or proceeding shall be paid by the corporation as they
are incurred, in advance of the final disposition of the Securities Action,
suit, or proceeding upon receipt of an undertaking by or on behalf of the
director in which be agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing evidence
in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause
injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
Securities Action, suit, or proceeding.
II-2
<PAGE> 86
(b) Expenses, including attorney's fees, incurred by a director, trustee,
officer, employee, member, manager, or agent in defending any action, suit, or
proceeding referred to in division (E)(1) or (2) of this section, may be paid by
the corporation as they are incurred, in advance of the final disposition of the
Securities Action, suit, or proceeding, as authorized by the directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee, member, manager, or agent to repay such amount, if
it ultimately is determined that he is not entitled to be indemnified by the
corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to any other rights granted to those seeking
indemnification under the articles or the regulations, any agreement, a vote of
shareholders or disinterested directors, or otherwise, both as to action in
their official capacities and as to action in another capacity while holding
their offices or positions, and shall continue as to a person who has ceased to
be a director, trustee, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, trust funds, letters of credit, or
self-insurance, on behalf of or for any person who is or was a director,
officer, employee, member, manager, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
this section. Insurance may be purchased from or maintained with a person in
which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of expenses as
they are incurred, indemnification, insurance, or other protection that may be
provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions
(E) (1) and (2) of this section do not create any obligation to repay or return
payments made by the corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee, member, manager, or agent of such a constituent entities, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee, trustee, member, manager, or agent of another corporation,
domestic or foreign, nonprofit or for profit, limited liability company, or
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
would if he had served the new or surviving corporation in the same capacity.
Prior to the consummation of the Offering, the Company anticipates it will
obtain directors' and officers' liability insurance that covers certain
liabilities and expenses of the Company's directors and officers.
In addition, Section 30 of the Code of Regulations provides that expenses
incurred in defending a civil, criminal or administrative action, suit or
proceeding will be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company, which were not registered under the
Securities Act, have been issued or sold by the Company within the past three
years, except as follows:
(a) On October 15, 1997 the Company sold to TA Investors 243,246
shares of Convertible Preferred Stock for an aggregate purchase price of
approximately $17 million, and 1,311,430 shares of Common Stock for an
aggregate purchase price of approximately $1,311. These transactions were
undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the
Securities Act.
(b) On October 15, 1997 the Company sold to McDonald Investors 7,154
shares of Convertible Preferred Stock for an aggregate purchase price of
approximately $500,000, and 38,570 shares of Common
II-3
<PAGE> 87
Stock for an aggregate purchase price of approximately $38. These
transactions were undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(c) Pursuant to the terms of the 1998 Warrant Agreements, on April 3,
1998 the Company granted the Warrant Holders the right to purchase an
aggregate of 195,264 shares of Common Stock at an exercise price of $0.001
per share. Upon consummation of the Offering, the KLA Warrants will be
exercisable. These transactions were undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(d) Pursuant to the terms of the Option Agreements , on April 3, 1998
the Company granted employees of the Company previously employed by KLA
options to purchase an aggregate of 64,700 shares of Common Stock at an
exercise price of $0.001 per share. Upon the consummation of the Offering,
the KLA Options will be exercisable. These transactions were undertaken in
reliance upon the exemption from the registration requirements of the
Securities Act afforded by Rule 701 promulgated under the Securities Act.
(e) On May 11, 1998, the Company issued Paul A. Farmer 76,950 shares
of restricted Common Stock under the 1997 Equity and Performance Plan. On
each anniversary of the grant date, one third of Mr. Farmer's restricted
stock will vest. Mr. Farmer paid the purchase price for the restricted
stock by executing and delivering to the Company a promissory note in the
principal amount of $359,356. The note is due and payable on June 30, 2004,
and accrues interest on unpaid principal at 6% per annum until paid in
full. These transactions were undertaken in reliance upon the exemption
from the registration requirements of the Securities Act afforded by Rule
701 promulgated under the Securities Act.
(f) On May 11, 1998, the Company granted options to purchase 320,200
shares of Common Stock under the 1997 Equity and Performance Plan. These
options vest 20% each year over a five-year period. These transactions were
undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Rule 701 promulgated under
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1** Form of Underwriting Agreement between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc., BancBoston Robertson Stephens and McDonald
Investments Inc.
3.1** Second Amended and Restated Articles of Incorporation of the
Company.
3.2* Amended and Restated Code of Regulations of the Company.
5** Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1* Employment Agreement, dated April 3, 1998, between the
Company and Ronnie Crumpler.
10.2* Employment Agreement, dated April 3, 1998, between the
Company and Gary Levey.
10.3* Form of Employment Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.4* Noncompetition Agreement, dated April 3, 1998, between the
Company and Anthony Kelly.
10.5* Employment Agreement, dated April 23, 1998, between the
Company and Paul A. Farmer.
10.6* Restricted Stock Agreement, dated May 11, 1998, between the
Company and Paul A. Farmer.
10.7* Form of Warrant Agreement, between the Company and Ronnie
Crumpler.
10.8* Form of Warrant Agreement, between the Company and Gary
Levey.
10.9* Form of Warrant Agreement, between the Company and Anthony
Kelly.
10.10* Warrant Escrow Agreement, dated April 3, 1998, among the
Company and Ronnie Crumpler, Gary Levey and Anthony Kelly.
</TABLE>
II-4
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.11* Form of Option Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.12* Kelly-Levey & Assoc., Inc. Retention Incentive Bonus Plan,
dated April 3, 1998.
10.13* Form of Retention Incentive Bonus Plan Agreement 1998, among
certain former employees, Kelly-Levey & Assoc., Inc. and the
Company.
10.14* Retention Incentive Bonus Plan Escrow Agreement, dated April
3, 1998, among the Company and Kelly-Levey & Assoc., Inc,
Burke & Company, P.L.L. (as representative of the
shareholders), Anthony Kelly, Gary Levey, Ronnie Crumpler,
Trevor Montgomery, Rob Petersen and Don Kirby.
10.15* Earnout Agreement, dated April 3, 1998, among the Company,
Kelly-Levey & Assoc., Inc., Anthony Kelly, Gary Levey and
Ronnie Crumpler.
10.16 Earnout Escrow Agreement as amended, dated April 3, 1998,
among the Company, Kelly-Levey & Assoc., Burke & Company,
P.L.L. (as representative of the shareholders), Anthony
Kelly, Gary Levey and Ronnie Crumpler.
10.17* 1997 Stock Purchase and Shareholders Agreement, dated
October 15, 1997, among the Company, Annette M. Canitano,
Nicholas A. Canitano, Karen M. Conley, Kenneth L. Conley,
NAC Enterprises, Inc., CKCK Enterprises, Inc., Kenneth L.
Conley Charitable Remainder Trust, Karen M. Conley
Charitable Remainder Trust, TA/Advent VIII L.P., Advent
Atlantic and Pacific III L.P., TA Venture Investors Limited
Partnership, Kenneth T. Schiciano, A. Bruce Johnston,
McDonald & Company Securities, Inc., McD Venture Capital
Fund, L.P. and GHK Investments, L.L.C.
10.18* Form of the Company's Incentive Stock Option Agreement.
10.19 Amended and Restated Share Redemption and Purchase
Agreement, dated July 1, 1997, among the Company, Karen M.
Conley, Nicholas A. Canitano, Annette Canitano and Joseph
Minadeo.
10.20* Agreement, dated October 15, 1997, among the Company,
Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley,
Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises,
Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M.
Conley Charitable Remainder Trust, TA/Advent VIII, L.P.,
Advent Atlantic and Pacific L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce
Johnston, McDonald & Company Securities, Inc., McD Venture
Capital Fund, L.P., GHK Investments, L.L.C. and Joseph
Minadeo.
10.21* Stock Redemption Agreement, dated October 15, 1997, between
the Company and NAC Enterprises, Inc.
10.22* Stock Redemption Agreement, dated October 15, 1997, between
the Company and CKCK Enterprises, Inc.
10.23* Stock Redemption Agreement, dated October 15, 1997, between
the Company and Kenneth L. Conley Charitable Remainder
Trust.
10.24* Stock Redemption Agreement, dated October 15, 1997, between
the Company and Karen M. Conley Charitable Remainder Trust.
10.25* The Company's 1997 Equity and Performance Incentive Plan,
dated October 15, 1997.
10.26* First Amendment to the Company's Equity and Performance
Incentive Plan, dated July 21, 1998.
10.27 The Company's Amended and Restated 401(k) Plan and Trust,
dated December 2, 1996.
10.28 First Amendment to the Company's 401(k) Plan and Trust,
dated December 18, 1997.
10.29 Amendment No. 2 to the Company's 401(k) Plan and Trust,
dated May 29, 1998.
10.30 The Company's Employee Stock Purchase Plan, dated December
[21], 1998.
10.31* Loan Agreement, dated April 7, 1998, between the Company and
Fleet National Bank.
10.32 Lease Agreement, as amended, dated January 3, 1997, between
the Company and Place Renaissance, Ltd.
</TABLE>
II-5
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.33* R-3 National Implementation Partner Agreement, dated April
2, 1996, between the Company and SAP America, Inc.
10.34 Oracle Alliance Agreement, dated March 4, 1998, between the
Company and Oracle Corporation.
10.35* Form of Indemnification Agreement for directors and
officers.
10.36 Amendment to Amended and Restated Share Redemption and
Purchase Agreement, dated October 13, 1997, among the
Company, Karen M. Conley, Nicholas A. Canitano, Annette M.
Canitano and Joseph Minadeo.
10.37 Second Amendment to the Company's 1997 Equity and
Performance Incentive Plan, dated December [21], 1998.
11** Statement regarding computation of per share earnings.
23.1** Consent of Jones, Day, Reavis & Pogue (included with Exhibit
5).
23.2 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney.
27** Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the financial statements
or notes thereto appearing elsewhere in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the Closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of
Cleveland, State of Ohio, on December 23, 1998.
CONLEY, CANITANO & ASSOCIATES, INC.
By: /s/ PAUL A. FARMER*
------------------------------------
Paul A. Farmer
Chief Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 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> <S> <C>
* President, Chief Operating Officer December 23, 1998
- --------------------------------------------- and Director
Kenneth L. Conley
/s/ PAUL A. FARMER Chief Financial Officer and Vice December 23, 1998
- --------------------------------------------- President (Principal Accounting and
Paul A. Farmer Financial Officer)
* Executive Vice President, Treasurer December 23, 1998
- --------------------------------------------- and Director
Karen M. Conley
* Executive Vice President, Secretary December 23, 1998
- --------------------------------------------- and Director
Annette M. Canitano
* Chief Executive Officer, Chairman December 23, 1998
- --------------------------------------------- of the Board and Director
Nicholas A. Canitano (Principal Executive Officer)
/s/ KENNETH T. SCHICIANO Director December 23, 1998
- ---------------------------------------------
Kenneth T. Schiciano
/s/ A. BRUCE JOHNSTON Director December 23, 1998
- ---------------------------------------------
A. Bruce Johnston
* Director December 23, 1998
- ---------------------------------------------
Ivan J. Winfield
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Amendment No. 2 to the Registration Statement pursuant to the Powers of
Attorney executed by the above-named officers and directors of the Company and
which have been filed with the Securities and Exchange Commission on behalf of
such officers and directors.
By: /s/ PAUL A. FARMER
---------------------------------------------------------
Paul A. Farmer
as Attorney-in-Fact
II-7
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<C> <S> <C>
1** Form of Underwriting Agreement between the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, Lehman Brothers Inc., BancBoston Robertson Stephens and McDonald Investments Inc.
3.1** Second Amended and Restated Articles of Incorporation of the Company.
3.2* Amended and Restated Code of Regulations of the Company.
5** Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being offered.
10.1* Employment Agreement, dated April 3, 1998, between the Company and Ronnie Crumpler.
10.2* Employment Agreement, dated April 3, 1998, between the Company and Gary Levey.
10.3* Form of Employment Agreement, among the Company and certain employees previously employed by
Kelly-Levey & Assoc., Inc.
10.4* Noncompetition Agreement, dated April 3, 1998, between the Company and Anthony Kelly.
10.5* Employment Agreement, dated April 23, 1998, between the Company and Paul A. Farmer.
10.6* Restricted Stock Agreement, dated May 11, 1998, between the Company and Paul A. Farmer.
10.7* Form of Warrant Agreement, between the Company and Ronnie Crumpler.
10.8* Form of Warrant Agreement, between the Company and Gary Levey.
10.9* Form of Warrant Agreement, between the Company and Anthony Kelly.
10.10* Warrant Escrow Agreement, dated April 3, 1998, among the Company and Ronnie Crumpler, Gary Levey
and Anthony Kelly.
10.11* Form of Option Agreement, among the Company and certain employees previously employed by
Kelly-Levey & Assoc., Inc.
10.12* Kelly-Levey & Assoc., Inc. Retention Incentive Bonus Plan, dated April 3, 1998.
10.13* Form of Retention Incentive Bonus Plan Agreement 1998, among certain former employees, Kelly-Levey
& Assoc., Inc. and the Company.
10.14* Retention Incentive Bonus Plan Escrow Agreement, dated April 3, 1998, among the Company and
Kelly-Levey & Assoc., Inc, Burke & Company, P.L.L. (as representative of the shareholders),
Anthony Kelly, Gary Levey, Ronnie Crumpler, Trevor Montgomery, Rob Petersen and Don Kirby.
10.15* Earnout Agreement, dated April 3, 1998, among the Company, Kelly-Levey & Assoc., Inc., Anthony
Kelly, Gary Levey and Ronnie Crumpler.
10.16 Earnout Escrow Agreement as amended, dated April 3, 1998, among the Company, Kelly-Levey & Assoc.,
Burke & Company, P.L.L. (as representative of the shareholders), Anthony Kelly, Gary Levey and
Ronnie Crumpler.
10.17* 1997 Stock Purchase and Shareholders Agreement, dated October 15, 1997, among the Company, Annette
M. Canitano, Nicholas A. Canitano, Karen M. Conley, Kenneth L. Conley, NAC Enterprises, Inc., CKCK
Enterprises, Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M. Conley Charitable
Remainder Trust, TA/Advent VIII L.P., Advent Atlantic and Pacific III L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce Johnston, McDonald & Company Securities, Inc.,
McD Venture Capital Fund, L.P. and GHK Investments, L.L.C.
10.18* Form of the Company's Incentive Stock Option Agreement.
10.19 Amended and Restated Share Redemption and Purchase Agreement, dated July 1, 1997, among the
Company, Karen M. Conley, Nicholas A. Canitano, Annette Canitano and Joseph Minadeo.
</TABLE>
<PAGE> 92
EXHIBIT INDEX -- CONTINUED
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<C> <S> <C>
10.20* Agreement, dated October 15, 1997, among the Company, Annette M. Canitano, Nicholas A. Canitano,
Karen M. Conley, Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises, Inc., Kenneth L.
Conley Charitable Remainder Trust, Karen M. Conley Charitable Remainder Trust, TA/Advent VIII,
L.P., Advent Atlantic and Pacific L.P., TA Venture Investors Limited Partnership, Kenneth T.
Schiciano, A. Bruce Johnston, McDonald & Company Securities, Inc., McD Venture Capital Fund, L.P.,
GHK Investments, L.L.C. and Joseph Minadeo.
10.21* Stock Redemption Agreement, dated October 15, 1997, between the Company and NAC Enterprises, Inc.
10.22* Stock Redemption Agreement, dated October 15, 1997, between the Company and CKCK Enterprises, Inc.
10.23* Stock Redemption Agreement, dated October 15, 1997, between the Company and Kenneth L. Conley
Charitable Remainder Trust.
10.24* Stock Redemption Agreement, dated October 15, 1997, between the Company and Karen M. Conley
Charitable Remainder Trust.
10.25* The Company's 1997 Equity and Performance Incentive Plan, dated October 15, 1997.
10.26* First Amendment to the Company's Equity and Performance Incentive Plan, dated July 21, 1998.
10.27 The Company's Amended and Restated 401(k) Plan and Trust, dated December 2, 1996.
10.28 First Amendment to the Company's 401(k) Plan and Trust, dated December 18, 1997.
10.29 Amendment No. 2 to the Company's 401(k) Plan and Trust, dated May 29, 1998.
10.30 The Company's Employee Stock Purchase Plan, dated December [21], 1998.
10.31* Loan Agreement, dated April 7, 1998, between the Company and Fleet National Bank.
10.32 Lease Agreement, as amended dated January 3, 1997, between the Company and Place Renaissance, Ltd.
10.33* R-3 National Implementation Partner Agreement, dated April 2, 1996, between the Company and SAP
America, Inc.
10.34 Oracle Alliance Agreement, dated March 4, 1998, between the Company and Oracle Corporation.
10.35* Form of Indemnification Agreement for directors and officers.
10.36 Amendment to Amended and Restated Share Redemption and Purchase Agreement, dated October 13, 1997,
among the Company, Karen M. Conley, Nicholas A. Canitano, Annette M. Canitano and Joseph Minadeo.
10.37 Second Amendment to the Company's 1997 Equity and Performance Incentive Plan, dated December [21],
1998.
11** Statement regarding computation of per share earnings.
23.1** Consent of Jones, Day, Reavis & Pogue (included with Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP.
24 Powers of Attorney.
27** Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
Exhibit 10.16
EARNOUT ESCROW AGREEMENT
------------------------
EARNOUT ESCROW AGREEMENT ("Escrow Agreement") made as of April 3, 1998,
by and among Conley, Canitano & Assoc., Inc., an Ohio corporation ("CCAi"),
Kelly-Levey & Associates, Inc., a Kentucky corporation (the "Company"), Burke &
Company, P.L.L. (the "Shareholders' Representative") and Anthony F. Kelly,
Ronnie Crumpler and Gary Levey (the "Controlling Shareholders").
RECITALS
WHEREAS, CCAi, the Company and the Controlling Shareholders are parties
to the Stock Purchase Agreement dated as of April 3, 1998 (the "Purchase
Agreement") and CCAi and the shareholders of the Company other than the
Controlling Shareholders (the "Minority Shareholders") are parties to Minority
Share Purchase Agreements dated as of April 3, 1998 (the "Minority Share
Purchase Agreements") (the Purchase Agreement and the Minority Share Purchase
Agreements collectively referred to as the "Purchase Agreement") pursuant to
which CCAi acquired all of the capital stock of the Company from the
shareholders of the Company;
WHEREAS, pursuant to the terms of the Purchase Agreement, an additional
sum not to exceed One Million One Hundred Twenty Six Thousand Five Hundred
Thirty Four Dollars ($1,126,534) (the "Kelly Earnout Consideration") is payable
to Anthony F. Kelly ("Kelly") subject to Kelly complying with his Non-Compete
Agreement;
WHEREAS, pursuant to the terms of the Purchase Agreement, an additional
sum not to exceed Three Million Three Hundred Seventy Three Thousand Four
Hundred Sixty Six Dollars ($3,373,466) (the "Shareholders Earnout
Consideration") is payable to the shareholders of the Company other than Anthony
F. Kelly (collectively the "Shareholders") if certain target financial
objectives are met (the Kelly Earnout Consideration and the Shareholders Earnout
Consideration are collectively referred to as the "Earnout Consideration");
WHEREAS, CCAi, the Company and the Controlling Shareholders entered
into that certain Earnout Agreement dated as of April 3, 1998 (the "Earnout
Agreement") whereby the parties thereto defined the target financial objectives
and contingencies which will result in the distribution of the Earnout
Consideration to the Shareholders and Kelly;
WHEREAS, each of the Minority Shareholders agreed to be bound by the
terms and conditions of the Earnout Agreement; and
WHEREAS, the Earnout Consideration is to be deposited with the
Shareholders' Representative and distributed as provided in this Escrow
Agreement; and
WHEREAS, the parties to this Escrow Agreement have agreed upon and
desire to set forth the terms and conditions with respect to the Earnout
Consideration to be distributed to the Shareholders and Kelly.
<PAGE> 2
2
NOW THEREFORE, the parties agree as follows:
1. SHAREHOLDERS' REPRESENTATIVE. CCAi, the Company and the Controlling
Shareholders hereby designate and appoint the Shareholders' Representative to
serve in accordance with the terms, conditions and provisions of this Escrow
Agreement, and the Shareholders' Representative hereby agrees to act as such
upon the terms, conditions and provisions provided in this Escrow Agreement.
2. DEPOSITS OF FUNDS. Funds attributable to the Earnout Consideration
(the "Earnout Deposits") shall be paid to the Shareholders' Representative to be
distributed to the Shareholders and Kelly at such times and in such amounts as
set forth in the Earnout Agreement. The payment of the Earnout Deposits by CCAi
to the Shareholders' Representative under this Escrow Agreement shall constitute
payments to each of the Shareholders and Kelly under the Purchase Agreement,
each of the Minority Share Purchase Agreements and the Earnout Agreement.
3. EARNOUT CONSIDERATION. Earnout Deposits shall be distributed to the
Shareholders and Kelly by the Shareholders' Representative as soon as
practicable after being deposited as provided in this Escrow Agreement, but in
no event later than thirty (30) days after such Earnout Deposits are deposited
in this Escrow. Kelly and each Shareholder shall receive his or her
proportionate share of such Earnout Deposit as set forth on EXHIBIT A; PROVIDED,
HOWEVER, if a Termination Event (as defined in the Earnout Agreement) shall have
occurred with respect to any Shareholder other than Kelly (the "Terminated
Shareholder"), then such Terminated Shareholder shall not be entitled to receive
any Earnout Deposits earned after the date of such Termination Event. In such
event, each remaining Shareholder (other than Kelly) shall receive pro rata in
accordance with his or her ownership interest in the Company immediately prior
to the closing of the transactions contemplated by the Purchase Agreement as
among themselves that amount of the Earnout Deposit that would have been due the
Terminated Shareholder. The parties acknowledge that disbursements by the
Shareholders' Representative hereunder shall be made (i) to the Shareholders and
Kelly individually and (ii) into an escrow account established for purposes of
distributing funds due to former employees of the Company under the Company's
Retention Incentive Bonus Plan, all in accordance with EXHIBIT A.
4. RESPONSIBILITIES OF THE SHAREHOLDERS' REPRESENTATIVE. The
Shareholders' Representative shall have no duties or responsibilities except
those expressly set forth herein. The Shareholders' Representative shall have no
responsibility or liability for the truth, accuracy or validity of any
agreements referred to in this Escrow Agreement (including, without limitation,
EXHIBIT A and the Earnout Agreement), or for the performance of any such
agreements by any party thereto or for interpretation of any of the provisions
of any of such agreements. The Shareholders' Representative shall not be liable
for any action or determination taken or made in good faith with respect to this
Escrow Agreement or any other agreements referenced herein. The liability of the
Shareholders' Representative hereunder shall be limited solely to bad faith,
willful misconduct or gross negligence on its part. The Shareholders'
Representative shall be protected in acting upon any certificate, notice or
other instrument whatsoever received by the Shareholders' Representative under
this Escrow Agreement, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information therein contained, which the
<PAGE> 3
3
Shareholders' Representative in good faith believes to be genuine and to have
been signed or presented by a proper person or persons.
If the Shareholders' Representative is uncertain as to its duties or
rights hereunder or receives instructions with respect to any funds to be
distributed pursuant to this Escrow Agreement which, in the opinion of the
Shareholders' Representative and its counsel, are in conflict with any of the
provisions of this Escrow Agreement, the Shareholders' Representative shall be
entitled to refrain from taking any action until it is directed otherwise in
writing by all of the other parties hereto or by an order of a court of
competent jurisdiction. The Shareholders' Representative shall be deemed to have
no notice of, or duties with respect to, any agreement or agreements with
respect to any property held by it in escrow pursuant to this Escrow Agreement
other than this Escrow Agreement or except as otherwise provided herein. This
Escrow Agreement sets forth the entire agreement relating to the matters set
forth herein between the parties hereto and the Shareholders' Representative. If
any of the terms and provisions of any other agreement (excluding any amendment
to this Escrow Agreement) between any of the parties hereto conflict or are
inconsistent with any of the terms and provisions of this Escrow Agreement, the
terms and provisions of this Escrow Agreement shall govern and control in all
respects.
5. RESIGNATION. The Shareholders' Representative shall have the right,
in its discretion, to resign as agent at any time, by giving at least 30 days'
prior written notice of such resignation to CCAi and the Company. The
Shareholders' Representative shall be discharged from all further duties
hereunder upon the expiration of such 30-day period provided, however, that
during such 30-day period, the Shareholders must appoint a successor
representative.
6. FEES AND EXPENSES. The Controlling Shareholders shall be liable for
the Shareholders' Representative's fees and expenses for its services hereunder.
For services rendered under this Escrow Agreement, the Controlling Shareholders
shall pay the Shareholders' Representative a fee of $_____.
7. NOTICES. All communications and disbursements required pursuant to
this Earnout Escrow Agreement shall be addressed to the Shareholders, CCAi, the
Company and the Controlling Shareholders respectively as follows:
<PAGE> 4
4
If to the Shareholders' Representative:
Burke & Company P.L.L.
2105 Grandin Road
Cincinnati, Ohio 45208
Attention: Pat Burke
If to CCAi or Company:
Conley, Canitano & Assoc., Inc.
CCAi Renaissance Centre
5800 Landerbrook Drive
Mayfield Heights, OH 44124
Facsimile No. (440) 684-6700
Attention: Nicholas A. Canitano
With a copy to counsel:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Facsimile No.: (216) 579-0212
Attention: John M. Saada, Jr., Esq.
If to Anthony F. Kelly:
Anthony F. Kelly
787 Gallant Fox
Union, Kentucky 41091
With a copy to counsel:
Deters, Benzinger & LaVelle, P.S.C.
Thomas More Park
2701 Turkeyfoot Road
Covington, Kentucky 41017
Attention: John C. LaVelle, Esq.
<PAGE> 5
5
If to Ronnie Crumpler:
Ronnie Crumpler
2720 Lakeshore Lane
Carrollton, Texas 75006
With a copy to counsel:
Thompson, Coe, Cousins & Irons, L.L.P.
200 Crescent Court, Eleventh Floor
Dallas, Texas 75201-1853
Attention: Michael A. McClelland, Esq.
If to Gary Levey:
Gary Levey
11424 Kayak Court
Indianapolis, Indiana 46236
With a copy to counsel:
Siegel, Carter & Dassow, LLP
300 North Meridian Street
Suite 1800
Indianapolis, Indiana 46204
Attention: Robert T. Dassow, Esq.
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
Any notice, instructions or delivery under any of the provisions of
this Escrow Agreement shall be in writing and shall be delivered personally, or
sent by reputable courier service, delivery charges prepaid and proof of
delivery requested. Any such notice shall be deemed given (i) if delivered
personally, when so delivered to the applicable address set forth above in this
paragraph 7 or (ii) if sent by courier service to the applicable address set
forth above in this paragraph 7, two days after delivery to such courier
service. Notwithstanding any of the foregoing, no notice or instructions to the
Shareholders' Representative shall be deemed to have been received by the
Shareholders' Representative prior to actual receipt by the Shareholders'
Representative.
8. PARTIES IN INTEREST. This Escrow Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, and administrators, successors and assigns.
9. CAPTIONS. The paragraph captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Escrow Agreement.
<PAGE> 6
6
10. INDEMNIFICATION OF SHAREHOLDERS' REPRESENTATIVE. The Controlling
Shareholders, jointly and severally, agree to hold the Shareholders'
Representative harmless and to indemnify the Shareholders' Representative
against any loss, liability, claim or demand arising out of or in connection
with the performance of its obligations in accordance with the provisions of
this Escrow Agreement, except for bad faith, gross negligence or willful
misconduct of the Shareholders' Representative. The foregoing indemnities in
this paragraph 10 shall survive termination of this Escrow Agreement.
11. DISAGREEMENTS. If any disagreement or dispute arises between the
parties to this Escrow Agreement concerning the meaning or validity of any
provision under this Escrow Agreement or concerning any other matter relating to
this Escrow Agreement, the Shareholders' Representative (a) shall be under no
obligation to act, except under process or order of court, or until it has been
adequately indemnified to its full satisfaction, and shall sustain no liability
for its failure to act pending such process or court order or indemnification,
and (b) may deposit, in its sole and absolute discretion, the Earnout Deposits
or that portion of the Earnout Deposits it then holds with any court of
competent jurisdiction and interplead the parties. Upon such deposit and filing
of interpleader, the Shareholders' Representative shall be relieved of all
liability as to the Earnout Deposits and shall be entitled to recover from the
parties its reasonable attorneys' fees and other costs incurred in commencing
and maintaining such action.
12. THIRD-PARTY BENEFICIARIES. The Shareholders and their respective
successors, heirs, executors, administrators and other estate representatives
shall be third party beneficiaries of the provisions of this Escrow Agreement,
and shall be entitled to enforce the provisions hereof, in each such case as
fully and to the same extent as if they were parties to this Escrow Agreement.
Except as provided in the immediately preceding sentence, nothing in this Escrow
Agreement, express or implied, is intended to or shall confer upon any person
any legal or equitable right, benefit or remedy of any nature whatsoever under
or by reason of this Escrow Agreement, and no Person (other than as provided in
the immediately preceding sentence) shall be deemed to be a third party
beneficiary under or by reason of this Escrow Agreement.
13. GOVERNING LAW. This Escrow Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Ohio without
giving effect to any choice of law or conflict of law provision or rule (whether
of the state of Ohio or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the state of Ohio.
14. AMENDMENTS; COUNTERPARTS. This Escrow Agreement may be executed in
one or more counterparts, all of which together shall constitute one instrument
and cannot be amended or modified in any manner other than by a written
instrument duly executed by each party hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGE TO FOLLOW.]
<PAGE> 7
7
IN WITNESS WHEREOF, the parties hereunto have duly caused this Escrow
Agreement to be executed as of the first day above written.
BURKE & COMPANY, P.L.L.,
as Shareholders' Representative
By: /s/ Patrick Burke
--------------------------------
Its: Managing Partner
-------------------------------
CONLEY, CANITANO & ASSOC., INC.
By: Annette Canitano
--------------------------------
Its: Executive Vice President
-------------------------------
KELLY-LEVEY & ASSOCIATES, INC.
By: /s/ Anthony F. Kelly
--------------------------------
Its: President
-------------------------------
/s/ Anthony F. Kelly
------------------------------------
Anthony F. Kelly
/s/ Gary Levey
------------------------------------
Gary Levey
/s/ Ronnie Crumpler
------------------------------------
Ronnie Crumpler
<PAGE> 8
8
Subject to the terms and conditions of this Agreement and the Earnout
Agreement, the undersigned Shareholders hereby acknowledge and agree with the
disbursement of the Earnout Consideration as set forth on Exhibit A.
/s/ Trevor Montgomery
------------------------------------
Trevor Montgomery
/s/ Rob Petersen
------------------------------------
Rob Petersen
/s/ Don Kirby
------------------------------------
Don Kirby
/s/ Gary Levey
------------------------------------
Gary Levey
/s/ Anthony F. Kelly
------------------------------------
Anthony F. Kelly
/s/ Ronnie Crumpler
------------------------------------
Ronnie Crumpler
<PAGE> 1
Exhibit 10.19
AMENDED AND RESTATED SHARE REDEMPTION AND PURCHASE AGREEMENT
------------------------------------------------------------
THIS AMENDED AND RESTATED SHARE REDEMPTION AND PURCHASE
AGREEMENT (this "Agreement"), dated as of July 1, 1997, among Conley, Canitano &
Associates, Inc., an Ohio corporation ("CCAI"), Joseph Minadeo ("Minadeo"), and
Karen Conley, Nicholas A. Canitano ("Nick Canitano"), and Annette Canitano
(collectively, the "Management Shareholders") amends and restates in its
entirety the Share Redemption and Purchase Agreement, dated July 1, 1997.
BACKGROUND INFORMATION
----------------------
A. CCAI has 114 common shares, without par value, issued and
outstanding (the "CCAI Shares"). Minadeo is the owner of fourteen (14) CCAI
Shares (the "Minadeo CCAI Shares").
B. Minadeo desires to transfer all of the Minadeo CCAI Shares
to CCAI and the Management Shareholders on the terms and conditions herein set
forth.
C. CCAI will redeem eight (8) of the Minadeo CCAI Shares (the
"CCAI Share Redemption") and the Management Shareholders will purchase the
remaining six (6) Minadeo CCAI Shares (the "CCAI Share Purchase," and,
collectively with the CCAI Share Redemption, the "CCAI Share Transfer").
D. Minadeo desires to effect the CCAI Share Transfer despite
his knowledge of the Management Shareholders' present intention to (i) effect a
sale of all or a majority of the capital stock of CCAI (or substantially all of
its assets) to a third party purchaser (a "Sale of the Company"), or (ii) obtain
a third party equity investment in CCAI in the form of a leveraged
recapitalization or otherwise (a "Recapitalization", and together with a Sale of
the Company, the "Change of Control").
STATEMENT OF AGREEMENT
----------------------
Acknowledging the accuracy of the foregoing Background
Information, and subject to the terms and conditions set forth herein, Minadeo,
CCAI and the Management Shareholders hereby agree as follows:
1. REDEMPTION AND PURCHASE AND SALE OF CERTAIN CCAI SHARES. On
the Closing Date (as hereinafter defined), Minadeo will (a) tender to CCAI for
redemption, and CCAI will redeem, eight (8) CCAI Shares, and (b) sell to the
Management Shareholders, and the Management Shareholders will purchase from
Minadeo, six (6) CCAI Shares.
2. REDEMPTION PRICE; PURCHASE PRICE. (a) The purchase price to
be paid by the Management Shareholders in the
<PAGE> 2
2
CCAI Share Purchase, and the redemption price to be paid by CCAI in the CCAI
Share Redemption, will equal $21,428.57 per CCAI Share, or $300,000 in the
aggregate, for the Minadeo CCAI Shares (the "CCAI Share Transfer Price").
(b) The CCAI Share Transfer will be effected by Minadeo's delivery at
the Closing of (i) a certificate representing eight (8) Minadeo CCAI Shares to
CCAI, (ii) a certificate representing three (3) Minadeo CCAI Share to Nicholas
A. Canitano and Annette M. Canitano, JT TEN, and (iii) a certificate
representing three (3) Minadeo CCAI Shares to Karen Conley, in each case duly
endorsed in blank for transfer or accompanied by share transfer powers duly
endorsed in blank.
(c) As partial payment of the CCAI Share Transfer Price, and against
delivery of the certificates representing the Minadeo CCAI Shares, at the
Closing, CCAI and the Management Shareholders will deliver $40,000 and their pro
rata share of $20,000, respectively, to Minadeo by wire transfer of immediately
available funds to an account designated by Minadeo, or, at Minadeo's election,
by certified or bank check.
(d) The remaining $240,000 of the CCAI Share Transfer Price will be
paid in twenty-four (24) equal monthly installments of $10,000 each (the "CCAI
Installment Payments") to be paid ($6,667 by CCAI and $3,333 pro rata by the
Management Shareholders) to Minadeo on the 30th day of each month commencing on
August 30, 1997 by certified or bank check.
(e) Upon the consummation of any Sale of the Company prior to June 30,
1998, the Management Shareholders (or any third party purchaser, as the case may
be) shall pay Minadeo an amount equal to an aggregate of $200,000 in the same
form of consideration as paid out in such sale at the time of the closing of
such sale. Upon consummation of any Recapitalization prior to June 30, 1998, the
Management Shareholders (or any third party investor, as the case may be) shall
pay Minadeo an amount equal to an aggregate of $200,000 multiplied by a fraction
representing the aggregate fractional interest in CCAI purchased by any third
party investor(s) in such Recapitalization at the time of the closing
thereof.
(f) Notwithstanding any other provision of this Agreement, all unpaid
CCAI Installment Payments shall be accelerated and shall become immediately due
and payable concurrent with the consummation of any Change of Control.
3. CLOSING. The closing of the CCAI Share Transfer (the
"Closing") will take place at the offices of CCAI at 10:00 a.m. on August 1,
1997 or at such other place and at such other date and time as CCAI, Minadeo and
the Management Shareholders may mutually agree (such date and time of the
Closing being herein called the "Closing Date").
<PAGE> 3
3
4. REPRESENTATIONS AND WARRANTIES OF CCAI. CCAI represents and
warrants as of the date hereof and as of the Closing Date as follows:
(a) This Agreement has been duly executed and delivered by CCAI. This
Agreement is the legal, valid and binding obligation of CCAI, enforceable
against CCAI in accordance with its terms, except as the enforceability hereof
may be limited by laws relating to or affecting creditors' rights generally.
(b) Neither the execution, delivery and performance of this Agreement
by CCAI, nor the consummation by it of the CCAI Share Transfer, nor compliance
by it with any of the provisions of this Agreement, will (i) violate, conflict
with, or result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, assignment or other instrument or
obligation to which CCAI is a party or by which CCAI may be bound, or to which
CCAI or the properties or assets of CCAI may be subject or (ii) violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to CCAI or to the properties or assets of CCAI.
(c) No notice to, filing with, authorization of, exemption by, or
consent or approval of, any regulatory authority is necessary for the
consummation by CCAI of the CCAI Share Transfer.
5. REPRESENTATIONS AND WARRANTIES OF MINADEO. Minadeo
represents and warrants as of the date hereof and as of the Closing Date as
follows:
(a) This Agreement has been duly executed and delivered by Minadeo and
no other action on his part is necessary to authorize this Agreement and the
CCAI Share Transfer.
(b) Neither the execution, delivery and performance of this Agreement
by Minadeo nor the consummation by him of the CCAI Share Transfer, nor
compliance by him with any of the provisions hereof, will (i) violate, conflict
with, or result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, assignment or other instrument or
obligation to which Minadeo is a party or by which Minadeo may be bound, or to
which Minadeo or the properties or assets of Minadeo may be subject or (ii)
violate any judgment, ruling, order, writ, injunction, decree, statute, rule or
resolution applicable to him or to his properties or assets.
<PAGE> 4
4
(c) Minadeo has good and unencumbered title to the Minadeo CCAI Shares,
and upon the CCAI Share Transfer, CCAI or the Management Shareholders, as the
case may be, will acquire and own the Minadeo CCAI Shares, free and clear of all
liens, claims, charges, restrictions and encumbrances whatsoever, except those
arising under this Agreement.
(d) Minadeo is a party to no contract or agreement with respect to the
Minadeo CCAI Shares other than this Agreement. There are no outstanding options,
warrants, puts or calls or preemptive, come-along or tag-along rights with
respect to, or rights of first refusal or first offer, or other rights to
purchase or otherwise acquire title to, or cause the transfer of, any or all of
the Minadeo CCAI Shares or any other rights or restrictions in favor of any
third party with respect to the voting of, or transfer of title to, the Minadeo
CCAI Shares.
(e) Minadeo and his representatives, if any, have had a reasonable
opportunity to ask questions of, and receive answers from, CCAI and the
Management Shareholders (or a person or persons acting on their behalf, as the
case may be) concerning the terms and conditions of the CCAI Share Transfer. All
such questions have been answered to the full satisfaction of Minadeo. The
Management Shareholders have also appraised Minadeo of the details of their
efforts to effect a Change of Control which efforts may, if successfully
consummated, significantly increase the value of the CCAI Shares in the near
future. Minadeo and his representatives, if any, have also had a reasonable
opportunity to ask questions of, and receive answers from, CCAI and the
Management Shareholders (or a person or persons acting on their behalf, as the
case may be) concerning the terms and conditions of any such Change of Control
and all such questions have been answered to the full satisfaction of Minadeo.
(f) No notice to, filing with, authorization of, exemption by, or
consent or approval of, any regulatory authority is necessary for the
consummation by Minadeo of the CCAI Share Transfer.
6. REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT
SHAREHOLDERS. Each Management Shareholder represents and warrants as of the date
hereof and as of the Closing Date as follows:
(a) This Agreement has been duly executed and delivered by such
Management Shareholder and is the legal, valid and binding obligation of such
Management Shareholder, enforceable against such shareholder in accordance with
its terms, except as enforceability hereof may be limited by laws relating to or
affecting creditors' rights generally.
(b) Neither the execution, delivery and performance of this Agreement
by such Management Shareholder, nor the consummation by such Management
Shareholder of the CCAI Share Transfer, nor
<PAGE> 5
5
compliance by such Management Shareholder with any of the provisions of this
Agreement, will (i) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, assignment or other instrument or obligation to which such Management
Shareholder is a party or by which such Shareholder may be bound, or to which
such Management Shareholder or the properties or assets of such Management
Shareholder may be subject or (ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to such Management
Shareholder or to the properties or assets of such Management Shareholder.
(c) No notice to, filing with, authorization of, exemption by, or
consent or approval of, any regulatory authority is necessary for the
consummation by such Management Shareholder of the CCAI Share Transfer.
7. FURTHER ASSURANCES. From time to time after the execution
hereof at the request of any party hereto and without further consideration, any
party hereto, as the case may be, will execute and deliver such other and
further instruments, and take such other action as any such other party may
reasonably request for the more effective consummation of the transactions
contemplated hereby.
8. GOVERNING LAW. This Agreement shall be governed by the
internal substantive laws of the State of Ohio.
9. SEVERABILITY. If any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision
thereof.
10. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute one and the same instrument.
11. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION. The
representations and warranties contained in Sections 4, 5 and 6 of this
Agreement will survive the Closing. Each party will indemnify, defend and hold
harmless each other party from and against any damages, dues, penalties, fines,
costs, amounts paid in settlement, losses and expenses affecting any such other
party as a result of or relating to any inaccuracy in any representations or
warranties contained in this Agreement;
<PAGE> 6
6
provided, however, the amount of such indemnification obligation shall not
exceed the CCAI Share Transfer Price.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the day
and year first above written.
CONLEY, CANITANO & ASSOCIATES, INC.
By: /s/ Nicholas A. Canitano
------------------------------
Title: President
--------------------------
/s/ Karen Conley
---------------------------------
Karen Conley
/s/ Nicholas A. Canitano
---------------------------------
Nicholas A. Canitano
/s/ Annette Canitano
---------------------------------
Annette Canitano
/s/ Joseph Minadeo
---------------------------------
Joseph Minadeo
<PAGE> 1
Exhibit 10.27
PUTNAM FLEXIBLE 401(K) AND PROFIT SHARING PLAN
PLAN AGREEMENT #001
This is the Plan Agreement for a Putnam nonstandardized prototype 401(k) plan
with optional profit sharing plan provisions. Please consult a tax or legal
advisor and review the entire form before you sign it. If you fail to fill out
this Putnam Plan Agreement properly, the Plan may be disqualified. By executing
this Plan Agreement, the Employer establishes a 401(k) and profit sharing plan
and trust upon the terms and conditions of Putnam Basic Plan Document #07, as
supplemented and modified by the provisions elected by the Employer in this Plan
Agreement. THIS PLAN AGREEMENT MUST BE ACCEPTED BY PUTNAM IN ORDER FOR THE
EMPLOYER TO RECEIVE FUTURE AMENDMENTS TO THE PUTNAM FLEXIBLE 401(K) AND PROFIT
SHARING PLAN.
* * * * *
1. EMPLOYER INFORMATION. The Employer adopting this Plan is:
A. EMPLOYER NAME: CONLEY, CANITANO & ASSOCIATES, INC.
B. EMPLOYER IDENTIFICATION NUMBER: 34-1375019
C. EMPLOYER ADDRESS: 25201 CHAGRIN BLVD. SUITE 390
BEACHWOOD, OH 44122
D. SIC CODE: 7370
E. EMPLOYER CONTACT: Name: KAREN CONLEY
Title: CEO Phone #: (216) 831-6240
F. FISCAL YEAR: January 1 through December 31
(month/day) (month/day)
G. TYPE OF ENTITY (CHECK ONE):
[X] Corporation [ ] Partnership [ ] Subchapter S Corporation
[ ] Sole proprietorship [ ] Other _____________________
H. PLAN NAME: CONLEY, CANITANO AND ASSOCIATES, INC. 401(k) PLAN
AND TRUST
I. PLAN NUMBER: 001 (complete)
<PAGE> 2
2. PLAN INFORMATION.
A. PLAN YEAR. Check one:
[X] (1) The Calendar Year
[ ] (2) The Plan Year will be the same as the Fiscal Year of
the Employer shown in 1.F. above. If the Fiscal Year
of the Employer changes, the Plan Year will change
accordingly.
[ ] (3) The Plan Year will be the period of 12 months
beginning on the first day of _____ (month) and
ending on the last day of _____ (month).
[ ] (4) A short Plan Year commencing on _____
(month/day/year) and ending on _____ (month/day/year)
and immediately thereafter the 12-consecutive month
period commencing on _____ (month/day).
The Plan Year will also be your Plan's Limitation Year for purposes
of the contribution limitation rules in Article 6 of the Plan.
B. EFFECTIVE DATE OF ADOPTION OF PLAN.
(1) Are you adopting this Plan to replace an existing plan?
[X] (a) Yes (b) No
(2) IF YOU ANSWERED YES in 2.B(1) above, the Effective
Date of your adoption of this Replacement Plan will be
the first day of the current Plan Year UNLESS you
elect a later date in (2)(b) below. Please complete
the following:
(a) JUNE 1, 1988
Original Effective Date of the Plan you are Replacing
(b) DECEMBER 2, 1996
Effective Date of this Replacement Plan
(3) IF YOU ANSWERED NO in 2B(1) above, the Effective Date
of your adoption of this Plan will be the day you
select below (not before the first day of the current
Plan Year, and not before the day your Business
began):
(a) The Effective Date is:_______
month/day/year
2
<PAGE> 3
C. IDENTIFYING HIGHLY COMPENSATED EMPLOYEES. Check either (1) or (2).
[X] (1) The Plan will use the regular method under Plan
Section 2.58(a) for identifying Highly Compensated
Employees.
If you selected this option AND your Plan Year is the
CALENDAR YEAR, do you wish to make the regular
method's "calendar year election" for identifying your
Highly Compensated Employees?
[X] (a) Yes (b) No
[ ] (2) The Plan will use the simplified method under Plan
Section 2.58(b) for identifying Highly Compensated
Employees.
3. ELIGIBILITY FOR PLAN PARTICIPATION (PLAN SECTION 3.1). Employees will be
eligible to participate in the Plan when they complete the requirements
you select in A, B, C and D below.
A. CLASSES OF ELIGIBLE EMPLOYEES. The Plan will cover all employees
who have met the age and service requirements with the following
exclusions:
[X] (1) No exclusions. All job classifications will be eligible.
[ ] (2) The Plan will exclude employees in a unit of Employees
covered by a collective bargaining agreement with
respect to which retirement benefits were the subject
of good faith bargaining, with the exception of the
following collective bargaining units, which will be
included: ._________________
[ ] (3) The Plan will exclude employees who are non-resident
aliens without U.S. source income.
[ ] (4) Employees of the following Affiliated Employers
(specify):
---------
---------
[ ] (5) Leased Employees
[ ] (6) Employees in the following other classes (specify):
---------
---------
3
<PAGE> 4
B. AGE REQUIREMENT (check and complete (1) or (2)):
[ ] (1) No minimum age required for participation
[X] (2) Employees must reach age 21 (not over 21) to
participate
C. SERVICE REQUIREMENTS.
(1) ELECTIVE DEFERRALS. To become eligible, an employee must
complete (choose one):
[ ] (a) No minimum service required.
[X] (b) One 6-month Eligibility Period
[ ] (c) One ___ -month Eligibility Period (must be less
than 12)
[ ] (d) One 12-month Eligibility Period
(2) EMPLOYER MATCHING CONTRIBUTIONS. To become eligible, an
employee must complete (choose one):
[ ] (a) No minimum service required.
[X] (b) One 6-month Eligibility Period
[ ] (c) One __-month Eligibility Period (must be less
than 12)
[ ] (d) One 12-month Eligibility Period
[ ] (e) Two 12-month Eligibility Periods (may only
be chosen if you adopt the vesting schedule
under item 9.A(3)(a) to provide 100% full
and immediate vesting of Employer Matching
Contributions).
[ ] (f) Not applicable. The Employer will not make
Employer Matching Contributions.
(3) PROFIT SHARING CONTRIBUTIONS. To become eligible, an
employee must complete (choose one):
[ ] (a) No minimum service required.
[X] (b) One 6-month Eligibility Period
[ ] (c) One __-month Eligibility Period (must be
less than 12)
4
<PAGE> 5
[ ] (d) One 12-month Eligibility Period
[ ] (e) Two 12-month Eligibility Periods (may only
be chosen if you adopt the vesting schedule
under item 9.A(3)(a) to provide for 100%
full and immediate vesting of Profit
Sharing Contributions)
[ ] (f) Not applicable. The Employer will not make
Profit Sharing Contributions.
(4) If the Employer acquired a business on or before the
Effective Date of this Plan AND the Eligibility Periods
selected in (1), (2) and (3) for former employees of that
acquired business will include the former employees' periods
of employment with that business, list the business below.
Any acquired business which had a plan which the Employer
now maintains must be listed below.
N/A
------
------
------
(5) If the Employer acquires a business after the Effective
Date, the Eligibility Periods for an employee of the
acquired business will be the periods selected in (1), (2)
and (3) beginning on (check (a) or (b)):
[X] (a) the date the employee began work with the
acquired business.
[ ] (b) the date of the acquisition (i.e., the date
the employee begins work for the Employer).
(6) HOURS OF SERVICE FOR ELIGIBILITY PERIODS.
(a) 6-MONTH ELIGIBILITY PERIOD. To receive credit for a
6-month Eligibility Period, an employee must complete
6 months of service, during which he completes at
least:
[X] (i) 500 Hours of Service
[ ] (ii) ___ Hours of Service
(under 500)
(b) 12-MONTH ELIGIBILITY PERIOD. To receive credit for a
12-month Eligibility Period, an employee must complete
12 months of service, during which he completes at
least:
[ ] (i) 1,000 Hours of Service
5
<PAGE> 6
[ ] (ii) ___ Hours of Service
(under 1,000)
(c) OTHER ELIGIBILITY PERIOD. To receive credit for the
Eligibility Period selected in 3.C(1)(c), 3.C(2)(c)
and/or 3.C(3)(c) above, an employee must complete
during it at
least:
[ ] (i) ____ Hours of Service
(under 1000)
(7) METHOD OF CREDITING HOURS OF SERVICE FOR ELIGIBILITY AND
VESTING. Hours of Service will be credited to an employee by
the following method (check one):
[X] (a) Actual hours for which an employee is paid
[ ] (b) Any employee who has one actual paid hour
in the following period will be credited
with the number of Hours of Service
indicated (check one):
[ ] (i) Day (10 Hours of Service)
[ ] (ii) Week (45 Hours of Service)
[ ] (iii) Semi-monthly payroll period (95 Hours
of Service)
[ ] (iv) Month (190 Hours of Service)
(8) ENTRY DATES. Each employee in an eligible class who
completes the age and service requirements specified above
will begin to participate in the Plan on (check one):
[ ] (a) The first day of the month in which he fulfills
the requirements.
[X] (b) The first of the following dates occurring
after he fulfills the requirements (check
one):
[ ] (i) The first day of the month following
the date he fulfills the requirements
(monthly).
[X] (ii) The first day of the first, fourth,
seventh and tenth months in a Plan
Year (quarterly).
[ ] (iii) The first day of the first month
and the seventh month in a Plan
Year (semiannually).
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<PAGE> 7
[ ] (c) Other:_____ (May be no later than (i) the
first day of the Plan Year after which he
fulfills the requirements, and (ii) the date
six months after the date on which he fulfills
the requirements, which ever occurs first.)
D. (FOR NEW PLANS ONLY) Will all eligible Employees as of the
Effective Date be required to meet the age and service requirements
for participation specified in Band C above?
[ ] (a) Yes
[ ] (b) No. Eligible Employees will be eligible to become
Participants as of the Effective Date even if they
have not satisfied (check one or both):
[ ] (i) the age requirement.
[ ] (ii) the service requirement.
4. CONTRIBUTIONS.
A. ELECTIVE DEFERRALS (PLAN SECTION 5.2). Your Plan will allow
employees to elect pre-tax contributions under Section 401(k) of
the Code. You must complete this part A.
(1) A Participant may make Elective Deferrals for each year in
an amount not to exceed (check one):
[X] (a) 15% of his Earnings
[ ] (b) _____% of his Earnings not to exceed $_____
(specify a dollar amount)
[X] (c) $_____ The IRS yearly maximum (specify a
dollar amount)
(2) Will a Participant be required to make a minimum Elective
Deferral in order to make Elective Deferrals under the Plan?
(check one and complete as applicable)
[X] (a) No.
[ ] (b) Yes. The minimum Elective Deferral will be
___% of the Participant's Earnings.
(3) A Participant may begin to make Elective Deferrals, or
change the amount of his Elective Deferrals, as of the
following dates (check one):
[ ] (a) First business day of each month (monthly).
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<PAGE> 8
[X ] (b) First business day of the first, fourth,
seventh and tenth months of the Plan Year
(quarterly).
[ ] (c) First business day of the first and seventh
months of the Plan Year (semiannually).
[ ] (d) First business day of the Plan Year only
(annually).
[ ] (e) Other: _______________
(4) Will Participants be permitted to make separate Elective
Deferrals of bonuses, even if bonuses have otherwise been
excluded from Compensation for the purpose of Elective
Deferrals under 7.A(1)?
[ ] (a) Yes [X] (b) No
B. EMPLOYER MATCHING CONTRIBUTIONS. (Plan Section 5.8). Complete
this part B only if you will make Employer Matching Contributions
under the Plan.
(1) The Employer will contribute and will allocate to each
Qualified Participant's Employee Matching Account an
Employer Matching Contribution on the basis set forth below:
[X ] (a) Discretionary matching contributions. (The
Employer may select this option in addition to
option (b) if the Employer wishes to have the
option to make discretionary matching
contributions in addition to fixed matching
contributions.)
[ ] (b) Fixed matching contributions.
[ ] (i) based on Elective Deferrals:
[ ] (A) ___% of Elective Deferrals
[ ] (B) ___% of Elective Deferrals
up to ___% of Earnings.
[ ] (C) ___% of Elective Deferrals
up to ___% of Earnings and
___ % of Elective Deferrals
over that percentage of
Earnings and up to ___% of
Earnings. (The third
percentage number must be
less than the first
percentage number.)
[ ] (D) ___% of Elective Deferrals
up to $_____ of
Elective Deferrals.
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<PAGE> 9
[ ] (E) ___% of Elective Deferrals up to
$_____ of Elective Deferrals and ___%
of Elective Deferrals over
that dollar amount and up to
$_____ of Elective Deferrals. (The
last percentage must be less
than the first percentage).
[ ] (ii) based on after-tax Participant
Contributions:
[ ] (A) ___% of Participant Contributions
[ ] (B) ___% of Participant
Contributions up to ___% of
Earnings.
[ ] (C) ___% of Participant Contributions
up to ___% of Earnings and ___% of
Participant Contributions over
that percentage of Earnings and
up to ___% of Participant
Contributions. (The third
percentage must be less than the
first percentage)
[ ] (D) ___% of Participant
Contributions up to $___ of
Participant Contributions.
[ ] (E) ___% of Participant Contributions
up to $___ of Participant
Contributions and ___% of
Participant Contributions over
that dollar amount and up to $_____
of Participant Contributions.
(The last percentage must be less
than the first percentage).
(2) QUALIFIED PARTICIPANT. In order to receive an allocation of
Employer Matching Contributions for a Plan Year, an Employee
must be a Qualified Participant for that purpose. Select
below either (a) alone, or any combination of (b), (c) and
(d).
[ ] (a) To be a Qualified Participant eligible to
receive Employer Matching Contributions for a
Plan Year, an Employee must (check (i) or (ii)):
[ ] (i) Either be employed on the last day
of the Plan Year, complete more
than 500 Hours of Service in the
Plan Year, or retire, die or become
disabled in the Plan Year.
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<PAGE> 10
[ ] (ii) Either be employed on the last day
of the Plan Year or complete more
than 500 Hours of Service in the
Plan Year.
Stop here if you checked (a). If you did not check (a),
check (b), (c) or (d), or any combination of (b), (c) and
(d).
To be a Qualified Participant eligible to receive Employer
Matching Contributions for a Plan Year, an Employee must:
[X] (b) Be credited with 1 (choose 1, 501 or 1,000)
Hours of Service in the Plan Year.
[ ] (c) Be an Employee on the last day of the Plan Year.
[ ] (d) Retire, die or become disabled during the Plan
Year.
(3) Will the Employer have the option of making all or any
portion of its Employer Matching Contributions in Employer
Stock?
[ ] (a) Yes [X] (b) No
C. PROFIT SHARING CONTRIBUTIONS. (Plan Sections 4.1 and 4.2)
(1) PROFIT LIMITATION. Will Profit Sharing Contributions to the
Plan be limited to the current and accumulated profits of
your Business? Check one:
[ ] (a) Yes [X] (b) No
(2) AMOUNT. The Employer will contribute to the Plan for each
Plan Year (check one):
[X] (a) An amount chosen by the Employer from year to
year
[ ] (b) ___% of the Earnings of all Qualified
Participants for the Plan Year
[ ] (c) $___ for each Qualified Participant per (enter
time period, e.g. payroll period, plan year)
(3) ALLOCATIONS TO PARTICIPANTS
(a) ALLOCATION TO PARTICIPANTS. Profit Sharing
Contributions will be allocated:
[ ] (i) Pro rata (percentage based on
compensation)
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<PAGE> 11
[ ] (ii) Uniform Dollar amount
[X] (iii) Integrated With Social Security
(complete (b) and (c) below)
(b) INTEGRATION WITH SOCIAL SECURITY. (Complete only if
you have elected in 4.C(3)(a) to integrate your Plan
with Social Security.) Profit Sharing Contributions
will be allocated to Qualified Participants as you
check below:
[ ] (i) Profit Sharing Contributions will be
allocated according to the Top-Heavy
Integration Formula in Plan Section
4.2(c)(1) in every Plan Year, whether or
not the Plan is top-heavy.
[X] (ii) Profit Sharing Contributions will be
allocated according to the Top-Heavy
Integration Formula in Plan Section
4.2(c)(1) only in Plan Years in which the
Plan is top-heavy. In all other Plan
Years, contributions will be allocated
according to the Non-Top-Heavy
Integration Formula in Plan Section
4.2(c)(2).
(c) INTEGRATION LEVEL. (Complete only if you have elected
in 4.C(3)(a) to integrate your Plan with Social
Security.) The Integration Level will be (check one):
[X] (i) The Social Security Wage Base in effect
at the beginning of the Plan Year.
[ ] (ii) ___% (not more than 100%) of the Social
Security Wage Base in effect at the
beginning of the Plan Year.
[ ] (iii) $___ (not more than the Social Security
Wage Base).
NOTE: The Social Security Wage Base is
indexed annually to reflect increases in
the cost of living.
(4) QUALIFIED PARTICIPANTS. In order to receive an allocation of
Profit Sharing Contributions for a Plan Year, an Employee
must be a Qualified Participant for this purpose. Select
below either (a) alone, or any combination of (b), (c) and
(d).
[ ] (a) To be a Qualified Participant eligible to
receive an allocation of Profit Sharing
Contributions for a Plan Year, an Employee must
(check (i) or (ii)):
[ ] (i) Either be employed on the last day
of the Plan Year, complete more
than 500 Hours of Service in the
Plan Year, or retire, die or become
disabled in the Plan Year.
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<PAGE> 12
[ ] (ii) Either be employed on the last day
of the Plan Year or complete more
than 500 Hours of Service in the
Plan Year.
Stop here if you checked (a). If you did not check (a),
check (b), (c) or (d), or any combination of (b), (c) and
(d).
To be a Qualified Participant eligible to receive an
allocation of Profit Sharing Contributions for a Plan Year,
an Employee must:
[X] (b) Be credited with 1,000 (choose 1, 501 or 1,000)
Hours of Service in the Plan Year.
[X] (c) Be an Employee on the last day of the Plan Year.
[X] (d) Retire, die or become disabled during the Plan
Year.
D. PARTICIPANT CONTRIBUTIONS (PLAN SECTION 4.6). Will your Plan allow
Participants to make after-tax contributions?
[ ] (1) Yes [X] (2) No
E. QUALIFIED MATCHING CONTRIBUTIONS (PLAN SECTION 2.61). Skip this
part E if you will not make Qualified Matching Contributions.
(1) Qualified Matching Contributions will be made with respect
to (check one):
[ ] (a) Elective Deferrals made by all Qualified
Participants (as defined in 4.B(2))
[ ] (b) Elective Deferrals made only by Qualified
Participants (as defined in 4.B(2)) who are not
Highly Compensated Participants
(2) The amount of Qualified Matching Contributions made with
respect to a Participant will be:
[ ] (a) discretionary
[ ] (b) fixed (check and complete (i), (ii) or (iii))
[ ] (i) ___% of Elective Deferrals
[ ] (ii) ___% of Elective Deferrals that
do not exceed ___% of Earnings
[ ] (iii) ___% of Elective Deferrals that
do not exceed $___.
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<PAGE> 13
F. QUALIFIED NONELECTIVE CONTRIBUTIONS (PLAN SECTION 2.62): Skip this
part F if you will not make Qualified Nonelective Contributions.
(1) Qualified Nonelective Contributions will be made on behalf
of (check one):
[ ] (a) All Qualified Participants
[X] (b) Only Qualified Participants who are not Highly
Compensated Employees
(2) The amount of Qualified Nonelective Contributions for a Plan
Year will be (check one):
[ ] (a) ___% (not over 15%) of the Earnings of
Participants on whose behalf Qualified
Nonelective Contributions are made
[X] (b) An amount determined by the Employer from year
to year, to be shared in proportion to their
Earnings by Participants on whose behalf
Qualified Nonelective Contributions are made
G. Forfeitures
(1) EMPLOYER MATCHING CONTRIBUTIONS. Forfeitures of Employer
Matching Contributions will be used as follows (check and
complete (a) or (b)):
[X] (a) Applied to reduce the following contributions
required of the Employer (check (i) and/or
(ii)):
[X] (i) Employer Matching Contributions
[X] (ii) Profit Sharing Contributions
[ ] (b) Reallocated as follows (check (i) or (ii)):
[ ] (i) As additional Employer Matching
Contributions
[ ] (ii) As additional Profit Sharing
Contributions
(2) Profit Sharing Contributions. Forfeitures of Profit Sharing
Contributions will be used as follows (check (a) or (b)):
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<PAGE> 14
[X] (a) Applied to reduce the following contributions
required of the Employer (check (i) and/or
(ii)):
[X] (i) Profit Sharing Contributions
[X] (ii) Employer Matching Contributions
[ ] (b) Reallocated as additional Profit Sharing
Contributions
5. TOP-HEAVY MINIMUM CONTRIBUTIONS (PLAN SECTION 14.3). Skip paragraphs A
and B below if you do not maintain any other qualified plan in addition
to this Plan.
A. For any Plan Year in which the Plan is Top-Heavy, the Top-Heavy
minimum contribution (or benefit) for Non-Key employees
participating both in this Plan and another qualified plan
maintained by the Employer will be provided in (check one):
[ ] (1) This Plan [ ] (2) The other qualified plan
B. If you maintain a defined benefit plan in addition to this Plan,
and the Top-Heavy Ratio (as defined in Plan Section 14.2(c)) for
the combined plans is between 60% and 90%, you may elect to provide
an increased minimum allocation or benefit pursuant to Plan Section
14.4. Specify your election by completing the statement below:
The Employer will provide an increased (specify contribution or
benefit) ___ in its (specify defined contribution or defined
benefit) ___ plan as permitted under Plan Section 14.4.
6. OTHER PLANS. YOU MUST COMPLETE THIS SECTION IF you maintain or ever
maintained another qualified plan in which any Participant in this Plan
is (or was) a participant or could become a participant.
The Plan and your other plan(s) combined will meet the contribution
limitation rules in Article 6 of the Plan as you specify below:
A. If a Participant in the Plan is covered under another qualified
defined contribution plan maintained by your Business, other than a
master or prototype plan (check one):
[ ] (1) The provisions of Section 6.2 of the Plan will apply
as if the other plan were a master or prototype plan.
[ ] (2) The plans will limit total annual additions to the
maximum permissible amount, and will properly reduce
any excess amounts, in the manner you describe below.
----------
----------
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<PAGE> 15
B. If a Participant in the Plan is or has ever been a participant in a
defined benefit plan maintained by your Business, the plans will
meet the limits of Article 6 in the manner you describe below:
----------
If your Business has ever maintained a defined benefit plan, state
below the interest rate and mortality table to be used in
establishing the present value of any benefit under the defined
benefit plan for purposes of computing the top-heavy ratio:
Interest rate: ___%
Mortality Table:___
7. COMPENSATION (PLAN SECTION 2.8).
A. AMOUNT.
(1) ELECTIVE DEFERRALS AND EMPLOYER MATCHING CONTRIBUTIONS.
Compensation for the purposes of determining the amount and
allocation of Elective Deferrals and Employer Matching
Contributions will be determined as follows (choose either
(a) or (b), and (c) and/or (d) as applicable).
[X] (a) Compensation will include Form W-2 earnings as
defined in Section 2.8 of the Plan.
[ ] (b) Compensation will include all compensation
included in the definition of Code Section 415
Compensation in Plan Section 6.5(b) of the Plan.
[ ] (c) In addition to the amount provided in either
(a) or (b) above, Compensation will also
include any amounts withheld from the
employee under a 401(k) plan, cafeteria
plan, SARSEP, tax sheltered 403(b)
arrangement, or Code Section 457 deferred
compensation plan, and contributions
described in Code Section 414(h)(2) that
are picked up by a governmental employer.
[ ] (d) Compensation will also exclude the following
amount (choose each that applies):
[ ] (i) overtime pay.
[ ] (ii) bonuses.
[ ] (iii) commissions.
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<PAGE> 16
[ ] (iv) other pay (describe):___
[ ] (v) compensation in excess of $_____
(2) PROFIT SHARING CONTRIBUTIONS. Compensation for the purposes
of determining the amount and allocation of Profit Sharing
Contributions shall be determined as follows (choose either
(a) or (b), and (c) and/or (d), as applicable).
[X] (a) Compensation will include Form W-2 earnings as
defined in Section 2.8 of the Plan.
[ ] (b) Compensation will include all compensation
included in the definition of Code Section 415
Compensation in Section 6.5(b) of the Plan.
[ ] (c) In addition to the amount provided in either
(a) or (b) above, compensation will also
include any amounts withheld from the
employee under a 401(k) plan, cafeteria
plan, SARSEP, tax sheltered 403(b)
arrangement, or Code Section 457 deferred
compensation plan, and contributions
described in Code Section 414(h)(2) that
are picked up by a governmental employer.
[ ] (d) Compensation will also exclude the following
amounts (choose each that applies):
[ ] (i) overtime pay
[ ] (ii) bonuses
[ ] (iii) commissions
[ ] (iv) other pay describe: ___
[ ] (v) compensation in excess of $___
Note: No exclusion under (d) may be selected if Profit
Sharing Contributions will be integrated with Social
Security under 4.C(3)(a)(iii). In addition, no
exclusion under (d) will apply for purposes of
determining the top-heavy minimum contribution if the
Plan is top-heavy.
B. MEASURING PERIOD. Compensation will be based on the Plan Year.
However, for an Employee's initial year of participation in the
Plan, Compensation will be recognized as of:
[ ] (1) the first day of the Plan Year.
[X] (2) the date the Participant enters the Plan.
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<PAGE> 17
8. DISTRIBUTIONS AND WITHDRAWALS.
A. RETIREMENT DISTRIBUTIONS.
(1) NORMAL RETIREMENT AGE (PLAN SECTION 7.1). Normal retirement
age will be the later of 60 (not over age 65) or ___ (not
more than 5) years of participation in the Plan.
(2) EARLY RETIREMENT (PLAN SECTION 7.1). Select one:
[ ] (a) No early retirement will be permitted.
[X] (b) Early retirement will be permitted at age 55.
[ ] (c) Early retirement will be permitted at age ___
with at least ___ Years of Service.
(3) ANNUITIES (PLAN SECTION 9.3). Will your Plan permit
distributions in the form of a life annuity? YOU MUST CHECK
YES if this Plan replaces or serves as a transferee plan for
an existing Plan that permits distributions in a life
annuity form.
[X] (a) Yes [ ] (b) No
B. HARDSHIP DISTRIBUTIONS (PLAN SECTION 12.2). Will your Plan permit
hardship distributions?
[ ] (1) No
[X] (2) Yes. Indicate below from which Accounts hardship
withdrawals will be permitted (check all that apply):
[X] (a) Elective Deferral Account
[X] (b) Rollover Account
[X] (c) Employer Matching Account
[X] (d) Employer Contribution Account (i.e. Profit
Sharing Contributions)
C. WITHDRAWALS AFTER AGE 59 1/2 (PLAN SECTION 12.3). Will your Plan
permit employees over age 59 1/2 to withdraw amounts upon request?
YOU MUST CHECK YES if this Plan replaces an existing Plan that
permits withdrawals after age 59 1/2.
[X] (1) Yes [X] (2) No
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<PAGE> 18
D. WITHDRAWALS FOLLOWING FIVE YEARS OF PARTICIPATION OR TWO
YEARS AFTER CONTRIBUTION (PLAN SECTION 12.4). Will your Plan permit
employees to withdraw amounts from the vested portion of their
Employer Matching Contribution Accounts and Employer Contribution
Accounts (i.e., Profit Sharing Contributions) if either (i) the
Participant has been a Participant for at least five years, or (ii)
the amount withdrawn from each of these Accounts is limited to the
amounts that were credited to that Account prior to the date two
years before the withdrawal? YOU MUST CHECK YES if this Plan
replaces a Plan which permits withdrawals in these circumstances.
[ ] (1) Yes [X] (2) No
E. LOANS (PLAN SECTION 12.5). Will your Plan permit loans to employees
from the vested portion of their Accounts?
[ ] (1) No
[X] (2) Yes. Indicate below whether loans will be permitted
for any reason or only on account of hardship:
[X] (a) Any reason.
[ ] (b) Hardship only.
F. AUTOMATIC DISTRIBUTION OF SMALL ACCOUNTS (PLAN SECTION 9.1). Will
your Plan automatically distribute vested account balances not
exceeding $3,500, within 60 days after the end of the Plan Year in
which a Participant separates from employment?
[X] (1) Yes [ ] (2) No
9. VESTING (PLAN ARTICLE 8)
A. TIME OF VESTING (SELECT (1) OR (2) BELOW AND COMPLETE VESTING
SCHEDULE).
[X] (1) Single Vesting Schedule:
The vesting schedule selected below will apply to both
Employer Matching Contributions and Profit Sharing
Contributions.
[ ] (2) Dual Vesting Schedules:
The vesting schedule marked with an "MC" below will apply to
Employer Matching Contributions and the vesting schedule
marked with a "PS" below will apply to Profit Sharing
Contributions.
(3) Vesting Schedules:
[ ] (a) 100% vesting immediately upon participation in the Plan.
[X] (b) Five-Year Graded Schedule:
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<PAGE> 19
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 1 2 3 4 5
[ ] (c) Seven-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 3 4 5 6 7
[ ] (d) Six-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 2 3 4 5 6
[ ]
(e) Three-Year Cliff Schedule:
Vested Percentage 0% 100%
Years of Service 0-2 3
[ ] (f) Five-Year Cliff Schedule:
Vested Percentage 0% 100%
Years of Service 0-4 5
[ ] (g) Other Schedule (must be at least as favorable as
Seven-Year Graded Schedule or Five-Year Cliff
Schedule):
(i) Vested Percentage __% __% __% __% __%
(ii) Years of Service ___ ___ ___ ___ ___
(4) Top Heavy Schedule:
(a) If you selected above an "Other Schedule," specify in
the space below the schedule that will apply in Plan
Years that the Plan is top-heavy. The schedule you
specify must be at least as favorable to employees, at
all years of service, as either the Six-Year Graded
Schedule or the Three-Year Cliff Schedule. The
top-heavy vesting schedule will be:
[ ] (i) the same "Other Schedule" selected above
[ ] (ii) the following schedule:
Vested Percentage ___% ___% ___% ___% ___%
Years of Service ___ ___ ___ ___ ___
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<PAGE> 20
[ ] (iii) Six-Year Graded Schedule
[ ] (iv) Three-Year Cliff Schedule
(b) If the Plan becomes top-heavy in a Plan Year, will the
top-heavy vesting schedule apply for all subsequent
Plan Years?
[ ] (i) Yes [ ] (ii) No
B. SERVICE FOR VESTING (SELECT (1) OR (2), AND COMPLETE (3)).
[ ] (1) All of an employee's service will be used to determine
his Years of Service for purposes of vesting
[X] (2) An employee's Years of Service for vesting will
include all years except (check all that apply):
[ ] (a) (New plan) service before the effective date of
the plan
[ ] (b) (Existing plan) service before the effective
date of the existing plan
[X] (c) Service before the Plan Year in which an
employee reached age 18
(3) Will an employee's service for a business acquired by the
Employer that was performed before the acquisition be
included in determining an employee's Years of Service for
vesting?
[X] (a) Yes [ ] (b) No
List below any business acquired on or before the Effective
Date for which an employee's service will be included in
determining an employee's Years of Service for vesting.
Service of an employee for a predecessor employer (which
includes an acquired business) whose plan the Employer
maintains MUST be included as service for the Employer under
this Plan. Therefore, also list below any predecessor
employer whose plan the Employer maintains:
N/A
------
------
------
C. HOURS OF SERVICE FOR VESTING. The number of Hours of Service
required for crediting a Year of Service for vesting will be
(check one):
[X] (1) 1,000 Hours of Service
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<PAGE> 21
[ ] (2) __ Hours of Service
(under 1,000)
Hours of Service for vesting will be credited according to the
method selected under 3.C(6).
D. YEAR OF SERVICE MEASURING PERIOD FOR VESTING (PLAN SECTION 2.52).
The periods of 12 months used for measuring Years of Service will
be (check one):
[X] (1) Plan Years
[ ] (2) 12-month Eligibility Periods
Note: If you are adopting this Plan to replace an existing plan,
employees will be credited under this Plan with all service credited to
them under the plan you are replacing.
10. INVESTMENTS (PLAN SECTIONS 13.2 AND 13.3).
A. AVAILABLE INVESTMENT PRODUCTS (PLAN SECTION 13.2). The investment
options available under the Plan are identified in the Service
Agreement or such other written instructions between the Employer
and Putnam, as the case may be. All Investment Products must be
sponsored, underwritten, managed or expressly agreed to in writing
by Putnam. If there is any amount in the Trust Fund for which no
instructions or unclear instructions are delivered, it will be
invested in the default option selected by the Employer in its
Service Agreement with Putnam, or such other written instructions
as the case may be, until instructions are received in good order,
and the Employer will be deemed to have selected the option
indicated in its Service Agreement, or such other written
instructions as the case may be, as an available Investment Product
for that purpose.
B. INSTRUCTIONS (PLAN SECTION 13.3). Investment instructions for
amounts held under the Plan generally will be given by each
Participant for his own Accounts and delivered to Putnam as
indicated in the Service Agreement between Putnam and the Employer.
Check below only if the EMPLOYER will make investment decisions
under the Plan with respect to the following contributions made to
the Plan.
(Check all applicable options.)
[ ] (1) The Employer will make all investment decisions
with respect to all employee contributions, including
Elective Deferrals, Participant Contributions,
Deductible Employee Contributions and Rollover
Contributions.
[ ] (2) The Employer will make all investment decisions with
respect to all Employer contributions, including
Profit Sharing Contributions, Employer Matching
Contributions, Qualified Matching Contributions and
Qualified Nonelective Contributions.
[ ] (3) The Employer will make investment decisions with
respect to Employer Matching Contributions and
Qualified Matching Contributions.
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<PAGE> 22
[ ] (4) The Employer will make investment decisions with
respect to Qualified Nonelective Contributions.
[ ] (5) The Employer will make investment decisions with
respect to Profit Sharing Contributions.
[ ] (6) Other (Describe. An Employer may elect to make
investment decisions with respect to a specified
portion of a specific type of contribution to the
Plan.): _________
_________
_________
C. CHANGES. Investment instructions may be changed (check one):
[X] (1) on any Valuation Date (daily)
[ ] (2) on the first day of any month (monthly)
[ ] (3) on the first day of the first, fourth, seventh and
tenth months in a Plan Year (quarterly)
D. EMPLOYER STOCK. (Skip this paragraph if you did not designate
Employer Stock as an investment under the Service Agreement.)
(1) VOTING. Employer Stock will be voted as follows:
[ ] (a) In accordance with the Employer's instructions.
[ ] (b) In accordance with the Participant's
instructions. Participants are hereby appointed
named fiduciaries for the purpose of the voting
of Employer Stock in accordance with Plan
Section
13.8.
(2) TENDERING. Employer stock will be tendered as follows:
[ ] (a) In accordance with the Employer's instructions.
[ ] (b) In accordance with the Participant's
instructions. Participants are hereby appointed
named fiduciaries for the purpose of the
tendering of Employer Stock in accordance with
Plan Section
13.8.
11. ADMINISTRATION.
A. PLAN ADMINISTRATOR (PLAN SECTION 15.1). You may appoint a person or
a committee to serve as Plan Administrator. If you do not appoint a
Plan Administrator, the Plan provides that the Employer will be the
Plan Administrator.
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<PAGE> 23
The initial Plan Administrator will be (check one):
[ ] This person:
[ ] A committee composed of these people:
--------
--------
--------
B. RECORDKEEPER (PLAN SECTION 15.4). UNLESS Putnam expressly permits
otherwise, you must appoint Putnam as Recordkeeper to perform
certain routine services determined upon execution of a written
Service Agreement between Putnam and the Employer.
The initial Record keeper will be:
PUTNAM FIDUCIARY TRUST COMPANY
(Name)
PUTNAM RETAIL 401(K) B-2-B
859 WILLARD ST.
QUINCY, MA 02269-9110
(Address)
12. DETERMINATION LETTER REQUIRED. You may not rely on an opinion letter
issued to Putnam by the National Office of the Internal Revenue Service
as evidence that the Plan is qualified under Section 401 of the Internal
Revenue Code. In order to obtain reliance with respect to qualification
of the Plan, you must receive a determination letter from the appropriate
Key District Office of Internal Revenue. Putnam will prepare an
application for such a letter upon your request at a fee agreed upon by
the parties.
Putnam will inform you of all amendments it makes to the prototype plan.
If Putnam ever discontinues or abandons the prototype plan, Putnam will
inform you. This Plan Agreement #001 may be used only in conjunction with
Putnam's Basic Plan Document #07.
* * * * *
If you have any questions regarding this Plan Agreement, contact Putnam
at:
Putnam Defined Contribution Plans
One Putnam Place B2B
859 Willard Street
Quincy, MA 02269
Phone: 1-800-752-5766
23
<PAGE> 24
* * * * *
EMPLOYER'S ADOPTION OF PUTNAM
FLEXIBLE 401(k) AND PROFIT SHARING PLAN
The Employer named below hereby adopts a PUTNAM FLEXIBLE 401(k) AND PROFIT
SHARING PLAN, and appoints PUTNAM FIDUCIARY TRUST COMPANY to serve as Trustee of
the Plan. The Employer acknowledges that it has received copies of the current
prospectus for each Investment Product available under the Plan, and represents
that it will deliver copies of the then current prospectus for each such
Investment Product to each Participant before each occasion on which the
Participant makes an investment instruction as to his Account. The Employer
further acknowledges that the Plan will be acknowledged by Putnam as a Putnam
Flexible 401(k) and Profit Sharing Plan only upon Putnam's acceptance of this
Plan Agreement.
INVESTMENT OPTIONS
The Employer hereby elects the following as the investment options available
under the Plan:
PUTNAM MONEY MARKET FUND PUTNAM INCOME FUND
PUTNAM INTERMEDIATE GOVERNMENT THE PUTNAM FUND FOR GROWTH AND INCOME
INCOME FUND
PUTNAM GLOBAL GROWTH FUND PUTNAM NEW OPPORTUNITIES FUND
PUTNAM VISTA FUND PUTNAM VOYAGER FUND
The following investment option shall be the default option: PUTNAM MONEY
MARKET FUND (select the default option from among the investment options listed
above).
Employer signature(s) to adopt Plan: Date of signature:
/s/ Karen L. Conley 10/15/96
- ------------------------------------------------- -------------------------
/s/ Annette Canitano 10/15/96
- ------------------------------------------------- -------------------------
Please print name(s) of authorized person(s) signing above:
Karen M. Conley
- ----------------------------------------------------
Annette M. Canitano
- ----------------------------------------------------
A new Plan must be signed by the last day of the Plan Year in which the Plan is
to be effective.
24
<PAGE> 25
* * * * *
ACCEPTANCE OF PUTNAM FIDUCIARY TRUST COMPANY AS TRUSTEE
The Trustee accepts appointment in accordance with the terms and conditions of
the Plan, effective as of the date of execution by the Employer set forth above.
Putnam Fiduciary Trust Company, Trustee
By: ______________________________________________________________________
25
<PAGE> 26
* * * * *
ACCEPTANCE BY PUTNAM
Putnam hereby accepts this Employer's Plan as a prototype established under
Putnam Basic Plan Document #07.
Putnam Mutual Funds Corp.
By: ______________________________________
26
<PAGE> 27
PUTNAM FLEXIBLE 401(K) AND PROFIT SHARING PLAN
PLAN AGREEMENT #001
This is the Plan Agreement for a Putnam nonstandardized prototype 401(k) plan
with optional profit sharing plan provisions. Please consult a tax or legal
advisor and review the entire form before you sign it. If you fail to fill out
this Putnam Plan Agreement properly, the Plan may be disqualified. By executing
this Plan Agreement, the Employer establishes a 401(k) and profit sharing plan
and trust upon the terms and conditions of Putnam Basic Plan Document #07, as
supplemented and modified by the provisions elected by the Employer in this Plan
Agreement. THIS PLAN AGREEMENT MUST BE ACCEPTED BY PUTNAM IN ORDER FOR THE
EMPLOYER TO RECEIVE FUTURE AMENDMENTS TO THE PUTNAM FLEXIBLE 401(K) AND PROFIT
SHARING PLAN.
* * * * *
1. EMPLOYER INFORMATION. The Employer adopting this Plan is:
A. EMPLOYER NAME:
B. EMPLOYER IDENTIFICATION NUMBER:
C. EMPLOYER ADDRESS:
D. SIC CODE:
E. EMPLOYER CONTACT: Name:
Title: Phone #:
F. FISCAL YEAR: through
(month/day) (month/day)
G. TYPE OF ENTITY (CHECK ONE):
[ ] Corporation [ ] Partnership [ ] Subchapter S Corporation
[ ] Sole proprietorship [ ] Other
H. PLAN NAME:
I. PLAN NUMBER: 00 (complete)
<PAGE> 28
2. PLAN INFORMATION.
A. PLAN YEAR. Check one:
[ ] (1) The Calendar Year
[ ] (2) The Plan Year will be the same as the Fiscal Year of
the Employer shown in 1.F. above. If the Fiscal Year
of the Employer changes, the Plan Year will change
accordingly.
[ ] (3) The Plan Year will be the period of 12 months
beginning on the first day of (month) and
ending on the last day of (month) .
[ ] (4) A short Plan Year commencing on (month/day/year)
and ending on (month/day/year) and
immediately thereafter the 12-consecutive month
period commencing on (month/day).
The Plan Year will also be your Plan's Limitation Year for purposes
of the contribution limitation rules in Article 6 of the Plan.
B. Effective Date of Adoption of Plan.
(1) Are you adopting this Plan to replace an existing plan?
[ ] (a) Yes (b) No
(2) IF YOU ANSWERED YES in 2.B(1) above, the Effective
Date of your adoption of this Replacement Plan will be
the first day of the current Plan Year unless you
elect a later date in (2)(b) below. Please complete
the following:
(a)
Original Effective Date of the Plan you are Replacing
(b)
Effective Date of this Replacement Plan
(3) IF YOU ANSWERED NO in 2B(1) above, the Effective Date
of your adoption of this Plan will be the day you
select below (not before the first day of the current
Plan Year, and not before the day your Business
began):
(a) The Effective Date is:_______
month/day/year
2
<PAGE> 29
C. IDENTIFYING HIGHLY COMPENSATED EMPLOYEES. Check either (1) or (2).
[ ] (1) The Plan will use the regular method under Plan
Section 2.58(a) for identifying Highly Compensated
Employees.
If you selected this option and your Plan Year is the
calendar year, do you wish to make the regular
method's "calendar year election" for identifying your
Highly Compensated Employees?
[ ] (a) Yes (b) No
(2) The Plan will use the simplified method under Plan
Section 2.58(b) for identifying Highly Compensated
Employees.
3. ELIGIBILITY FOR PLAN PARTICIPATION (PLAN SECTION 3.1). Employees will be
eligible to participate in the Plan when they complete the requirements
you select in A, B, C and D below.
A. CLASSES OF ELIGIBLE EMPLOYEES. The Plan will cover all employees
who have met the age and service requirements with the following
exclusions:
[ ] (1) No exclusions. All job classifications will be eligible.
[ ] (2) The Plan will exclude employees in a unit of Employees
covered by a collective bargaining agreement with
respect to which retirement benefits were the subject
of good faith bargaining, with the exception of the
following collective bargaining units, which will be
included: ________.
[ ] (3) The Plan will exclude employees who are non-resident
aliens without U.S. source income.
[ ] (4) Employees of the following Affiliated Employers
(specify):
[ ] (5) Leased Employees
[ ] (6) Employees in the following other classes (specify):
3
<PAGE> 30
B. AGE REQUIREMENT (check and complete (1) or (2)):
[ ] (1) No minimum age required for participation
[ ] (2) Employees must reach age ___ (not over 21) to
participate
C. SERVICE REQUIREMENTS.
(1) ELECTIVE DEFERRALS. To become eligible, an employee must
complete (choose one):
[ ] (a) No minimum service required.
[ ] (b) One 6-month Eligibility Period
[ ] (c) One __-month Eligibility Period (must be less
than 12)
[ ] (d) One 12-month Eligibility Period
(2) EMPLOYER MATCHING CONTRIBUTIONS. To become eligible, an
employee must complete (choose one):
[ ] (a) No minimum service required.
[ ] (b) One 6-month Eligibility Period
[ ] (c) One __-month Eligibility Period (must be less
than 12)
[ ] (d) One 12-month Eligibility Period
[ ] (e) Two 12-month Eligibility Periods (may only
be chosen if you adopt the vesting schedule
under item 9.A(3)(a) to provide 100% full
and immediate vesting of Employer Matching
Contributions).
[ ] (f) Not applicable. The Employer will not make
Employer Matching Contributions.
(3) PROFIT SHARING CONTRIBUTIONS. To become eligible, an
employee must complete (choose one):
[ ] (a) No minimum service required.
[ ] (b) One 6-month Eligibility Period
[ ] (c) One __-month Eligibility Period (must be
less than 12)
[ ] (d) One 12-month Eligibility Period
4
<PAGE> 31
[ ] (e) Two 12-month Eligibility Periods (may only
be chosen if you adopt the vesting schedule
under item 9.A(3)(a) to provide for 100%
full and immediate vesting of Profit
Sharing Contributions)
[ ] (f) Not applicable. The Employer will not make
Profit Sharing Contributions.
(4) If the Employer acquired a business on or before the
Effective Date of this Plan and the Eligibility Periods
selected in (1), (2) and (3) for former employees of that
acquired business will include the former employees' periods
of employment with that business, list the business below.
Any acquired business which had a plan which the Employer
now maintains must be listed below.
(5) If the Employer acquires a business after the Effective
Date, the Eligibility Periods for an employee of the
acquired business will be the periods selected in (1), (2)
and (3) beginning on (check (a) or (b)):
[ ] (a) the date the employee began work with the
acquired business.
[ ] (b) the date of the acquisition (i.e., the date
the employee begins work for the Employer).
(6) HOURS OF SERVICE FOR ELIGIBILITY PERIODS.
(a) 6-MONTH ELIGIBILITY PERIOD. To receive credit for a
6-month Eligibility Period, an employee must complete
6 months of service, during which he completes at
least:
[ ] (i) 500 Hours of Service
[ ] (ii) ___ Hours of Service
(under 500)
(b) 12-MONTH ELIGIBILITY PERIOD. To receive credit for a
12-month Eligibility Period, an employee must complete
12 months of service, during which he completes at
least:
(i) 1,000 Hours of Service
(ii) ___ Hours of Service
(under 1,000)
5
<PAGE> 32
(c) OTHER ELIGIBILITY PERIOD. To receive credit for the
Eligibility Period selected in 3.C(1)(c), 3.C(2)(c)
and/or 3.C(3)(c) above, an employee must complete
during it at
least:
[ ] (i) ___ Hours of Service
(under 1000)
(7) METHOD OF CREDITING HOURS OF SERVICE FOR ELIGIBILITY AND
Vesting. Hours of Service will be credited to an employee by
the following method (check one):
[ ] (a) Actual hours for which an employee is paid
[ ] (b) Any employee who has one actual paid hour
in the following period will be credited
with the number of Hours of Service
indicated (check one):
[ ] (i) Day (10 Hours of Service)
[ ] (ii) Week (45 Hours of Service)
[ ] (iii) Semi-monthly payroll period (95 Hours
of Service)
[ ] (iv) Month (190 Hours of Service)
(8) ENTRY DATES. Each employee in an eligible class who
completes the age and service requirements specified above
will begin to participate in the Plan on (check one):
[ ] (a) The first day of the month in which he fulfills
the requirements.
[ ] (b) The first of the following dates occurring
after he fulfills the requirements (check
one):
[ ] (i) The first day of the month following
the date he fulfills the requirements
(monthly).
[ ] (ii) The first day of the first, fourth,
seventh and tenth months in a Plan
Year (quarterly).
[ ] (iii) The first day of the first month
and the seventh month in a Plan
Year (semiannually).
[ ] (c) Other: ____ (May be no later than (i) the
first day of the Plan Year after which he
fulfills the requirements, and (ii) the date
six months after the date on which he
fulfills the requirements, which
6
<PAGE> 33
ever occurs first.)
D. (FOR NEW PLANS ONLY) Will all eligible Employees as of the
Effective Date be required to meet the age and service requirements
for participation specified in B and C above?
[ ] (a) Yes
[ ] (b) No. Eligible Employees will be eligible to become
Participants as of the Effective Date even if they
have not satisfied (check one or both):
[ ] (i) the age requirement.
[ ] (ii) the service requirement.
4. CONTRIBUTIONS.
A. ELECTIVE DEFERRALS (PLAN SECTION 5.2). Your Plan will allow
employees to elect pre-tax contributions under Section 401(k) of
the Code. You must complete this part A.
(1) A Participant may make Elective Deferrals for each year in
an amount not to exceed (check one):
[ ] (a) _____% of his Earnings
[ ] (b) _____% of his Earnings not to exceed $_____
(specify a dollar amount)
[ ] (c) $_____ (specify a dollar amount)
(2) Will a Participant be required to make a minimum Elective
Deferral in order to make Elective Deferrals under the Plan?
(check one and complete as applicable)
[ ] (a) No.
[ ] (b) Yes. The minimum Elective Deferral will be ___%
of the Participant's Earnings.
(3) A Participant may begin to make Elective Deferrals, or
change the amount of his Elective Deferrals, as of the
following dates (check one):
[ ] (a) First business day of each month (monthly).
[ ] (b) First business day of the first, fourth,
seventh and tenth months of the Plan Year
(quarterly).
[ ] (c) First business day of the first and seventh
months of the Plan Year (semiannually).
[ ] (d) First business day of the Plan Year only
(annually).
7
<PAGE> 34
[ ] (e) Other:____
(4) Will Participants be permitted to make separate Elective
Deferrals of bonuses, even if bonuses have otherwise been
excluded from Compensation for the purpose of Elective
Deferrals under 7.A(1)?
[ ] (a) Yes [ ] (b) No
B. EMPLOYER MATCHING CONTRIBUTIONS. (Plan Section 5.8). Complete
this part B only if you will make Employer Matching Contributions
under the Plan.
(1) The Employer will contribute and will allocate to each
Qualified Participant's Employee Matching Account an
Employer Matching Contribution on the basis set forth below:
[ ] (a) Discretionary matching contributions. (The
Employer may select this option in addition to
option (b) if the Employer wishes to have the
option to make discretionary matching
contributions in addition to fixed matching
contributions.)
[ ] (b) Fixed matching contributions.
[ ] (i) based on Elective Deferrals:
[ ] (A) ___% of Elective Deferrals
[ ] (B) ___% of Elective Deferrals up to
___% of Earnings.
[ ] (C) ___% of Elective Deferrals up to
___% of Earnings and ___% of
Elective Deferrals over that
percentage of Earnings and up
to ___% of Earnings. (The third
percentage number must be
less than the first
percentage number.)
[ ] (D) __% of Elective Deferrals up to
$___ of Elective Deferrals.
[ ] (E) ___% of Elective Deferrals up to
$___ of Elective Deferrals and
___% of Elective Deferrals over
that dollar amount and up to
$___ of Elective Deferrals. (The
last percentage must be less
than the first percentage).
8
<PAGE> 35
[ ] (ii) based on after-tax Participant
Contributions:
[ ] (A) ___% of Participant Contributions
[ ] (B) ___% of Participant
Contributions up to ___% of
Earnings.
[ ] (C) ___% of Participant Contributions
up to ___% of Earnings and ___% of
Participant Contributions over
that percentage of Earnings and
up to ___% of Participant
Contributions. (The third
percentage must be less than the
first percentage)
[ ] (D) ___% of Participant
Contributions up to $___ of
Participant Contributions.
[ ] (E) ___% of Participant Contributions
up to $___ of Participant
Contributions and ___% of
Participant Contributions over
that dollar amount and up to $___
of Participant Contributions.
(The last percentage must be less
than the first percentage).
(2) QUALIFIED PARTICIPANT. In order to receive an allocation of
Employer Matching Contributions for a Plan Year, an Employee
must be a Qualified Participant for that purpose. Select
below either (a) alone, or any combination of (b), (c) and
(d).
[ ] (a) To be a Qualified Participant eligible to
receive Employer Matching Contributions for a
Plan Year, an Employee must (check (i) or (ii)):
[ ] (i) Either be employed on the last day
of the Plan Year, complete more
than 500 Hours of Service in the
Plan Year, or retire, die or become
disabled in the Plan Year.
[ ] (ii) Either be employed on the last day
of the Plan Year or complete more
than 500 Hours of Service in the
Plan Year.
Stop here if you checked (a). If you did not check (a),
check (b), (c) or (d), or any combination of (b), (c) and
(d).
9
<PAGE> 36
To be a Qualified Participant eligible to receive Employer
Matching Contributions for a Plan Year, an Employee must:
[ ] (b) Be credited with ___ (choose 1, 501 or 1,000)
Hours of Service in the Plan Year.
[ ] (c) Be an Employee on the last day of the Plan Year.
[ ] (d) Retire, die or become disabled during the Plan
Year.
(3) Will the Employer have the option of making all or any
portion of its Employer Matching Contributions in Employer
Stock?
[ ] (a) Yes [ ] (b) No
C. PROFIT SHARING CONTRIBUTIONS. (Plan Sections 4.1 and 4.2)
(1) PROFIT LIMITATION. Will Profit Sharing Contributions to the
Plan be limited to the current and accumulated profits of
your Business? Check one:
[ ] (a) Yes [ ] (b) No
(2) AMOUNT. The Employer will contribute to the Plan for each
Plan Year (check one):
[ ] (a) An amount chosen by the Employer from year to
year
[ ] (b) ___% of the Earnings of all Qualified
Participants for the Plan Year
[ ] (c) $___ for each Qualified Participant per ___
(enter time period, e.g. payroll period, plan
year)
(3) ALLOCATIONS TO PARTICIPANTS
(a) ALLOCATION TO PARTICIPANTS. Profit Sharing
Contributions will be allocated:
[ ] (i) Pro rata (percentage based on
compensation)
[ ] (ii) Uniform Dollar amount
[ ] (iii) Integrated With Social Security
(complete (b) and (c) below)
(b) INTEGRATION WITH SOCIAL SECURITY. (Complete only if
you have elected in 4.C(3)(a) to integrate your Plan
with Social Security.) Profit Sharing Contributions
will be allocated to Qualified Participants as you
check below:
10
<PAGE> 37
[ ] (i) Profit Sharing Contributions will be
allocated according to the Top-Heavy
Integration Formula in Plan Section
4.2(c)(1) in every Plan Year, whether or
not the Plan is top-heavy.
[ ] (ii) Profit Sharing Contributions will be
allocated according to the Top-Heavy
Integration Formula in Plan Section
4.2(c)(1) only in Plan Years in which the
Plan is top-heavy. In all other Plan
Years, contributions will be allocated
according to the Non-Top-Heavy
Integration Formula in Plan Section
4.2(c)(2).
(c) INTEGRATION LEVEL. (Complete only if you have elected
in 4.C(3)(a) to integrate your Plan with Social
Security.) The Integration Level will be (check one):
[ ] (i) The Social Security Wage Base in effect
at the beginning of the Plan Year.
[ ] (ii) ___% (not more than 100%) of the Social
Security Wage Base in effect at the
beginning of the Plan Year.
[ ] (iii) $_____ (not more than the Social
Security Wage Base).
NOTE: The Social Security Wage Base is
indexed annually to reflect increases in
the cost of living.
(4) QUALIFIED PARTICIPANTS. In order to receive an allocation of
Profit Sharing Contributions for a Plan Year, an Employee
must be a Qualified Participant for this purpose. Select
below either (a) alone, or any combination of (b), (c) and
(d).
[ ] (a) To be a Qualified Participant eligible to
receive an allocation of Profit Sharing
Contributions for a Plan Year, an Employee must
(check (i) or (ii)):
[ ] (i) Either be employed on the last day
of the Plan Year, complete more
than 500 Hours of Service in the
Plan Year, or retire, die or become
disabled in the Plan Year.
[ ] (ii) Either be employed on the last day
of the Plan Year or complete more
than 500 Hours of Service in the
Plan Year.
Stop here if you checked (a). If you did not check (a),
check (b), (c) or (d), or any combination of (b), (c) and
(d).
11
<PAGE> 38
To be a Qualified Participant eligible to receive an
allocation of Profit Sharing Contributions for a Plan Year,
an Employee must:
[ ] (b) Be credited with ___ (choose 1, 501 or 1,000)
Hours of Service in the Plan Year.
[ ] (c) Be an Employee on the last day of the Plan Year.
[ ] (d) Retire, die or become disabled during the Plan
Year.
D. PARTICIPANT CONTRIBUTIONS (PLAN SECTION 4.6). Will your Plan allow
Participants to make after-tax contributions?
[ ] (1) Yes [ ] (2) No
E. QUALIFIED MATCHING CONTRIBUTIONS (PLAN SECTION 2.61). Skip this
part E if you will not make Qualified Matching Contributions.
(1) Qualified Matching Contributions will be made with respect
to (check one):
[ ] (a) Elective Deferrals made by all Qualified
Participants (as defined in 4.B(2))
[ ] (b) Elective Deferrals made only by Qualified
Participants (as defined in 4.B(2)) who are not
Highly Compensated Participants
(2) The amount of Qualified Matching Contributions made with
respect to a Participant will be:
[ ] (a) discretionary
[ ] (b) fixed (check and complete (i), (ii) or (iii))
[ ] (i) ___% of Elective Deferrals
[ ] (ii) ___% of Elective Deferrals that do not
exceed ___% of Earnings
[ ] (iii) ___% of Elective Deferrals that do not
exceed $_____
12
<PAGE> 39
F. QUALIFIED NONELECTIVE CONTRIBUTIONS (PLAN SECTION 2.62): Skip
this part F if you will not make Qualified Nonelective
Contributions.
(1) Qualified Nonelective Contributions will be made on behalf
of (check either (a) or (b) and either (c) or (d)):
[ ] (a) All Participants
[ ] (b) Only Participants who are not Highly Compensated
Employees who also, for the Plan Year for which
the Qualified Nonelective Contributions are
made:
[ ] (c) Are Qualified Participants (as defined in
4.C(4))
[ ] (d) Made Elective Deferrals
(2) The amount of Qualified Nonelective Contributions for a Plan
Year will be (check one):
[ ] (a) ___% (not over 15%) of the Earnings of
Participants on whose behalf Qualified
Nonelective Contributions are made
[ ] (b) An amount determined by the Employer from year
to year, to be shared in proportion to their
Earnings by Participants on whose behalf
Qualified Nonelective Contributions are made
G. Forfeitures
(1) EMPLOYER MATCHING CONTRIBUTIONS. Forfeitures of Employer
Matching Contributions will be used as follows (check and
complete (a) or (b)):
[ ] (a) Applied to reduce the following contributions
required of the Employer (check (i) and/or
(ii)):
[ ] (i) Employer Matching Contributions
[ ] (ii) Profit Sharing Contributions
[ ] (b) Reallocated as follows (check (i) or (ii)):
[ ] (i) As additional Employer Matching
Contributions
[ ] (ii) As additional Profit Sharing
Contributions
13
<PAGE> 40
(2) Profit Sharing Contributions. Forfeitures of Profit Sharing
Contributions will be used as follows (check (a) or (b)):
[ ] (a) Applied to reduce the following contributions
required of the Employer (check (i) and/or
(ii)):
[ ] (i) Profit Sharing Contributions
[ ] (ii) Employer Matching Contributions
[ ] (b) Reallocated as additional Profit Sharing
Contributions
5. TOP-HEAVY MINIMUM CONTRIBUTIONS (PLAN SECTION 14.3). Skip paragraphs A
and B below if you do not maintain any other qualified plan in addition
to this Plan.
A. For any Plan Year in which the Plan is Top-Heavy, the Top-Heavy
minimum contribution (or benefit) for Non-Key employees
participating both in this Plan and another qualified plan
maintained by the Employer will be provided in (check one):
[ ] (1) This Plan [ ] (2) The other qualified plan
B. If you maintain a defined benefit plan in addition to this Plan,
and the Top-Heavy Ratio (as defined in Plan Section 14.2(c)) for
the combined plans is between 60% and 90%, you may elect to provide
an increased minimum allocation or benefit pursuant to Plan Section
14.4. Specify your election by completing the statement below:
The Employer will provide an increased (specify contribution or
benefit) ___ in its (specify defined contribution or defined
benefit) ___ plan as permitted under Plan Section 14.4.
6. OTHER PLANS. You must complete this section if you maintain or ever
maintained another qualified plan in which any Participant in this Plan
is (or was) a participant or could become a participant. The Plan and
your other plan(s) combined will meet the contribution limitation rules
in Article 6 of the Plan as you specify below:
A. If a Participant in the Plan is covered under another qualified
defined contribution plan maintained by your Business, other than a
master or prototype plan (check one):
[ ] (1) The provisions of Section 6.2 of the Plan will apply
as if the other plan were a master or prototype plan.
[ ] (2) The plans will limit total annual additions to the
maximum permissible amount, and will properly reduce
any excess amounts, in the manner you describe below.
14
<PAGE> 41
B. If a Participant in the Plan is or has ever been a participant in a
defined benefit plan maintained by your Business, the plans will
meet the limits of Article 6 in the manner you describe below:
If your Business has ever maintained a defined benefit plan, state
below the interest rate and mortality table to be used in
establishing the present value of any benefit under the defined
benefit plan for purposes of computing the top-heavy ratio:
Interest rate: ___
Mortality Table:___
7. COMPENSATION (PLAN SECTION 2.8).
A. AMOUNT.
(1) ELECTIVE DEFERRALS AND EMPLOYER MATCHING CONTRIBUTIONS.
Compensation for the purposes of determining the amount and
allocation of Elective Deferrals and Employer Matching
Contributions will be determined as follows (choose either
(a) or (b), and (c) and/or (d) as applicable).
[ ] (a) Compensation will include Form W-2 earnings as
defined in Section 2.8 of the Plan.
[ ] (b) Compensation will include all compensation
included in the definition of Code Section 415
Compensation in Plan Section 6.5(b) of the Plan.
[ ] (c) In addition to the amount provided in either
(a) or (b) above, Compensation will also
include any amounts withheld from the
employee under a 401(k) plan, cafeteria
plan, SARSEP, tax sheltered 403(b)
arrangement, or Code Section 457 deferred
compensation plan, and contributions
described in Code Section 414(h)(2) that
are picked up by a governmental employer.
[ ] (d) Compensation will also exclude the following
amount (choose each that applies):
[ ] (i) overtime pay.
[ ] (ii) bonuses.
[ ] (iii) commissions.
[ ] (iv) other pay (describe):
15
<PAGE> 42
[ ] (v) compensation in excess of $_______
(2) PROFIT SHARING CONTRIBUTIONS. Compensation for the purposes
of determining the amount and allocation of Profit Sharing
Contributions shall be determined as follows (choose either
(a) or (b), and (c) and/or (d), as applicable).
[ ] (a) Compensation will include Form W-2 earnings as
defined in Section 2.8 of the Plan.
[ ] (b) Compensation will include all compensation
included in the definition of Code Section 415
Compensation in Section 6.5(b) of the Plan.
[ ] (c) In addition to the amount provided in either
(a) or (b) above, compensation will also
include any amounts withheld from the
employee under a 401(k) plan, cafeteria
plan, SARSEP, tax sheltered 403(b)
arrangement, or Code Section 457 deferred
compensation plan, and contributions
described in Code Section 414(h)(2) that
are picked up by a governmental employer.
[ ] (d) Compensation will also exclude the following
amounts (choose each that applies):
[ ] (i) overtime pay
[ ] (ii) bonuses
[ ] (iii) commissions
[ ] (iv) other pay describe: ___
[ ] (v) compensation in excess of $_____
Note: No exclusion under (d) may be selected if Profit
Sharing Contributions will be integrated with Social
Security under 4.C(3)(a)(iii). In addition, no
exclusion under (d) will apply for purposes of
determining the top-heavy minimum contribution if the
Plan is top-heavy.
B. MEASURING PERIOD. Compensation will be based on the Plan Year.
However, for an Employee's initial year of participation in the
Plan, Compensation will be recognized as of:
[ ] (1) the first day of the Plan Year.
[ ] (2) the date the Participant enters the Plan.
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<PAGE> 43
8. DISTRIBUTIONS AND WITHDRAWALS.
A. RETIREMENT DISTRIBUTIONS.
(1) NORMAL RETIREMENT AGE (PLAN SECTION 7.1). Normal retirement
age will be the later of ______ (not over age 65) or ______
(not more than 5) years of participation in the Plan.
(2) EARLY RETIREMENT (PLAN SECTION 7.1). Select one:
[ ] (a) No early retirement will be permitted.
[ ] (b) Early retirement will be permitted at age ___.
[ ] (c) Early retirement will be permitted at age ___
with at least ___ Years of Service.
(3) ANNUITIES (PLAN SECTION 9.3). Will your Plan permit
distributions in the form of a life annuity? You must check
Yes if this Plan replaces or serves as a transferee plan for
an existing Plan that permits distributions in a life
annuity form.
[ ] (a) Yes [ ] (b) No
B. Hardship Distributions (Plan Section 12.2). Will your Plan permit
hardship distributions?
[ ] (1) No
[ ] (2) Yes. Indicate below from which Accounts hardship
withdrawals will be permitted (check all that apply):
[ ] (a) Elective Deferral Account
[ ] (b) Rollover Account
[ ] (c) Employer Matching Account
[ ] (d) Employer Contribution Account (i.e. Profit
Sharing Contributions)
C. WITHDRAWALS AFTER AGE 59 1/2 (PLAN SECTION 12.3). Will your Plan
permit employees over age 59 1/2 to withdraw amounts upon request?
You must check Yes if this Plan replaces an existing Plan that
permits withdrawals after age 59 1/2.
[ ] (1) Yes [ ] (2) No
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<PAGE> 44
D. WITHDRAWALS FOLLOWING FIVE YEARS OF PARTICIPATION OR TWO
YEARS AFTER CONTRIBUTION (PLAN SECTION 12.4). Will your Plan permit
employees to withdraw amounts from the vested portion of their
Employer Matching Contribution Accounts and Employer Contribution
Accounts (i.e., Profit Sharing Contributions) if either (i) the
Participant has been a Participant for at least five years, or (ii)
the amount withdrawn from each of these Accounts is limited to the
amounts that were credited to that Account prior to the date two
years before the withdrawal? You must check yes if this Plan
replaces a Plan which permits withdrawals in these circumstances.
[ ] (1) Yes [ ] (2) No
E. LOANS (PLAN SECTION 12.5). Will your Plan permit loans to employees
from the vested portion of their Accounts?
[ ] (1) No
[ ] (2) Yes. Indicate below whether loans will be permitted
for any reason or only on account of hardship:
[ ] (a) Any reason.
[ ] (b) Hardship only.
F. AUTOMATIC DISTRIBUTION OF SMALL ACCOUNTS (PLAN SECTION 9.1). Will
your Plan automatically distribute vested account balances not
exceeding $3,500, within 60 days after the end of the Plan Year in
which a Participant separates from employment?
[ ] (1) Yes [ ] (2) No
9. VESTING (PLAN ARTICLE 8)
A. TIME OF VESTING (SELECT (1) OR (2) BELOW AND COMPLETE VESTING
SCHEDULE).
[ ] (1) Single Vesting Schedule:
The vesting schedule selected below will apply to both
Employer Matching Contributions and Profit Sharing
Contributions.
[ ] (2) Dual Vesting Schedules:
The vesting schedule marked with an "MC" below will apply to
Employer Matching Contributions and the vesting schedule
marked with a "PS" below will apply to Profit Sharing
Contributions.
18
<PAGE> 45
(3) Vesting Schedules:
[ ] (a) 100% vesting immediately upon participation in the Plan.
[ ] (b) Five-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 1 2 3 4 5
[ ] (c) Seven-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 3 4 5 6 7
[ ] (d) Six-Year Graded Schedule:
Vested Percentage 20% 40% 60% 80% 100%
Years of Service 2 3 4 5 6
[ ] (e) Three-Year Cliff Schedule:
Vested Percentage 0% 100%
Years of Service 0-2 3
[ ] (f) Five-Year Cliff Schedule:
Vested Percentage 0% 100%
Years of Service 0-4 5
[ ] (g) Other Schedule (must be at least as favorable as
Seven-Year Graded Schedule or Five-Year Cliff
Schedule):
(i) Vested Percentage __% __% __% __% __%
(ii) Years of Service ___ ___ ___ ___ ___
(4) Top Heavy Schedule:
(a) If you selected above an "Other Schedule," specify in
the space below the schedule that will apply in Plan
Years that the Plan is top-heavy. The schedule you
specify must be at least as favorable to employees, at
all years of service, as either the Six-Year Graded
Schedule or the Three-Year Cliff Schedule. The
top-heavy vesting schedule will be:
19
<PAGE> 46
[ ] (i) the same "Other Schedule" selected above
[ ] (ii) the following schedule:
Vested Percentage ___% ___% ___% ___% ___%
Years of Service ___ ___ ___ ___ ___
[ ] (iii) Six-Year Graded Schedule
[ ] (iv) Three-Year Cliff Schedule
(b) If the Plan becomes top-heavy in a Plan Year, will the
top-heavy vesting schedule apply for all subsequent
Plan Years?
[ ] (i) Yes [ ] (ii) No
B. SERVICE FOR VESTING (SELECT (1) OR (2), AND COMPLETE (3)).
[ ] (1) All of an employee's service will be used to determine
his Years of Service for purposes of vesting
[ ] (2) An employee's Years of Service for vesting will
include all years except (check all that apply):
[ ] (a) (New plan) service before the effective date of
the plan
[ ] (b) (Existing plan) service before the effective
date of the existing plan
[ ] (c) Service before the Plan Year in which an
employee reached age 18
(3) Will an employee's service for a business acquired by the
Employer that was performed before the acquisition be
included in determining an employee's Years of Service for
vesting?
[ ] (a) Yes [ ] (b) No
List below any business acquired on or before the Effective
Date for which an employee's service will be included in
determining an employee's Years of Service for vesting.
Service of an employee for a predecessor employer (which
includes an acquired business) whose plan the Employer
maintains must be included as service for the Employer under
this Plan. Therefore, also list below any predecessor
employer whose plan the Employer maintains:
20
<PAGE> 47
C. HOURS OF SERVICE FOR VESTING. The number of Hours of Service
required for crediting a Year of Service for vesting will be
(check one):
[ ] (1) 1,000 Hours of Service
[ ] (2) ___ Hours of Service
(under 1,000)
Hours of Service for vesting will be credited according to the
method selected under 3.C(6).
D. YEAR OF SERVICE MEASURING PERIOD FOR VESTING (PLAN SECTION 2.52).
The periods of 12 months used for measuring Years of Service will
be (check one):
[ ] (1) Plan Years
[ ] (2) 12-month Eligibility Periods
Note: If you are adopting this Plan to replace an existing plan,
employees will be credited under this Plan with all service credited to
them under the plan you are replacing.
10. INVESTMENTS (PLAN SECTIONS 13.2 AND 13.3).
A. AVAILABLE INVESTMENT PRODUCTS (PLAN SECTION 13.2). The investment
options available under the Plan are identified in the Service
Agreement or such other written instructions between the Employer
and Putnam, as the case may be. All Investment Products must be
sponsored, underwritten, managed or expressly agreed to in writing
by Putnam. If there is any amount in the Trust Fund for which no
instructions or unclear instructions are delivered, it will be
invested in the default option selected by the Employer in its
Service Agreement with Putnam, or such other written instructions
as the case may be, until instructions are received in good order,
and the Employer will be deemed to have selected the option
indicated in its Service Agreement, or such other written
instructions as the case may be, as an available Investment Product
for that purpose.
B. INSTRUCTIONS (PLAN SECTION 13.3). Investment instructions for
amounts held under the Plan generally will be given by each
Participant for his own Accounts and delivered to Putnam as
indicated in the Service Agreement between Putnam and the Employer.
Check below only if the Employer will make investment decisions
under the Plan with respect to the following contributions made to
the Plan.
(Check all applicable options.)
C. [ ] (1) The Employer will make all investment decisions
with respect to all employee contributions, including
Elective Deferrals, Participant Contributions,
Deductible Employee Contributions and Rollover
Contributions.
21
<PAGE> 48
[ ] (2) The Employer will make all investment decisions with
respect to all Employer contributions, including
Profit Sharing Contributions, Employer Matching
Contributions, Qualified Matching Contributions and
Qualified Nonelective Contributions.
[ ] (3) The Employer will make investment decisions with
respect to Employer Matching Contributions and
Qualified Matching Contributions.
[ ] (4) The Employer will make investment decisions with
respect to Qualified Nonelective Contributions.
[ ] (5) The Employer will make investment decisions with
respect to Profit Sharing Contributions.
[ ] (6) Other (Describe. An Employer may elect to make
investment decisions with respect to a specified
portion of a specific type of contribution to the
Plan.):
C. CHANGES. Investment instructions may be changed (check one):
[ ] (1) on any Valuation Date (daily)
[ ] (2) on the first day of any month (monthly)
[ ] (3) on the first day of the first, fourth, seventh and
tenth months in a Plan Year (quarterly)
D. EMPLOYER STOCK. (Skip this paragraph if you did not designate
Employer Stock as an investment under the Service Agreement.)
(1) VOTING. Employer Stock will be voted as follows:
[ ] (a) In accordance with the Employer's instructions.
[ ] (b) In accordance with the Participant's
instructions. Participants are hereby appointed
named fiduciaries for the purpose of the voting
of Employer Stock in accordance with Plan
Section
13.8.
(2) TENDERING. Employer stock will be tendered as follows:
[ ] (a) In accordance with the Employer's instructions.
[ ] (b) In accordance with the Participant's
instructions. Participants are hereby appointed
named fiduciaries for the purpose of the
tendering of Employer Stock in accordance with
Plan Section
13.8.
22
<PAGE> 49
11. ADMINISTRATION.
A. PLAN ADMINISTRATOR (PLAN SECTION 15.1). You may appoint a person or
a committee to serve as Plan Administrator. If you do not appoint a
Plan Administrator, the Plan provides that the Employer will be the
Plan Administrator.
The initial Plan Administrator will be (check one):
[ ] This person: _________
[ ] A committee composed of these people:
B. RECORDKEEPER (PLAN SECTION 15.4). Unless Putnam expressly permits
otherwise, you must appoint Putnam as Recordkeeper to perform
certain routine services determined upon execution of a written
Service Agreement between Putnam and the Employer.
The initial Record keeper will be:
PUTNAM FIDUCIARY TRUST COMPANY
PUTNAM RETAIL 401(K) B-2-B
859 WILLARD ST.
QUINCY, MA 02269-9110
12. DETERMINATION LETTER REQUIRED. You may not rely on an opinion letter
issued to Putnam by the National Office of the Internal Revenue Service
as evidence that the Plan is qualified under Section 401 of the Internal
Revenue Code. In order to obtain reliance with respect to qualification
of the Plan, you must receive a determination letter from the appropriate
Key District Office of Internal Revenue. Putnam will prepare an
application for such a letter upon your request at a fee agreed upon by
the parties.
Putnam will inform you of all amendments it makes to the prototype plan.
If Putnam ever discontinues or abandons the prototype plan, Putnam will
inform you. This Plan Agreement #001 may be used only in conjunction with
Putnam's Basic Plan Document #07.
* * * * *
If you have any questions regarding this Plan Agreement, contact Putnam
at:
Putnam Defined Contribution Plans
One Putnam Place B2B
859 Willard Street
Quincy, MA 02269
Phone: 1-800-752-5766
23
<PAGE> 50
* * * * *
EMPLOYER'S ADOPTION OF PUTNAM
FLEXIBLE 401(k) AND PROFIT SHARING PLAN
The Employer named below hereby adopts a PUTNAM FLEXIBLE 401(k) AND PROFIT
SHARING PLAN, and appoints PUTNAM FIDUCIARY TRUST COMPANY to serve as Trustee of
the Plan. The Employer acknowledges that it has received copies of the current
prospectus for each Investment Product available under the Plan, and represents
that it will deliver copies of the then current prospectus for each such
Investment Product to each Participant before each occasion on which the
Participant makes an investment instruction as to his Account. The Employer
further acknowledges that the Plan will be acknowledged by Putnam as a Putnam
Flexible 401(k) and Profit Sharing Plan only upon Putnam's acceptance of this
Plan Agreement.
INVESTMENT OPTIONS
The Employer hereby elects the following as the investment options available
under the Plan:
The following investment option shall be the default option: ___ (select the
default option from among the investment options listed above).
Employer signature(s) to adopt Plan: Date of signature:
- ------------------------------------------------- -------------------------
- ------------------------------------------------- -------------------------
Please print name(s) of authorized person(s) signing above:
- ----------------------------------------------------
- ----------------------------------------------------
A new Plan must be signed by the last day of the Plan Year in which the Plan is
to be effective.
24
<PAGE> 51
* * * * *
ACCEPTANCE OF PUTNAM FIDUCIARY TRUST COMPANY AS TRUSTEE
The Trustee accepts appointment in accordance with the terms and conditions of
the Plan, effective as of the date of execution by the Employer set forth above.
Putnam Fiduciary Trust Company, Trustee
By: ______________________________________________________________________
25
<PAGE> 52
* * * * *
ACCEPTANCE BY PUTNAM
Putnam hereby accepts this Employer's Plan as a prototype established under
Putnam Basic Plan Document #07.
Putnam Mutual Funds Corp.
By: ______________________________________
26
<PAGE> 53
PUTNAM BASIC PLAN DOCUMENT #07
<PAGE> 54
PUTNAM BASIC PLAN DOCUMENT #07
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1. INTRODUCTION....................................................................................1
ARTICLE 2. DEFINITIONS.....................................................................................2
2.1. Account..................................................................................2
2.2. Affiliated Employer......................................................................2
2.3. Authorized Leave of Absence..............................................................2
2.4. Base Contribution Percentage.............................................................2
2.5. Beneficiary..............................................................................3
2.6. CODA.....................................................................................3
2.7. Code.....................................................................................3
2.8. Compensation.............................................................................3
2.9. Date of Employment.......................................................................3
2.10. Deductible Employee Contribution Account.................................................3
2.11. Disabled.................................................................................4
2.12. Earned Income............................................................................4
2.13. Earnings.................................................................................4
2.14. Effective Date...........................................................................4
2.15. Eligibility Period.......................................................................4
2.16. Employee.................................................................................5
2.17. Employer.................................................................................5
2.18. Employer Contribution Account............................................................5
2.19. Employer Stock...........................................................................5
2.20. ERISA....................................................................................5
2.21. Excess Earnings..........................................................................5
2.22. Forfeiture...............................................................................5
2.23. Hour of Service..........................................................................5
2.24. Integration Level........................................................................7
2.25. Investment Company.......................................................................7
2.26. Investment Company Shares................................................................7
2.27. Investment Products......................................................................7
2.28. Leased Employee..........................................................................7
2.29. One-Year Eligibility Break...............................................................8
2.30. One-Year Vesting Break...................................................................8
2.31. Owner-Employee...........................................................................8
2.32. Participant..............................................................................8
2.33. Participant Contribution.................................................................8
2.34. Participant Contribution Account.........................................................8
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<TABLE>
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2.35. Plan.....................................................................................8
2.36. Plan Administrator.......................................................................9
2.37. Plan Agreement...........................................................................9
2.38. Plan Year................................................................................9
2.39. Profit Sharing Contribution..............................................................9
2.40. Putnam...................................................................................9
2.41. Qualified Domestic Relations Order.......................................................9
2.42. Qualified Participant....................................................................9
2.43. Recordkeeper.............................................................................9
2.44. Retirement...............................................................................9
2.45. Rollover Account........................................................................10
2.46. Self-Employed Individual................................................................10
2.47. Shareholder-Employee....................................................................10
2.48. Social Security Wage Base...............................................................10
2.49. Trust and Trust Fund....................................................................10
2.50. Trustee.................................................................................10
2.51. Valuation Date..........................................................................10
2.52. Year of Service.........................................................................10
2.53. Deferral Agreement......................................................................11
2.54. Elective Deferral.......................................................................11
2.55. Elective Deferral Account...............................................................11
2.56. Employer Matching Account...............................................................11
2.57. Employer Matching Contribution..........................................................11
2.58. Highly Compensated Employee.............................................................11
2.59. Non-Highly Compensated Employee.........................................................14
2.60. Qualified Matching Account..............................................................14
2.61. Qualified Matching Contribution.........................................................14
2.62. Qualified Nonelective Contribution......................................................14
2.63. Qualified Nonelective Contribution Account..............................................14
ARTICLE 3. PARTICIPATION..................................................................................15
3.1. Initial Participation...................................................................15
3.2. Special Participation Rule..............................................................16
3.3. Resumed Participation...................................................................16
3.4. Benefits for Owner-Employees............................................................16
3.5. Changes in Classification...............................................................17
ARTICLE 4. CONTRIBUTIONS..................................................................................18
4.1. Provisions Applicable to All Plans......................................................18
4.2. Provisions Applicable Only to Profit Sharing Plans......................................19
4.3. Provisions Applicable Only to Money Purchase Pension Plans..............................22
4.4. Forfeitures.............................................................................24
4.5. Rollover Contributions..................................................................24
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4.6. Participant Contributions................................................................24
4.7. No Deductible Employee Contributions.....................................................24
ARTICLE 5. CASH OR DEFERRED ARRANGEMENT UNDER SECTION 401(k)(CODA)........................................25
5.1. Applicability; Allocations...............................................................25
5.2. CODA Participation.......................................................................25
5.3. Annual Limit on Elective Deferrals.......................................................25
5.4. Distribution of Certain Elective Deferrals...............................................26
5.5. Satisfaction of ADP and ACP Tests........................................................26
5.6. Actual Deferral Percentage Test Limit....................................................27
5.7. Distribution of Excess Contributions.....................................................29
5.8. Matching Contributions...................................................................30
5.9. Recharacterization of Excess Contributions...............................................30
5.10. Average Contribution Percentage Test Limit and Aggregate Limit...........................31
5.11. Distribution of Excess Aggregate Contributions...........................................33
5.12. Qualified Nonelective Contributions; Qualified Matching Contributions....................34
5.13. Restriction on Distributions.............................................................34
5.14. Forfeitures of Employer Matching Contributions...........................................35
5.15. Special Effective Dates..................................................................35
ARTICLE 6. LIMITATIONS ON ALLOCATIONS.....................................................................36
6.1. No Additional Plan.......................................................................36
6.2. Additional Master or Prototype Plan......................................................37
6.3. Additional Non-Master or Non-Prototype Plan..............................................38
6.4. Additional Defined Benefit Plan..........................................................38
6.5. Definitions..............................................................................39
ARTICLE 7. ELIGIBILITY FOR DISTRIBUTION OF BENEFITS.......................................................43
7.1. Retirement...............................................................................43
7.2. Death....................................................................................43
7.3. Other Termination of Employment..........................................................43
ARTICLE 8. VESTING........................................................................................45
8.1. Vested Balance...........................................................................45
8.2. Vesting of Accounts of Returned Former Employees.........................................45
8.3. Forfeiture of Non-Vested Amounts.........................................................46
8.4. Special Rule in the Event of a Withdrawal................................................47
8.5. Vesting Election.........................................................................47
ARTICLE 9. PAYMENT OF BENEFITS............................................................................49
9.1. Distribution of Accounts.................................................................49
9.2. Restriction on Immediate Distributions...................................................49
9.3. Optional Forms of Distribution...........................................................50
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9.4. Distribution Procedure..................................................................51
9.5. Lost Distributee........................................................................51
9.6. Direct Rollovers........................................................................52
9.7. Distributions Required by a Qualified Domestic Relations Order..........................53
ARTICLE 10. JOINT AND SURVIVOR ANNUITY REQUIREMENTS........................................................54
10.1. Applicability...........................................................................54
10.2. Qualified Joint and Survivor Annuity....................................................55
10.3. Qualified Preretirement Survivor Annuity................................................55
10.4. Definitions.............................................................................55
10.5. Notice Requirements.....................................................................57
10.6. Transitional Rules......................................................................57
ARTICLE 11. MINIMUM DISTRIBUTION REQUIREMENTS..............................................................60
11.1. General Rules...........................................................................60
11.2. Required Beginning Date.................................................................60
11.3. Limits on Distribution Periods..........................................................61
11.4. Determination of Amount to Be Distributed Each Year.....................................61
11.5. Death Distribution Provisions...........................................................63
11.6. Transitional Rule.......................................................................64
ARTICLE 12. WITHDRAWALS AND LOANS..........................................................................66
12.1. Withdrawals from Participant Contribution and Rollover Accounts.........................66
12.2. Withdrawals on Account of Hardship......................................................66
12.3. Withdrawals After Reaching Age 59 1/2...................................................67
12.4. Other Withdrawals.......................................................................67
12.5. Loans...................................................................................68
12.6. Procedure; Amount Available.............................................................70
12.7. Protected Benefits......................................................................70
12.8. Restrictions Concerning Transferred Assets..............................................70
ARTICLE 13. TRUST FUND AND INVESTMENTS.....................................................................72
13.1. Establishment of Trust Fund.............................................................72
13.2. Management of Trust Fund................................................................72
13.3. Investment Instructions.................................................................73
13.4. Valuation of the Trust Fund.............................................................75
13.5. Distributions on Investment Company Shares..............................................75
13.6. Registration and Voting of Investment Company Shares....................................75
13.7. Investment Manager......................................................................76
13.8. Employer Stock..........................................................................76
13.9. Insurance Contracts.....................................................................78
13.10. Registration and Voting of Non-Putnam Investment Company Shares.........................79
</TABLE>
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ARTICLE 14. TOP-HEAVY PLANS................................................................................80
14.1. Superseding Effect......................................................................80
14.2. Definitions.............................................................................80
14.3. Minimum Allocation......................................................................82
14.4. Adjustment of Fractions.................................................................83
14.5. Minimum Vesting Schedules...............................................................83
ARTICLE 15. ADMINISTRATION OF THE PLAN.....................................................................85
15.1. Plan Administrator......................................................................85
15.2. Claims Procedure........................................................................85
15.3. Employer's Responsibilities.............................................................86
15.4. Recordkeeper............................................................................86
15.5. Prototype Plan..........................................................................86
ARTICLE 16. TRUSTEE........................................................................................88
16.1. Powers and Duties of the Trustee........................................................88
16.2. Limitation of Responsibilities..........................................................89
16.3. Fees and Expenses.......................................................................89
16.4. Reliance on Employer....................................................................90
16.5. Action Without Instructions.............................................................90
16.6. Advice of Counsel.......................................................................90
16.7. Accounts................................................................................90
16.8. Access to Records.......................................................................91
16.9. Successors..............................................................................91
16.10. Persons Dealing with Trustee............................................................91
16.11. Resignation and Removal; Procedure......................................................91
16.12. Action of Trustee Following Resignation or Removal......................................92
16.13. Effect of Resignation or Removal........................................................92
16.14. Fiscal Year of Trust....................................................................92
16.15. Limitation of Liability.................................................................92
16.16. Indemnification.........................................................................92
ARTICLE 17. AMENDMENT......................................................................................93
17.1. General.................................................................................93
17.2. Delegation of Amendment Power...........................................................94
ARTICLE 18. TERMINATION OF THE PLAN AND TRUST..............................................................95
18.1. General.................................................................................95
18.2. Events of Termination...................................................................95
18.3. Effect of Termination...................................................................95
18.4. Approval of Plan........................................................................96
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ARTICLE 19. TRANSFERS TO OR FROM OTHER QUALIFIED PLANS; MERGERS............................................97
19.1. General.................................................................................97
19.2. Amounts Transferred.....................................................................97
19.3. Merger or Consolidation.................................................................97
ARTICLE 20. MISCELLANEOUS..................................................................................98
20.1. Notice of Plan..........................................................................98
20.2. No Employment Rights....................................................................98
20.3. Distributions Exclusively From Plan.....................................................98
20.4. No Alienation...........................................................................98
20.5. Provision of Information................................................................98
20.6. No Prohibited Transactions..............................................................98
20.7. Governing Law...........................................................................98
20.8. Gender..................................................................................98
</TABLE>
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PUTNAM BASIC PLAN DOCUMENT #07
ARTICLE 1. INTRODUCTION
By executing the Plan Agreement, the Employer has established a
retirement plan (the "Plan") according to the terms and conditions of the Plan
Agreement and this Putnam Basic Plan Document #07, for the purpose of providing
a retirement fund for the benefit of Participants and Beneficiaries. A Plan
established hereunder pursuant to a Plan Agreement is intended to qualify under
Section 401(a) of the Code.
<PAGE> 61
ARTICLE 2. DEFINITIONS
The terms defined in Sections 2.1 through 2.52 appear generally
throughout the document. Sections 2.53 through 2.63 and Article 5 contain
definitions of terms used only in a CODA and Section 10.4 contains additional
definitions related to distributions from the Plan. Articles 6 and 11 contain
additional definitions of terms used only in those Articles.
2.1. ACCOUNT means any of, and ACCOUNTS means all of, a
Participant's Employer Contribution Account, Participant Contribution Account,
Rollover Account, Deductible Employee Contribution Account and if the Plan
contains a CODA, the accounts maintained for the Participant pursuant to Article
5.
2.2. AFFILIATED EMPLOYER, for purposes of the Plan other than
Article 6, means the Employer and a trade or business, whether or not
incorporated, which is any of the following:
(a) A member of a group of controlled corporations (within the
meaning of Section 414(b) of the Code) which includes the Employer; or
(b) A trade or business under common control (within the
meaning of Section 414(c) of the Code) with the Employer; or
(c) A member of an affiliated service group (within the
meaning of Section 414(m) of the Code) which includes the Employer; or
(d) An entity otherwise required to be aggregated with the
Employer pursuant to Section 414(o) of the Code.
In determining an Employee's service for vesting and for eligibility to
participate in the Plan, all employment with Affiliated Employers will be
treated as employment by the Employer.
For purposes of Article 6 only, the definitions in paragraphs (a) and
(b) of this Section 2.2 shall be modified by adding at the conclusion of the
parenthetical phrase in each such paragraph the words "as modified by Section
415(h) of the Code."
2.3. AUTHORIZED LEAVE OF ABSENCE means a leave of absence from
employment granted in writing by an Affiliated Employer. Authorized Leave of
Absence shall be granted on account of military service for any period during
which an Employee's right to re-employment is guaranteed by law, and for such
other reasons and periods as an Affiliated Employer shall consider proper,
provided that Employees in similar situations shall be similarly treated.
2.4. BASE CONTRIBUTION PERCENTAGE means the percentage so specified in
the Plan
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Agreement.
2.5. BENEFICIARY means a person entitled to receive benefits under the
Plan upon the death of a Participant, in accordance with Section 7.2 and
Articles 10 and 11.
2.6. CODA means a cash or deferred arrangement that meets the
requirements of Section 401(k) of the Code, adopted as part of a profit sharing
plan.
2.7. CODE means the Internal Revenue Code of 1986, as amended.
2.8. COMPENSATION means all of an Employee's compensation determined in
accordance with the definition and for the purpose elected by the Employer in
the Plan Agreement. For purposes of that election, "Form W-2 earnings" means
"wages" within the meaning of Section 3401(a) of the Code in connection with
income tax withholding at the source, and all other compensation paid to the
Employee by the Employer in the course of its trade or business, for which the
Employer is required to furnish the Employee with a written statement under
Sections 6041(d), 6051(a)(3) and 6052 of the Code, determined without regard to
exclusions based on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in Section 3401(a)(2) of
the Code). Compensation shall include only amounts actually paid to the Employee
during the Plan Year, except that if the Employer so elects in the Plan
Agreement, in an Employee's initial year of participation in the Plan,
Compensation shall include only amounts actually paid to the Employee from the
Employee's effective date of participation pursuant to Section 3.1 to the end of
the Plan Year. In addition, if the Employer so elects in the Plan Agreement,
Compensation shall include any amount which is contributed to an employee
benefit plan for the Employee by the Employer pursuant to a salary reduction
agreement, and which is not includible in the gross income of the Employee under
Section 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code. If the Employer so
elects in the Plan Agreement, Compensation shall not include overtime pay,
bonuses, commissions or other similar types of pay, or Compensation above a
specified amount, all as designated in the Plan Agreement, PROVIDED, that such
election may not be made if the Employer elects in the Plan Agreement to
integrate the Plan with Social Security. (For a self-employed person, the
relevant term is Earned Income, as defined in Section 2.12.)
2.9. DATE OF EMPLOYMENT means the first date on which an Employee
performs an Hour of Service; or, in the case of an Employee who has incurred one
or more One-Year Eligibility Breaks and who is treated as a new Employee under
the rules of Section 3.3, the first date on which he performs an Hour of Service
after his return to employment.
2.10. DEDUCTIBLE EMPLOYEE CONTRIBUTION ACCOUNT means an account
maintained on the books of the Plan on behalf of a Participant, in which are
recorded amounts contributed by him to the Plan on a tax-deductible basis under
prior law, and the income, expenses, gains and losses thereon.
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2.11. DISABLED means unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months. The permanence and
degree of such impairment shall be supported by medical evidence.
2.12. EARNED INCOME means a Self-Employed Individual's net earnings
from self-employment in the trade or business with respect to which the Plan is
established, excluding items not included in gross income and the deductions
allocable to such items, and reduced by (i) contributions by the Employer to
qualified plans, to the extent deductible under Section 404 of the Code, and
(ii) the deduction allowed to the taxpayer under Section 164(f) of the Code for
taxable years beginning after December 31, 1989.
2.13. EARNINGS, for determining all benefits provided under the Plan,
means the first $150,000 (as adjusted periodically by the Secretary of the
Treasury for inflation) of the sum of the Compensation and Earned Income
received by an Employee during a Plan Year. To calculate an allocation to a
Participant's Account for any Plan Year shorter than 12 months, the dollar limit
on Earnings must be multiplied by a fraction of which the denominator is 12 and
the numerator is the number of months in the Plan Year. In determining the
Earnings of a Participant, the rules of Section 414(q)(6) of the Code shall
apply, except that in applying those rules the term "family" shall include only
the Participant's spouse and the Participant's lineal descendants who have not
reached age 19 by the last day of the Plan Year. If, as a result of the
application of such rules, the applicable Earnings limitation described above is
exceeded, then the limitation shall be prorated among the affected individuals
in proportion to each such individual's Earnings as determined under this
Section prior to the application of this limitation.
2.14. EFFECTIVE DATE means the date so designated in the Plan
Agreement. If the Plan Agreement indicates that the Employer is adopting the
Plan as an amendment of an existing plan, the provisions of the existing plan
apply to all events preceding the Effective Date, except as to specific
provisions of the Plan which set forth a retroactive effective date in
accordance with Section 1140 of the Tax Reform Act of 1986.
2.15. ELIGIBILITY PERIOD means a period of service with the Employer
which an Employee is required to complete in order to commence participation in
the Plan. A 12-month Eligibility Period is a period of 12 consecutive months
beginning on an Employee's most recent Date of Employment or any anniversary
thereof, in which he is credited with at least 1,000 Hours of Service or the
number of Hours of Services set forth in the Plan Agreement. A 6-month
Eligibility Period is a period of 6 consecutive months beginning on an
Employee's most recent Date of Employment or any anniversary thereof, or on the
6-month anniversary of such Date of Employment or any anniversary thereof, in
which he is credited with at least 500 Hours of Service or the number of Hours
of Service set forth in the Plan Agreement. If the Employer has selected another
period of service as the Eligibility Period under the Plan,
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Eligibility Period means the period so designated in which the Employee is
credited with the number of hours designated in the Plan Agreement.
Notwithstanding the foregoing, if an Employee is credited with 1,000 Hours of
Service during a 12-consecutive-month period following his Date of Employment or
any anniversary thereof, he shall be credited with an Eligibility Period. In the
case of an Employee in a seasonal industry (as defined under regulations
prescribed by the Secretary of Labor) in which the customary extent of
employment during a calendar year is fewer than 1,000 Hours of Service in the
case of a 12-month Eligibility Period, the number specified in any regulations
prescribed by the Secretary of Labor dealing with years of service shall be
substituted for 1,000. If the Employer so elects in the Plan Agreement, an
Employee's most recent Date of Employment for purposes of this Section 2.15
shall be the first date on which he performed services for a business acquired
by the Employer.
2.16. EMPLOYEE means a common law Employee of an Affiliated Employer;
in the case of an Affiliated Employer which is a sole proprietorship, the sole
proprietor thereof; in the case of an Affiliated Employer which is a
partnership, a partner thereof; and a Leased Employee of an Affiliated Employer.
The term "Employee" includes an individual on Authorized Leave of Absence, a
Self-Employed Individual and an Owner-Employee.
2.17. EMPLOYER means the Employer named in the Plan Agreement and any
successor to all or the major portion of its assets or business which assumes
the obligations of the Employer under the Plan Agreement.
2.18. EMPLOYER CONTRIBUTION ACCOUNT means an account maintained on the
books of the Plan on behalf of a Participant, in which are recorded the amounts
allocated for his benefit from contributions by the Employer (other than
contributions pursuant to Article 5 (i.e. the CODA provisions)), Forfeitures by
former Participants (if the Plan provides for reallocation of Forfeitures),
amounts reapplied under Section 6.1(d), and the income, expenses, gains and
losses incurred thereon.
2.19. EMPLOYER STOCK means securities constituting "qualifying employer
securities" of an Employer within the meaning of Section 407(d)(5) of ERISA.
2.20. ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
2.21. EXCESS EARNINGS means a Participant's Earnings in excess of the
Integration Level of the Plan.
2.22. FORFEITURE means a nonvested amount forfeited by a former
Participant, pursuant to Section 8.3, or an amount forfeited by a former
Participant or Beneficiary who cannot be located, pursuant to Section 9.5.
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2.23. HOUR OF SERVICE means each hour described in paragraphs (a), (b),
(c), (d) or (e) below, subject to paragraphs (f) and (g) below.
2.24.
(a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for an Affiliated Employer.
These hours shall be credited to the Employee for the computation
period or periods in which the duties are performed.
(b) Each hour for which an Employee is paid, or entitled to
payment, by an Affiliated Employer on account of a period of time
during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, military
duty or leave of absence. No more than 501 Hours of Service shall be
credited under this paragraph for any single continuous period of
absence (whether or not such period occurs in a single computation
period) unless the Employee's absence is not an Authorized Leave of
Absence. Hours under this paragraph shall be calculated and credited
pursuant to Section 2530.200b-2 of the Department of Labor Regulations,
which are incorporated herein by this reference.
(c) Each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by an Affiliated Employer.
The same Hours of Service shall not be credited under both paragraph
(a) or paragraph (b), as the case may be, and under this paragraph (c);
and no more than 501 Hours of Service shall be credited under this
paragraph (c) with respect to payments of back pay, to the extent that
such pay is agreed to or awarded for a period of time described in
paragraph (b) during which the Employee did not perform or would not
have performed any duties. These hours shall be credited to the
Employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the
award, agreement or payment is made.
(d) Each hour during an Authorized Leave of Absence. Such
hours shall be credited at the rate of a customary full work week for
an Employee.
(e) Solely for purposes of determining whether a OneYear
Vesting Break or a One-Year Eligibility Break has occurred, each hour
which otherwise would have been credited to an Employee but for an
absence from work by reason of: the pregnancy of the Employee, the
birth of a child of the Employee, the placement of a child with the
Employee in connection with the adoption of the child by the Employee,
or caring for a child for a period beginning immediately after its
birth or placement. If the Plan Administrator cannot determine the
hours which would normally have been credited during such an absence,
the Employee shall be credited with eight Hours of Service for each day
of absence. No more than 501 Hours of Service shall be credited under
this paragraph by reason of any pregnancy or placement. Hours credited
under this
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paragraph shall be treated as Hours of Service only in the Plan Year or
Eligibility Period or both, as the case may be, in which the absence
from work begins, if necessary to prevent the Participant's incurring a
One-Year Vesting Break or One-Year Eligibility Break in that period,
or, if not, in the period immediately following that in which the
absence begins. The Employee must timely furnish to the Employer
information reasonably required to establish (i) that an absence from
work is for a reason specified above, and (ii) the number of days for
which the absence continued.
(f) Hours of Service shall be determined on the basis of
actual hours for which an Employee is paid or entitled to payment, or
as otherwise specified in the Plan Agreement.
(g) If the Employer maintains the plan of a predecessor
Employer, service for the predecessor Employer shall be treated as
service for the Employer. If the Employer does not maintain the plan of
a predecessor Employer, service for the predecessor Employer shall be
treated as service for the Employer only to the extent that the
Employer so elects in the Plan Agreement.
(h) Hours of Service shall be credited to a Leased Employee as
though he were an Employee.
2.25. INTEGRATION LEVEL means the Earnings amount selected by the
Employer in the Plan Agreement.
2.26. INVESTMENT COMPANY means an open-end registered investment
company for which Putnam Mutual Funds Corp., or its affiliate acts as principal
underwriter, or for which Putnam Investment Management, Inc., or its affiliate
serves as an investment adviser; provided that its prospectus offers its shares
under the Plan.
2.27. INVESTMENT COMPANY SHARES means shares issued by an Investment
Company.
2.28. INVESTMENT PRODUCTS means any of the investment products
specified by the Employer in accordance with Section 13.2, from the group of
those products sponsored, underwritten or managed by Putnam as shall be made
available by Putnam under the Plan, and such other products as shall be
expressly agreed to in writing by Putnam for availability under the Plan.
2.29. LEASED EMPLOYEE means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period of at
least one year, and such services are of a type historically performed by
Employees in the business field of the recipient Employer. The compensation of a
Leased
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Employee for purposes of the Plan means the Compensation (as defined in Section
2.8) of the Leased Employee attributable to services performed for the recipient
Employer. Contributions or benefits provided to a leased Employee by the leasing
organization which are attributable to services performed for the recipient
Employer shall be treated as provided by the recipient Employer. Provided that
leased Employees do not constitute more than 20% of the recipient's nonhighly
compensated workforce, a leased Employee shall not be considered an Employee of
the recipient if he is covered by a money purchase pension plan providing: (1) a
nonintegrated Employer contribution rate of at least 10% of compensation (as
defined in Section 415(c)(3) of the Code, but including amounts contributed
pursuant to a salary reduction agreement which are excludable from the
Employee's gross income under Section 125, Section 402(e)(3), Section
402(h)(1)(B) or Section 403(b) of the Code), (2) immediate participation, and
(3) full and immediate vesting.
2.30. ONE-YEAR ELIGIBILITY BREAK means a 12-month Eligibility Period
during which an individual is not credited with more than 500 Hours of Service;
provided, however, that in the case of an Employee in a seasonal industry, there
shall be substituted for 500 the number of Hours of Service specified in any
regulations of the Secretary of Labor dealing with breaks in service, and
provided further that if the Employer has elected in the Plan Agreement to
establish a number less than 500 as the requisite Hours of Service for crediting
a 12-month Eligibility Period, that number shall be substituted for 500.
2.31. ONE-YEAR VESTING BREAK means a Year of Service measuring period,
as elected by the Employer in the Plan Agreement, during which an individual is
not credited with more than 500 Hours of Service; provided, however, that in the
case of an Employee in a seasonal industry, there shall be substituted for 500
the number of Hours of Service specified in any regulations for the Secretary of
Labor dealing with breaks in service, and provided further that if the Employer
has elected in the Plan Agreement to establish a number less than 500 as the
requisite Hours of Service for crediting a Year of Service, that number shall be
substituted for 500.
2.32. OWNER-EMPLOYEE means the sole proprietor of an Affiliated
Employer that is a sole proprietorship, or a partner owning more than 10% of
either the capital or profits interest of an Affiliated Employer that is a
partnership. The Plan Administrator shall be responsible for identifying
Owner-Employees to the Recordkeeper.
2.33. PARTICIPANT means each Employee who has met the requirement for
participation in Article 3. An Employee is not a Participant for any period
before the entry date applicable to him.
2.34. PARTICIPANT CONTRIBUTION means an after-tax contribution made by
a Participant in accordance with Section 4.6.
2.35. PARTICIPANT CONTRIBUTION ACCOUNT means an account maintained on
the books of
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the Plan, in which are recorded Participant Contributions by a Participant and
any income, expenses, gains or losses incurred thereon.
2.36. PLAN means the form of defined contribution retirement plan and
trust agreement adopted by the Employer, consisting of the Plan Agreement and
the Putnam Basic Plan Document #07 as set forth herein, together with any and
all amendments and supplements thereto.
2.37. PLAN ADMINISTRATOR means the Employer or its appointee pursuant
to Section 15.1.
2.38. PLAN AGREEMENT means the separate agreement entered into between
the Employer and the Trustee and accepted by Putnam, under which the Employer
adopts the Plan and selects among its optional provisions.
2.39. PLAN YEAR means the period of 12 consecutive months specified by
the Employer in the Plan Agreement, as well as any initial short plan year
period specified by the Employer in the Plan Agreement.
2.40. PROFIT SHARING CONTRIBUTION means a contribution made for the
benefit of a Participant by the Employer pursuant to Section 4.2(a).
2.41. PUTNAM means (i) Putnam Mutual Funds Corp., or a company
affiliated with it which Putnam Mutual Funds Corp. has designated as its agent
performing specified actions or procedures in its capacity as sponsor of this
prototype Plan, and (ii) Putnam Fiduciary Trust Company when performing in its
capacity as Recordkeeper or Trustee.
2.42. QUALIFIED DOMESTIC RELATIONS ORDER means any judgment, decree or
order (including approval of a property settlement agreement) which constitutes
a "qualified domestic relations order" within the meaning of Code Section
414(p). A judgment, decree or order shall not fail to be a Qualified Domestic
Relations Order merely because it requires a distribution to an alternate payee
(or the segregation of accounts pending distribution to an alternate payee)
before the Participant is otherwise entitled to a distribution under the Plan.
2.43. QUALIFIED PARTICIPANT means any Participant who satisfies the
requirements for being a Qualified Participant as elected by the Employer in the
Plan Agreement, for the purposes set forth in the Plan Agreement. If the Plan is
not adopted to replace an existing plan, this Section 2.42 is effective on the
Effective Date. If the Plan replaces an existing plan, this Section 2.42 is
effective on the Effective Date, and the provision of the existing plan that
this Section 2.42 replaces shall continue to apply until that time.
2.44. RECORDKEEPER means the person or entity designated by the
Employer in the Plan Agreement to perform the duties described in Section 15.4,
and any successor thereto. If
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Putnam is the Recordkeeper, the terms and conditions of its service will be as
specified in a service agreement between the Employer and Putnam.
2.45. RETIREMENT means ceasing to be an Employee in accordance with
Section 7.1.
2.46. ROLLOVER ACCOUNT means an account established for an Employee who
makes a rollover contribution to the Plan pursuant to Section 4.5.
2.47. SELF-EMPLOYED INDIVIDUAL means an individual whose personal
services are a material income-producing factor in the trade or business for
which the Plan is established, and who has Earned Income for the taxable year
from that trade or business, or would have Earned Income but for the fact that
the trade or business had no net profits for the taxable year.
2.48. SHAREHOLDER-EMPLOYEE means any officer or Employee of an electing
small business corporation, within the meaning of Section 1362 of the Code, who
on any day during a taxable year of the Employer owns (or is considered as
owning under Section 318(a)(1) of the Code) more than 5% of the outstanding
stock of the Employer. The Plan administrator shall be responsible for
identifying Shareholder-Employees to the Recordkeeper.
2.49. SOCIAL SECURITY WAGE BASE means the maximum amount considered as
wages under Section 3121(a)(1) of the Code as in effect on the first day of the
Plan Year.
2.50. TRUST AND TRUST FUND mean the trust fund established under
Section 13.1.
2.51. TRUSTEE means the person, or the entity with trustee powers,
named in the Plan Agreement as trustee, and any successor thereto.
2.52. VALUATION DATE means each day when the New York Stock Exchange is
open, or such other date or dates as the Employer may designate by written
agreement with the Recordkeeper.
2.53. YEAR OF SERVICE means a Plan Year or a 12-month Eligibility
Period, as elected by the Employer in the Plan Agreement, in which an Employee
is credited with at least 1,000 Hours of Service; provided, however, that if the
Employer has elected in the Plan Agreement to establish a number less than 1,000
as the requisite for crediting a Year of Service, that number shall be
substituted for 1,000, and provided further that in the case of an Employee in a
seasonal industry (as defined under regulations prescribed by the Secretary of
Labor) in which the customary extent of employment during a calendar year is
fewer than 1,000 Hours of Service, the number specified in any regulations
prescribed by the Secretary of Labor dealing with years of service shall be
substituted for 1,000. An Employee's Years of Service shall include service
credited prior to the Effective Date under any predecessor plan. If the initial
Plan Year is shorter than 12 months, each Employee who is credited with at least
1,000 Hours of Service in the 12-month period ending on the last day of the
initial Plan Year shall be
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credited with a Year of Service with respect to the initial Plan Year.
If the Employer has so elected in the Plan Agreement, Years of Service
for vesting shall not include:
(a) Service in any Plan Year (or comparable period prior to
the Effective Date) completed before the Employee reached age 18;
(b) Service completed during a period in which the Employer
did not maintain the Plan or any predecessor plan (as defined under
regulations prescribed by the Secretary of the Treasury).
If the Employer has so elected in the Plan Agreement, Years of Service
for vesting shall include employment by a business acquired by the Employer,
before the date of the acquisition.
The following definitions apply only to cash or deferred arrangements
under Section 401(k) (CODA):
2.54. DEFERRAL AGREEMENT means an Employee's agreement to make one or
more Elective Deferrals in accordance with Section 5.2.
2.55. ELECTIVE DEFERRAL means any contribution made to the Plan by the
Employer at the election of a Participant, in lieu of cash compensation,
including contributions made pursuant to a Deferral Agreement or other deferral
mechanism.
2.56. ELECTIVE DEFERRAL ACCOUNT means an account maintained on the
books of the Plan, in which are recorded a Participant's Elective Deferrals and
the income, expenses, gains and losses incurred thereon.
2.57. EMPLOYER MATCHING ACCOUNT means an account maintained on the
books of the Plan, in which are recorded the Employer Matching Contributions
made on behalf of a Participant and the income, expenses, gains and losses
incurred thereon.
2.58. EMPLOYER MATCHING CONTRIBUTION means a contribution made by the
Employer (i) to the Plan pursuant to Section 5.8, or (ii) to another defined
contribution plan on account of a Participant's "elective deferrals" or
"employee contributions," as those terms are used in Section 401(m)(4) of the
Code.
2.59. HIGHLY COMPENSATED EMPLOYEE means any highly compensated active
Employee or highly compensated former Employee as defined in subsection (a)
below; provided, however, that if the Employer so elects in the Plan Agreement,
Highly Compensated Employee means any highly compensated Employee under the
simplified method described in subsection (b) below.
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(a) Regular Method. A highly compensated active Employee
includes any Employee who performs service for the Employer during the
determination year and who during the look-back year: (i) received
compensation from the Employer in excess of $75,000 (as adjusted
pursuant to Section 415(d) of the Code); (ii) received compensation
from the Employer in excess of $50,000 (as adjusted pursuant to Section
415(d) of the Code) and was a member of the top-paid group for such
year; or (iii) was an officer of the Employer and received compensation
during such year that is greater than 50% of the dollar limitation in
effect under Section 415(b)(1)(A) of the Code. The term also includes
(A) Employees who are both described in the preceding sentence if the
term "determination year" is substituted for the term "look-back year,"
and among the 100 Employees who received the most compensation from the
Employer during the determination year; and (B) Employees who are 5%
owners at any time during the look-back year or determination year. If
no officer has satisfied the compensation requirement of (iii) above
during either a determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly Compensated
Employee.
A highly compensated former Employee includes any Employee who
separated from service (or was deemed to have separated) before the
determination year, performed no service for the Employer during the
determination year, and was a highly compensated active Employee for
either the year of separation from service or any determination year
ending on or after the Employee's 55th birthday.
If during a determination year or look-back year an Employee
is a family member of either a 5% owner who is an active or former
Employee, or a Highly Compensated Employee who is one of the 10 most
highly paid Highly Compensated Employees ranked on the basis of
compensation paid by the Employer during the year, then the family
member and the 5% owner or top-ten Highly Compensated Employee shall be
treated as a single Employee receiving compensation and Plan
contributions or benefits equal to the sum of the compensation and
contributions or benefits of the family member and the 5% owner or
top-ten Highly Compensated Employee. For purposes of this Section
2.58(a), family members include the spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouses of such
lineal ascendants and descendants.
For purposes of this subsection (a), the "determination year"
shall be the Plan Year, and the "look-back year" shall be the 12-month period
immediately preceding the determination year; provided, however, that in a Plan
for which the Plan Year is the calendar year, the current Plan Year shall be
both the "determination year" and the "look-back year" if the Employer so elects
in the Plan Agreement.
(b) Simplified Method. An Employee is a Highly Compensated
Employee under this simplified method if (i) the Employee is a 5% owner
during the Plan Year;
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(ii) the Employee's compensation for the Plan Year exceeds $75,000 (as
adjusted pursuant to Section 415(d) of the Code); (iii) the Employee's
compensation for the Plan Year exceeds $50,000 (as adjusted pursuant to
Section 415(d) of the Code) and the Employee is in the top-paid group
of Employees; or (iv) the Employee is an officer of the Employer and
received compensation during the Plan Year that is greater than 50% of
the dollar limitation under Code Section 415(b)(1)(A).
The lookback provisions of Code Section 414(q) do not apply to
determining Highly Compensated Employees under this simplified method.
An Employer that applies this simplified method for determining Highly
Compensated Employees may choose to apply this method on the basis of
the Employer's workforce as of a single day during the Plan Year
("snapshot day"). In applying this simplified method on a snapshot
basis, the Employer shall determine who is a Highly Compensated
Employee on the basis of the data as of the snapshot day. If the
determination of who is a Highly Compensated Employee is made earlier
than the last day of the Plan Year, the Employee's compensation that is
used to determine an Employee's status must be projected for the Plan
Year under a reasonable method established by the Employer.
Notwithstanding the foregoing, in addition to those Employees
who are determined to be highly compensated on the Plan's snapshot day,
as described above, where there are Employees who are not employed on
the snapshot day but who are taken into account for purposes of testing
under Section 5.6 or 5.10, the Employer must treat as a Highly
Compensated Employee any Eligible Employee for the Plan Year who:
(1) terminated prior to the snapshot day and was a
Highly Compensated Employee in the prior year;
(2) terminated prior to the snapshot day and (i) was
a 5% owner, (ii) had compensation for the Plan Year greater
than or equal to the projected compensation of any Employee
who is treated as a Highly Compensated Employee on the
snapshot day (except for Employees who are Highly Compensated
Employees solely because they are 5% owners or officers), or
(iii) was an officer and had compensation greater than or
equal to the projected compensation of any other officer who
is a Highly Compensated Employee on the snapshot day solely
because that person is an officer; or
(3) becomes employed subsequent to the snapshot day
and (i) is a 5% owner, (ii) has compensation for the Plan Year
greater than or equal to the projected compensation of any
Employee who is treated as a Highly Compensated Employee on
the snapshot day (except for Employees who are Highly
Compensated Employees solely because they are 5% owners or
officers), or (iii) is an officer and has compensation greater
than or equal to the
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projected compensation of any other officer who is a Highly
Compensated Employee on the snapshot day solely because that
person is an officer.
If during a Plan Year an Employee is a family member of either
a 5% owner who is an Employee, or a Highly Compensated Employee who is
one of the ten most highly paid Highly Compensated Employees ranked on
the basis of compensation paid by the Employees during the year, then
the family member and the 5% owner or
top-ten-Highly-Compensated-Employee shall be treated as a single
Employee receiving compensation and Plan contributions or benefits
equal to the sum of the compensation and contributions or benefits of
the family member and the 5% owner or
top-ten-Highly-Compensated-Employee. For purposes of this Section
2.58(b), family members include the spouse, lineal ascendants and
descendants of the Employee and the spouses of such lineal ascendants
and descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the top-paid
group, the top 100 Employees, the number of Employees treated as officers and
the compensation that is considered, will be made in accordance with Section
414(q) of the Code and the regulations thereunder. The Plan Administrator is
responsible for identifying the Highly Compensated Employees and reporting such
data to the Recordkeeper.
2.60. NON-HIGHLY COMPENSATED EMPLOYEE means an Employee who is not a
Highly Compensated Employee.
2.61. QUALIFIED MATCHING ACCOUNT means an account maintained on the
books of the Plan, in which are recorded the Qualified Matching Contributions on
behalf of a Participant and the income, expense, gain and loss attributable
thereto.
2.62. QUALIFIED MATCHING CONTRIBUTION means a contribution made by the
Employer that: (i) is allocated with respect to a Participant's Elective
Deferrals or Participant Contributions or both (as elected by the Employer in
the Plan Agreement), (ii) is fully vested at all times and (iii) is
distributable only in accordance with Section 5.13.
2.63. QUALIFIED NONELECTIVE CONTRIBUTION means a contribution (other
than an Employer Matching Contribution or Qualified Matching Contribution) made
by the Employer, that: (i) a Participant may not elect to receive in cash until
it is distributed from the Plan; (ii) is fully vested at all times; and (iii) is
distributable only in accordance with Section 5.13.
2.64. QUALIFIED NONELECTIVE CONTRIBUTION ACCOUNT means an account
maintained on the books of the Plan, in which are recorded the Qualified
Nonelective Contributions on behalf of a Participant and the income, expense,
gain and loss attributable thereto.
2.65.
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ARTICLE 3. PARTICIPATION
3.1. INITIAL PARTICIPATION. Upon completion of the eligibility for Plan
participation requirements specified in the Plan Agreement, an Employee shall
begin participation in the Plan as of the entry date specified in the Plan
Agreement, or as of the Effective Date, whichever is later; provided, however,
that:
(a) if the Plan is adopted as an amendment of a predecessor
plan of the Employer, every Employee who was participating under the
predecessor plan when it was so amended shall become a Participant in
the Plan as of the Effective Date, whether or not he has satisfied the
age and service requirements specified in the Plan Agreement; and
(b) if the Employer so specifies in the Plan Agreement, any
individual who is (i) a nonresident alien receiving no earned income
from an Affiliated Employer which constitutes income from sources
within the United States, (ii) included in a unit of Employees covered
by a collective bargaining agreement between the Employer and Employee
representatives (excluding from the term "Employee representatives" any
organization of which more than half of the members are Employees who
are owners, officers, or executives of an Affiliated Employer), if
retirement benefits were the subject of good faith bargaining and no
more than 2% of the Employees covered by the collective bargaining
agreement are professionals as defined in Section 1.410(b)-9 of the
Income Tax Regulations, (iii) is an Employee of an Affiliated Employer
specified by the Employer in the Plan Agreement, (iv) is a Leased
Employee, or (v) is a member of such other class of Employees specified
by the Employer in the Plan Agreement, shall not participate in the
Plan until the later of the date on which he ceases to be described in
clause (i), (ii), (iii), (iv) or (v), whichever are applicable, or the
entry date specified by the Employer in the Plan Agreement; and
(c) if the Plan is not adopted as an amendment of a
predecessor plan of the Employer, Employees on the Effective Date shall
begin participation on the Effective Date, to the extent so elected by
the Employer in the Plan Agreement; and
(d) a Participant shall cease to participate in the Plan when
he becomes a member of a class of Employees ineligible to participate
in the Plan, and shall resume participation immediately upon his return
to a class of Employees eligible to participate in the Plan.
In the case of a Plan to which the CODA provisions of Article 5 apply
and for which the Employer has elected in the Plan Agreement to apply
different minimum service requirements for purposes of participation in
Profit Sharing Contributions, for purposes of participation in the CODA
provisions and/or for purposes of participation in Employer Matching
Contributions, this Article 3 shall be applied separately with regard
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to participation under Article 4, with regard to participation under
the CODA provisions of Article 5 and/or with regard to participation in
Employer Matching Contributions under Article 5.
3.2. SPECIAL PARTICIPATION RULE. With respect to a Plan in which the
Employer has specified full and immediate vesting in the Plan Agreement, an
Employee who incurs a One-Year Eligibility Break before completing the number of
Eligibility Periods required under Section 3.1 shall not thereafter be credited
with any Eligibility Period completed before the One-Year Eligibility Break.
3.3. RESUMED PARTICIPATION. A former Employee who incurs a One-Year
Eligibility Break after having become a Participant shall participate in the
Plan as of the date on which he again becomes an Employee, if (i) his Accounts
had become partially or fully vested before he incurred a One-Year Vesting
Break, or (ii) the number of consecutive One-Year Eligibility Breaks he incurred
are fewer than the greater of five or the number of Eligibility Periods
completed before such One-Year Eligibility Breaks. In any other case, when he
again becomes an Employee he shall be treated as a new Employee under Section
3.1.
3.4. BENEFITS FOR OWNER-EMPLOYEES. If the Plan provides contributions
or benefits for one or more Owner-Employees who control both the trade or
business with respect to which the Plan is established and one or more other
trades or businesses, the Plan and plans established with respect to such other
trades or businesses must, when looked at as a single plan, satisfy Sections
401(a) and (d) of the Code with respect to the Employees of this and all such
other trades or businesses. If the Plan provides contributions or benefits for
one or more Owner-Employees who control one or more other trades or businesses,
the Employees of each such other trade or business must be included in a plan
which satisfies Sections 401(a) and (d) of the Code and which provides
contributions and benefits not less favorable than those provided for such
Owner-Employees under the Plan. If an individual is covered as an Owner-Employee
under the plans of two or more trades or businesses which he does not control
and such individual controls a trade or business, then the contributions or
benefits of the Employees under the plan of the trade or business which he does
control must be as favorable as those provided for him under the most favorable
plan of the trade or business which he does not control. For purposes of this
Section 3.4, an Owner-Employee, or two or more Owner-Employees, shall be
considered to control a trade or business if such Owner-Employee, or such two or
more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or
business, or
(b) in the case of a partnership, own more than 50% of either
the capital interest or the profits interest in such partnership.
For purposes of the preceding sentence, an Owner-Employee or two or
more Owner-Employees shall be treated as owning any interest in a partnership
which is owned,
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directly or indirectly, by a partnership which such Owner-Employee or such two
or more Owner-Employees are considered to control within the meaning of the
preceding sentence.
3.5. CHANGES IN CLASSIFICATION. If a Participant ceases to be a member
of a classification of Employees eligible to participate in the Plan, but does
not incur a One-Year Eligibility Break, he will continue to be credited with
Years of Service for vesting while he remains an Employee, and he will resume
participation as of the date on which he again becomes a member of a
classification of Employees eligible to participate in the Plan. If such a
Participant incurs a One-Year Eligibility Break, Section 3.3 will apply. If a
Participant who ceases to be a member of a classification of Employees eligible
to participate in the Plan becomes a member of a classification of Employees
eligible to participate in another plan of the Employer, his Account, if any,
under the Plan shall, upon the Administrator's direction, be transferred to the
plan in which he has become eligible to participate, if such plan permits
receipt of such Account.
If an Employee who is not a member of a classification of Employees
eligible to participate in the Plan satisfies the age and service requirements
specified in the Plan Agreement, he will begin to participate immediately upon
becoming a member of an eligible classification. If such an Employee has account
balances under another plan of the Employer, such account balances shall be
transferred to the Plan upon the Employee's commencement of participation in the
Plan, if such other plan permits such transfer.
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<PAGE> 77
ARTICLE 4. CONTRIBUTIONS
4.1. PROVISIONS APPLICABLE TO ALL PLANS.
(a) Payment and Crediting of Contributions. The Employer shall
pay to the order of the Trustee the aggregate contributions to the
Trust Fund for each Plan Year. Each contribution shall be accompanied
by instructions from the Employer, in the manner prescribed by Putnam.
Neither the Trustee nor Putnam shall be under any duty to inquire into
the correctness of the amount or the timing of any contribution, or to
collect any amount if the Employer fails to make a contribution as
provided in the Plan.
(b) Time for Payment. Elective Deferrals will be transferred
to the Trustee as soon as such contributions can reasonably be
segregated from the general assets of the Employer, but in any event
within 90 days after the date on which the Compensation to which such
contributions relate is paid. The aggregate of all other contributions
with respect to a Plan Year shall be transferred to the Trustee no
later than the due date (including extensions) for filing the
Employer's federal income tax return for that Plan Year.
(c) Limitations on Allocations. All allocations shall be
subject to the limitations in Article 6.
(d) Establishment of Accounts. The Employer will establish and
maintain (or cause to be established and maintained) for each
Participant individual accounts adequate to disclose his interest in
the Trust Fund, including such of the following separate accounts as
shall apply to the Participant: Employer Contribution Account,
Participant Contribution Account, Deductible Employee Contribution
Account, and Rollover Account; and in a Plan with a CODA, Elective
Deferral Account, Qualified Nonelective Account, Qualified Matching
Account and Employer Matching Account. The maintenance of such accounts
shall be only for recordkeeping purposes, and the assets of separate
accounts shall not be required to be segregated for purposes of
investment. For purposes of the Plan, a Participant is treated as
benefitting under the Plan for any Plan Year during which the
Participant received or is deemed to receive an allocation to an
Account in accordance with Treasury Regulation ss. 1.410(b)-3(a).
(e) Restoration of Accounts. Notwithstanding any other
provision of the Plan, for any Plan Year in which it is necessary to
restore any portion of a Participant's Account pursuant to Section
8.3(b) or 9.5, to the extent that the amount of Forfeitures available
is insufficient to accomplish such restoration, the Employer shall
contribute the amount necessary to eliminate the insufficiency,
regardless of whether the contribution is currently deductible by the
Employer under Section 404 of the Code. Forfeitures shall be considered
available for allocation pursuant to Sections 4.4 and 5.14 in a Plan
Year only after all necessary restoration of Accounts has been
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accomplished.
4.2. PROVISIONS APPLICABLE ONLY TO PROFIT SHARING PLANS.
(a) Amount of Annual Contribution. The Employer will
contribute for each Plan Year as a Profit Sharing Contribution an
amount determined in accordance with the formula specified by the
Employer in the Plan Agreement, less any amounts reapplied for the Plan
Year under Section 6.1(d), not to exceed the amount deductible under
Section 404 of the Code.
(b) Allocation of Profit Sharing Contributions; General Rule.
As of the last day of each Plan Year, the Profit Sharing Contribution
(and any amounts reapplied under Section 6.1(d)) for the Plan Year
shall be allocated as indicated by the Employer in the Plan Agreement.
(c) Plans Integrated with Social Security. If the Employer
elects in the Plan Agreement an allocation formula integrated with
Social Security, Profit Sharing Contributions (and any amounts
reapplied under Section 6.1(d)) shall be allocated as of the last day
of the Plan Year, as follows:
(1) Top-Heavy Integration Formula. If the Plan is
required to provide a minimum allocation for the Plan Year
pursuant to the Top-Heavy Plan rules of Article 14, or if the
Employer has specified in the Plan Agreement that this
paragraph (1) will apply whether or not the Plan is Top-Heavy,
then:
(A) First, among the Employer Contribution
Accounts of all Qualified Participants, in the ratio
that each Qualified Participant's Earnings bears to
all Qualified Participants' Earnings. The total
amount allocated in this manner shall be equal to
three percent (3%) of all Qualified Participants'
Earnings (or, if less, the entire amount to be
allocated).
(B) Next, among the Employer Contribution
Accounts of all Qualified Participants who have
Excess Earnings, in the ratio that each Qualified
Participant's Excess Earnings bears to all Qualified
Participants' Excess Earnings. The total amount
allocated in this manner shall be equal to three
percent (3%) of all Qualified Participants' Excess
Earnings (or, if less, the entire amount remaining to
be allocated). In the case of any Qualified
Participant who has exceeded the cumulative permitted
disparity limit described in subparagraph (5) below,
all of such Qualified Participant's Earnings shall be
taken into account.
(C) Next, among the Employer Contribution
Accounts of all
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Qualified Participants, in the ratio that the sum of
each Qualified Participant's Earnings and Excess
Earnings bears to the sum of all Qualified
Participants' Earnings and Excess Earnings. The total
amount allocated in this manner shall not exceed the
lesser of (i) the sum of all Participants' Earnings
and Excess Earnings multiplied by the Top-Heavy
Maximum Disparity Percentage determined under
subparagraph (1)(E), or (ii) the entire amount
remaining to be allocated. In the case of any
Qualified Participant who has exceeded the cumulative
permitted disparity limit described in subparagraph
(5) below, two times such Qualifying Participant's
Earnings shall be taken into account.
(D) Finally, any amount remaining shall be
allocated among the Employer Contribution Accounts of
all Qualified Participants in the ratio that each
Qualified Participant's Earnings bears to all
Qualified Participants' Earnings.
(E) The Top-Heavy Maximum Disparity
Percentage shall be the lesser of (i) 2.7% or (ii)
the applicable percentage from the following table:
<TABLE>
<CAPTION>
If the Plan's Integration Level
is More than: The applicable percentage is:
But not more than:
<S> <C> <C>
$0 The greater of $10,000 or 20% of 2.7%
the Social Security Wage Base
The greater of $10,000 or 20% of 80% of the Social Security Wage 1.3%
the Social Security Wage Base Base
80% of the Social Security Wage Less than the Social Security 2.4%
Base Wage Base
</TABLE>
If the Plan's Integration Level is equal to the Social Security Wage
Base, the Top-Heavy Maximum Disparity Percentage is 2.7%.
(2) Non-Top-Heavy Integration Formula. If the Plan is
not required to provide a minimum allocation for the Plan Year
pursuant to the Top-Heavy Plan rules of Article 14, and the
Employer has not specified in the Plan Agreement that
paragraph (1) will apply whether or not the Plan is Top-Heavy,
then:
(A) An amount equal to (i) the Maximum
Disparity Percentage determined under subparagraph
(2)(C) multiplied by the sum of all Qualified
Participants' Earnings and Excess Earnings, or (ii)
if less, the entire amount to be allocated, shall be
allocated among the Employer
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Contribution Account of all Participants in the ratio
that the sum of each Qualified Participant's Earnings
and Excess Earnings bears to the sum of all Qualified
Participants' Earnings and Excess Earnings. In the
case of any Qualified Participant who has exceeded
the cumulative permitted disparity limit described in
subparagraph (5) below, two times such Qualified
Participant's Earnings shall be taken into account.
(B) Any amount remaining after the
allocation in paragraph (2)(A) shall be allocated
among the Employer Contribution Accounts of all
Qualified Participants in the ratio that each
Qualified Participant's Earnings bears to all
Qualified Participants' Earnings.
(C) The Maximum Disparity Percentage shall
be the lesser of (i) 5.7% or (ii) the applicable
percentage from the following table:
<TABLE>
<CAPTION>
If the Plan's Integration Level
is more than: The applicable percentage is:
But not more than:
<S> <C> <C>
$0 The greater of $10,000 or 20% of 5.7%
the Social Security Wage Base
The greater of $10,000 or 20% of 80% of the Social Security Wage 4.3%
the Social Security Wage Base Base
80% of the Social Security Wage Less than the Social Security 5.4%
Base Wage Base
</TABLE>
If the Plan's Integration Level is equal to the Social Security Wage
Base, the Maximum Disparity Percentage is 5.7%.
(3) In this Section 4.2, "Earnings" means Earnings as
defined in Section 2.13.
(4) Annual overall permitted disparity limit.
Notwithstanding subparagraphs (1) through (3) above, for any
Plan Year this Plan benefits any Participant who benefits
under another qualified plan or simplified employee pension
(as defined in Section 408(k) of the Code) maintained by the
Employer that provides for permitted disparity (or imputes
disparity), Profit Sharing Contributions and Forfeitures will
be allocated among the Employer Contribution Accounts of all
Qualified Participants in the ratio that such Qualified
Participant's Earnings bears to the Earnings of all
Participants.
(5) Cumulative Permitted Disparity Limit. Effective
for Plan years beginning on or after January 1, 1995, the
cumulative permitted disparity limit for a Participant is 35
cumulative permitted disparity years. Total cumulative
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permitted disparity years means the number of years credited
to the Participant for allocation or accrual purposes under
the Plan, any other qualified plan or simplified employee
pension plan (whether or not terminated) ever maintained by
the Employer. For purposes of determining the Participant's
cumulative permitted disparity limit, all years ending in the
same calendar year are treated as the same year. If the
Participant has not benefitted under a defined benefit or
target benefit plan for any year beginning on or after January
1, 1994, the Participant has no cumulative disparity limit.
4.3. PROVISIONS APPLICABLE ONLY TO MONEY PURCHASE PENSION PLANS.
(a) Amount of Annual Contributions. The Employer will
contribute for each Plan Year an amount described in paragraph (b) or
(c) below, whichever is applicable, less any amounts reapplied for the
Plan Year under Section 6.1(d), not to exceed the amount deductible
under Section 404(c) of the Code.
(b) Allocation of Contributions; General Rule. The Employer
shall contribute an amount equal to the product of the Earnings of all
Qualified Participants and the Base Contribution Percentage, and the
contribution shall be allocated as of the last day of the Plan Year
among the Employer Contribution Accounts of all Qualified Participants
in the ratio that the Earnings of each Qualified Participant bears to
the Earnings of all Qualified Participants. This general rule does not
apply to a Plan that is integrated with Social Security.
(c) Plans Integrated with Social Security. If the Employer has
elected in the Plan Agreement to integrate the Plan with Social
Security, the Employer shall contribute an amount equal to the sum of
the following amounts, and the contribution shall be allocated as of
the last day of the Plan Year as follows:
(1) To the Employer Contribution Account of each
Qualified Participant, an amount equal to the product of the
Base Contribution Percentage and his Earnings, and
(2) To the Employer Contribution Account of each
Qualified Participant who has Excess Earnings, the product of
his Excess Earnings and the lesser of (i) the Base
Contribution Percentage or (ii) the Money Purchase Maximum
Disparity Percentage determined under paragraph (d).
(3) The Base Contribution Percentage shall be no less
than three percent (3%) in either of the following
circumstances: (i) any Plan Year of a Plan for which the Plan
Agreement does not specify that the Employer will perform
annual Top-Heavy testing, or (ii) any Plan Year in which the
Plan is required to provide a minimum allocation for the Plan
Year pursuant to the Top-
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<PAGE> 82
Heavy Plan rules of Article 14.
(4) Notwithstanding subparagraphs (1) through (3)
above, in the case of any Participant who has exceeded the
cumulative permitted disparity limit described in paragraph
(f) below, the amount shall be each Qualified Participant's
Earnings multiplied by the percentage determined in
subparagraph (2) above.
(d) The Money Purchase Maximum Disparity Percentage is equal
to the lesser of (i) 5.7% or (ii) the applicable percentage from the
following table:
<TABLE>
If the Plan's Integration Level
is more than: The applicable percentage is:
But not more than:
<S> <C> <C>
$0 The greater of $10,000 or 20% of 5.7%
the Social Security Wage Base
The greater of $10,000 or 20% of 80% of the Social Security Wage 4.3%
the Social Security Wage Base Base
80% of the Social Security Wage Less than the Social Security 5.4%
Base Wage Base
</TABLE>
If the Plan's Integration Level is equal to the Social Security Wage
Base, the Money Purchase Maximum Disparity Percentage is 5.7%.
(e) Annual overall permitted disparity limit. Notwithstanding
the preceding paragraphs, for any Plan Year this Plan benefits any
Participant who benefits under another qualified plan or simplified
employee pension (as defined in Section 408(k) of the Code) maintained
by the Employer that provides for permitted disparity (or imputes
disparity), the Employer shall contribute for each Qualified
Participant an amount equal to the Qualified Participant's Earnings
multiplied by the lesser of (i) the Base Contribution Percentage or
(ii) the Money Purchase Maximum Disparity Percentage determined under
paragraph (d). For all purposes under the Plan, a Participant is
treated as benefiting under a plan (including this Plan) for any plan
year during which the Participant receives or is deemed to receive an
allocation under a plan in accordance with Section 1.410(b)-3(a) of the
Treasury Regulations.
(f) Cumulative Permitted Disparity Limit. Effective for Plan
Years beginning on or after January 1, 1995, the cumulative permitted
disparity limit for a Participant is 35 total cumulative permitted
disparity years. Total cumulative permitted disparity years means the
number of years credited to the Participant for allocation or accrual
purposes under the Plan, any other qualified plan or simplified
employee pension (whether or not terminated) ever maintained by the
Employer. For purposes of determining the Participant's cumulative
permitted disparity limit, all years ending in
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<PAGE> 83
the same calendar year are treated as the same year. If the Participant
has not benefited under a defined benefit plan or target benefit plan
for any year beginning on or after January 1, 1994, the Participant has
no cumulative disparity limit.
4.4. FORFEITURES. Forfeitures from Employer Contribution Accounts shall
be used, as elected by the Employer in the Plan Agreement, either to reduce
other contributions required of the Employer, as specified in the Plan
Agreement, or shall be reallocated as additional contributions by the Employer.
If the Employer elects to use Forfeitures from Employer Conribution Accounts to
reduce other contributions required of the Employer, the amount of such
Forfeitures in a Plan Year shall be treated as a portion of such required
contribution. If the Employer elects to reallocate Forfeitures from Employer
Contribution Accounts as additional contributions, such forfeitures shall be
allocated (i) in the case of a profit sharing plan, in accordance with Section
4.2(b) (provided that such Forfeitures may be allocated under paragraphs
(c)(1)(B), (c)(1)(C) and (c)(2)(C) of Section 4.2 only to the extent that the
limitation described therein has not been fully utilized), and (ii) in the case
of a money purchase plan, among the Employer Contribution Accounts of all
Qualified Participants in proportion to their Earnings for the Plan Year.
4.5. ROLLOVER CONTRIBUTIONS. An Employee in an eligible class may
contribute at any time cash or other property (which is not a collectible within
the meaning of Section 408(m) of the Code) acceptable to the Trustee
representing qualified rollover amounts under Sections 402, 403, or 408 of the
Code. Amounts so contributed shall be credited to a Rollover Account for the
Participant.
4.6. PARTICIPANT CONTRIBUTIONS. If so specified in the Plan Agreement,
a Participant may make Participant Contributions to the Plan in accordance with
the Plan Agreement. Such contributions, together with any matching contributions
(as defined in section 401(m)(4) of the Code) if applicable, shall be limited so
as to meet the nondiscrimination test of section 401(m) of the Code, as set
forth in Section 5.10 of the Plan. Participant Contributions will be allocated
to the Participant Contributions Account of the contributing Participant. All
Participant Contribution Accounts will be fully vested at all times.
4.7. NO DEDUCTIBLE EMPLOYEE CONTRIBUTIONS. The Plan Administrator shall
not accept deductible employee contributions, other than those held in a
Deductible Employee Contribution Account transferred from a predecessor plan of
the Employer.
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ARTICLE 5. CASH OR DEFERRED ARRANGEMENT UNDER SECTION 401(k)
(CODA)
5.1. APPLICABILITY; ALLOCATIONS. This Article 5 applies to any plan
adopted pursuant to Plan Agreement #001, which Plan Agreement by its terms
includes a CODA permitting Elective Deferrals to be made under the Plan. The
Employer may specify in the Plan Agreement that contributions will be made to
the Plan only under the CODA, or that contributions may be made under Section
4.2 as well as under the CODA. Allocations to Participants' Accounts of
contributions made pursuant to this Article 5 shall be made as soon as
administratively feasible after their receipt by the Trustee, but in any case no
later than as of the last day of the Plan Year for which the contributions were
made.
5.2. CODA PARTICIPATION. Each Employee who has met the eligibility
requirements of Article 3 may make Elective Deferrals to the Plan by completing
and returning to the Plan Administrator a Deferral Agreement form which provides
that the Participant's cash compensation from the Employer will be reduced by
the amount indicated in the Deferral Agreement, and that the Employer will
contribute an equivalent amount to the Trust on behalf of the Participant. The
following rules will govern Elective Deferrals:
(a) Subject to the limits specified in the Plan Agreement and
set forth in Section 5.3, a Deferral Agreement may apply to any amount
or percentage of the Earnings payable to a Participant in each year,
and, if so specified by the Employer in the Plan Agreement, separately
to bonuses payable to a Participant from time to time, even if such
bonuses have otherwise been excluded from Compensation under the Plan
Agreement.
(b) In accordance with such reasonable rules as the Plan
Administrator shall specify, a Deferral Agreement will become effective
as soon as is administratively feasible after the Deferral Agreement is
returned to the Plan Administrator, and will remain effective until it
is modified or terminated. No Deferral Agreement may become effective
retroactively.
(c) A Participant may modify his Deferral Agreement by
completing and returning to the Plan Administrator a new Deferral
Agreement form as of any of the dates specified in the Plan Agreement,
and any such modification will become effective as described in
paragraph (b).
(d) A Participant may terminate his Deferral Agreement at any
time upon advance written notice to the Plan Administrator, and any
such termination will become effective as described in paragraph (b).
5.3. ANNUAL LIMIT ON ELECTIVE DEFERRALS. During any taxable year of a
Participant,
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<PAGE> 85
his Elective Deferrals under the Plan and any other qualified plan of an
Affiliated Employer shall not exceed the dollar limit contained in Section
402(g) of the Code in effect at the beginning of the taxable year. With respect
to any taxable year, a Participant's Elective Deferrals for purposes of this
Section 5.3 include all Employer contributions made on his behalf pursuant to an
election to defer under any qualified CODA as described in Section 401(k) of the
Code, any simplified employee pension cash or deferred arrangement (SARSEP) as
described in Section 402(h)(1)(B) of the Code, any eligible deferred
compensation plan under Section 457 of the Code, any plan described under
Section 501(c)(18) of the Code, and any Employer contributions made on behalf of
the Participant for the purchase of an annuity contract under Section 403(b) of
the Code pursuant to a salary reduction agreement. The limit under Section
402(g) of the Code on the amount of Elective Deferrals of a Participant who
receives a hardship withdrawal pursuant to Section 12.2 shall be reduced, for
the taxable year next following the withdrawal, by the amount of Elective
Deferrals made in the taxable year of the hardship withdrawal.
5.4. DISTRIBUTION OF CERTAIN ELECTIVE DEFERRALS. "Excess Elective
Deferrals" means those Elective Deferrals described in Section 5.3 that are
includible in a Participant's gross income under Section 402(g) of the Code, to
the extent that the Participant's aggregate elective deferrals for a taxable
year exceed the dollar limitation under that Code Section. Excess Elective
Deferrals shall be treated as Annual Additions under the Plan, whether or not
they are distributed under this Section 5.4. A Participant may designate to the
Plan any Excess Elective Deferrals made during his taxable year by notifying the
Employer on or before the following March 15 of the amount of the Excess
Elective Deferrals to be so designated. A Participant who has Excess Elective
Deferrals for a taxable year, taking into account only his Elective Deferrals
under the Plan and any other plans of the Affiliated Employers, shall be deemed
to have designated the entire amount of such Excess Elective Deferrals.
Notwithstanding any other provision of the Plan, Excess Elective
Deferrals, plus any income and minus any loss allocable thereto, shall be
distributed no later than April 15 to any Participant to whose Account Excess
Elective Deferrals were so designated or deemed designated for the preceding
year. The income or loss allocable to Excess Elective Deferrals is the income or
loss allocable to the Participant's Elective Deferral Account for the taxable
year multiplied by a fraction, the numerator of which is the Participant's
Excess Elective Deferrals for the year and the denominator of which is the
Participant's Account balance attributable to Elective Deferrals without regard
to any income or loss occurring during the year.
To the extent that the return to a Participant of his Elective
Deferrals would reduce an Excess Amount (as defined in Section 6.5(f)), such
Excess Deferrals shall be distributed to the Participant in accordance with
Article 6.
5.5. SATISFACTION OF ADP AND ACP TESTS. In each Plan Year, the Plan
must satisfy the ADP test described in Section 5.6 and the ACP test described in
Section 5.10. The Employer may cause the Plan to satisfy the ADP or ACP test or
both tests for a Plan Year by
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any of the following methods or by any combination of them:
(a) By the distribution of Excess Contributions in accordance
with Section 5.7, or the distribution of Excess Aggregate Contributions
in accordance with Section 5.11, or both; or
(b) By recharacterization of Excess Contributions in
accordance with Section 5.9; or
(c) If the Employer has so elected in the Plan Agreement, by
making Qualified Nonelective Contributions or Qualified Matching
Contributions or both, in accordance with the Plan Agreement and
Section 5.12.
5.6. ACTUAL DEFERRAL PERCENTAGE TEST LIMIT. The Actual Deferral
Percentage (hereinafter "ADP") for Participants who are Highly Compensated
Employees for each Plan Year and the ADP for Participants who are Non-Highly
Compensated Employees for the same Plan Year must satisfy one of the following
tests:
(a) The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for Participants
who are Non-Highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
(b) The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for Participants
who are Non-Highly Compensated Employees for the same Plan Year
multiplied by 2.0, provided that the ADP for Participants who are
Highly Compensated Employees does not exceed the ADP for Participants
who are Non-Highly Compensated Employees by more than two percentage
points.
The following special rules shall apply to the computation of the ADP:
(c) "Actual Deferral Percentage" means, for a specified group
of Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in the group) of (1) the amount of
Employer contributions actually paid over to the Trust on behalf of the
Participant for the Plan Year to (2) the Participant's Earnings for the
Plan Year (or, provided that the Employer applies this method to all
Employees for a Plan Year, the Participant's Earnings for that portion
of the Plan Year during which he was eligible to participate in the
Plan). Employer contributions on behalf of any Participant shall
include: (i) his Elective Deferrals, including Excess Elective
Deferrals of Highly Compensated Employees, but excluding (A) Excess
Elective Deferrals of Non-Highly Compensated Employees that arise
solely from Elective Deferrals made under the Plan or another plan
maintained by an Affiliated Employer, and (B) Elective Deferrals that
are taken into account in the Average
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Contribution Percentage test described in Section 5.10 (provided the
ADP test is satisfied both with and without exclusion of these Elective
Deferrals), and excluding Elective Deferrals returned to a Participant
to reduce an Excess Amount as defined in Section 6.5(f); and (ii) if
the Employer has elected to make Qualified Nonelective Contributions,
such amount of Qualified Nonelective Contributions, if any, as shall be
necessary to enable the Plan to satisfy the ADP test and not used to
satisfy the ACP test; and (iii) if the Employer has elected to make
Qualified Matching Contributions, such amount of Qualified Matching
Contributions, if any, as shall be necessary to enable the Plan to
satisfy the ADP test and not used to satisfy the ACP test. For purposes
of computing Actual Deferral Percentages, an Employee who would be a
Participant but for his failure to make Elective Deferrals shall be
treated as a Participant on whose behalf no Elective Deferrals are
made.
(d) In the event that the Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other plans satisfy the
requirements of such Sections of the Code only if aggregated with the
Plan, then this Section 5.6 shall be applied by determining the ADP of
Employees as if all such plans were a single plan. For Plan Years
beginning after December 31, 1989, plans may be aggregated in order to
satisfy Section 401(k) of the Code only if they have the same Plan
Year.
(e) The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Elective
Deferrals (and Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, if these are treated as Elective
Deferrals for purposes of the ADP test) allocated to his Accounts under
two or more CODAs described in Section 401(k) of the Code that are
maintained by the Affiliated Employers shall be determined as if such
Elective Deferrals (and, if applicable, such Qualified Nonelective
Contributions or Qualified Matching Contributions, or both) were made
under a single CODA. If a Highly Compensated Employee participates in
two or more CODAs that have different Plan Years, all CODAs ending with
or within the same calendar year shall be treated as a single CODA,
except that CODAs to which mandatory disaggregation applies in
accordance with regulations issued under Section 401(k) of the Code
shall be treated as separate CODAs.
(f) For purposes of determining the ADP of a Participant who
is a 5% owner or one of the ten most highly-paid Highly Compensated
Employees, the Elective Deferrals (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if these
are treated as Elective Deferrals for purposes of the ADP test) and the
Earnings of such a Participant shall include the Elective Deferrals
(and, if applicable, Qualified Nonelective Contributions and Qualified
Matching Contributions, or both) and Earnings for the Plan Year of his
Family Members (as defined in Section 414(q)(6) of the Code). Family
Members of such Highly
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Compensated Employees shall be disregarded as separate employees in
determining the ADP both for Participants who are Non-Highly
Compensated Employees and for Participants who are Highly Compensated
Employees.
(g) For purposes of the ADP test, Elective Deferrals,
Qualified Nonelective Contributions and Qualified Matching
Contributions must be made before the last day of the 12-month period
immediately following the Plan Year to which those contributions
relate.
(h) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of Qualified
Nonelective Contributions or Qualified Matching Contributions, or both,
used in satisfying the test.
(i) The determination and treatment of the ADP amounts of any
Participant shall satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
5.7. DISTRIBUTION OF EXCESS CONTRIBUTIONS. "Excess Contributions"
means, with respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually
taken into account in computing the ADP of Highly Compensated Employees
for the Plan Year, over
(b) The maximum amount of Employer contributions permitted by
the ADP test, determined by reducing contributions made on behalf of
Highly Compensated Employees in order of their ADPs, beginning with the
highest of such percentages.
Notwithstanding any other provision of the Plan, Excess Contributions,
plus any income and minus any loss allocable thereto, shall be distributed no
later than the last day of each Plan Year to Participants to whose Accounts
Excess Contributions were allocated for the preceding Plan Year. The income or
loss allocable to Excess Contributions is the income or loss allocable to the
Participant's Elective Deferral Account (and, if applicable, his Qualified
Nonelective Account or Qualified Matching Account or both) for the Plan Year
multiplied by a fraction, the numerator of which is the Participant's Excess
Contributions for the year and the denominator is the Participant's account
balance attributable to Elective Deferrals (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if any of these are
included in the ADP test) without regard to any income or loss occurring during
the Plan Year. If such excess amounts are distributed more than 2 1/2 months
after the last day of the Plan Year in which the excess amounts arose, an excise
tax equal to 10% of the excess amounts will be imposed on the Employer
maintaining the Plan. Such distributions shall be made to Highly Compensated
Employees on the basis of the respective portions of the Excess Contributions
attributable to each of them. Excess Contributions shall be allocated to a
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Participant who is a family member subject to the family member aggregation
rules of Section 414(q)(6) of the Code in the proportion that the Participant's
Elective Deferrals (and other amounts treated as his Elective Deferrals) bear to
the combined Elective Deferrals (and other amounts treated as Elective
Deferrals) of all of the Participants aggregated to determine his family
members' combined ADP. Excess Contributions shall be treated as Annual Additions
under the Plan.
Excess Contributions shall be distributed from the Participant's
Elective Deferral Account and Qualified Matching Account (if applicable) in
proportion to the Participant's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the ADP test) for the Plan Year. Excess
Contributions shall be distributed from the Participant's Qualified Nonelective
Account only to the extent that such Excess Contributions exceed the balance in
the Participant's Elective Deferral Account and Qualified Matching Account.
5.8. MATCHING CONTRIBUTIONS. If so specified in the Plan Agreement, the
Employer will make Matching Contributions to the Plan in accordance with the
Plan Agreement, but no Matching Contribution shall be made with respect to an
Elective Deferral or a Participant Contribution that is returned to a
Participant because it represents an Excess Elective Deferral, an Excess
Contribution, an Excess Aggregate Contribution or an Excess Amount (as defined
in Section 6.5(f)); and if a Matching Contribution has nevertheless been made
with respect to such an Elective Deferral or Participant Contribution, the
Matching Contribution shall be forfeited, notwithstanding any other provision of
the Plan. Employer Matching Contributions will be allocated among the Employer
Matching Accounts of Qualified Participants in proportion to their Elective
Deferrals or Participant Contributions, if applicable, as specified in the Plan
Agreement. Employer Matching Accounts shall become vested according to the
vesting schedule specified in the Plan Agreement, but regardless of that
schedule shall be fully vested upon the Participant's Retirement (or, if
earlier, his fulfillment of the requirements for early retirement, if any, or
attainment of the normal retirement age specified in the Plan Agreement), his
death during employment with an Affiliated Employer, and in accordance with
Section 18.3. Forfeitures of Employer Matching Contributions, other than Excess
Aggregate Contributions, shall be made in accordance with Section 8.3.
5.9. RECHARACTERIZATION OF EXCESS CONTRIBUTIONS. Provided that the Plan
Agreement permits all Participants to make Participant Contributions, the
Employer may treat a Participant's Excess Contributions as an amount distributed
to the Participant and then contributed by the Participant to the Plan as a
Participant Contribution. Recharacterized amounts will remain nonforfeitable and
subject to the same distribution requirements as Elective Deferrals. Amounts may
not be recharacterized by a Highly Compensated Employee to the extent that a
recharacterized amount in combination with other Participant Contributions made
by that Employee would exceed any stated limit under the Plan on Participant
Contributions. Recharacterization must occur no later than two and one-half
months after the last day of the Plan Year in which the Excess Contributions
arose, and is deemed to occur no earlier than the date the last Highly
Compensated Employee is informed in writing by the
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Employer of the amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the Participant for his tax year in
which the Participant would have received them in cash.
5.10.
5.11. AVERAGE CONTRIBUTION PERCENTAGE TEST LIMIT AND AGGREGATE LIMIT.
The Average Contribution Percentage (hereinafter "ACP") for Participants who are
Highly Compensated Employees for each Plan Year and the ACP for Participants who
are Non-Highly Compensated Employees for the same Plan Year must satisfy one of
the following tests:
(a) The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for Participants
who are Non-Highly Compensated Employees for the same Plan Year
multiplied by 1.25; or
(b) The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for Participants
who are Non-Highly Compensated Employees for the same Plan Year
multiplied by two (2), provided that the ACP for Participants who are
Highly Compensated Employees does not exceed the ACP for Participants
who are Non-Highly Compensated Employees by more than two percentage
points.
The following rules shall apply to the computation of the ACP:
(c) "Average Contribution Percentage" means the average of the
Contribution Percentages of the Eligible Participants in a group.
(d) "Contribution Percentage" means the ratio (expressed as a
percentage) of a Participant's Contribution Percentage Amounts to the
Participant's Earnings for the Plan Year (or, provided that the
Employer applies this method to all Employees for a Plan Year, the
Participant's Earnings for that portion of the Plan Year during which
he was eligible to participate in the Plan).
(e) "Contribution Percentage Amounts" means the sum of the
Participant Contributions, Employer Matching Contributions, and
Qualified Matching Contributions (to the extent not taken into account
for purposes of the ADP test) made under the Plan on behalf of the
Participant for the Plan Year. Such Contribution Percentage Amounts
shall include Forfeitures of Excess Aggregate Contributions or Employer
Matching Contributions allocated to the Participant's Account, taken
into account in the year in which the allocation is made. If the
Employer has elected in the Plan Agreement to make Qualified
Nonelective Contributions, such amount of Qualified Nonelective
Contributions, if any, as shall be necessary to enable the Plan to
satisfy the ACP test and not used to satisfy the ADP test shall be
included in the Percentage Amounts. Elective Deferrals
shall also be included in the Contribution
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Percentage Amounts to the extent, if any, needed to enable the Plan to
satisfy the ACP test, so long as the ADP test is met before the
Elective Deferrals are used in the ACP test, and continues to be met
following the exclusion of those Elective Deferrals that are used to
meet the ACP test.
(f)
(g) "Eligible Participant" means any Employee who is eligible
to make a Participant Contribution, or an Elective Deferral, if
Elective Deferrals are taken into account in the calculation of the
Contribution Percentage, or to receive an Employer Matching
Contribution (or a Forfeiture thereof) or a Qualified Matching
Contribution.
(h) "Aggregate Limit" means the sum of (i) 125% of the greater
of the ADP of the Non-Highly Compensated Employees for the Plan Year,
or the ACP of Non-Highly Compensated Employees under the Plan subject
to Code Section 401(m) for the Plan Year beginning with or within the
Plan Year of the CODA, and (ii) the lesser of 200% of, or two plus, the
lesser of the ADP or ACP. "Lesser" is substituted for "greater" in
clause (i) of the preceding sentence, and "greater" is substituted for
"lesser" after the phrase "two plus the" in clause (ii) of the
preceding sentence, if that formulation will result in a larger
Aggregate Limit.
(i) If one or more Highly Compensated Employees participate in
both a CODA and a plan subject to the ACP test maintained by an
Affiliated Employer, and the sum of the ADP and ACP of those Highly
Compensated Employees subject to either or both tests exceeds the
Aggregate Limit, then the ACP of those Highly Compensated Employees who
also participate in a CODA will be reduced (beginning with the Highly
Compensated Employee whose ACP is the highest) so that the Aggregate
Limit is not exceeded. The amount by which each Highly Compensated
Employee's Contribution Percentage Amount is reduced shall be treated
as an Excess Aggregate Contribution. In determining the Aggregate
Limit, the ADP and ACP of Highly Compensated Employees are determined
after any corrections required to meet the ADP and ACP tests. The
Aggregate Limit will be considered satisfied if both the ADP and ACP of
the Highly Compensated Employees does not exceed 1.25 multiplied by the
ADP and ACP of the Non-Highly Compensated Employees.
(j) For purposes of this section, the Contribution Percentage
for any Participant who is a Highly Compensated Employee and who is
eligible to have Contribution Percentage Amounts allocated to his
account under two or more plans described in Section 401(a) of the
Code, or CODAs described in Section 401(k) of the Code, that are
maintained by an Affiliated Employer, shall be determined as if the
total of such Contribution Percentage Amounts was made under each plan.
If a Highly Compensated Employee participates in two or more CODAs that
have different plan years, all CODAs ending with or within the same
calendar year shall be treated as a single CODA, except that CODAs to
which mandatory disaggregation applies in
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accordance with regulations issued under Section 401(k) of the Code
shall be treated as separate CODAs.
(k) In the event that the Plan satisfies the requirements of
Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other plans satisfy the
requirements of such Sections of the Code only if aggregated with the
Plan, then this Section 5.10 shall be applied by determining the
Contribution Percentage of Employees as if all such plans were a single
plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Section 401(m) of the Code only if they
have the same Plan Year.
(l) For purposes of determining the Contribution Percentage of
a Participant who is a 5% owner or one of the ten most highly-paid
Highly Compensated Employers, the Contribution Percentage Amounts and
Earnings of the Participant shall include the Contribution Percentage
Amounts and Earnings for the Plan Year of Family Members (as defined in
Section 414(q)(6) of the Code). Family Members of such Highly
Compensated Employees shall be disregarded as separate employees in
determining the Contribution Percentage both for Participants who are
Non-Highly Compensated Employees and for Participants who are Highly
Compensated Employees.
(m) For purposes of the ACP test, Employer Matching
Contributions, Qualified Matching Contributions and Qualified
Nonelective Contributions will be considered made for a Plan Year if
made no later than the end of the 12-month period beginning on the day
after the close of the Plan Year.
(n) The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of Qualified
Nonelective Contributions or Qualified Matching Contributions, or both,
used in the ACP test.
(o) 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.
5.12. DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. Notwithstanding
any other provision of the Plan, Excess Aggregate Contributions, plus any income
and minus any loss allocable thereto, shall be forfeited if forfeitable, or if
not forfeitable, distributed no later than the last day of each Plan Year to
Participants to whose Accounts such Excess Aggregate Contributions were
allocated for the preceding Plan Year. The income or loss allocable to Excess
Aggregate Contributions is the income or loss allocable to the Participant's
Employer Matching Contribution Account, Qualified Matching Contribution Account
(if any, and if all amounts therein are not used in the ADP test), and, if
applicable, Qualified Nonelective Account, Participant Contribution Account and
Elective Deferral Account for the Plan Year, multiplied by a fraction, the
numerator of which is the Participant's Excess Aggregate
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Contributions for the year and the denominator of which is the Participant's
account balance(s) attributable to Contribution Percentage Amounts without
regard to any income or loss occurring during the Plan Year. Excess Aggregate
Contributions shall be allocated to a Participant who is subject to the family
member aggregation rules of Section 414(q)(6) of the Code in the proportion that
the Participant's Employer Matching Contributions (and other amounts treated as
his Employer Matching Contributions) bear to the combined Employer Matching
Contributions (and other amounts treated as Employer Matching Contributions) of
all of the Participants aggregated to determine its family members' combined
ACP. If excess amounts attributable to Excess Aggregate Contributions are
distributed more than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, an excise tax equal to 10% of the excess amounts will
be imposed on the Employer maintaining the Plan. Excess Aggregate Contributions
shall be treated as Annual Additions under the Plan.
Excess Aggregate Contributions shall be forfeited if forfeitable, or
distributed on a pro-rata basis from the Participant's Participant Contribution
Account, Employer Matching Account, and Qualified Matching Account (and, if
applicable, the Participant's Qualified Nonelective Account or Elective Deferral
Account, or both).
Excess Aggregate Contributions means, with respect to any Plan Year,
the excess of:
(a) The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution Percentage and
actually made on behalf of Highly Compensated Employees for the Plan
Year, over
(b) The maximum Contribution Percentage Amounts permitted by
the ACP test and the Aggregate Limit (determined by reducing
contributions made on behalf of Highly Compensated Employees in order
of their Contribution Percentages, beginning with the highest of such
percentages).
Such determination shall be made after first determining Excess
Elective Deferrals pursuant to Section 5.4, and then determining Excess
Contributions pursuant to Section 5.7.
5.13. QUALIFIED NONELECTIVE CONTRIBUTIONS; QUALIFIED MATCHING
CONTRIBUTIONS. An Employer shall make Qualified Nonelective Contributions and/or
Qualified Matching Contributions as provided by the Employer in the Plan
Agreement. Qualified Nonelective Contributions and Qualified Matching
Contributions shall be allocated to the Qualified Nonelective Contribution
Accounts and Qualified Matching Accounts, respectively, of Participants as
provided by the Employer in the Plan Agreement.
5.14. RESTRICTION ON DISTRIBUTIONS. Except as provided in Sections 5.4,
5.7 and 5.11, no distribution may be made from a Participant's Elective Deferral
Account, Qualified Nonelective Contribution Account or Qualified Matching
Account until the occurrence of one of the following events:
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(a) The Participant's Disability, death or termination of
employment with the Affiliated Employers;
(b) Termination of the Plan without the establishment of
another defined contribution plan other than an employee stock
ownership plan as defined in Section 4975(e) or Section 409 of the
Code, or a simplified employee pension plan as defined in Section
408(k) of the Code;
(c) The Participant's attainment of age 59 1/2 (if the
Employer has elected in the Plan Agreement to permit such
distributions); or
(d) In the case of an Employer that is a corporation, the
disposition by the Employer to an unrelated entity of (i) substantially
all of the assets (within the meaning of Section 409(d)(2) of the Code)
used in a trade or business of the Employer, if the Employer continues
to maintain the Plan after the disposition, but only with respect to
Employees who continue employment with the entity acquiring such
assets; or (ii) the Employer's interest in a subsidiary (within the
meaning of Section 409(d)(3) of the Code), if the Employer continues to
maintain the Plan after the disposition, but only with respect to
Employees who continue employment with such subsidiary.
In addition, if the Employer has elected in the Plan Agreement to
permit such distributions, a distribution may be made from a Participant's
Elective Deferral Account in the event of his financial hardship as described in
Section 12.2. All distributions upon any of the events listed above are subject
to the conditions of Article 10, Joint and Survivor Annuity Requirements. In
addition, distributions made after March 31, 1988, on account of an event
described in subsection (b) or (d) above must be made in a lump sum.
5.15. FORFEITURES OF EMPLOYER MATCHING CONTRIBUTIONS. Forfeitures from
Employer Matching Accounts shall be used, as elected by the Employer in the Plan
Agreement, either to reduce other contributions required of the Employer, as
specified in the Plan Agreement, or shall be reallocated as additional Employer
Matching Contributions or Profit Sharing Contributions as specified in the Plan
Agreement. If the Employer elects to use Forfeitures from Employer Matching
Accounts to reduce other contributions required of the Employer, the amount of
such Forfeitures in a Plan Year shall be treated as a portion of such
contribution. If the Employer elects to reallocate Forfeitures from Employer
Matching Contributions as additional Employer Matching Contributions, such
Forfeitures shall be allocated in accordance with Section 5.8. If the Employer
elects to reallocate Forfeitures from Employer Matching Accounts as additional
Profit Sharing Contributions, such Forfeitures shall be allocated in accordance
with Section 4.2(b) (provided that such Forfeitures may be allocated under
paragraphs (c)(1)(B), (c)(1)(C) and (c)(2)(C) of Section 4.2 only to the extent
that the limitation described therein has not been fully utilized). Forfeitures
of Excess Aggregate Contributions determined under Section 5.10 that are
Employer Matching Contributions shall be used as
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provided above in this Section 5.14.
5.16. SPECIAL EFFECTIVE DATES. If the Plan is adopted as an amendment
of an existing plan, the provisions of Sections 5.3 and Section 5.7 through 5.10
are effective as of the first day of the first Plan Year beginning after
December 31, 1986.
5.17.
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ARTICLE 6. LIMITATIONS ON ALLOCATIONS
6.1. NO ADDITIONAL PLAN. If the Participant does not participate in and
has never participated in another qualified plan, or a welfare benefit fund (as
defined in Section 419(e) of the Code), or an individual medical account (as
defined in Section 415(l)(2) of the Code), or a simplified employee pension (as
defined in Section 408(k) of the Code), which provides an Annual Addition as
defined in Section 6.5(a), maintained by an Affiliated Employer:
(a) The amount of Annual Additions (as defined in Section
6.5(a)) which may be credited to the Participant's Accounts for any
Limitation Year will not exceed the lesser of the Maximum Annual
Additions or any other limitation contained in this Plan. If the
Employer contribution that would otherwise be contributed or allocated
to the Participant's Account would cause the Annual Additions for the
Limitation Year to exceed the Maximum Annual Additions, the amount
contributed or allocated will be reduced so that the Annual Additions
for the Limitation Year will equal the Maximum Annual Additions.
(b) Before determining a Participant's actual Section 415
Compensation for a Limitation Year, the Employer may determine the
Maximum Annual Additions for the Participant on the basis of a
reasonable estimation of the Participant's Section 415 Compensation for
the Limitation Year, uniformly determined for all Participants
similarly situated.
(c) As soon as is administratively feasible after the end of
the Limitation Year, the Maximum Annual Additions for the Limitation
Year will be determined on the basis of the Participant's actual
Section 415 Compensation for the Limitation Year.
(d) If pursuant to paragraph (c), or as a result of the
reallocation of Forfeitures, or as a result of a reasonable error in
determining the amount of Elective Deferrals that may be made by a
Participant, the Annual Additions exceed the Maximum Annual Additions,
the Excess Amount will be disposed of as follows:
(1) Any Participant Contributions and Elective
Deferrals, to the extent they would reduce the Excess Amount,
will be returned to the Participant.
(2) If after the application of (1) above an Excess
Amount still exists, and the Participant is covered by the
Plan at the end of the Limitation Year, the Excess Amount in
the Participant's Accounts will be used to reduce Employer
contributions (including any allocation of Forfeitures) for
such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary.
(3) If after the application of (1) above an Excess
Amount still exists,
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and the Participant is not covered by the Plan at the end of a
Limitation Year, the Excess Amount will be held unallocated in
a suspense account. The suspense account will be applied to
reduce future Employer contributions (including allocation of
any Forfeitures) for all remaining Participants in the next
Limitation Year, and each succeeding Limitation Year if
necessary.
(4) If a suspense account is in existence at any time
during a Limitation Year pursuant to this Section 6.1(d), it
will participate in the allocation of investment gains and
losses. If a suspense account is in existence at any time
during a particular Limitation Year, all amounts in the
suspense account must be allocated and reallocated to
Participants' Accounts before any Employer or any Employee
contributions may be made to the Plan for that Limitation
Year. Excess amounts may not be distributed to Participants or
former Participants.
6.2. ADDITIONAL MASTER OR PROTOTYPE PLAN. If in addition to this Plan a
Participant is covered under another qualified Master or Prototype defined
contribution plan or a welfare benefit fund (as defined in Section 419(e) of the
Code), or an individual medical account (as defined in Section 415(1)(2) of the
Code), or a simplified employee pension (as defined in Section 408(k) of the
Code), which provides an Annual Addition as defined in Section 6.5(a),
maintained by an Affiliated Employer during any Limitation Year:
(a) The Annual Additions which may be credited to a
Participant's Accounts under this Plan for any such Limitation Year
will not exceed the Maximum Annual Additions reduced by the Annual
Additions credited to a Participant's accounts under the other defined
contribution plans, welfare benefit funds, individual medical accounts
and simplified employee pensions for the same Limitation Year. If the
Annual Additions with respect to the Participant under other defined
contribution plans, welfare benefit funds, individual medical accounts
and simplified employee pensions maintained by an Affiliated Employer
are less than the Maximum Annual Additions, and the Employer
contribution that would otherwise be contributed or allocated to the
Participant's Accounts under this Plan would cause the Annual Additions
for the Limitation Year to exceed this limitation, the amount
contributed or allocated to this Plan will be reduced so that the
Annual Additions under all such plans and funds for the Plan Year will
equal the Maximum Annual Additions. If the Annual Additions with
respect to the Participant under such other defined contribution plans,
welfare benefit funds, individual medical accounts and simplified
employee pensions in the aggregate are equal to or greater than the
Maximum Annual Additions, no amount will be contributed or allocated to
the Participant's Accounts under this Plan for the Limitation Year.
(b) Before determining a Participant's actual Section 415
Compensation for a Limitation Year, the Employer may determine the
Maximum Annual Additions for the
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Participant in the manner described in Section 6.1(b).
(c) As soon as is administratively feasible after the end of
the Plan Year, the Maximum Annual Additions for the Plan Year will be
determined on the basis of the Participant's actual Section 415
Compensation for the Plan Year.
(d) If, pursuant to Section 6.2(c) or as a result of the
allocation of Forfeitures, or of a reasonable error in determining the
amount of Elective Deferrals that may be made by him, a Participant's
Annual Additions under this Plan and such other plans would result in
an Excess Amount for a Limitation Year, the Excess Amount will be
deemed to consist of the Annual Additions last allocated under any
qualified Master or Prototype defined contribution plan, except that
Annual Additions to any simplified employee pension will be deemed to
have been allocated first, followed by Annual Additions to a welfare
benefit fund or individual medical account, regardless of the actual
allocation date.
(e) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of
another plan, the Excess Amount attributed to this Plan will be the
product of X and Y, where (X) is the total Excess Amount allocated as
of such date, and (Y) is the ratio of: (1) the Annual Additions
allocated to the Participant for the Limitation Year as of such date
under this Plan to (2) the total Annual Additions allocated to the
Participant for the Limitation Year as of such date under this and all
the other qualified Master or Prototype defined contribution plans.
(f) Any Excess Amount attributed to this Plan will be disposed
of in the manner described in Section 6.1(d).
6.3. ADDITIONAL NON-MASTER OR NON-PROTOTYPE PLAN. If the Participant is
covered under another qualified defined contribution plan maintained by an
Affiliated Employer which is not a Master or Prototype plan, Annual Additions
which may be credited to the Participant's Accounts under this Plan for any
Limitation Year will be limited in accordance with Section 6.2 as though the
other plan were a Master or Prototype plan, unless the Employer provides other
limitations in the Plan Agreement.
6.4. ADDITIONAL DEFINED BENEFIT PLAN. If an Affiliated Employer
maintains, or at any time maintained, a qualified defined benefit plan covering
any Participant in this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any
Limitation Year. The Annual Additions which may be credited to the Participant's
Accounts under this Plan for any Limitation Year will be limited in accordance
with the Plan Agreement.
6.5.
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6.6. DEFINITIONS.
(a) Annual Additions means the sum of the following amounts
credited to a Participant's accounts hereunder or otherwise for the
Limitation Year:
(1) Employer contributions;
(2) For any Limitation Year beginning after December
31, 1986, Participant Contributions;
(3) Forfeitures;
(4) Amounts allocated after March 31, 1984, to any
individual medical account, as defined in Section 415(1)(2) of
the Code, which is part of a pension or annuity plan
maintained by an Affiliated Employer;
(5) Amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after
such date, which are attributable to postretirement medical
benefits allocated to the separate account of a key Employee,
as defined in Section 419A(d)(3) of the Code, under a welfare
benefit fund as defined in Section 419(e) of the Code,
maintained by an Affiliated Employer;
(6) In a Plan that includes a CODA, Excess Elective
Deferrals, Excess Contributions (including recharacterized
Elective Deferrals) and Excess Aggregate Contributions; and
(7) Allocations under a simplified employee pension.
For this purpose, any Excess Amount applied under Sections
6.1(d) or 6.2(e) in the Limitation Year to reduce Employer
contributions will be considered Annual Additions for such Limitation
Year. Any rollover contribution will not be considered an Annual
Addition.
(b) Section 415 Compensation means, for a Self-Employed
Individual, his Earned Income; and for any other Participant, his "Form
W-2 earnings" as defined in Section 2.8, if the Employer has elected in
item 7 of the Plan Agreement a definition of Compensation based on
"Form W-2 earnings"; or if the Employer has not so elected, his wages,
salaries, and fees for professional services and other amounts received
for personal services actually rendered in the course of employment
with the Employer maintaining the Plan (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on
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insurance premiums, tips, bonuses, fringe benefits and reimbursements
or other expense allowances under a nonaccountable plan as described in
Income Tax Regulations Section 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred
compensation which are not includible in the Participant's
gross income for the taxable year in which contributed, or
Employer contributions under a simplified employee pension
plan to the extent such contributions are deductible by the
Employee, or any distributions from a plan of deferred
compensations;
(2) Amounts realized from the exercise of a
nonqualified stock option, or when restricted stock (or
property) held by the Participant either becomes freely
transferable or is no longer subject to a substantial risk of
forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option;
and
(4) Other amounts which received special tax
benefits, or contributions made by the Employer (whether or
not under a salary reduction agreement) towards the purchase
of an annuity contract described in Section 403(b) of the Code
(whether or not the contributions are actually excludable from
the gross income of the Participant).
For purposes of applying the limitations of this Article 6, Section 415
Compensation for a Limitation Year is the Section 415 Compensation
actually paid or made available during such Limitation Year.
(c) Defined Benefit Fraction means a fraction, the numerator
of which is the sum of the Participant's Projected Annual Benefits
under all the defined benefit plans (whether or not terminated)
maintained by the Affiliated Employers, and the denominator of which is
the lesser of 125% of the dollar limitation in effect for the
Limitation Year under Sections 415(b) and (d) of the Code, or 140% of
the Participant's Highest Average Compensation including any
adjustments under Section 415(b) of the Code. Notwithstanding the
foregoing, if the Participant was a Participant as of the first day of
the first Limitation Year beginning after December 31, 1986, in one or
more defined benefit plans maintained by an Affiliated Employer which
were in existence on May 6, 1986, the denominator of this fraction will
not be less than 125% of the sum of the annual benefits under such
plans which the Participant had accrued as of the close of the last
Limitation Year beginning before January 1, 1987, disregarding any
change in the terms and conditions of the Plan after May 5, 1986. The
preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Section
415 of the Code for all Limitation Years beginning
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before January 1, 1987.
(d) Defined Contribution Dollar Limitation means $30,000 or if
greater, one-fourth of the defined benefit dollar limitation set forth
in Section 415(b)(1) of the Code as in effect for the Limitation Year.
(e) Defined Contribution Fraction means a fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's accounts under all the defined contribution plans
(whether or not terminated) maintained by Affiliated Employers for the
current and all prior Limitation Years (including the Annual Additions
attributable to the Participant's nondeductible Employee contributions
to all defined benefit plans, whether or not terminated, maintained by
the Affiliated Employers, and the Annual Additions attributable to all
welfare benefit funds, as defined in Section 419(e) of the Code, and
individual medical accounts, as defined in Section 415(l)(2) of the
Code), and the denominator of which is the sum of the Maximum Annual
Additions for the current and all prior Limitation Years of service
with the Affiliated Employers (regardless of whether a defined
contribution plan was maintained by any Affiliated Employer). The
Maximum Annual Additions in any Plan Year is the lesser of 125% of the
dollar limitation determined under Sections 415(b) and (d) of the Code
in effect under Section 415(c)(1)(A) of the Code, or 35% of the
Participant's Section 415 Compensation for such year. If the Employee
was a Participant as of the end of the first day of the first
Limitation Year beginning after December 31, 1986 in one or more
defined contribution plans maintained by an Affiliated Employer which
were in existence on May 6, 1986, the numerator of this fraction will
be adjusted if the sum of this fraction and the Defined Benefit
Fraction would otherwise exceed 1.0 under the terms of this Plan. Under
the adjustment, an amount equal to product of the excess of the sum of
the fractions over 1.0, multiplied by the denominator of this fraction,
will be permanently subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be computed
as of the end of the last Limitation Year beginning before January 1,
1987, and disregarding any changes in the terms and conditions of the
Plan after May 5, 1986, but using the Section 415 limitation applicable
to the first Limitation Year beginning on or after January 1, 1987. The
Annual Addition for any Limitation Year beginning before January 1,
1987, shall not be recomputed to treat 100% of nondeductible Employee
contributions as Annual Additions.
(f) Excess Amount means, with respect to any Participant, the
amount by which Annual Additions exceed the Maximum Annual Additions.
(g) Highest Average Compensation means the average
compensation for the three consecutive Years of Service with the
Employer that produces the highest average. For this purpose, a Year of
Service with the Employer is determined based on the Plan Year.
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(h) Limitation Year means the Plan Year. All qualified plans
maintained by the Employer must use the same Limitation Year. If the
Limitation Year is amended to a different period of 12 consecutive
months, the new Limitation Year must begin on a date within the
Limitation Year in which the amendment is made.
(i) Master or Prototype plan means a plan the form of which is
the subject of a favorable opinion letter from the Internal Revenue
Service.
(j) Maximum Annual Additions, which is the maximum annual
addition that may be contributed or allocated to a Participant's
account under the plan for any Limitation Year, means an amount not
exceeding the lesser of (a) the Defined Contribution Dollar Limitation
or (b) 25% of the Participant's Section 415 Compensation for the
Limitation Year. The compensation limitation referred to in (b) shall
not apply to any contribution for medical benefits (within the meaning
of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise
treated as an Annual Addition under Section 415(l)(1) or Section
419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different period of 12 consecutive
months, the Maximum Annual Additions will not exceed the Defined
Contribution Dollar Limitation multiplied by the following fraction:
number of months in the
short limitation year
---------------------
12
(k) Projected Annual Benefit means the annual retirement
benefit (adjusted to an actuarially equivalent Straight Life Annuity if
such benefit is expressed in a form other than a Straight Life Annuity
or Qualified Joint and Survivor Annuity) to which the Participant would
be entitled under the terms of the Plan assuming:
(1) The Participant will continue employment until
normal retirement age under the Plan (or current age, if
later), and
(2) The Participant's Section 415 Compensation for
the current Limitation Year and all other relevant factors
used to determine benefits under the plan will remain constant
for all future Limitation Years.
(l) Straight Life Annuity means an annuity payable in equal
installments for the life of the Participant that terminates upon the
Participant's death.
(m)
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ARTICLE 7. ELIGIBILITY FOR DISTRIBUTION OF BENEFITS
7.1. RETIREMENT. After his Retirement, the amount credited to a
Participant's Accounts will be distributed to him in accordance with Article 9.
The termination of a Participant's employment with the Affiliated Employers
after he has (i) attained the normal retirement age specified in the Plan
Agreement, (ii) fulfilled the requirements for early retirement (if any)
specified in the Plan Agreement, or (iii) become Disabled will constitute his
Retirement. Upon a Participant's Retirement (or, if earlier, his attainment of
the normal retirement age specified in the Plan Agreement or fulfillment of the
requirements for early retirement, if any, specified in the Plan Agreement) the
Participant's Accounts shall become fully vested, regardless of the vesting
schedule specified by the Employer in the Plan Agreement. A Participant who
separates from service with any vested balance in his Accounts, after satisfying
the service requirements for early retirement (if any is specified in the Plan
Agreement) but before satisfying the age requirement for early retirement (if
any is specified in the Plan Agreement), shall be entitled to a fully vested
early retirement benefit upon his satisfaction of such age requirement.
7.2. DEATH. If a Participant dies before the distribution of his
Accounts has been completed, his Beneficiary will be entitled to distribution of
benefits in accordance with Article 9. A Participant's Accounts will become
fully vested upon his death before termination of his employment with the
Affiliated Employers, regardless of the vesting schedule specified by the
Employer in the Plan Agreement.
A Participant may designate a Beneficiary by completing and returning
to the Plan Administrator a form provided for this purpose. The form most
recently completed and returned to the Plan Administrator before the
Participant's death shall supersede any earlier form. If a Participant has not
designated any Beneficiary before his death, or if no Beneficiary so designated
survives the Participant, his Beneficiary shall be his surviving spouse, or if
there is no surviving spouse, his estate. A married Participant may designate a
Beneficiary other than his spouse only if his spouse consents in writing to the
designation, and the spouse's consent acknowledges the effect of the consent and
is witnessed by a notary public or a representative of the Plan. The beneficiary
or beneficiaries named in the designation to which the spouse has so consented
may not be changed without further written spousal consent unless the terms of
the spouse's original written consent expressly permit such a change, and
acknowledge that the spouse voluntarily relinquishes the right to limit the
consent to a specific beneficiary. The marriage of a Participant shall nullify
any designation of a beneficiary previously executed by the Participant. If it
is established to the satisfaction of the Plan Administrator that the
Participant has no spouse or that the spouse cannot be located, the requirement
of spousal consent shall not apply. Any spousal consent, or establishment that
spousal consent cannot be obtained, shall apply only to the particular spouse
involved.
7.3. OTHER TERMINATION OF EMPLOYMENT. A Participant whose employment
terminates for any reason other than his Retirement or death will be entitled to
distribution, in
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accordance with Article 9, of benefits equal to the amount of the vested balance
of his Accounts as determined under Article 8.
7.4.
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ARTICLE 8. VESTING
8.1. VESTED BALANCE. The vested balance of a Participant's Accounts
will be determined as follows:
(a) General Rule. A Participant's Participant Contribution
Account and Rollover Account shall be fully vested at all times. The
vested portion of his Employer Contribution Account shall be equal to
the percentage that corresponds, in the vesting schedule specified in
the Plan Agreement, to the number of Years of Service credited to the
Participant as of the end of the Year of Service in which his
employment terminates.
(b) Special Rules for CODA. In a Plan that includes a CODA, a
Participant's Elective Deferral Account, Qualified Nonelective Account,
and Qualified Matching Account shall be fully vested at all times. The
vested portion of his Employer Matching Account shall be equal to the
percentage that corresponds, in the vesting schedule specified in the
Plan Agreement, to the number of Years of Service credited to the
Participant as of the end of the Year of Service in which his
employment terminates.
(c) Retirement. All of a Participant's Accounts shall become
fully vested upon his Retirement or his earlier attainment of early
retirement age (if any) or the normal retirement age elected by the
Employer in the Plan Agreement.
For so long as a former Employee does not receive a distribution (or a
deemed distribution) of the vested portion of his Accounts, the undistributed
portion shall be held in a separate account which shall be invested pursuant to
Section 13.3 and shall share in earnings and losses of the Trust Fund pursuant
to Section 13.4 in the same manner as the Accounts of active Participants.
8.2. VESTING OF ACCOUNTS OF RETURNED FORMER EMPLOYEES. The following
rules apply in determining the vested portion of the Accounts of a Participant
who incurs one or more consecutive One-Year Vesting Breaks and then returns to
employment with an Affiliated Employer:
(a) If the Participant incurred fewer than five consecutive
One-Year Vesting Breaks, then all of his Years of Service will be taken
into account in determining the vested portion of his Accounts, as soon
as he has completed one Year of Service following his return to
employment.
(b) If the Participant incurred five or more consecutive
One-Year Vesting Breaks, then:
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(1) no Year of Service completed after his return to
employment will be taken into account in determining the
vested portion of his Accounts as of any time before he
incurred the first One-Year Vesting Break;
(2) years of Service completed before he incurred the
first One-Year Vesting Break will not be taken into account in
determining the vested portion of his Accounts as of any time
after his return to employment (i) unless some portion of his
Employer Contribution Account or Employer Matching Account had
become vested before he incurred the first One-Year Vesting
Break, and (ii) until he has completed one Year of Service
following his return to employment; and
(3) separate sub-accounts will be maintained for the
Participant's pre-break and post-break Employer Contribution
Account and Employer Matching Account, until both sub-accounts
become fully vested. Both sub-accounts will share in the
earnings and losses of the Trust Fund.
8.3. FORFEITURE OF NON-VESTED AMOUNTS. The portion of a former
Employee's Accounts that has not become vested under Section 8.1 shall become a
Forfeiture in accordance with the following rules, and shall be reallocated in
accordance with Section 4.4 or Section 5.14 (whichever applies) no later than
the end of the Plan Year in which it becomes a Forfeiture.
(a) If Distribution Is Made. If any or all of the vested
portion of a Participant's Accounts is distributed in accordance with
Section 9.1 or 9.2 before the Participant incurs five consecutive
One-Year Vesting Breaks, the nonvested portion of his Accounts shall
become a Forfeiture in the Plan Year in which the distribution occurs.
For purposes of this Section 8.3, if the value of the vested portion of
a Participant's Accounts is zero, the Participant shall be deemed to
have received a distribution of the entire vested balance of his
Accounts on the day his employment terminates. If the Participant
elects to have distributed less than the entire vested portion of his
Employer Contribution Account or Employer Matching Accounts, the part
of the nonvested portion that will become a Forfeiture is the total
nonvested portion multiplied by a fraction, the numerator of which is
the amount of the distribution and the denominator of which is the
total value of the entire vested portion of such Accounts.
(b) Right of Repayment. If a Participant who receives a
distribution pursuant to paragraph (a) returns to employment with an
Affiliated Employer, the balance of his Employer Contribution Account
and Employer Matching Account will be restored to the amount of such
balance on the date of distribution, if he repays to the Plan the full
amount of the distribution, before the earlier of (i) the fifth
anniversary of his return to employment or (ii) the date he incurs five
consecutive One-Year Vesting
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Breaks following the date of distribution. If an Employee is deemed to
receive a distribution pursuant to this Section 8.3, and he resumes
employment covered under this Plan before the date he incurs five
consecutive One-Year Vesting Breaks, upon his reemployment the
Employer-derived account balance of the Employee will be restored to
the amount on the date of such deemed distribution. Such restoration
will be made, first, from the amount of any Forfeitures available for
reallocation as of the last day of the Plan Year in which repayment is
made, to the extent thereof; and to the extent that Forfeitures are not
available or are insufficient to restore the balance, from
contributions made by the Employer pursuant to Section 4.1(e).
(c) If No Distribution Is Made. If no distribution (nor deemed
distribution) is made to a Participant before he incurs five
consecutive One-Year Vesting Breaks, the nonvested portion of his
Accounts shall become a Forfeiture at the end of the Plan Year that
constitutes his fifth consecutive One-Year Vesting Break.
(d) Adjustment of Accounts. Before a Forfeiture is incurred, a
Participant's Accounts shall share in earnings and losses of the Trust
Fund pursuant to Section 13.4 in the same manner as the Accounts of
active Participants.
(e) Accumulated Deductible Contributions. For Plan Years
beginning before January 1, 1989, a Participant's vested Account
balance shall not include accumulated deductible contributions within
the meaning of Section 72(o)(5)(B) of the Code.
8.4. SPECIAL RULE IN THE EVENT OF A WITHDRAWAL. If a withdrawal
pursuant to Section 12.2, 12.3 or 12.4 is made from a Participant's Employer
Contribution Account or Employer Matching Account before the Account is fully
vested, and the Participant may increase the vested percentage in the Account,
then a separate account will be established at the time of the withdrawal, and
at any relevant time after the withdrawal the vested portion of the separate
account will be equal to the amount "X" determined by the following formula:
X = P(AB + D) - D
For purposes of the formula, P is the Participant's vested percentage at the
relevant time, AB is the account balance at the relevant time, and D is the
amount of the withdrawal.
8.5. VESTING ELECTION. If the Plan is amended to change any vesting
schedule, or is amended in any way that directly or indirectly affects the
computation of a Participant's vested percentage, each Participant who has
completed not less than three Years of Service may elect, within a reasonable
period after the adoption of the amendment or change, in a writing filed with
the Employer to have his vested percentage computed under the Plan without
regard to such amendment. For a Participant who is not credited with at least
one Hour of Service in a Plan Year beginning after December 31, 1988, the
preceding sentence shall be applied by
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substituting "five Years of Service" for "three Years of Service." The period
during which the election may be made shall commence with the date the amendment
is adopted, or deemed to be made, and shall end on the latest of (a) 60 days
after the amendment is adopted; (b) 60 days after the amendment becomes
effective; or (c) 60 days after the Participant is issued written notice of the
amendment by the Employer.
8.6.
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ARTICLE 9. PAYMENT OF BENEFITS
9.1. DISTRIBUTION OF ACCOUNTS. A Participant or Beneficiary who has
become eligible for a distribution of benefits pursuant to Article 7 may elect
to receive such benefits at any time, subject to the terms and conditions of
this Article 9, Article 10 and Article 11. Unless a Participant or Beneficiary
elects otherwise, distribution of benefits will begin no later than the 60th day
after the end of the Plan Year in which the latest of the following events
occurs:
(a) The Participant attains age 65 (or if earlier, the normal
retirement age specified by the Employer in the Plan Agreement); or
(b) The tenth anniversary of the year in which the Participant
commenced participation in the Plan; or
(c) The Participant's employment with the Affiliated Employers
terminates.
A Beneficiary who is the surviving spouse of a Participant may elect to have
distribution of benefits begin within the 90-day period following the
Participant's death.
For purposes of this Section 9.1, the failure of a Participant (and his
spouse, if spousal consent is required pursuant to Article 10) to consent to a
distribution while a benefit is "immediately distributable" within the meaning
of Section 9.2 shall be considered an election to defer commencement of payment.
If the Employer has so specified in the Plan Agreement, the vested portion of a
Participant's Accounts will be distributed in a lump sum in cash no later than
60 days after the end of the Plan Year in which his employment terminates, if at
the time the Participant first became entitled to a distribution the value of
such vested portion derived from Employer and Employee contributions does not
exceed $3,500. Commencement of distributions in any case shall be subject to
Section 9.4.
9.2. RESTRICTION ON IMMEDIATE DISTRIBUTIONS. A Participant's account
balance is considered "immediately distributable" if any part of the account
balance could be distributed to the Participant (or his surviving spouse) before
the Participant attains, or would have attained if not deceased, the later of
the normal retirement age specified in the Plan Agreement or age 62.
(a) If the value of a Participant's vested account balance
derived from Employer and Employee contributions exceeds (or at the
time of any prior distribution exceeded) $3,500, and the account
balance is immediately distributable, the Participant and his spouse
(or where either the Participant or the spouse has died), the survivor
must consent to any such distribution, unless an exception described in
paragraph (b) applies. The consent of the Participant and his spouse
shall be obtained in writing within the 90-day period ending on the
annuity starting date, which is the first day of the first period for
which an amount is paid as an annuity (or any other form). The
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Plan Administrator shall notify the Participant and the spouse, no less
than 30 days and no more than 90 days before the annuity starting date,
of the right to defer any distribution until the Participant's account
balance is no longer immediately distributable. Such notification shall
include a general description of the material features of the optional
forms of benefit available under the Plan and an explanation of their
relative values, in a manner that would satisfy the notice requirements
of Section 417(a)(3) of the Code. If a distribution is one to which
Sections 401(a)(11) and 417 of the Code do not apply, such distribution
may commence less than 30 days after the required notification is
given, provided that:
(1) the Plan Administrator clearly informs the
Participant that the Participant has a right to a period of at
least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option); and
(2) the Participant, after receiving the notice,
affirmatively elects a distribution.
(b) Notwithstanding paragraph (a), only the Participant need
consent to the commencement of a distribution in the form of a
Qualified Joint and Survivor Annuity while the account balance is
immediately distributable. Furthermore, if payment in the form of a
Qualified Joint and Survivor Annuity is not required with respect to
the Participant pursuant to Section 10.1(b) of the Plan, only the
Participant need consent to the distribution of an account balance that
is immediately distributable. Neither the consent of the Participant
nor the spouse shall be required to the extent that a distribution is
required to satisfy Section 401(a)(9) or Section 415 of the Code. In
addition, upon termination of the Plan, if the Plan does not offer an
annuity option purchased from a commercial provider), and no Affiliated
Employer maintains another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975(e)(7) of the
Code), a Participant's account balance shall be distributed to the
Participant without his consent. If any Affiliated Employer maintains
another defined contribution plan (other than an employee stock
ownership plan as defined in Section 4975(e)(7) of the Code), a
Participant's account balance shall be transferred to that defined
contribution plan without his consent, unless he consents to an
immediate distribution. For purposes of determining the applicability
of the foregoing consent requirements to distributions made before the
first day of the first Plan Year beginning after December 31, 1988, the
Participant's vested account balance shall not include amounts
attributable to accumulated deductible employee contributions within
the meaning of Section 72(o)(5)(B) of the Code.
9.3. OPTIONAL FORMS OF DISTRIBUTION. Provided that the Employer has so
elected in the Plan Agreement, if at the time a Participant first becomes
entitled to a distribution the value of his vested Account balance derived from
Employer and Employee contributions does not
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exceed $3,500, distribution shall be made in a lump sum in cash. Subject to the
preceding sentence and to the rules of Article 10 concerning joint and survivor
annuities, a Participant or Beneficiary may elect to receive benefits in any of
the following optional forms:
(a) A lump sum payment. If a Participant's Accounts are
invested in Employer Stock, a lump sum payment may be made in cash or
in Employer Stock or in a combination of both;
(b) A series of installments over a period certain that meets
the requirements of Article 11;
(c) A nontransferable annuity contract, purchased by the Plan
Administrator from a commercial provider, with terms complying with the
requirements of Article 11; provided, however, that an annuity for the
life of any person shall be available as an optional form of
distribution only if the Employer has so elected in the Plan Agreement;
or
(d) In the event that the Plan is adopted as an amendment to
an existing plan, any optional form of distribution available under the
existing plan. Such optional forms of distribution may be made
available where necessary through the purchase by the Plan
Administrator of an appropriate annuity contract in accordance with
paragraph (c). If the Plan is a direct or indirect transferee of a
defined benefit plan, money purchase plan, target benefit plan, stock
bonus plan, or profit sharing plan which is subject to the survivor
annuity requirements of Sections 401(a)(11) and 417 of the Code, the
provisions of Article 10 shall apply.
9.4. DISTRIBUTION PROCEDURE. The Trustee shall make or commence
distributions to or for the benefit of Participants only on receipt of an
instruction from the Employer in writing or by such other means as shall be
acceptable to the Trustee, certifying that a distribution of a Participant's
benefits is payable pursuant to the Plan, and specifying the time and manner of
payment. The amount to be distributed shall be determined as of the Valuation
Date coincident with or next following the Employer's order. The Trustee shall
be fully protected in acting upon the directions of the Employer in making
benefit distributions, and shall have no duty to determine the rights or
benefits of any person under the Plan or to inquire into the right or power of
the Employer to direct any such distribution. The Trustee shall be entitled to
assume conclusively that any determination by the Employer with respect to a
distribution meets the requirements of the Plan. The Trustee shall not be
required to make any payment hereunder in excess of the net realizable value of
the assets of the Account in question at the time of such payment, nor to make
any payment in cash unless the Employer has furnished instructions as to the
assets to be converted to cash for the purposes of making payment.
9.5. LOST DISTRIBUTEE. In the event that the Plan Administrator is
unable with reasonable effort to locate a person entitled to distribution under
the Plan, the Accounts
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distributable to such a person shall become a Forfeiture at the end of the third
Plan Year after the Plan Administrator's efforts to locate such person began;
provided, however, that the amount of the Forfeiture shall be restored in the
event that such person thereafter submits a claim for benefits under the Plan.
Such restoration will be made, first, from the amount of Forfeitures available
for reallocation as of the last day of the Plan Year in which the claim is made,
to the extent thereof; and to the extent that Forfeitures are not available or
are insufficient to restore the balance, from contributions made by the Employer
pursuant to Section 4.1(e). A Forfeiture occurring under this Section 9.5 shall
be reallocated as though it were an Employer contribution.
9.6. DIRECT ROLLOVERS. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this Section,
a distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover. For purposes of this Section 9.6, the following definitions shall
apply:
(a) Eligible Rollover Distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance
to the credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or
the joint lives (or joint life expectancies) of the distributees and
the distributee's Designated Beneficiary (as defined in Section 11.3),
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).
(b) Eligible Retirement Plan. An eligible retirement plan is
an individual retirement account described in section 408(a) of the
Code, an individual retirement annuity described in section 408(b) of
the Code, an annuity plan described in section 403(a) of the Code, or a
qualified trust described in section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
(c) Distributee. A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a Qualified Domestic Relations Order
are distributees with regard to the interest of the spouse or former
spouse.
(d) Direct Rollover. A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the distributee.
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(e)
9.7. DISTRIBUTIONS REQUIRED BY A QUALIFIED DOMESTIC RELATIONS ORDER. To
the extent required by a Qualified Domestic Relations Order, the Plan
Administrator shall make distributions from a Participant's Accounts to any
alternate payee named in such order in a manner consistent with the distribution
options otherwise available under the Plan, regardless of whether the
Participant is otherwise entitled to a distribution at such time under the Plan.
9.8.
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ARTICLE 10. JOINT AND SURVIVOR ANNUITY REQUIREMENTS
10.1. APPLICABILITY.
(a) Generally. The provisions of Sections 10.2 through 10.5
shall generally apply to a Participant who is credited with at least
one Hour of Service on or after August 23, 1984, and such other
Participants as provided in Section 10.6.
(b) Exception for Certain Plans. The provisions of Sections
10.2 through 10.5 shall not apply to a Participant in a profit sharing
plan if: (i) the Participant does not or cannot elect payment of
benefits in the form of a life annuity, and (ii) on the death of the
Participant, his Vested Account Balance will be paid to his surviving
spouse (unless there is no surviving spouse, or the surviving spouse
has consented to the designation of another Beneficiary in a manner
conforming to a Qualified Election) and the surviving spouse may elect
to have distribution of the Vested Account Balance (adjusted in
accordance with Section 13.4 for gains or losses occurring after the
Participant's death) commence within the 90-day period following the
date of the Participant's death. The Participant may waive the spousal
death benefit described in this paragraph (b) at any time, provided
that no such waiver shall be effective unless it satisfies the
conditions applicable under Section 10.4(c) to a Participant's waiver
of a Qualified Preretirement Survivor Annuity. The exception in this
paragraph (b) shall not be operative with respect to a Participant in a
profit sharing plan if the Plan:
(1) is a direct or indirect transferee of a defined
benefit plan, money purchase pension plan, target benefit
plan, stock bonus plan, or profit sharing plan which is
subject to the survivor annuity requirements of Sections
401(a)(11) and 417 of the Code; or
(2) is adopted as an amendment of a plan that did not
qualify for the exception in this paragraph (b) before the
amendment was adopted.
For purposes of this paragraph (b), Vested Account Balance
shall have the meaning provided in Section 10.4(f). The provisions of
Sections 10.2 through 10.6 set forth the survivor annuity requirements
of Sections 401(a)(11) and 417 of the Code.
(c) Exception for Certain Amounts. The provisions of Sections
10.2 through 10.5 shall not apply to any distribution made on or after
the first day of the first Plan Year beginning after December 31, 1988,
from or under a separate account attributable solely to accumulated
deductible employee contributions as defined in Section 72(o)(5)(B) of
the Code, and maintained on behalf of a Participant in a money purchase
pension plan or a target benefit plan, provided that the exceptions
applicable to certain profit sharing plans under paragraph (b) are
applicable with respect to the separate account (for this purpose,
Vested Account Balance means the Participant's
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separate account balance attributable solely to accumulated deductible
employee contributions within the meaning of Section 72(o)(5)(B) of the
Code).
10.2. QUALIFIED JOINT AND SURVIVOR ANNUITY. Unless an optional form of
benefit is selected pursuant to a Qualified Election within the 90-day period
ending on the Annuity Starting Date, a married Participant's Vested Account
Balance will be paid in the form of a Qualified Joint and Survivor Annuity and
an unmarried Participant's Vested Account Balance will be paid in the form of a
life annuity. In either case, the Participant may elect to have such an annuity
distributed upon his attainment of the Earliest Retirement Age under the Plan.
10.3. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. Unless an optional form
of benefit has been selected within the Election Period pursuant to a Qualified
Election, the Vested Account Balance of a Participant who dies before the
Annuity Starting Date shall be applied toward the purchase of an annuity for the
life of his surviving spouse (a "Qualified Preretirement Survivor Annuity"). The
surviving spouse may elect to have such an annuity distributed within a
reasonable period after the Participant's death. For purposes of this Article
10, the term "spouse" means the current spouse or surviving spouse of a
Participant, except that a former spouse will be treated as the spouse or
surviving spouse (and a current spouse will not be treated as the spouse or
surviving spouse) to the extent provided under a qualified domestic relations
order as described in Section 414(p) of the Code.
10.4. DEFINITIONS. The following definitions apply:
(a) "Election Period" means the period beginning on the first
day of the Plan Year in which a Participant attains age 35 and ending
on the date of the Participant's death. If a Participant separates from
service before the first day of the Plan Year in which he reaches age
35, the Election Period with respect to his account balance as of the
date of separation shall begin on the date of separation. A Participant
who will not attain age 35 as of the end of a Plan Year may make a
special Qualified Election to waive the Qualified Preretirement
Survivor Annuity for the period beginning on the date of such election
and ending on the first day of the Plan Year in which the Participant
will attain age 35. Such an election shall not be valid unless the
Participant receives a written explanation of the Qualified
Preretirement Survivor Annuity in such terms as are comparable to the
explanation required under Section 10.5. Qualified Preretirement
Survivor Annuity coverage will be automatically reinstated as of the
first day of the Plan Year in which the Participant attains age 35. Any
new waiver on or after that date shall be subject to the full
requirements of this article.
(b) "Earliest Retirement Age" means the earliest date on which
the Participant could elect to receive Retirement benefits under the
Plan.
(c) "Qualified Election" means a waiver of a Qualified Joint
and Survivor Annuity or a Qualified Preretirement Survivor Annuity. Any
such waiver shall not be
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effective unless: (1) the Participant's spouse consents in writing to
the waiver; (2) the waiver designates a specific Beneficiary, including
any class of beneficiaries or any contingent beneficiaries, which may
not be changed without spousal consent (unless the spouse's consent
expressly permits designations by the Participant without any further
spousal consent); (3) the spouse's consent acknowledges the effect of
the waiver; and (4) the spouse's consent is witnessed by a plan
representative or notary public. Additionally, a Participant's waiver
of the Qualified Joint and Survivor Annuity shall not be effective
unless the waiver designates a form of benefit payment which may not be
changed without spousal consent (unless the spouse's consent expressly
permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of a plan
representative that there is no spouse or that the spouse cannot be
located, a waiver will be deemed a Qualified Election. Any consent by a
spouse obtained under these provisions (and any establishment that the
consent of a spouse may not be obtained) shall be effective only with
respect to the particular spouse involved. A consent that permits
designations by the Participant without any requirement of further
consent by the spouse must acknowledge that the spouse has the right to
limit the consent to a specific Beneficiary and a specific form of
benefit where applicable, and that the spouse voluntarily elects to
relinquish either or both of those rights. A revocation of a prior
waiver may be made by a Participant without the consent of the spouse
at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant has received notice as
provided in Section 10.5.
(d) "Qualified Joint and Survivor Annuity" means an immediate
annuity for the life of a Participant, with a survivor annuity for the
life of the spouse which is not less than 50% and not more than 100% of
the amount of the annuity which is payable during the joint lives of
the Participant and the spouse, and which is the amount of benefit that
can be purchased with the Participant's Vested Account Balance. The
percentage of the survivor annuity under the Plan shall be 50%.
(e) "Annuity Starting Date" means the first day of the first
period for which an amount is paid as an annuity (or any other form).
(f) "Vested Account Balance" means the aggregate value of the
Participant's vested account balance derived from Employer and Employee
contributions (including rollovers), whether vested before or upon
death, including the proceeds of insurance contracts, if any, on the
Participant's life. The provisions of this Article 10 shall apply to a
Participant who is vested in amounts attributable to Employer
contributions, Employee contributions or both at the time of death or
distribution.
10.5. NOTICE REQUIREMENTS. In the case of a Qualified Joint and
Survivor Annuity, no less than 30 days (or such other period permitted by law)
and no more than 90 days before a Participant's Annuity Starting Date the Plan
Administrator shall provide to him a written
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explanation of (i) the terms and conditions of a Qualified Joint and Survivor
Annuity, (ii) the Participant's right to make, and the effect of, an election to
waive the Qualified Joint and Survivor Annuity form of benefit, (iii) the rights
of the Participant's spouse, and (iv) the right to make, and the effect of, a
revocation of a previous election to waive the Qualified Joint and Survivor
Annuity.
In the case of a Qualified Preretirement Survivor Annuity, within the
applicable period for a Participant the Plan Administrator shall provide to him
a written explanation of the Qualified Preretirement Survivor Annuity, in terms
and manner comparable to the requirements applicable to the explanation of a
Qualified Joint and Survivor Annuity as described in the preceding paragraph.
The applicable period for a Participant is whichever of the following periods
ends last: (i) the period beginning with the first day of the Plan Year in which
the Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35; (ii) a
reasonable period ending after an individual becomes a Participant; (iii) a
reasonable period ending after this Article 10 first applies to the Participant.
Notwithstanding the foregoing, in the case of a Participant who separates from
service before attaining age 35, notice must be provided within a reasonable
period ending after his separation from service.
For purposes of applying the preceding paragraph, a reasonable period
ending after the enumerated events described in (ii) and (iii) is the end of the
two-year period beginning one year before the date the applicable event occurs,
and ending one year after that date. In the case of a Participant who separates
from service before the Plan Year in which he reaches age 35, notice shall be
provided within the two-year period beginning one year before the separation and
ending one year after the separation. If such a Participant thereafter returns
to employment with the Employer, the applicable period for the Participant shall
be redetermined.
10.6. TRANSITIONAL RULES.
(a) Any living Participant not receiving benefits on August
23, 1984, who would otherwise not receive the benefits prescribed by
the preceding Sections of this Article 10, must be given the
opportunity to elect to have those Sections apply if the Participant is
credited with at least one Hour of Service under the Plan or a
predecessor plan in a Plan Year beginning on or after January 1, 1976,
and the Participant had at least ten years of vesting service when he
or she separated from service.
(b) Any living Participant not receiving benefits on August
23, 1984, who was credited with at least one Hour of Service under the
Plan or a predecessor plan on or after September 2, 1974, and who is
not otherwise credited with any service in a Plan Year beginning on or
after January 1, 1976, must be given the opportunity to have his
benefits paid in accordance with paragraph (d) of this Section 10.6.
(c) The respective opportunities to elect (as described in
paragraphs (a) and
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(b) above) must be afforded to the appropriate Participants during the
period commencing on August 23, 1984, and ending on the date benefits
would otherwise commence to be paid to those Participants.
(d) Any Participant who has so elected pursuant to paragraph
(b) of this Section 10.6, and any Participant who does not elect under
paragraph (a), or who meets the requirements of paragraph (a) except
that he does not have at least ten years of vesting service when he
separates from service, shall have his benefits distributed in
accordance with all of the following requirements, if his benefits
would otherwise have been payable in the form of a life annuity:
(1) Automatic joint and survivor annuity. If benefits
in the form of a life annuity become payable to a married
Participant who:
(A) begins to receive payments under the
Plan on or after normal retirement age; or
(B) dies on or after normal retirement age
while still working for the Employer; or
(C) begins to receive payments on or after
the qualified early retirement age; or
(D) separates from service on or after
attaining normal retirement age (or the qualified
early retirement age) and after satisfying the
eligibility requirements for the payment of benefits
under the Plan and thereafter dies before beginning
to receive such benefits;
then such benefits will be received under the Plan in the form
of a Qualified Joint and Survivor Annuity, unless the
Participant has elected otherwise during the election period,
which must begin at least six months before the Participant
attains qualified early retirement age and end not more than
90 days before the commencement of benefits. Any election
hereunder will be in writing and may be changed by the
Participant at any time.
(2) Election of early survivor annuity. A Participant
who is employed after attaining the qualified early retirement
age will be given the opportunity to elect during the election
period to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under such
annuity must not be less than the payments which would have
been made to the spouse under the Qualified Joint and Survivor
Annuity if the Participant had retired on the day before his
death. Any election under this provision will be in writing
and may be changed by the Participant at any time. The
election period
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begins on the later of (i) the 90th day before the Participant
attains the qualified early retirement age, or (ii) the date
on which participation begins, and ends on the date the
Participant terminates employment.
(3) For purposes of this Section 10.6, qualified
early retirement age is the latest of the earliest date under
the Plan on which the Participant may elect to receive
Retirement benefits, the first day of the 120th month
beginning before the Participant reaches normal retirement
age, or the date the Participant begins participation.
(4)
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ARTICLE 11. MINIMUM DISTRIBUTION REQUIREMENTS
11.1. GENERAL RULES. Subject to Article 10, Joint and Survivor Annuity
Requirements, the requirements of this Article 11 shall apply to any
distribution of a Participant's interest and will take precedence over any
inconsistent provisions of the Plan. All distributions required under this
Article 11 shall be determined and made in accordance with the Income Tax
Regulations issued under Section 401(a)(9) of the Code (including proposed
regulations, until the adoption of final regulations), including the minimum
distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the
proposed regulations.
11.2. REQUIRED BEGINNING DATE. The entire interest of a Participant
must be distributed, or begin to be distributed, no later than the Participant's
required beginning date, determined as follows.
(a) General Rule. The required beginning date of a Participant
is the first day of April of the calendar year following the calendar
year in which the Participant attains age 70 1/2.
(b) Transitional Rules. The required beginning date of a
Participant who attains age 70 1/2 before January 1, 1988, shall be
determined in accordance with (1) or (2) below:
(1) Non-5% owners. The required beginning date of a
Participant who is not a 5% owner is the first day of April of
the calendar year following the calendar year in which the
later of his Retirement or his attainment of age 70 1/2
occurs.
(2) 5% owners. The required beginning date of a
Participant who is a 5% owner during any year beginning after
December 31, 1979, is the first day of April following the
later of:
(A) the calendar year in which the
Participant attains age 70 1/2, or
(B) the earlier of the calendar year with or
within which ends the Plan Year in which the
Participant becomes a 5% owner, or the calendar year
in which the Participant retires.
The required beginning date of a Participant who is not a 5%
owner, who attains age 70 1/2 during 1988 and who has not retired as of
January 1, 1989, is April 1, 1990.
(c) Rules for 5% Owners. A Participant is treated as a 5%
owner for
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purposes of this Section 11.2 if he is a 5% owner as defined in Section
416(i) of the Code (determined in accordance with Section 416 but
without regard to whether the Plan is top heavy) at any time during the
Plan Year ending with or within the calendar year in which he attains
age 66 1/2, or any subsequent Plan Year. Once distributions have begun
to a 5% owner under this Section 11.2, they must continue, even if the
Participant ceases to be a 5% owner in a subsequent year.
11.3. LIMITS ON DISTRIBUTION PERIODS. As of the first Distribution
Calendar Year, distributions not made in a single sum may be made only over one
or a combination of the following periods:
(a) the life of the Participant,
(b) the life of the Participant and his Designated
Beneficiary,
(c) a period certain not extending beyond the Life Expectancy
of the Participant, or
(d) a period certain not extending beyond the Joint and Last
Survivor Expectancy of the Participant and his Designated Beneficiary.
"Designated Beneficiary" means the individual who is designated as the
Beneficiary under the Plan in accordance with Section 401(a)(9) of the Code and
the regulations issued thereunder (including proposed regulations, until the
adoption of final regulations) and Section 7.2.
"Distribution Calendar Year" means a calendar year for which a minimum
distribution is required under Section 401(a)(9) of the Code and this Section
11.3. For distributions beginning before the Participant's death, the first
Distribution Calendar Year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first Distribution
Calendar Year is the calendar year in which distributions are required to begin
pursuant to Section 11.5.
"Life Expectancy" and "Joint and Last Survivor Expectancy" are computed
by use of the expected return multiples in Tables V and VI of Section 1.72-9 of
the Income Tax Regulations. Unless otherwise elected by the Participant (or his
spouse, in the case of distributions described in Section 11.5(b)) by the time
distributions are required to begin, Life Expectancies shall be recalculated
annually. Any such election shall be irrevocable as to the Participant (or
spouse) and shall apply to all subsequent years. The Life Expectancy of a
nonspouse beneficiary may not be recalculated.
11.4. DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR. If the
Participant's
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interest is to be distributed in other than a single sum, the following minimum
distribution rules shall apply on or after the required beginning date.
Paragraphs (a) through (d) apply to distributions in forms other than the
purchase of an annuity contract.
(a) If a Participant's Benefit (as defined below) is to be
distributed over (1) a period not extending beyond the Life Expectancy
of the Participant or the Joint Life and Last Survivor Expectancy of
the Participant and his Designated Beneficiary, or (2) a period not
extending beyond the Life Expectancy of the Designated Beneficiary, the
amount required to be distributed for each calendar year, beginning
with distributions for the first Distribution Calendar Year, must at
least equal the quotient obtained by dividing the Participant's Benefit
by the Applicable Life Expectancy (as defined below).
(b) For calendar years beginning before January 1, 1989, if
the Participant's spouse is not the Designated Beneficiary, the method
of distribution selected must assure that at least 50% of the present
value of the amount available for distribution is paid within the Life
Expectancy of the Participant.
(c) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for
the first Distribution Calendar Year, shall not be less than the
quotient obtained by dividing the Participant's Benefit by the lesser
of (1) the Applicable Life Expectancy or (2) if the Participant's
spouse is not the Designated Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of Section 1.401(a)(9)-2
of the Proposed Income Tax Regulations. Distributions after the death
of the Participant shall be distributed using the Applicable Life
Expectancy in paragraph (a) above as the relevant divisor, without
regard to Proposed Regulations Section 1.401(a)(9)-2.
(d) The minimum distribution required for the Participant's
first Distribution Calendar Year must be made on or before the
Participant's required beginning date. The minimum distribution for
other calendar years, including the minimum distribution for the
Distribution Calendar Year in which the Employee's required beginning
date occurs, must be made on or before December 31 of that Distribution
Calendar Year.
(e) If the Participant's Benefit is distributed in the form of
an annuity contract purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of Section
401(a)(9) of the Code and the regulations issued thereunder (including
proposed regulations, until the adoption of final regulations).
"Applicable Life Expectancy" means the Life Expectancy (or Joint and
Last Survivor Expectancy) calculated using the attained age of the Participant
(or Designated Beneficiary) as of the Participant's (or Designated
Beneficiary's) birthday in the applicable calendar year, reduced by one for each
calendar year which has elapsed since the date Life Expectancy was
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first calculated. If Life Expectancy is being recalculated, the Applicable Life
Expectancy shall be the Life Expectancy as so recalculated. The applicable
calendar year shall be the first Distribution Calendar Year, and if Life
Expectancy is being recalculated such succeeding calendar year. If annuity
payments commence in accordance with Section 11.4(e) before the required
beginning date, the applicable calendar year is the year such payments commence.
If distribution is in the form of an immediate annuity purchased after the
Participant's death with the Participant's remaining interest in the Plan, the
applicable calendar year is the year of purchase.
"Participant's Benefit" means the account balance as of the last
valuation date in the calendar year immediately preceding the Distribution
Calendar Year (valuation calendar year), increased by the amount of any
contributions or Forfeitures allocated to the account balance as of dates in the
valuation calendar year after the valuation date and decreased by distributions
made in the valuation calendar year after the valuation date. For purposes of
the preceding sentence, if any portion of the minimum distribution for the first
Distribution Calendar Year is made in the second Distribution Calendar Year on
or before the required beginning date, the amount of the minimum distribution
made in the second Distribution Calendar Year shall be treated as if it had been
made in the immediately preceding Distribution Calendar Year.
11.5. DEATH DISTRIBUTION PROVISIONS.
(a) Distribution Beginning before Death. If the Participant
dies after distribution of his interest has begun, the remaining
portion of his interest will continue to be distributed at least as
rapidly as under the method of distribution being used before the
Participant's death.
(b) Distribution Beginning after Death. If the Participant
dies before distribution of his interest begins, distribution of his
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death, except to
the extent that an election is made to receive distributions in
accordance with (1) or (2) below:
(1) If any portion of the Participant's interest is
payable to a Designated Beneficiary, distributions may be made
over the Designated Beneficiary's life, or over a period
certain not greater than the Life Expectancy of the Designated
Beneficiary, commencing on or before December 31 of the
calendar year immediately following the calendar year in which
the Participant died; or
(2) If the Designated Beneficiary is the
Participant's surviving spouse, the date distributions are
required to begin in accordance with (1) above shall not be
earlier than the later of (i) December 31 of the calendar year
immediately following the calendar year in which the
Participant died, and (ii)
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December 31 of the calendar year in which the Participant
would have attained age 70 1/2.
If the Participant has not made an election pursuant to this
Section 11.5 by the time of his death, the Participant's Designated
Beneficiary must elect the method of distribution no later than the
earlier of (i) December 31 of the calendar year in which distributions
would be required to begin under this Section 11.5, or (ii) December 31
of the calendar year which contains the fifth anniversary of the date
of death of the Participant. If the Participant has no Designated
Beneficiary, or if the Designated Beneficiary does not elect a method
of distribution, distribution of the Participant's entire interest must
be completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
(c) For purposes of paragraph (b), if the surviving spouse
dies after the Participant, but before payments to the spouse begin,
the provisions of paragraph (b), with the exception of subparagraph (2)
therein, shall be applied as if the surviving spouse were the
Participant.
(d) For purposes of this Section 11.5, any amount paid to a
child of the Participant will be treated as if it had been paid to the
surviving spouse of the Participant if the amount becomes payable to
the surviving spouse when the child reaches the age of majority.
(e) For the purposes of this Section 11.5, distribution of a
Participant's interest is considered to begin on the Participant's
required beginning date (or, if paragraph (c) above is applicable, the
date distribution is required to begin to the surviving spouse pursuant
to paragraph (b) above). If distribution in the form of an annuity
contract described in Section 11.4(e) irrevocably commences to the
Participant before the required beginning date, the date distribution
is considered to begin is the date distribution actually commences.
11.6. TRANSITIONAL RULE. Notwithstanding the other requirements of this
Article 11, and subject to the requirements of Article 10, Joint and Survivor
Annuity Requirements, distribution on behalf of any Participant, including a 5%
owner, may be made in accordance with all of the following requirements
(regardless of when such distribution commences):
(a) The distribution is one which would not have disqualified
the Trust under Section 401(a)(9) of the Internal Revenue Code of 1954
as in effect before its amendment by the Deficit Reduction Act of 1984.
(b) The distribution is in accordance with a method of
distribution designated by the Employee whose interest in the Trust is
being distributed or, if the Employee is deceased, by a Beneficiary of
the Employee.
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(c) The designation specified in paragraph (b) was in writing,
was signed by the Employee or the Beneficiary, and was made before
January 1, 1984.
(d) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
(e) The method of distribution designated by the Employee or
the Beneficiary specifies the time at which distribution will commence,
the period over which distributions will be made, and in the case of
any distribution upon the Employee's death, the Beneficiaries of the
Employee listed in order of priority.
A distribution upon death will not be covered by this transitional rule
unless the information in the designation contains the required information
described above with respect to the distributions to be made upon the death of
the Employee. For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Employee or the Beneficiary to whom such
distribution is being made will be presumed to have designated the method of
distribution under which the distribution is being made, if the method of
distribution was specified in writing and the distribution satisfies the
requirements in paragraphs (a) and (e).
If a designation is revoked, any subsequent distribution must satisfy
the requirements of Section 401(a)(9) of the Code and the regulations
thereunder. If a designation is revoked after the date distributions are
required to begin, the Trust must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the total amount not
yet distributed which would have been required to have been distributed to
satisfy Section 401(a)(9) of the Code and the regulations thereunder, but for
the designation described in paragraphs (b) through (e). For calendar years
beginning after December 31, 1988, such distributions must meet the minimum
distribution incidental benefit requirements in Section 1.401(a)(9)-2 of the
Proposed Income Tax Regulations. Any changes in the designation generally will
be considered to be a revocation of the designation, but the mere substitution
or addition of another beneficiary (one not named in the designation) under the
designation will not be considered to be a revocation of the designation, so
long as the substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or indirectly (for
example, by altering the relevant measuring life). In the case of an amount
transferred or rolled over from one plan to another plan, the rules in Q&A J-2
and Q&A J-3 of Section 1.401(a)(9)-l of the Proposed Income Tax Regulations
shall apply.
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ARTICLE 12. WITHDRAWALS AND LOANS
12.1. WITHDRAWALS FROM PARTICIPANT CONTRIBUTION AND ROLLOVER ACCOUNTS.
Subject to the requirements of Article 10, a Participant may upon written notice
(or in such other manner as shall be made available and agreed upon by the
Employer and Putnam) to the Employer withdraw any amount from his Participant
Contribution Account or Rollover Account. A withdrawn amount may not be repaid
to the Plan. No Forfeiture will occur solely as a result of an Employee's
withdrawal from a Participant Contribution Account or Rollover Account.
12.2. WITHDRAWALS ON ACCOUNT OF HARDSHIP.
(a) If the Employer has so elected in the Plan Agreement, upon
a Participant's written request (or in such other manner as shall be
made available and agreed upon by the Employer and Putnam), the Plan
Administrator may permit a withdrawal of funds from the vested portion
of the Participant's Accounts on account of the Participant's financial
hardship, which must be demonstrated to the satisfaction of the Plan
Administrator, provided, that no hardship withdrawal shall be made from
a Qualified Nonelective Contribution Account or Qualified Matching
Account. In considering such requests, the Plan Administrator shall
apply uniform standards that do not discriminate in favor of Highly
Compensated Employees. If hardship withdrawals are permitted from more
than one of the Elective Deferral Account, Rollover Account, Employer
Matching Account, and Employer Contribution Account, they shall be made
first from a Participant's Elective Deferral Account, then from his
Rollover Account, then from his Employer Matching Account, and finally
from his Employer Contribution Account, as applicable.
A withdrawn amount may not be repaid to the Plan.
(b) The maximum amount that may be withdrawn on account of
hardship from an Elective Deferral Account after December 31, 1988,
shall not exceed the sum of (1) the amount credited to the Account as
of December 31, 1988, and (2) the aggregate amount of the Elective
Deferrals made by the Participant after December 31, 1988, and before
the hardship withdrawal.
(c) Hardship withdrawals shall be permitted only on account of
the following financial needs:
(1) Expenses for medical care described in Section
213(d) of the Code for the Participant, his spouse, children
and dependents, or necessary for these persons to obtain such
care;
(2) Purchase of the principal residence of the
Participant (excluding regular mortgage payments);
(3) Payment of tuition and related educational fees
and room and
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board expenses for the upcoming 12 months of post-secondary
education for the Participant, his spouse, children or
dependents; or
(4) Payments necessary to prevent the Participant's
eviction from, or the foreclosure of a mortgage on, his
principal residence.
(d) Hardship withdrawals shall be subject to the spousal
consent requirements contained in Sections 411(a)(11) and 417 of the
Code, to the same extent that those requirements apply to a Participant
pursuant to Section 10.1.
(e) A hardship withdrawal will be made to a Participant only
upon satisfaction of the following conditions:
(1) The Participant has obtained all nontaxable loans
and all distributions other than hardship withdrawals
available to him from all plans maintained by the Affiliated
Employers;
(2) The hardship withdrawals does not exceed the
amount of the Participant's financial need as described in
paragraph (c) plus any amounts necessary to pay federal, state
and local income taxes and penalties reasonably anticipated to
result from the withdrawals;
(3) With respect to withdrawals from an Elective
Deferral Account, all plans maintained by the Affiliated
Employers provide that the Participant's Elective Deferrals
and voluntary after-tax contributions will be suspended for a
period of 12 months following his receipt of a hardship
withdrawal; and
(4) With respect to withdrawals from an Elective
Deferral Account, all plans maintained by the Affiliated
Employers provide that the amount of Elective Deferrals that
the Participant may make in his taxable year immediately
following the year of a hardship withdrawal will not exceed
the applicable limit under Section 402(g) of the Code for the
taxable year, reduced by the amount of Elective Deferrals made
by the Participant in the taxable year of the hardship
withdrawal.
12.3. WITHDRAWALS AFTER REACHING AGE 59 1/2. If so specified by the
Employer in the Plan Agreement, a Participant who has reached age 59 1/2 may
upon written request to the Employer (or in such other manner as shall be made
available and agreed upon by the Employer and Putnam) withdraw during his
employment any amount not exceeding the vested balance of his Accounts. A
withdrawn amount may not be repaid to the Plan.
12.4. OTHER WITHDRAWALS. If so elected by the Employer in the Plan
Agreement, a Participant may make a withdrawal from his Employer Contribution
Account or Employer
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Matching Account for any reason upon written request to the Employer (or in such
other manner as shall be made available and agreed upon by the Employer and
Putnam), provided that (a) the Participant has been a Participant for at least
five years, or (b) the withdrawal from such Account is limited to the excess of
the balance of such Account on the date of the withdrawal over the aggregate of
the amounts credited to such Account during the two year period immediately
preceding the date of such withdrawal. No such withdrawal shall exceed the
vested portion of the Participant's Account from which the withdrawal is made. A
withdrawn amount may not be repaid to the Plan.
12.5. LOANS. If the Employer has so elected in the Plan Agreement, the
Employer may direct the Trustee to make a loan to a Participant or Beneficiary
from the vested portion of his Accounts, subject to the following terms and
conditions and to such reasonable additional rules and regulations as the Plan
Administrator may establish for the orderly operation of the program:
(a) The Plan Administrator shall administer the loan program
subject to the terms and conditions of this Section 12.5.
(b) A Participant's or Beneficiary's request for a loan shall
be submitted to the Plan Administrator by means of a written
application on a form supplied by the Plan Administrator (or in such
other manner as shall be made available and agreed upon by the Employer
and Putnam). Applications shall be approved or denied by the Plan
Administrator on the basis of its assessment of the borrower's ability
to collateralize and repay the loan, as revealed in the loan
application.
(c) If the Employer has so elected in the Plan Agreement,
loans to a Participant or Beneficiary shall only be made in the event
of hardship of the Participant or Beneficiary. For this purpose, a loan
shall considered to be made in the event of hardship only if is made on
account of the following financial needs:
(1) Expenses for medical care described in Section
213(d) of the Code for the Participant, his spouse, children
and dependents, or necessary for these persons to obtain such
care;
(2) Purchase of the principal residence of the
Participant (excluding regular mortgage payments);
(3) Payment of tuition and related educational fees
and room and board expenses for the upcoming 12 months of
post-secondary education for the Participant, his spouse,
children or dependents; or
(4) Payments necessary to prevent the Participant's
eviction from, or the foreclosure of a mortgage on, his
principal residence.
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(d) Loans shall be made to all Participants and Beneficiaries
on a reasonably equivalent basis. Loans shall not be made available to
Highly Compensated Employees (as defined in Section 414(q) of the Code)
in amounts greater than the amounts made available to other Employees
(relative to the borrower's Account balance).
(e) Loans must be evidenced by the Participant's promissory
note for the amount of the loan payable to the order of the Trustee,
and adequately secured by assignment of not more than fifty percent
(50%) of the Participant's entire right, title and interest in and to
the Trust Fund, exclusive of any asset as to which Putnam is not the
Trustee.
(f) Loans must bear a reasonable interest rate comparable to
the rate charged by commercial lenders in the geographical area for
similar loans. The Plan Administrator shall not discriminate among
Participants in the matter of interest rates, but loans may bear
different interest rates if, in the opinion of the Plan Administrator,
the difference in rates is justified by conditions that would
customarily be taken into account by a commercial lender in the
Employer's geographical area.
(g) The period for repayment for any loan shall not exceed
five years, except in the case of a loan used to acquire a dwelling
unit which within a reasonable time is to be used as the principal
residence of the Participant, in which case the repayment period may
exceed five years. The terms of a loan shall require that it be repaid
in level payments of principal and interest not less frequently then
quarterly throughout the repayment period, except that alternative
arrangements for repayment may apply in the event that the borrower is
on unpaid leave of absence for a period not to exceed one year.
(h) To the extent that a Participant would be required under
Article 10 to obtain the consent of his spouse to a distribution of an
immediately distributable benefit other than a Qualified Joint and
Survivor Annuity, the consent of the Participant's spouse shall be
required for the use of his Account as security for a loan. The
spouse's consent must be obtained no earlier than the beginning of the
90-day period that ends on the date on which the loan is to be so
secured, and obtained in accordance with the requirements of Section
10.4(c) for a Qualified Election. Any such consent shall thereafter be
binding on the consenting spouse and any subsequent spouse of the
Participant. A new consent shall be required for use of the Account as
security for any extension, renewal, renegotiation or revision of the
original loan.
(i) If valid spousal consent has been obtained in accordance
with Section 12.5(h), then notwithstanding any other provision of the
Plan the portion of the Participant's account balance used as a
security interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of
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determining the amount of the account balance payable at the time of
death or distribution, but only if the reduction is used as repayment
of the loan. If less than 100% of the Participant's vested account
balance (determined without regard to the preceding sentence) is
payable to the surviving spouse, then the account balance shall be
adjusted by first reducing the vested account balance by the amount of
the security used as repayment of the loan, and then determining the
benefit payable to the surviving spouse.
(j) In the event of default on a loan by a Participant who is
an active Employee, foreclosure on the Participant's Account as
security will not occur until the Employer has reported to the Trustee
the occurrence of an event permitting distribution from the Plan in
accordance with Article 9 or Section 5.13.
(k) No loan shall be made to an Owner-Employee or a
Shareholder-Employee unless a prohibited transaction exemption is
obtained by the Employer.
(l) No loan to any Participant or Beneficiary can be made to
the extent that the amount of the loan, when added to the outstanding
balance of all other loans to the Participant or Beneficiary, would
exceed the lesser of (a) $50,000 reduced by the excess (if any) of the
highest outstanding balance of loans during the one year period ending
on the day before the loan is made, over the outstanding balance of
loans from the Plan on the date the loan is made, or (b) one-half the
value of the vested account balance of the Participant. For the purpose
of the above limitation, all loans from all qualified plans of the
Affiliated Employers are aggregated.
(1) Loans shall be considered investments directed by
a Participant pursuant to Section 13.3. The amount loaned
shall be charged solely against the Accounts of the
Participant, and repaid amounts and interest shall be credited
solely thereto.
12.6. PROCEDURE; AMOUNT AVAILABLE. Withdrawals and loans shall be made
subject to the terms and conditions applicable to distributions pursuant to
Section 9.4, except that the amount of any withdrawal or loan shall be
determined by reference to the vested balance of the Participant's Account as of
the most recent Valuation Date preceding the withdrawal or loan, and shall not
exceed the amount of the vested account balance.
12.7. PROTECTED BENEFITS. Notwithstanding any provision to the
contrary, if an Employer amends an existing retirement plan ("prior plan") by
adopting this Plan, to the extent any withdrawal option or form of payment
available under the prior plan is an optional form of benefit within the meaning
of Code Section 411(d)(6), such option or form of payment shall continue to be
available to the extent required by such Code Section.
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12.8. RESTRICTIONS CONCERNING TRANSFERRED ASSETS. Notwithstanding any
provision to the contrary, if an Employer amends an existing defined benefit or
money purchase pension plan ("prior pension plan") by adopting this Plan,
accrued benefits attributable to the assets and liabilities transferred from the
prior pension plan (which accrued benefits include the account balance of such
Participant in the Plan attributable to such accrued benefits as of the date of
the transfer and any earnings on such account balance subsequent to the
transfer) shall be distributable only on or after the events upon which
distributions are or were permissible under the prior pension plan.
12.9.
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ARTICLE 13. TRUST FUND AND INVESTMENTS
13.1. ESTABLISHMENT OF TRUST FUND. The Employer and the Trustee hereby
agree to the establishment of a Trust Fund consisting of all amounts as shall be
contributed or transferred from time to time to the Trustee pursuant to the
Plan, and all earnings thereon. The Trustee shall hold the assets of the Trust
Fund for the exclusive purpose of providing benefits to Participants and
Beneficiaries and defraying the reasonable expenses of administering the Plan,
and no such assets shall ever revert to the Employer, except that:
(a) contributions made by the Employer by mistake of fact, as
determined by the Employer, may be returned to the Employer within one
(1) year of the date of payment,
(b) contributions that are conditioned on their deductibility
under Section 404 of the Code may be returned to the Employer, to the
extent disallowed, within one (1) year of the disallowance of the
deduction,
(c) contributions that are conditioned on the initial
qualification of the Plan under the Code, and all investment gains
attributable to them, may be returned to the Employer within one (1)
year after such qualification is denied by determination of the
Internal Revenue Service, but only if an application for determination
of such qualification is made within the time prescribed by law for
filing the Employer's federal income tax return for its taxable year in
which the Plan is adopted, or such later date as the Secretary of the
Treasury may prescribe,
(d) amounts held in a suspense account may be returned to the
Employer on termination of the Plan, to the extent that they may not
then be allocated to any Participant's Account in accordance with
Article 6, and
(e) if the Employer has elected to use Forfeitures for either
Employer Contribution Accounts or Employer Matching Accounts to reduce
other required contributions of the Employer, Forfeitures held under
the Plan with respect to the Accounts for which such election has been
made may be returned to the Employer on termination of the Plan, to the
extent not required to reduce any contributions required of the
Employer.
All Employer contributions under the Plan other than those made
pursuant to Section 4.1(e) are hereby expressly conditioned on the initial
qualification of the Plan and their deductibility under the Code. Investment
gains attributable to contributions returned pursuant to Subsections (a) and (b)
shall not be returned to the contributing Employer, and investment losses
attributable to such contributions shall reduce the amount returned.
13.2. MANAGEMENT OF TRUST FUND. The assets of the Trust Fund shall be
held in trust
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by the Trustee and accounted for in accordance with this Article 13, and shall
be invested in accordance with Section 13.3 in the Investment Products specified
by the Employer in the Plan Agreement and from time to time thereafter in
writing (or in such other manner as shall be made available and agreed upon by
the Employer and Putnam). The Employer shall have the exclusive authority and
discretion to select the Investment Products available under the Plan. In making
that selection, the Employer shall use the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of like character and with like aims. The Employer shall cause the
available Investment Products to be diversified sufficiently to minimize the
risk of large losses, unless under the circumstances it is clearly prudent not
to do so. It is especially intended that the Trustee shall have no discretionary
authority to determine the investment of Trust assets. Notwithstanding the
foregoing, assets of the Trust Fund shall also be invested in Employer Stock if
so elected by the Employer and agreed to by Putnam under the service agreement
executed by the Employer and Putnam pursuant to the establishment of the Plan.
13.3. INVESTMENT INSTRUCTIONS. All amounts held in the Trust Fund under
the Plan shall be invested in Investment Products. If the Employer has elected
in the Plan Agreement to make investment decisions with respect to Elective
Deferrals, Participant Contributions, Rollover Contributions, Profit Sharing and
other Employer Contributions, Employer Matching Contributions, Deductible
Employee Contributions, Qualified Matching Contributions and/or Qualified
Nonelective Contributions, investment instructions as to the Accounts for such
contributions shall be the fiduciary responsibility of the Employer, and each of
such affected Accounts shall have a pro rata interest in all assets of the Trust
to which the Employer's instructions apply. To the extent the Employer has not
elected to make investment decisions for all of the Accounts of the Plan, then
assets of the Trust over which the Employer has not elected to make investment
decisions shall be invested solely in accordance with the instructions of the
Participant to whose Accounts they are allocable, as delivered to Putnam in
accordance with its service agreement with the Employer. Instructions shall
apply to future contributions, past accumulations, or both, according to their
terms, and shall be communicated by the Employer to Putnam in accordance with
procedures prescribed in the service agreement between the Employer and Putnam.
Instructions shall be effective prospectively, coincident with or within a
reasonable time after their receipt in good order by Putnam. An instruction once
received shall remain in effect until it is changed by the provision of a new
instruction. New instructions shall be accepted by Putnam at the time and in the
manner provided in the Plan Agreement. To the extent any assets of the Trust are
to be invested solely in accordance with the instructions of the Participants,
the Plan is intended to constitute a plan described in section 404(c) of ERISA
and Title 29 of the Code of Federal Regulations section 2550.404c-1. In such
case, the Employer shall be the Plan fiduciary responsible for providing the
Participants with all information required to be given pursuant to ERISA section
404(c) and Title 29 of the Code of Federal Regulations section 2550.404c-1.
In the event that the Employer adopts a Putnam prototype plan as an
amendment to or
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restatement of an existing plan, the Employer shall specify one or more
Investment Products to serve as the sole investments for all Participants'
Accounts during the period in which existing records of the Plan are transferred
to the Recordkeeper. During that period, new investment instructions as to
existing assets of the Plan cannot be carried out, nor can distributions be made
from the Plan except to the extent permitted under the terms of the service
agreement between the Employer and Putnam. The Employer and the Recordkeeper
shall use their best efforts to minimize the duration of the period to which the
preceding sentence applies.
To the extent specifically authorized and provided in the service
agreement between the Employer and Putnam, the Employer may direct the Trustee
to establish as an Investment Product a fund all of the assets of which shall be
invested in shares of stock of the Employer that constitute "qualifying employer
securities" within the meaning of section 407(d)(5) of ERISA ("Employer Stock").
The Plan Administrator as named fiduciary shall continually monitor the
suitability of acquiring and holding Employer Stock under the fiduciary duty
rules of section 404(a)(1) of ERISA (as modified by section 404(a)(2) of ERISA)
and the requirements of section 404(c) of ERISA, and shall be responsible for
ensuring that the procedures relating to the purchase, holding and sale of
Employer Stock, and the exercise of any and all rights with respect to such
Employer Stock shall be in accordance with section 404(c) of ERISA unless the
Employer retains voting, tender or similar rights with respect to the Employer
Stock. The Trustee shall not be liable for any loss, or by reason of any breach,
which arises from the direction of the Plan Administrator with respect to the
acquisition and holding of Employer Stock. The Employer shall be responsible for
determining whether, under the circumstances prevailing at a given time, its
fiduciary duty to Plan Participants and Beneficiaries under the Plan and ERISA
requires that the Employer follow the advice of independent counsel as to the
voting and tender or retention of Employer Stock.
Putnam shall be under no duty to question or review the directions
given by the Employer or to make suggestions to the Employer in connection
therewith. Putnam shall not be liable for any loss, or by reason of any breach,
that arises from the Employer's exercise or non-exercise of rights under this
Article 13, or from any direction of the Employer unless it is clear on the face
of the direction that the actions to be taken under the direction are prohibited
by the fiduciary duty rules of Section 404(a) of ERISA. All interest, dividends
and other income received with respect to, and any proceeds received from the
sale or other disposition of, securities or other property held in an investment
fund shall be credited to and reinvested in such investment fund, and all
expenses of the Trust that are properly allocated to a particular investment
fund shall be so allocated and charged. The Employer may at any time direct
Putnam to eliminate any investment fund or funds, and Putnam shall thereupon
dispose of the assets of such investment fund and reinvest the proceeds thereof
in accordance with the directions of the Employer.
Neither the Employer nor the Trustee nor Putnam shall be responsible
for questioning any instructions of a Participant or for reviewing the
investments selected therein, or for any loss resulting from instructions of a
Participant or from the failure of a Participant to provide
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or to change instructions. Neither Putnam nor the Trustee shall have any duty to
question any instructions received from the Employer or a Participant or to
review the investments selected thereby, nor shall Putnam or the Trustee be
responsible for any loss resulting from instructions received from the Employer
or a Participant or from the failure of the Employer or a Participant to provide
or to change instructions. In the event that Putnam or the Trustee receives a
contribution under the Plan as to which no instructions are delivered, or such
instructions as are delivered are unclear to Putnam or the Trustee, such
contribution shall be invested until clear instructions are received in the
default investment option set forth in the service agreement between the
Employer and Putnam, or if no such option is so set forth, the Employer, by
execution of the Plan Agreement, shall affirmatively elect to have such
contributions invested in the Putnam Money Market Fund. Neither Putnam nor the
Trustee shall have any discretionary authority or responsibility in the
investment of the assets of the Trust Fund.
13.4. VALUATION OF THE TRUST FUND. As of each Valuation Date, the
Trustee shall determine the fair market value of the Trust Fund, and the net
earnings or losses and expenses of the Trust Fund for the period elapsed since
the most recent previous Valuation Date shall be allocated among the Accounts of
Participants. Earnings, losses and expenses which pertain to investments which
are specifically held for a given Participant's Account shall be allocated
solely to that Account. In the event that an investment is not specifically held
for a given Participant's Account, the earnings, losses and expenses pertaining
to that investment shall be allocated among all Participants' Accounts in the
ratio that each such Account bears to the total of all Accounts of all
Participants. Each Participant's Accounts shall be adjusted pursuant to this
Section 13.4 until such time as they are either fully distributed or forfeited,
regardless of whether the Participant continues to be an Employee.
13.5. DISTRIBUTIONS ON INVESTMENT COMPANY SHARES. Subject to Section
9.3, all dividends and capital gains or other distributions received on any
Investment Company Shares credited to Participant's Account will (unless
received in additional Investment Company Shares) be reinvested in full and
fractional shares of the same Investment Company at the price determined as
provided in the then current prospectus of the Investment Company. The shares so
received or purchased upon such reinvestment will be credited to such accounts.
If any dividends or capital gain or other distributions may be received on such
Investment Company Shares at the election of the shareholder in additional
shares or in cash or other property, the Trustee will elect to receive such
dividends or distributions in additional Investment Company Shares.
13.6. REGISTRATION AND VOTING OF INVESTMENT COMPANY SHARES. All
Investment Company Shares shall be registered in the name of the Trustee or its
nominee. Subject to any requirements of applicable law, the Trustee will
transmit to the Employer copies of any notices of shareholders' meetings,
proxies and proxy-soliciting materials, prospectuses and the annual or other
reports to shareholders, with respect to Investment Company Shares held in the
Trust Fund. The Trustee shall act in accordance with directions received from
the Employer with
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respect to matters to be voted upon by the shareholders of the Investment
Company. Such directions must be in writing on a form approved by the Trustee,
signed by the Employer and delivered to the Trustee within the time prescribed
by it. The Trustee will not vote Investment Company Shares as to which it
receives no written directions.
13.7. INVESTMENT MANAGER. The Employer, with the consent of Putnam, may
appoint an investment manager, as defined in Section 3(38) of ERISA with respect
to all or a portion of the assets of the Trust Fund. The Trustee shall have no
liability in connection with any action or nonaction pursuant to directions of
such an investment manager.
13.8. EMPLOYER STOCK.
(a) Voting Rights. Notwithstanding any other provision of the
Plan, the provisions of this Section 13.8(a) shall govern the voting of
Employer Stock held by Putnam as Trustee under the Plan. The Trustee
shall vote Employer Stock in accordance with the directions of the
Employer unless the Employer has elected in the Plan Agreement that
Participants shall be appointed named fiduciaries as to the voting of
Employer Stock and shall direct the Trustee as to the voting of
Employer Stock in accordance with the provisions of this Section
13.8(a). In either case, the Employer shall be responsible for
determining whether, under the circumstances prevailing at a given
time, its fiduciary duty to Participants and Beneficiaries under the
Plan and ERISA requires that the Employer follow the advice of
independent counsel as to the voting of Employer Stock. The remainder
of this Section 13.8(a) applies only if the Employer elects in the Plan
Agreement that Participants shall direct the Trustee as to the voting
of Employer Stock. For purposes of this Section 13.8(a), the term
"Participant" includes any Beneficiary with an Account in the Plan
which is invested in Employer Stock.
When the issuer of Employer Stock files preliminary proxy
solicitation materials with the Securities and Exchange Commission, the
Employer shall cause a copy of all the materials to be simultaneously
sent to the Trustee, and the Trustee shall prepare a voting instruction
form based upon these materials. At the time of mailing of notice of
each annual or special stockholders' meeting of the issuer of Employer
Stock, the Employer shall cause a copy of the notice and all proxy
solicitation materials to be sent to each Participant, together with
the foregoing voting instruction form to be returned to the Trustee or
its designee. The form shall show the number of full and fractional
shares of Employer Stock credited to the Participant's Accounts,
whether or not vested. For purposes of this Section 13.8(a), the number
of shares of Employer Stock deemed credited to a Participant's Accounts
shall be determined as of the date of record determined by the Employer
for which an allocation has been completed and Employer Stock has
actually been credited to Participant's Accounts. Procedures for the
execution of purchases and sales of Employer Stock shall be as set
forth in the service agreement between the Employer and Putnam. The
Employer shall provide the Trustee
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with a copy of any materials provided to Participants and shall certify
to the Trustee that the materials have been mailed or otherwise sent to
Participants.
Each Participant shall have the right to direct the Trustee as
to the manner in which to vote that number of shares of Employer Stock
held under the Plan (whether or not vested) equal to a fraction, of
which the numerator is the number of shares of Employer Stock credited
to his Account and the denominator is the number of shares of Employer
Stock credited to all Participants' Accounts. Such directions shall be
communicated in writing (or in such other manner as shall be made
available and agreed upon by the Employer and Putnam) and shall be held
in confidence by the Trustee and not divulged to the Employer, or any
officer or employee thereof, or any other persons. Upon its receipt of
directions, the Trustee shall vote the shares of Employer Stock as
directed by the Participant. The Trustee shall not vote those shares of
Employer Stock credited to the Accounts of Participants for which no
voting directions are received. With respect to shares of Employer
Stock held in the Trust which are not credited to a Participant's
Account, the Plan Administrator shall retain the status of named
fiduciary and shall direct the voting of such Employer Stock.
(b) Tendering Rights. Notwithstanding any other provision of
the Plan, the provisions of this Section 13.8(b) shall govern the
tendering of Employer Stock by Putnam as Trustee under the Plan. In the
event of a tender offer, the Trustee shall tender Employer Stock in
accordance with the directions of the Employer unless the Employer has
elected in the Plan Agreement that Participants shall be appointed
named fiduciaries as to the tendering of Employer Stock in accordance
with the provisions of this Section 13.8(b). The remainder of this
Section 13.8(b) applies only if the Employer elects in the Plan
Agreement that Participants shall direct the Trustee as to the
tendering of Employer Stock. For purposes of this Section 13.8(b), the
term "Participant" includes any Beneficiary with an Account in the Plan
which is invested in Employer Stock.
Upon commencement of a tender offer for any Employer Stock,
the Employer shall notify each Plan Participant, and use its best
efforts to distribute timely or cause to be distributed to Participants
the same information that is distributed to shareholders of the issuer
of Employer Stock in connection with the tender offer, and after
consulting with the Trustee shall provide at the Employer's expense a
means by which Participants may direct the Trustee whether or not to
tender the Employer Stock credited to their Accounts (whether or not
vested). The Employer shall provide to the Trustee a copy of any
material provided to Participants and shall certify to the Trustees
that the materials have been mailed or otherwise sent to Participants.
Each Participant shall have the right to direct the Trustee to
tender or not to tender some or all of the shares of Employer Stock
credited to his Accounts. Directions from a Participant to the Trustee
concerning the tender of Employer Stock
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shall be communicated in writing (or in such other manner as shall be
made available and agreed upon by the Employer and Putnam) as is agreed
upon by the Trustees and the Employer. The Trustee shall tender or not
tender shares of Employer Stock as directed by the Participant. A
Participant who has directed the Trustee to tender some or all of the
shares of Employer Stock credited to his Accounts may, at any time
before the tender offer withdrawal date, direct the Trustee to withdraw
some or all of the tendered shares, and the Trustee shall withdraw the
directed number of shares from the tender offer before the tender offer
withdrawal deadline. A Participant shall not be limited as to the
number of directions to tender or withdraw that he may give to the
Trustee. The Trustee shall not tender shares of Employer Stock credited
to a Participant's Accounts for which it has received no directions
from the Plan Participant. The Trustee shall tender that number of
shares of Employer Stock not credited to Participants' Accounts
determined by multiplying the total number of such shares by a
fraction, the numerator of which is the number of shares of Employer
Stock credited to Participants' Accounts for which the Trustee has
received directions from Participants to tender (which directions have
not been withdrawn as of the date of this determination), and the
denominator of which is the total number of shares of Employer Stock
credited to Participants' Accounts.
A direction by a Participant to the Trustee to tender shares
of Employer Stock credited to his Accounts shall not be considered a
written election under the Plan by the Participant to withdraw or to
have distributed to him any or all of such shares. The Trustee shall
credit to each Account of the Plan Participant from which the tendered
shares were taken the proceeds received by the Trustee in exchange for
the shares of Employer Stock tendered from that Account. Pending
receipt of directions through the Administrator from the Participant as
to the investment of the proceeds of the tendered shares, the Trustee
shall invest the proceeds as the Administrator shall direct. To the
extent that any Participant gives no direction as to the tendering of
Employer stock that he has the right to direct under this Section
13.8(a), the Trustee shall not tender such Employer Stock.
(c) Other Rights. With respect to all rights in connection
with Employer Stock other than the right to vote and the right to
tender, Participants are hereby appointed named fiduciaries to the same
extent (if any) as provided in the foregoing paragraphs of this Section
13.8 with regard to the right to vote, and the Trustee shall follow the
directions of Participants and the Plan Administrator with regard to
the exercise of such rights to the same extent as with regard to the
right to vote.
13.9. INSURANCE CONTRACTS. If so provided in the Plan Agreement or
other agreement between the Employer and the Trustee, the Plan Administrator may
direct the Trustee to receive and hold or apply assets of the Trust to the
purchase of individual or group insurance or annuity contracts ("policies" or
"contracts") issued by any insurance company and in a form approved by the Plan
Administrator (including contracts under which the contract holder is
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granted options to purchase insurance or annuity benefits), or financial
agreements which are backed by group insurance or annuity contracts ("financial
agreements"). If such investments are to be made, the Plan Administrator shall
direct the Trustee to execute and deliver such applications and other documents
as are necessary to establish record ownership, to value such policies,
contracts or financial agreements under the method of valuation selected by the
Plan Administrator, and to record or report such values to the Plan
Administrator or any investment manager selected by the Plan Administrator, in
the form and manner agreed to by the Plan Administrator.
The Plan Administrator may direct the Trustee to exercise or may
exercise directly the powers of contract holder under any policy, contract or
financial agreement, and the Trustee shall exercise such powers only upon
direction of the Plan Administrator. The Trustee shall have no authority to act
in its own discretion, with respect to the terms, acquisition, valuation,
continued holding and/or disposition of any such policy, contract or financial
agreement or any asset held thereunder. The Trustee shall be under no duty to
question any direction of the Plan Administrator or to review the form of any
such policy, contract or financial agreement or the selection of the issuer
thereof, or to make recommendations to the Plan Administrator or to any issuer
with respect to the form of any such policy, contract or financial agreement.
The Trustee shall be fully protected in acting in accordance with
written directions of the Plan Administrator, and shall be under no liability
for any loss of any kind which may result by reason of any action taken or
omitted by it in accordance with any direction of the Plan Administrator, or by
reason of inaction in the absence of written directions from the Plan
Administrator. In the event that the Plan Administrator directs that any monies
or property be paid or delivered to the contract holder other than for the
benefit of specific individual beneficiaries, the Trustee agrees to accept such
monies or property as assets of the Trust subject to all the terms hereof.
13.10. REGISTRATION AND VOTING OF NON-PUTNAM INVESTMENT COMPANY SHARES.
All shares of registered investment companies other than Investment Companies
shall be registered in the name of the Trustee or its nominee. Subject to any
requirements of applicable law and to the extent provided in an agreement
between Putnam and a third party investment provider, the Trustee shall transmit
to the Employer copies of any notices of shareholders' meetings, proxies or
proxy-soliciting materials, prospectuses or the annual or other reports to
shareholders, with respect to shares of registered investment companies other
than Investment Companies held in the Trust Fund. Notwithstanding any other
provision of the Plan, the Trustee shall vote shares of registered investment
companies other than Investment Companies in accordance with the directions of
the Employer. Directions as to voting such shares must be in writing on a form
approved by the Trustee or such other manner acceptable to the Trustee, signed
by the Employer and delivered to the Trustee within the time prescribed by it.
The Trustee shall vote those shares of registered investment companies other
than Investment Companies for which no voting directions are received in the
same proportion as it votes those shares for which it has received voting
directions.
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13.11.
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ARTICLE 14. TOP-HEAVY PLANS
14.1. SUPERSEDING EFFECT. For any Plan Year in which Plan is determined
to be a Top-Heavy Plan under Section 14.2(b), the provisions of this Article 14
will supersede any conflicting provisions in the Plan or the Plan Agreement.
14.2. DEFINITIONS. For purposes of this Article 14, the terms below
shall be defined as follows:
(a) Key Employee means any Employee or former Employee (and
the Beneficiaries of such Employee) who at any time during the
determination period was: (i) an officer of the Employer having annual
compensation greater than 50% of the amount in effect under Section
415(b)(1)(A) of the Code; (ii) an owner (or considered an owner under
Section 318 of the Code) of one of the ten largest interests in the
Employer having annual compensation exceeding the dollar limitation
under Section 415(c)(1)(A) of the Code; (iii) a 5% owner of the
Employer; or (iv) a 1% owner of the Employer having annual compensation
of more than $150,000. Annual compensation means compensation
satisfying the definition elected by the Employer in the Plan
Agreement, but including (i) amounts contributed by the Employer
pursuant to a salary reduction agreement which are excludable from the
Employee's gross income under Section 125, Section 402(a)(8), Section
402(h) or Section 403(b) of the Code, and (ii) amounts of special pay
such as overtime, bonuses and commissions which are excluded from the
definition of Compensation in the Plan Agreement. The determination
period is the Plan Year containing the Determination Date and the four
preceding Plan Years. The determination of who is a Key Employee will
be made in accordance with Section 416(i)(1) of the Code and the
Regulations thereunder.
(b) Top-Heavy: The Plan is Top-Heavy for any Plan Year if any
of the following conditions exists:
(1) If the Top-Heavy Ratio for this Plan exceeds 60%
and this Plan is not part of any Required Aggregation Group or
Permissive Aggregation Group of plans.
(2) If this Plan is a part of a Required Aggregation
Group of plans but not part of a Permissive Aggregation Group
and the Top-Heavy Ratio for the group of plans exceeds 60%.
(3) If this plan is part of a Required Aggregation
Group and part of a Permissive Aggregation Group of Plans and
the Top-Heavy Ratio for the Permissive Aggregation group
exceeds 60%.
(c) Top-Heavy Ratio means the following:
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(1) If the Employer maintains one or more qualified
defined contribution plans (or any simplified employee pension
plan) and the Employer has not maintained any qualified
defined benefit plan which during the 5-year period ending on
the Determination Date(s) has or has had accrued benefits, the
Top-Heavy ratio for this Plan alone or for the Required or
Permissive Aggregation Group as appropriate is a fraction, the
numerator of which is the sum of the account balances of all
Key Employees as of the Determination Date(s) (including any
part of any account distributed in the 5-year period ending on
the Determination Date(s)), and the denominator of which is
the sum of all account balances (including any part of any
account balance distributed in the 5-year period ending on the
Determination Date(s)), both computed in accordance with
Section 416 of the Code and the regulations thereunder. Both
the numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made as of
the Determination Date, but which is required to be taken into
account on that date under Section 416 of the Code and the
regulations thereunder.
(2) If the Employer maintains one or more qualified
defined contribution plans (or any simplified employee pension
plan) and the Employer maintains or has maintained one or more
qualified defined benefit plans which during the 5-year period
ending on the Determination Date(s) has or has had any accrued
benefits, the Top-Heavy Ratio for any Required or Permissive
Aggregation Group as appropriate is a fraction, the numerator
of which is the sum of account balances under the aggregated
qualified defined contribution plan or plans for all Key
Employees, determined in accordance with (1) above, and the
Present Value of accrued benefits under the aggregated
qualified defined benefit plan or plans for all Key Employees
as of the Determination Date(s), and the denominator of which
is the sum of the account balances under the aggregated
qualified defined contributions plan or plans for all
Participants, determined in accordance with (1) above, and the
Present Value of accrued benefits under the qualified defined
benefit plan or plans for all Participants as of the
Determination Date(s), all determined in accordance with
Section 416 of the Code and the regulations thereunder. The
accrued benefits under a defined benefit plan in both the
numerator and denominator of the Top-Heavy Ratio are increased
for any distribution of an accrued benefit made in the 5-year
period ending on the Determination Date.
(3) For purposes of (1) and (2) above, the value of
account balances and the Present Value of accrued benefits
will be determined as of the most recent Valuation Date that
falls within or ends with the 12-month period ending on the
Determination Date; except as provided in Section 416 of the
Code and the regulations thereunder for the first and second
Plan Years of a defined
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benefit plan. The account balances and accrued benefits of a
Participant (A) who is not a Key Employee but who was a Key
Employee in a prior Plan Year, or (B) who has not been
credited with at least one Hour of Service for the Employer
during the 5-year period ending on the Determination Date,
will be disregarded. The calculation of the Top-Heavy Ratio,
and the extent to which distributions, rollovers and transfers
are taken into account will be made in accordance with Section
416 of the Code and the regulations thereunder. Deductible
Employee contributions will not be taken into account for
purposes of computing the Top-Heavy Ratio. When aggregating
plans, the value of account balances and accrued benefits will
be calculated with reference to the Determination Dates that
fall within the same calendar year.
The accrued benefit of a Participant other than a Key
Employee shall be determined under (a) the method, if any,
that uniformly applies for accrual purposes under all defined
benefit plans maintained by the Employer, or (b) if there is
no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional
rule of Section 411(b)(1)(C) of the Code.
(d) Permissive Aggregation Group means the Required
Aggregation Group of plans plus any other qualified plan or plans (or
simplified employee pension plan) of the Employer which, when
considered as a group with the Required Aggregation Group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of
the Code.
(e) Required Aggregation Group means (i) each qualified plan
of the Employer in which at least one Key Employee participates or
participated at any time during the determination period (regardless of
whether the Plan has terminated) and (ii) any other qualified plan of
the Employer which enables a plan described in (i) to meet the
requirements of Section 401(a)(4) or 410 of the Code.
(f) Determination Date means, for any Plan Year subsequent to
the first Plan Year, the last day of the preceding Plan Year. For the
first Plan Year of the Plan, the Determination Date is the last day of
that Plan Year.
(g) Valuation Date means the last day of the Plan Year.
(h) Present Value means present value based only on the
interest and mortality rates specified by the Employer in the Plan
Agreement.
14.3. MINIMUM ALLOCATION.
(a) Except as otherwise provided in paragraphs (c) and (d)
below, the
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Employer contributions and Forfeitures allocated on behalf of any
Participant who is not a Key Employee shall not be less than the lesser
of 3% of such Participant's Earnings, or in the case where the Employer
has no defined benefit plan which designates this Plan to satisfy
Section 401 of the Code, the largest percentage of Employer
contributions and Forfeitures, as a percentage of the Key Employee's
Earnings, allocated on behalf of any Key Employee for that year. The
minimum allocation is determined without regard to any Social Security
contribution. This minimum allocation shall be made even though, under
other Plan provisions, the Participant would not otherwise be entitled
to receive an allocation, or would have received a lesser allocation of
the Employer's contributions and Forfeitures for the Plan Year because
of (1) the Participant's failure to be credited with at least 1,000
Hours of Service, or (2) the Participant's failure to make mandatory
Employee contributions to the Plan, or (3) the Participant's receiving
Earnings less than a stated amount. Neither Elective Deferrals,
Employer Matching Contributions nor Qualified Matching Contributions
for non-Key Employees shall be taken into account for purposes of
satisfying the requirement of this Section 14.3(a).
(b) For purposes of computing the minimum allocation, Earnings
will mean Section 415 Compensation as defined in Section 6.5(b) of the
Plan.
(c) The provision in paragraph (a) above shall not apply to
any Participant who was not employed by the Employer on the last day of
the Plan Year.
(d) The provision in paragraph (a) above shall not apply to
any Participant to the extent he is covered under any other plan or
plans of the Employer, and the Employer has provided in the Plan
Agreement that the minimum allocation requirement applicable to
Top-Heavy Plans will be met in the other plan or plans. Notwithstanding
the foregoing, if the Employer has adopted Putnam paired plans (as
described in Section 4.6) and the Participant is eligible to
participate in both paired plans, the minimum allocation described in
paragraph (a) shall be provided by the Putnam Money Purchase Pension
Plan.
(e) The minimum allocation required (to the extent required to
be nonforfeitable under Section 416(b) of the Code) may not be
forfeited under Sections 411(a)(3)(B) or (D) of the Code.
14.4. ADJUSTMENT OF FRACTIONS. For any Plan Year in which the Plan is
Top-Heavy, the Defined Benefit Fraction and the Defined Contribution Fraction
described in Article 6 shall each be computed using 100% of the dollar
limitations specified in Sections 415(b)(1)(A) and 415(c)(1)(A) instead of 125%.
The foregoing requirement shall not apply if the Top-Heavy Ratio does not exceed
90% and the Employer has elected in the Plan Agreement to provide increased
minimum allocations or benefits satisfying Section 416(h)(2) of the Code.
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14.5. MINIMUM VESTING SCHEDULES. For any Plan Year in which this Plan
is Top-Heavy (and, if the Employer so elects in the Plan Agreement, for any
subsequent Plan Year), a minimum vesting schedule will automatically apply to
the Plan, as follows:
14.6.
(a) If the Employer has selected in the Plan Agreement as the
Plan's regular vesting schedule 100% immediate vesting, the Three-Year
Cliff, Five-Year Graded or Six-Year Graded schedule, then the schedule
selected in the Plan Agreement shall continue to apply for any Plan
Year to which this Section 14.5 applies.
(b) If the Employer has selected in the Plan Agreement as the
Plan's regular vesting schedule the Five-Year Cliff schedule, then the
Three-Year Cliff schedule shall apply in any Plan Year to which this
Section 14.5 applies.
(c) If the Employer has selected in the Plan Agreement as the
Plan's regular vesting schedule the Seven-Year Graded schedule, then
the Six-Year Graded schedule shall apply in any Plan Year to which this
Section 14.5 applies.
(d) If the Employer has selected in the Plan Agreement as the
Plan's regular vesting schedule a schedule other than those described
in paragraphs (a), (b) and (c), then the Top-Heavy schedule specified
by the Employer in the Plan Agreement for this purpose shall apply in
any Plan Year to which this Section 14.5 applies.
The minimum vesting schedule applies to all benefits within the meaning
of Section 411(a)(7) of the Code except those attributable to Elective
Deferrals, rollover contributions described in Section 4.5, Qualified Matching
Contributions, Qualified Nonelective Contributions, or Participant
Contributions, but including benefits accrued before the effective date of
Section 416 of the Code and benefits accrued before the Plan became Top-Heavy.
Further, no reduction in a Participant's nonforfeitable percentage may occur in
the event the Plan's status as Top-Heavy changes for any Plan Year. However, the
vested portion of the Employer Contribution Account or Employer Matching Account
of any Employee who does not have an Hour of Service after the Plan has
initially become Top-Heavy will be determined without regard to this Section
14.5.
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ARTICLE 15. ADMINISTRATION OF THE PLAN
15.1. PLAN ADMINISTRATOR. The Plan shall be administered by the
Employer, as Plan Administrator and Named Fiduciary within the meaning of ERISA,
under rules of uniform application; provided, however, that the Plan
Administrator's duties and responsibilities may be delegated to a person
appointed by the Employer or a committee established by the Employer for that
purpose, in which case the committee shall be the Plan Administrator and Named
Fiduciary. The members of such a committee shall act by majority vote, and may
by majority vote authorize any one or ones of their number to act for the
committee. The person or committee (if any) initially appointed by the Employer
may be named in the Plan Agreement, but the Employer may remove any such person
or committee member by written notice to him, and any such person or committee
may resign by written notice to the Employer, without the necessity of amending
the Plan Agreement. To the extent permitted under applicable law, the Plan
Administrator shall have the sole authority to enforce the terms hereof on
behalf of any and all persons having or claiming any interest under the Plan,
and shall be responsible for the operation of the Plan in accordance with its
terms. The Plan Administrator shall have discretionary authority to determine
all questions arising out of the administration, interpretation and application
of the Plan, all of which determinations shall be conclusive and binding on all
persons. The Plan Administrator, in carrying out its responsibilities under the
Plan, may rely upon the written opinions of its counsel and on certificates of
physicians. Subject to the provisions of the Plan and applicable law, the Plan
Administrator shall have no liability to any person as a result of any action
taken or omitted hereunder by the Plan Administrator.
15.2. CLAIMS PROCEDURE. Claims for participation in or distribution of
benefits under the Plan shall be made in writing to the Plan Administrator, or
an agent designated by the Plan Administrator whose name shall have been
communicated to all Participants and other persons as required by law. If any
claim so made is denied in whole or in part, the claimant shall be furnished
promptly by the Plan Administrator with a written notice:
(a) setting forth the reason for the denial,
(b) making reference to pertinent Plan provisions,
(c) describing any additional material or information from the
claimant which is necessary and why, and
(d) explaining the claim review procedure set forth herein.
Within 60 days after denial of any claim for participation or
distribution under the Plan, the claimant may request in writing a review of the
denial by the Plan Administrator. Any claimant seeking review hereunder shall be
entitled to examine all pertinent documents and to submit issues and comments in
writing. The Plan Administrator shall render a decision on
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review hereunder; provided, that if the Plan Administrator determines that a
hearing would be appropriate, its decision on review shall be rendered within
120 days after receipt of the request for review. The decision on review shall
be in writing and shall state the reason for the decision, referring to the Plan
provisions upon which it is based.
15.3. EMPLOYER'S RESPONSIBILITIES. The Employer shall be
responsible for:
(a) Keeping records of employment and other matters containing
all relevant data pertaining to any person affected hereby and his
eligibility to participate, allocations to his Accounts, and his other
rights under the Plan;
(b) Periodic, timely filing of all statements, reports and
returns required to be filed by ERISA;
(c) Timely preparation and distribution of disclosure
materials required by ERISA;
(d) Providing notice to interested parties as required by
Section 7476 of the Code;
(e) Retention of records for periods required by law; and
(f) Seeing that all persons required to be bonded on account
of handling assets of the Plan are bonded.
15.4. RECORDKEEPER. The Recordkeeper is hereby designated as agent of
the Employer under the Plan to perform directly or through agents certain
ministerial duties in connection with the Plan, in particular:
(a) To keep and regularly furnish to the Employer a detailed
statement of each Participant's Accounts, showing contributions thereto
by the Employer and the Participant, Investment Products purchased
therewith, earnings thereon and Investment Products purchased
therewith, and each redemption or distribution made for any reason,
including fees or benefits; and
(b) To the extent agreed between the Employer and the
Recordkeeper, to prepare for the Employer or to assist the Employer to
prepare such returns, reports or forms as the Employer shall be
required to furnish to Participants and Beneficiaries or other
interested persons and to the Internal Revenue Service or the
Department of Labor; all as may be more fully set forth in a service
agreement executed by the Employer and the Recordkeeper. If the
Employer does not appoint another person or entity as Recordkeeper, the
Employer itself shall be the Recordkeeper.
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15.5. PROTOTYPE PLAN. Putnam is the sponsor of the Putnam Basic Plan
Document, a prototype plan approved as to form by the Internal Revenue Service.
Provided that an Employer's adoption of the Plan is made known to and accepted
by Putnam in accordance with the Plan Agreement, Putnam will inform the Employer
of amendments to the prototype plan and provide such other services in
connection with the Plan as may be agreed between Putnam and the Employer.
Putnam may impose for its services as sponsor of the prototype plan such fees as
it may establish from time to time in a fee schedule addressed to the Employer.
Such fees shall, unless paid by the Employer, be paid from the Trust Fund, and
shall in that case be charged pro rata against the Accounts of all Participants.
The Trustee is expressly authorized to cause Investment Products to be sold or
redeemed for the purpose of paying such fees.
15.6.
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ARTICLE 16. TRUSTEE
16.1. POWERS AND DUTIES OF THE TRUSTEE. The Trustee shall have the
authority, in addition to any authority given by law, to exercise the following
powers in the administration of the Trust:
(a) To invest all or a part of the Trust Fund in Investment
Products in accordance with the investment instructions delivered by
the Employer pursuant to Section 13.3, without restriction to
investments authorized for fiduciaries, including without limitation
any common, collective or commingled trust fund maintained by the
Trustee (or any other such fund, acceptable to Putnam and the Trustee,
that qualifies for exemption from federal income tax pursuant to
Revenue Ruling 81-100). Any investment in, and any terms and conditions
of, any such common, collective or commingled trust fund available only
to employee trusts which meet the requirements of the Code, or
corresponding provisions of subsequent income tax laws of the United
States, shall constitute an integral part of this Agreement;
(b) If Putnam and the Trustee have consented thereto in
writing, to invest without limit in stock of the Employer or any
affiliated company;
(c) To dispose of all or part of the investments, securities
or other property which may from time to time or at any time constitute
the Trust Fund in accordance with the written directions furnished by
the Employer for the investment of Participants' separate Accounts or
the payment of benefits or expenses of the Plan, and to make, execute
and deliver to the purchasers thereof good and sufficient deeds of
conveyance therefore, and all assignments, transfers and other legal
instruments, either necessary or convenient for passing the title and
ownership thereto, free and discharged of all trusts and without
liability on the part of such purchasers to see to the application of
the purchase money;
(d) To hold cash uninvested to the extent necessary to pay
benefits or expenses of the Plan;
(e) To follow the directions of an investment manager
appointed pursuant to Section 13.7;
(f) To cause any investment of the Trust Fund to be registered
in the name of the Trustee or the name of its nominee or nominees or to
retain such investment unregistered or in a form permitting transfer by
delivery; provided that the books and records of the Trustee shall at
all times show that all such investments are part of the Trust Fund;
(g) Upon written direction of or through the Employer, to vote
in person or
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by proxy (in accordance with Sections 13.6 and 13.10 and, in the case
of stock of the Employer, at the direction of the Employer or
Participants in accordance with Section 13.8) with respect to all
securities that are part of the Trust Fund;
(h) To consult and employ any suitable agent to act on behalf
of the Trustee and to contract for legal, accounting, clerical and
other services deemed necessary by the Trustee to manage and administer
the Trust Fund according to the terms of the Plan;
(i) Upon the written direction of the Employer, to make loans
from the Trust Fund to Participants in amounts and on terms approved by
the Plan Administrator in accordance with the provisions of the Plan;
provided that the Employer shall have the sole responsibility for
computing and collecting all loan repayments required to be made under
the Plan; and
(j) To pay from the Trust Fund all taxes imposed or levied
with respect to the Trust Fund or any part thereof under existing or
future laws, and to contest the validity or amount of any tax
assessment, claim or demand respecting the Trust Fund or any part
thereof.
16.2. LIMITATION OF RESPONSIBILITIES. Except as may otherwise be
required under applicable law, neither the Trustee nor any of its agents shall
have any responsibility for:
(a) Determining the correctness of the amount of any
contribution for the sole collection or payment of contributions, which
shall be the sole responsibility of the Employer;
(b) Loss or breach caused by any Participant's exercise of
control over his Accounts, which shall be the sole responsibility of
the Participant;
(c) Loss or breach caused by the Employer's exercise of
control over Accounts pursuant to Section 13.3, which shall be the sole
responsibility of the Employer;
(d) Performance of any other responsibilities not specifically
allocated to them under the Plan.
16.3. FEES AND EXPENSES. The Trustee's fees for performing its duties
hereunder shall be such reasonable amounts as shall be established by the
Trustee from time to time in a fee schedule addressed to the Employer. Such
fees, any taxes of any kind which may be levied or assessed upon or in respect
of the Trust Fund and any and all expenses reasonably incurred by the Trustee
shall, unless paid by the Employer, be paid from the Trust Fund and shall,
unless allocable to the Accounts of specific Participants, be charged pro rata
against the Accounts of
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all Participants either pro rata, on the basis of a fixed sum per Participant,
or on the basis of a fixed sum per Account of a Participant, as shall be
provided in the Service Agreement. The Trustee is expressly authorized to cause
Investment Products to be sold or redeemed for the purpose of paying such
amounts. Charges and expenses incurred in connection with a specific Investment
Product, unless allocable to the Accounts of specific Participants, shall be
charged pro rata against the Accounts of all Participants for whose benefit
amounts have been invested in the specific Investment Product either pro rata,
on the basis of a fixed sum per Participant, or on the basis of fixed sum per
Account of a Participant, as shall be provided in the Service Agreement.
16.4. RELIANCE ON EMPLOYER. The Trustee and its agents shall rely upon
any decision of the Employer, or of any person authorized by the Employer,
purporting to be made pursuant to the terms of the Plan, and upon any
information or statements submitted by the Employer or such person (including
those relating to the entitlement of any Participant to benefits under the
Plan), and shall not inquire as to the basis of any such decision or information
or statements, and shall incur no obligation or liability for any action taken
or omitted in reliance thereon. The Trustee and its agents shall be entitled to
rely on the latest written instructions received from the Employer as to the
person or persons authorized to act for the Employer hereunder, and to sign on
behalf of the Employer any directions or instructions, until receipt from the
Employer of written notice that such authority has been revoked.
16.5. ACTION WITHOUT INSTRUCTIONS. If the Trustee receives no
instructions from the Employer in response to communications sent by registered
or certified mail to the Employer at its last known address as shown on the
books of the Trustee, then the Trustee may make such determinations with respect
to administrative matters arising under the Plan as it considers reasonable,
notwithstanding any prior instructions or directions given by or on behalf of
the Employer, but subject to any instruction or direction given by or on behalf
of the Participants. To the extent permitted by applicable law, any
determination so made will be binding on all persons having or claiming any
interest under the Plan or Trust, and the Trustee will incur no obligation or
responsibility for any such determination made in good faith or for any action
taken pursuant thereto. In making any such determination the Trustee may require
that it be furnished with such relevant documents as it reasonable considers
necessary.
16.6. ADVICE OF COUNSEL. The Trustee may consult with legal counsel
(who may, but need not be, counsel for the Employer) concerning any questions
which may arise with respect to its rights and duties under the Plan, and the
opinion of such counsel shall be full and complete protection to the extent
permitted by applicable law in the respect of any action taken or omitted by the
Trustee hereunder in accordance with the opinion of such counsel.
16.7. ACCOUNTS. The Trustee shall keep full accounts of all receipts
and disbursements which pertain to investments in Investment Products, and of
such other transactions as it is required to perform hereunder. Within a
reasonable time following the close of each Plan Year, or upon its removal or
resignation or upon termination of the Trust
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and at such other times as may be appropriate, the Trustee shall render to the
Employer and any other persons as may be required by law an account of its
administration of the Plan and Trust during the period since the last previous
such accounting, including such information as may be required by law. The
written approval of any account by the Employer and all other persons to whom an
account is rendered shall be final and binding as to all matters and
transactions stated or shown therein, upon the Employer and Participants and all
persons who then are or thereafter become interested in the Trust. The failure
of the Employer or any other person to whom an account is rendered to notify the
party rendering the account within 60 days after the receipt of any account of
his or its objection to the account shall be the equivalent of written approval.
If the Employer or any other person to whom an account is rendered files any
objections within such 60-day period with respect to any matters or transactions
stated or shown in the account and the Employer or such other person and the
party rendering the account cannot amicably settle the questions raised by such
objections, the party rendering the account and the Employer or such person
shall have the right to have such questions settled by judicial proceedings,
although the Employer or such other person to whom an account is rendered shall
have, to the extent permitted by applicable law, only 60 days from filing of
written objection to the account to commence legal proceedings. Nothing herein
contained shall be construed so as to deprive the Trustee of the right to have a
judicial settlement of its accounts. In any proceeding for a judicial
settlements of any account or for instructions, the only necessary parties shall
be the Trustee, the Employer and persons to whom an account is required by law
to be rendered.
16.8. ACCESS TO RECORDS. The Trustee shall give access to its records
with respect to the Plan at reasonable times and on reasonable notice to any
person required by law to have access to such records.
16.9. SUCCESSORS. Any corporation into which the Trustee may merge or
with which it may consolidate or any corporation resulting from any such merger
or consolidation shall be the successor of the Trustee without the execution or
filing of any additional instrument or the performance of any further act.
16.10. PERSONS DEALING WITH TRUSTEE. No person dealing with the Trustee
shall be bound to see to the application of any money or property paid or
delivered to the Trustee or to inquire into the validity or propriety of any
transactions.
16.11. RESIGNATION AND REMOVAL; PROCEDURE. The Trustee may resign at
any time by giving 60 days' written notice to the Employer and to Putnam. The
Employer may remove the Trustee at any time by giving 60 days' written notice to
the party removed and to Putnam. In any case of resignation or removal
hereunder, the period of notice may be reduced to such shorter period as is
satisfactory to the Trustee and the Employer. Notwithstanding anything to the
contrary herein, any resignation hereunder shall take effect at the time notice
thereof is given if the Employer may no longer participate in the prototype Plan
and is deemed to have an individually designed plan at the time notice is given.
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16.12. ACTION OF TRUSTEE FOLLOWING RESIGNATION OR REMOVAL. When the
resignation or removal of the Trustee becomes effective, the Trustee shall
perform all acts necessary to transfer the Trust Fund to its successor. However,
the Trustee may reserve such portion of the Trust Fund as it may reasonably
determine to be necessary for payment of its fees and any taxes and expenses,
and any balance of such reserve remaining after payment of such fees, taxes and
expenses shall be paid over to its successor. The Trustee shall have no
responsibility for acts or omissions occurring after its resignation becomes
effective.
16.13. EFFECT OF RESIGNATION OR REMOVAL. Resignation or removal of the
Trustee shall not terminate the Trust. In the event of any vacancy in the
position of Trustee, whether the vacancy occurs because of the resignation or
removal of the Trustee, the Employer shall appoint a successor to fill the
vacant position. If the Employer does not appoint such a successor who accepts
appointment by the later of 60 days after notice of resignation or removal is
given or by such later date as the Trustee and Employer may agree in writing to
postpone the effective date of the Trustee's resignation or removal, the Trustee
may apply to a court of competent jurisdiction for such appointment or cause the
Trust to be terminated, effective as of the date specified by the Trustee, in
writing delivered to the Employer. Each successor Trustee so appointed and
accepting a trusteeship hereunder shall have all of the rights and powers and
all of the duties and obligations of the original Trustee, under the provisions
hereof, but shall have no responsibility for acts or omissions before he becomes
a Trustee.
16.14. FISCAL YEAR OF TRUST. The fiscal year of the Trust will coincide
with the Plan Year.
16.15. LIMITATION OF LIABILITY. Except as may otherwise be required by
law and other provisions of the Plan, no fiduciary of the Plan, within the
meaning of Section 3(21) of ERISA, shall be liable for any losses incurred with
respect to the management of the Plan, nor shall he or it be liable for any acts
or omissions except those caused by his or its own negligence or bad faith in
failing to carry out his or its duties under the terms contained in the Plan.
16.16. INDEMNIFICATION. Subject to the limitations of applicable law,
the Employer agrees to indemnify and hold harmless (i) all fiduciaries, within
the meaning of ERISA Sections 3(21) and 404, and (ii) Putnam, for all liability
occasioned by any act of such party or omission to act, in good faith and
without negligence, and for all expenses incurred by any such party in
determining its duty or liability under ERISA with respect to any question under
the Plan.
16.17.
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ARTICLE 17. AMENDMENT
17.1. GENERAL. The Employer reserves the power at any time or times to
amend the provisions of the Plan and the Plan Agreement to any extent and in any
manner that it may deem advisable. If, however, the Employer makes any amendment
(including an amendment occasioned by a waiver of the minimum funding
requirement under Section 412(d) of the Code) other than
(a) a change in an election made in the Plan Agreement,
(b) amendments stated in the Plan Agreement which allow the
Plan to satisfy Section 415 and to avoid duplication of minimums under
Section 416 of the Code because of the required aggregation of multiple
plans, or
(c) model amendments published by the Internal Revenue Service
which specifically provide that their adoption will not cause the Plan
to be treated as individually designed,
the Employer shall cease to participate in this prototype Plan and will be
considered to have an individually designed plan. In that event, Putnam shall
have no further responsibility to provide to the Employer any amendments or
other material incident to the prototype plan, and Putnam may resign immediately
as Trustee and as Recordkeeper. Any amendment shall be made by delivery to the
Trustee (and the Recordkeeper, if any) of a written instrument executed by the
Employer providing for such amendment. Upon the delivery of such instrument to
the Trustee, such instrument shall become effective in accordance with its terms
as to all Participants and all persons having or claiming any interest
hereunder, provided, that the Employer shall not have the power:
(1) to amend the Plan in such a manner as would cause
or permit any part of the assets of the Trust to be diverted
to purposes other than the exclusive benefit of Participants
or their Beneficiaries, or as would cause or permit any
portion of such assets to revert to or become the property of
the Employer.
(2) to amend the Plan retroactively in such a manner
as would have the effect of decreasing a Participant's accrued
benefit, except that a Participant's Account balance may be
reduced to the extent permitted under Section 412(c)(8) of the
Code. For purposes of this paragraph (2), an amendment shall
be treated as reducing a Participant's accrued benefit if it
has the effect of reducing his Account balance, or of
eliminating an optional form of benefit with respect to
amounts attributable to contributions made performed before
the adoption of the amendment; or
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(3) to amend the Plan so as to decrease the portion
of a Participant's Account balance that has become vested, as
compared to the portion that was vested, under the terms of
the Plan without regard to the amendment, as of the later of
the date the amendment is adopted or the date it becomes
effective.
(4) to amend the Plan in such a manner as would
increase the duties or liabilities of the Trustee or the
Recordkeeper unless the Trustee or the Recordkeeper consents
thereto in writing.
17.2. DELEGATION OF AMENDMENT POWER. The Employer and all
sponsoring organizations of the Putnam Basic Plan Document delegate to Putnam
Mutual Funds Corp., the power to amend the Plan (including the power to amend
this Section 18.2 to name a successor to which such power of amendment shall be
delegated), for the purpose of adopting amendments which are certified to Putnam
Mutual Funds Corp., by counsel satisfactory to it, as necessary or appropriate
under applicable law, including any regulation or ruling issued by the United
States Treasury Department or any other federal or state department or agency;
provided that Putnam Mutual Funds Corp., or such successor may amend the Plan
only if it has mailed a copy of the proposed amendment to the Employer at its
last known address as shown on its books by the date on which it delivers a
written instrument providing for such amendment, and only if the same amendment
is made on said date to all plans in this form as to which Putnam Mutual Funds
Corp., or such successor has a similar power of amendment. If a sponsoring
organization does not adopt any amendment made by Putnam Mutual Funds Corp.,
such sponsoring organization shall cease to participate in this prototype Plan
and will be considered to have an individually designed plan. If, upon the
submission of this Putnam Basic Plan Document #07 to the Internal Revenue
Service for a determination letter, the Internal Revenue Service determines that
changes are required to the Basic Plan Document but not to the form of Plan
Agreement, Putnam shall furnish a copy of the revised Basic Plan Document to the
Employer and the Employer will not be required to execute a revised Plan
Agreement.
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ARTICLE 18. TERMINATION OF THE PLAN AND TRUST
18.1. GENERAL. The Employer has established the Plan and the Trust with
the bona fide intention and expectation that contributions will be continued
indefinitely, but the Employer shall have no obligation or liability whatsoever
to maintain the Plan for any given length of time and may discontinue
contributions under the Plan or terminate the Plan at any time by written notice
delivered to the Trustee, without any liability whatsoever for any such
discontinuance or termination.
18.2. EVENTS OF TERMINATION. The Plan will terminate upon the
happening of any of the following events:
(a) Death of the Employer, if a sole proprietor, or
dissolution or termination of the Employer, unless within 60 days
thereafter provision is made by the successor to the business with
respect to which the Plan was established for the continuation of the
Plan, and such continuation is approved by the Trustee;
(b) Merger, consolidation or reorganization of the Employer
into one or more corporations or organizations, unless the surviving
corporations or organizations adopt the Plan by an instrument in
writing delivered to the Trustee within 60 days after such a merger,
consolidation and reorganization;
(c) Sale of all or substantially all of the assets of the
Employer, unless the purchaser adopts the Plan by an instrument in
writing delivered to the Trustee within 60 days after the sale;
(d) The institution of bankruptcy proceedings by or against
the Employer, or a general assignment by the Employer to or for the
benefit of its creditors; or
(e) Delivery of notice of termination as provided in Section
18.1.
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18.3. EFFECT OF TERMINATION. Notwithstanding any other provisions of
this Plan, other than Section 18.4, upon termination of the Plan or complete
discontinuance of contributions thereunder, each Participant's Accounts will
become fully vested and nonforfeitable, and upon partial termination of the
Plan, the Accounts of each Participant affected by the partial termination will
become fully vested and nonforfeitable. The Employer shall notify the Trustee in
writing of such termination, partial termination or complete discontinuance of
contributions. In the event of the complete termination of the Plan or
discontinuance of contributions, the Trustee will, after payment of all expenses
of the Trust Fund, make distribution of the Trust assets to the Participants or
other persons entitled thereto, in such form as the Employer may direct pursuant
to Article 10 or, in the absence of such direction, in a single payment in cash
or in kind. Upon completion of such distributions under this Article, the Trust
will terminate, the Trustee will be relieved from their obligations under the
Trust, and no Participant or other person will have any further claim
thereunder.
18.4. APPROVAL OF PLAN. Notwithstanding any other provision of the
Plan, if the Employer fails to obtain or to retain the approval by the Internal
Revenue Service of the Plan as a qualified plan under Section 401(a) of the
Code, then (i) the Employer shall promptly notify the Trustee, and (ii) the
Employer may no longer participate in the Putnam prototype plan, but will be
deemed to have an individually designed plan. If it is determined by the
Internal Revenue Service that the Plan upon its initial adoption does not
qualify under Section 401(a) of the Code, all assets then held under the Plan
will be returned within one year of the denial of initial qualification to the
Participants and the Employer to the extent attributable to their respective
contributions and any income earned thereon, but only if the application for
qualification is made by the time prescribed by law for filing the Employer's
federal income tax return for the taxable year in which the Plan is adopted, or
such later date as the Secretary of the Treasury may prescribe. Upon such
distribution, the Plan will be considered to be rescinded and to be of no force
or effect.
18.5.
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ARTICLE 19. TRANSFERS TO OR FROM OTHER QUALIFIED PLANS; MERGERS
19.1. GENERAL. Notwithstanding any other provision hereof, subject to
the approval of the Trustee there may be transferred to the Trustee all or any
of the assets held (whether by a trustee, custodian or otherwise) in respect of
any other plan which satisfies the applicable requirements of Section 401(a) of
the Code and which is maintained for the benefit of any Employee (provided,
however, that the Employee is not a member of a class of Employees excluded from
eligibility to participate in the Plan). Any such assets so transferred shall be
accompanied by written instructions from the Employer naming the persons for
whose benefit such assets have been transferred and showing separately the
respective contributions made by the Employer and by the Participants and the
current value of the assets attributable thereto. Notwithstanding the foregoing,
if a Participant's employment classification changes under Section 3.5 such that
he begins participation in another plan of the Employer, his Account, if any,
shall, upon the Administrator's direction, be transferred to the plan in which
he has become eligible to participate, if such plan permits receipt of such
Account.
19.2. AMOUNTS TRANSFERRED. The Employer shall credit any assets
transferred pursuant to Section 19.1 or Section 3.5 to the appropriate Accounts
of the persons for whose benefit such assets have been transferred. Any amounts
credited as contributions previously made by an employer or by such persons
under such other plan shall be treated as contributions previously made under
the Plan by the Employer or by such persons, as the case may be.
19.3. MERGER OR CONSOLIDATION. The Plan shall not be merged or
consolidated with any other plan, nor shall any assets or liabilities of the
Trust Fund be transferred to any other plan, unless each Participant would
receive a benefit immediately after the transaction, if the Plan then
terminated, which is equal to or greater than the benefit he would have been
entitled to receive immediately before the transaction if the Plan had then
terminated.
19.4.
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ARTICLE 20. MISCELLANEOUS
20.1. NOTICE OF PLAN. The Plan shall be communicated to all
Participants by the Employer on or before the last day on which such
communication may be made under applicable law.
20.2. NO EMPLOYMENT RIGHTS. Neither the establishment of the Plan and
the Trust, nor any amendment thereof, nor the creation of any fund or account,
nor the payment of any benefits shall be construed as giving to any Participant
or any other person any legal or equitable right against the Employer or the
Trustee, except as provided herein or by ERISA; and in no event shall the terms
of employment or service of any Participant be modified or in any way be
affected hereby.
20.3. DISTRIBUTIONS EXCLUSIVELY FROM PLAN. Participants and
Beneficiaries shall look solely to the assets held in the Trust for the payment
of any benefits under the Plan.
20.4. NO ALIENATION. The benefits provided hereunder shall not be
subject to alienation, assignment, garnishment, attachment, execution or levy of
any kind, and any attempt to cause such benefits to be so subjected shall not be
recognized, except as provided in Section 12.4 or in accordance with a Qualified
Domestic Relations Order. The Plan Administrator shall determine whether a
domestic relations order is qualified in accordance with written procedures
adopted by the Plan Administrator. Notwithstanding the foregoing, an order shall
not fail to be a Qualified Domestic Relations Order merely because it requires a
distribution to an alternate payee (or the segregation of accounts pending
distribution to an alternate payee) before the Participant is otherwise entitled
to a distribution under the Plan.
20.5. PROVISION OF INFORMATION. The Employer and the Trustee shall
furnish to each other such information relating to the Plan and Trust as may be
required under the Code or ERISA and any regulations issued or forms adopted by
the Treasury Department or the Labor Department or otherwise thereunder.
20.6. NO PROHIBITED TRANSACTIONS. The Employer and the Trustee shall,
to the extent of their respective powers and authority under the Plan, prevent
the Plan from engaging in any transaction known by that person to constitute a
transaction prohibited by Section 4975 of the Code and any rules or regulations
with respect thereto.
20.7. GOVERNING LAW. The Plan shall be construed, administered,
regulated and governed in all respects under and by the laws of the United
States, and to the extent permitted by such laws, by the laws of the
Commonwealth of Massachusetts
20.8. GENDER. Whenever used herein, a pronoun in the masculine gender
includes the feminine gender unless the context clearly indicates otherwise.
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<PAGE> 1
EXHIBIT 10.28
FIRST AMENDMENT TO THE
CONLEY, CANITANO AND ASSOCIATES, INC.
401(K) PLAN AND TRUST
Conley, Canitano & Associates, Inc. (the "Employer") having heretofore adopted
the Conley, Canitano and Associates, Inc. 401(k) Plan and Trust, a prototype
plan document consisting of the Plan Agreement #001 and the Putnam Basic Plan
Document #07 (the "Plan") effective as of December 2, 1996, pursuant to the
power reserved to the Employer in Section 17.1 of the Plan, hereby amends the
Plan Agreement as set forth below.
1. Subsection A.(1) of Section 4 is amended in its entirety effective as of
January 1, 1997, to read as follows:
4. CONTRIBUTIONS.
A. ELECTIVE DEFERRALS (Plan Section 5.2). Your Plan will allow employees
to elect pre-tax contributions under Section 401(k) of the Code. You
must complete this part A.
(1) A Participant may make Elective Deferrals for each year in an
amount not to exceed (check one):
______ (a) ______ % of his Earnings.
X (b) 17 % of his Earnings not to exceed $9,500
------ ------ (specify a dollar amount).
______ (c) $______ (specify a dollar amount).
2. Subsection A.(3) of Section 4 is amended in its entirety effective as of
January 1, 1997, to read as follows:
4. CONTRIBUTIONS.
A. ELECTIVE DEFERRALS (PLAN SECTION 5.2). Your Plan will allow employees
to elect pre-tax contributions under Section 401(k) of the Code. You
must complete this part A.
(3) A Participant may begin to make Elective Deferrals, or change the
amount of his Elective Deferrals, as of the following dates (check
one):
______ (a) First business day of each month (monthly),
______ (b) First business day of the first, fourth, seventh and
tenth months of the Plan Year (quarterly).
______ (c) First business day of the first and seventh months of
the Plan Year (semiannually).
______ (d) First business day of the Plan year only (annually).
X (e) Other: DAILY
------
<PAGE> 2
3. Subsection G.(1)&(2) of Section 4 is amended in its entirety effective as of
January 1, 1997, to read as follows:
G. FORFEITURES
(1) EMPLOYER MATCHING CONTRIBUTIONS. Forfeitures of Employer Matching
Contributions will be used as follows (check and complete (a) or
(b)):
______ (a) Applied to reduce the following contributions
required of the Employer (check (i) and/or (ii)):
______ (i) Employer Matching Contributions.
______ (ii) Profit Sharing Contributions.
X (b) Reallocated as follows (check (i) or (ii)):
------
X (i) As additional Employer Matching
------ Contributions.
______ (ii) As additional Profit Sharing
Contributions.
(2) PROFIT SHARING CONTRIBUTIONS. Forfeitures of Profit Sharing
Contributions will be used as follows (check (a) or (b)):
______ (a) Applied to reduce the following contributions
required of the Employer (check (i) and/or (ii)):
______ (i) Profit Sharing Contributions.
______ (ii) Employer Matching Contributions.
X (b) Reallocated as additional Profit Sharing
------ Contributions.
4. Subsection B of Section 7 is amended in its entirety effective as of January
1, 1997, to read as follows:
7. COMPENSATION (PLAN SECTION 2.8).
B. MEASURING PERIOD. Compensation will be based on the Plan Year.
However, for an Employee's initial year of participation in the Plan,
Compensation will be recognized as of:
X (1) the first day of the Plan Year.
------
______ (2) the date the Participant enters the Plan.
<PAGE> 3
5. Subsection D of Section 9 is amended in its entirety effective as of January
1, 1997, to read as follows:
9. VESTING (PLAN ARTICLE 8).
D. YEAR OF SERVICE MEASURING PERIOD FOR VESTING (PLAN SECTION 2.52). The
periods of 12 months used for measuring Years of Service will be
(check one):
______ (1) Plan Years.
X (2) 12-month Eligibility Periods.
------
In all other respects, the Plan provisions remain in full force and effect.
IN WITNESS, WHEREOF, the Employer has caused the First Amendment to the Plan
to be duly executed in its name and behalf and its corporate seal to be
affixed this 18th day of December, 1997.
ATTEST: Conley, Canitano & Associates, Inc.
By: Karen W. Conley
Title: Executive Vice President
Date: 12/18/97
ATTEST: Putnam Fiduciary Trust Company
By: Christopher Masteraucino
Title: Vice President
Date: 1/30/98
<PAGE> 1
Exhibit 10.29
AMENDMENT NO. 2
TO THE
CONLEY, CANITANO AND ASSOCIATES, INC.
401(K) PLAN AND TRUST
(As Amended and Restated Effective December 2, 1996)
Conley, Canitano & Associates, Inc. hereby adopts this
Amendment No. 2 to the Conley, Canitano and Associates, Inc. 401(k) Plan and
Trust (As Amended and Restated December 2, 1996) (the "Plan"), effective as of
April 3, 1998. Words and phrases used herein with initial capital letters that
are defined in the Plan are used herein as so defined.
I.
Section 3.1 of the Plan is hereby amended as follows: (i)
Section 3.1 (c) of the Plan is hereby amended by deleting the word "and" at the
end thereof; (ii) Section 3.1(d) of the Plan is hereby amended by deleting the
"." at the end thereof and substituting the following therefor: "; and"; and
(iii) a new Section 3.1(e) is added immediately following Section 3.1(d) to read
as follows:
"(e) An Employee who was a Participant in the Kelly, Levey &
Associates 401(k) and Profit Sharing Plan on April 3, 1998 shall become
a Participant in the Plan as of April 3, 1998, whether or not he has
satisfied the age and service requirements specified in the Plan
Agreement."
II.
Section 2.52 of the Plan is hereby amended by the addition of
the following new paragraphs at the end thereof:
"An Employee who was a Participant in the Kelly, Levey &
Associates 401(k) and Profit Sharing Plan on April 3, 1998 shall be
credited with Years of Service as follows:
<PAGE> 2
(i) For each full Year of Service credited under the Kelly,
Levey & Associates 401(k) and Profit Sharing Plan, the Employee shall
be credited with a Year of Service under the Plan; and
(ii) For purposes of the 1998 Plan Year and succeeding Plan
Years, the Employee shall be credited with a Year of Service if he is
credited with at least 1,000 Hours of Service under the Plan. Such an
Employee shall be credited with 190 Hours of Service for each full
month of service credited under the Kelly, Levey & Associates 401(k)
and Profit Sharing Plan prior to April 3, 1998, and 10 Hours of Service
for each full day of service in addition to full months of service
credited under the Kelly, Levey & Associates 401(k) and Profit Sharing
Plan prior to April 3, 1998."
Executed on this 29th day of May, 1998.
CONLEY, CANITANO & ASSOCIATES, INC.
By: /s/ Nicholas A. Canitano
Title: Chairman & CEO
<PAGE> 1
Exhibit 10.30
CONLEY, CANITANO & ASSOCIATES, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE.
This Employee Stock Purchase Plan (the "Plan") is intended to advance the
interests of Conley, Canitano & Associates, Inc. (the "Company") and its
shareholders by allowing employees of the Company and those subsidiaries (as
defined below) of the Company that participate in the Plan the opportunity to
purchase shares of the Company's Common Stock, without par value ("Common
Stock"). It is intended that the Plan will constitute an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended from time to time (the "Code").
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors. The majority of the Committee shall
constitute a quorum, and the action of (a) a majority of the members of the
Committee present at any meeting at which a quorum is present or (b) all members
acting unanimously by written consent, shall be the acts of the Committee.
The interpretation and construction by the Committee of any provision of
the Plan or of any subscription to purchase shares under it shall be final. The
Committee may establish any policies or procedures which in the discretion of
the Committee are relevant to the operation and administration of the Plan and
may adopt rules for the administration of the Plan. The Committee will, from
time to time, designate the subsidiaries of the Company whose employees will be
eligible to participate in the Plan. No member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any subscription to purchase shares under it. For purposes of this Plan, the
term "subsidiary" means any corporation in which the Company directly or
indirectly owns or controls more than 50 percent of the total combined voting
power of all classes of stock issued by the corporation.
SECTION 3. ELIGIBILITY.
Each employee of the Company or of a participating subsidiary of the
Company whose customary employment is a minimum of 20 hours per week may
subscribe to purchase shares of Common Stock under the terms of the Plan, except
that no employee may subscribe to purchase shares on the immediately following
Purchase Date (as defined below) if, immediately after the immediately preceding
Subscription Date (as defined below), such employee would own stock possessing 5
percent or more of the total combined voting power or value of all classes of
stock
<PAGE> 2
of the Company or of any subsidiary of the Company. For purposes of this
paragraph, stock ownership of an individual shall be determined under the rules
of Section 424(d) of the Code.
For purposes of the Plan:
(a) The term "Subscription Date" means the first business day of each
fiscal quarter of the Company during which the Plan is effective or, in the case
of a participant who is not an employee of the Company or a participating
subsidiary of the Company as of a particular Subscription Date, the date
thereafter on which such participant became an employee of the Company or a
participating subsidiary of the Company. The first Subscription Date under the
Plan will be the first day of the first fiscal quarter following an initial
public offering of the Company's Common Stock.
(b) The term "Purchase Date" means the last business day of the fiscal
quarter in which the related Subscription Date occurs.
SECTION 4. PARTICIPATION.
(a) An eligible employee shall evidence his or her agreement to subscribe
for shares by completing a written agreement (the "Subscription and
Authorization Form") provided by the Committee and filing it as directed by the
Committee. A Subscription and Authorization Form will take effect within a
reasonable time after it has been filed with the Company. Once an employee
provides the Committee with the Subscription and Authorization Form, he or she
continues as a participant in the Plan on the terms provided in such form until
he or she provides a new form or withdraws from the Plan.
(b) In the Subscription and Authorization Form, an eligible employee shall
designate any whole dollar amount to be withheld from such employee's
compensation in each pay period and used to purchase shares of Common Stock on
the next Purchase Date, subject to the following limitations: (i) the whole
dollar amount (on an annualized basis) shall not exceed 10 percent of his or her
compensation (as defined below) on an annualized basis; (ii) the maximum number
of shares of Common Stock which can be purchased by any one employee on any
Purchase Date shall not exceed 5,000 shares of the Common Stock; and (iii) the
Committee may establish from time to time minimum payroll deductions. For
purposes of this Plan, the term "compensation" means gross regular earnings.
SECTION 5. STOCK.
The stock purchased under the Plan shall be shares of authorized but
unissued or reacquired Common Stock. Subject to the provisions of Section 6(h),
the aggregate number of shares which may be purchased under the Plan shall not
exceed 500,000 shares of Common Stock. In the event that the dollar amount of
shares subscribed for in any quarter exceeds the number of shares available to
be purchased under the Plan, the shares available to be purchased shall be
allocated on a pro rata basis among the subscriptions.
2
<PAGE> 3
SECTION 6. TERMS AND CONDITIONS OF SUBSCRIPTIONS.
Subscriptions shall be evidenced by a Subscription and Authorization Form
in such form as the Committee shall from time to time approve, provided that all
employees subscribing to purchase shares shall have the same rights and
privileges (except as otherwise provided in Section 4(b) and subparagraph (d)
below), and provided further that such subscriptions shall comply with and be
subject to the following terms and conditions:
(a) PURCHASE PRICE. The purchase price shall be an amount equal to 85
percent of the lessor of the fair market value of such stock on the first or
last business day of the fiscal quarter to which the subscription relates.
During such time as the Common Stock is traded on the Nasdaq National Market,
the fair market value per share shall be the closing price of the Common Stock
(as reported in THE WALL STREET JOURNAL) on such date (or on the next regular
business day on which shares of the Common Stock of the Company shall be traded
in the event that no shares of the Common Stock shall have been traded on such
date). Subject to the foregoing, the Committee shall have full authority and
discretion in fixing the purchase price.
(b) MEDIUM AND TIME OF PAYMENT. The purchase price shall be payable in full
in United States dollars, pursuant to uniform policies and procedures
established by the Committee. The funds required for such payment will be
derived by withholding from an employee's compensation. An employee shall have
the right at any time to terminate the withholding from his or her compensation
of amounts to be paid toward the purchase price. An employee shall have the
right, one time in each quarter, to change the amount so withheld, by submitting
a written request to the Company at least 10 business days before any Purchase
Date. An employee shall have the right to cancel his or her subscription in
whole or in part and to obtain a refund of amounts withheld from his or her
compensation by submitting a written request to the Company at least 10 business
days before any Purchase Date. Any cancellation of a subscription in whole will
constitute a withdrawal under Section 4(a) of the Plan. Such amounts shall
thereafter be paid to the employee within a reasonable period of time.
(c) NO INTEREST ON EMPLOYEE FUNDS. No interest shall accrue on any amounts
withheld from an employee's compensation.
(d) ACCRUAL LIMITATION. No subscription shall permit the rights of an
employee to purchase stock under all "employee stock purchase plans" (as defined
in the Code) of the Company to accrue, under the rules set forth in Section
423(b)(8) of the Code, at a rate which exceeds $25,000 of fair market value of
such stock (determined at the time of subscription) for each calendar year.
(e) TERMINATION OF EMPLOYMENT. If an employee who has subscribed for shares
ceases to be employed by the Company or a participating subsidiary before any
applicable Purchase Date:
i. Because of retirement or disability, he or she may elect to
continue making payments equal to the rate of payroll deductions made
before retirement or disability until the first Purchase Date following
retirement or disability; or otherwise the accumulated payment in his or
her account at the time of retirement or disability will be applied to
purchase shares at the
3
<PAGE> 4
applicable purchase price on the first Purchase Date following such
retirement or disability, unless the Company is otherwise notified in
writing.
ii. For any other reason, he or she may elect to have the accumulated
payment in his or her account at the time of termination applied to
purchase shares at the applicable purchase price on the first Purchase Date
following such termination; or otherwise the total unused payments credited
to his or her account on the date of termination will be refunded within a
reasonable time without interest, unless the Company is otherwise notified
in writing.
(f) TRANSFERABILITY. Neither payments credited to an employee's account nor
any rights to subscribe to purchase shares of Common Stock under the Plan may be
transferred by an employee except by the laws of descent and distribution. Any
such attempted transfer will be without effect, except that the Company may
treat such act as an election by the employee to withdraw in accordance with
Section 6(b). Shares of Common Stock may be purchased under the Plan only by
subscribing employees who have legal capacity as determined under applicable
state law or, in the event of the employee's legal incapacity, by his or her
guardian or legal representative acting in a fiduciary capacity on behalf of the
employee under state law or court supervision.
(g) DEATH AND DESIGNATION OF BENEFICIARY. An employee may file with the
Company a written designation of beneficiary and may change such designation of
beneficiary at any time by written notice to the Company. On the death of an
employee, the elections provided on termination of employment for retirement or
disability may be exercised by the employee's beneficiary, executor,
administrator, or other legal representative.
(h) ADJUSTMENTS. The Committee may make or provide for such adjustments in
the purchase price and in the number or kind of shares of the Common Stock or
other securities covered by outstanding subscriptions, or specified in the
second sentence of Section 5 of the Plan, as the Committee in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of employees that would otherwise
result from (i) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company; (ii)
any merger, consolidation, spin-off, split-off, spin-out, split-up, separation,
reorganization, partial or complete liquidation, or other distribution of
assets, issuance of rights or warrants to purchase stock; or (iii) any other
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Committee, in its
discretion, may provide in substitution for any or all outstanding subscriptions
under this Plan such alternative consideration as it, in good faith, may
determine to be equitable in the circumstances.
(i) RIGHTS AS A SHAREHOLDER. An employee shall have no rights as a
shareholder with respect to any Common Stock covered by his or her subscription
until the Purchase Date following payment in full. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date of such purchase, except as provided in Section 6(h) of the Plan.
(j) FRACTIONAL SHARES. Fractional shares may be purchased under the Plan
and credited to an account for the employee. The Company, however, shall have
the right to pay
4
<PAGE> 5
cash in lieu of any fractional shares of Common Stock to be distributed from an
employee's account under the Plan.
(k) OTHER PROVISIONS. The Subscription and Authorization Form authorized
under the Plan shall contain such other provisions as the Committee may deem
advisable, provided that no such provisions may in any way be in conflict with
the terms of the Plan.
SECTION 7. TERM OF PLAN.
Eligible employees may subscribe for shares under the Plan within a period
of ten years from the date the Plan is adopted by the Board of Directors;
PROVIDED, HOWEVER, that the Committee may terminate or suspend the Plan if at
any time there are less than 5 percent of the eligible employees participating
in the Plan.
SECTION 8. AMENDMENT OF THE PLAN.
The Plan may be amended from time to time by the Committee, but without
further approval of the shareholders, no such amendment shall (a) increase the
aggregate number of shares of Common Stock that may be issued and sold under the
Plan (except that adjustments authorized by Section 6(h) of the Plan shall not
be limited by this provision) or (b) materially modify the requirements as to
eligibility for participation in the Plan.
SECTION 9. APPROVAL OF SHAREHOLDERS.
The Plan shall take effect upon adoption by the Board of Directors;
PROVIDED, HOWEVER, that any subscriptions and purchases under the Plan shall be
null and void unless the Plan is approved by a vote of the holders of a majority
of the total number of outstanding shares of voting stock of the Company present
in person or by proxy at a meeting at which a quorum is present in person or by
proxy, which approval must occur within the period of 12 months after the date
the Plan is adopted by the Board of Directors.
5
<PAGE> 1
Exhibit 10.32
Office Lease
between
Place Renaissance, Ltd.
and
Conley, Canitano & Assoc., Inc.
This Instrument Prepared by:
MAYS, KARBERG & WACHTER
Suite 250, Corporate Circle
30100 Chagrin Boulevard
Cleveland, Ohio 44124-5705
(216) 464-3030
<PAGE> 2
8.2 Alterations and Improvements.............................. 9
8.3 Fixtures and Personal Property............................ 9
SECTION 9: USE...................................................... 9
9.1 Permitted Use............................................. 9
9.2 Prohibited Uses........................................... 9
SECTION 10: COMMON AREAS........................................... 10
10.1 Access to Common Areas ................................... 10
10.2 Noninterference........................................... 10
SECTION 11: DAMAGE AND DESTRUCTION................................. 10
11.1 Definitions............................................... 10
11.1.1 Partial Destruction Defined........................ 10
11.1.2 Total Destruction Defined.......................... 10
11.2 Partial Destruction....................................... 11
11.3 Total Destruction......................................... 11
11.3.1 Prior to Last Year of Term......................... 11
11.3.2 Within the Last Year of Term....................... 11
SECTION 12: APPROPRIATION AND CONDEMNATION.......................... 12
12.1 Appropriation Proceedings Defined......................... 12
12.2 Lease Terminated.......................................... 12
SECTION 13: ADDITIONAL COVENANTS AND REPRESENTATIONS
13.1 Tenant's Additional Covenants and Representations......... 12
13.1.1 Assignment and Subletting.......................... 12
13.1.2 Cessation of Services.............................. 13
13.1.3 Compliance With Law................................ 13
13.1.4 Encumbrances, Liens and Mortgages.................. 13
13.1.5 Landlord's Liability............................... 13
13.1.6 Right of Entry..................................... 14
13.1.7 Subordination, Nondisturbance and Attornment....... 14
13.2 Landlord's Additional Covenants and Representations....... 15
13.2.1 Landlord's Title................................... 15
13.2.2 Quiet Enjoyment.................................... 15
13.2.3 Underground Parking................................ 15
13.2.4 Building Name...................................... 15
13.2.5 Tenant's Exclusive Use............................. 16
SECTION 14: DEFAULT................................................. 16
14.1 Conditions of Default..................................... 16
14.1.1 Monetary Default................................... 16
14.1.2 Nonmonetary Default................................ 16
14.1.3 Solvency........................................... 17
14.2 Remedies for Default...................................... 17
ii
<PAGE> 3
SECTION 15: SURRENDER.......................................... 17
15.1 Repossess Premises................................. 17
15.2 Tenant's Property.................................. 17
SECTION 16: UNAVOIDABLE DELAYS................................. 18
16.1 Extraordinary Conditions........................... 18
16.2 Excused Nonperformance............................. 18
SECTION 17: MISCELLANEOUS...................................... 18
17.1 Additional Acts.................................... 18
17.2 Attorney's Fees.................................... 18
17.3 Authority of Parties............................... 19
17.4 Commissions........................................ 19
17.5 Construction of Terms.............................. 19
17.6 Governing Law and Severability..................... 19
17.7 Environmental Matters.............................. 19
17.9 Notices............................................ 20
17.10 Recording.......................................... 21
17.11 Rules.............................................. 21
17.12 Signs.............................................. 21
17.13 Successors and Assigns............................. 21
17.14 Waiver............................................. 21
EXHIBITS:
A - Office Building
B - Premises
C - Operating Costs
D - Landlord's Maintenance Obligations
E - Utilities
F - Tenant Improvements
iii
<PAGE> 4
This OFFICE LEASE BETWEEN PLACE RENAISSANCE, LTD., AND CONLEY,
CANITANO & ASSOC., INC., (hereinafter referred to as the "LEASE") is made and
entered into as of January 3, 1997, by and between:
PLACE RENAISSANCE, LTD.
a limited liability company formed
pursuant to the laws of the State of Ohio
(hereinafter collectively referred to as "LANDLORD")
and
CONLEY, CANITANO & ASSOC., INC.
a profit corporation formed pursuant
to the laws of the State of Ohio
(hereinafter referred to as "TENANT")
with respect to the following facts and circumstances:
LANDLORD has the right to acquire a certain parcel of real property
located in the City of Mayfield Heights, County of Cuyahoga and State of Ohio
(hereinafter referred to as the "LANDLORD'S PROPERTY"); and
a 3-story office building is to be constructed upon LANDLORD'S
PROPERTY, together with various other structures and improvements (all of which
are hereinafter collectively referred to as the "OFFICE BUILDING") which OFFICE
BUILDING is more fully described in "EXHIBIT A", attached hereto and made a
part hereof; and
the LANDLORD and TENANT have agreed that a portion of the OFFICE
BUILDING shall be leased by the LANDLORD to the TENANT for the purposes and
upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, intending to be legally bound, do,
for and in consideration of the mutual agreements, covenants and promises
hereinafter set forth, hereby mutually agree as follows:
SECTION 1. PREMISES
1.1 Office Space:
For and in consideration of the rents, covenants and agreements herein
contained, the LANDLORD does hereby demise and lease to the TENANT and the
TENANT does hereby lease and hire from the LANDLORD, for the purposes
hereinafter set forth, a portion of the OFFICE BUILDING, being all of the
second and third floors thereof,
<PAGE> 5
which portion contains approximately 17,235 square feet of space (which leased
area is hereinafter referred to as the "PREMISES") which PREMISES is more fully
described in "EXHIBIT B", attached hereto and made a part hereof, the exact
size of which shall be determined upon delivery of exclusive possession and
certified to in writing, which writing shall be signed by LANDLORD and TENANT.
1.2 Improvements:
The terms "PREMISES" as defined in Section 1.1 above, shall not be deemed to
include any contents, furniture, fixtures, goods and other personal property
located or placed therein by the TENANT.
SECTION 2: TERM
2.1 Commencement Date:
This LEASE shall be effective upon its date of execution, but its term shall
not commence until 2 weeks after the date on which LANDLORD has substantially
completed the Improvements referred to in Section 8.1 below (hereinafter
referred to as the "COMMENCEMENT DATE").
2.2 Original Term:
The term of this LEASE shall begin on the COMMENCEMENT DATE and shall continue
for a period of 60 months, plus the period of time, if any, subsequent to the
COMMENCEMENT DATE but prior to the first day of the next full calendar month,
if such COMMENCEMENT DATE is not the first day of a calendar month (hereinafter
referred to as the "ORIGINAL TERM").
2.3 Renewal Term:
Provided that TENANT is not in default of this LEASE, TENANT shall have the
right to extend the term of this LEASE for 3 successive periods of 60 months
each by providing the LANDLORD with written notice of such election not less
than 6 months prior to the expiration of the then current term (each of which
renewal periods is hereinafter referred to as a "RENEWAL TERM" and all of which
are hereinafter collectively referred to as "RENEWAL TERMS"). Each such RENEWAL
TERM shall commence upon the expiration of the immediately preceding term.
2.4 Holding Over:
Should TENANT continue in possession of the PREMISES subsequent to the
termination of this LEASE, such holding over shall be considered an extension
of this LEASE for a period of one (1) month and so on from month to month until
terminated by either party hereto. All other terms and conditions of this
LEASE shall be in full force and effect during any such holding over period,
except the monthly rent payable during any
2
<PAGE> 6
such holding over period shall be double the monthly rent payable for the last
month of the term immediately preceding the holding over period.
SECTION 3: RENT
3.1 Base Rent:
TENANT hereby covenants and agrees to pay to the LANDLORD, as rent for the
PREMISES during the ORIGINAL TERM hereof, an amount of money equal to $14.65
per square foot per year for each square foot of space contained in the
PREMISES (hereinafter referred to as the "BASE RENT"). The parties acknowledge
that the amount of the BASE RENT was determined in part by the expected total
cost of construction of the OFFICE BUILDING, which the parties presently
anticipate will be approximately $3,410,825, inclusive of all land acquisition
costs; costs of materials, labor and improvements; and financing costs during
construction. In the event the actual total cost of construction is less than
$3,410,825, the BASE RENT will be reduced by 4.4 cents per square foot per year
for each $10,000 of difference between the actual cost of construction and the
projected cost of $3,410,825, but now below $14 per square foot. The exact
amount of the BASE RENT will be determined on or before the COMMENCEMENT DATE
by measuring the actual dimensions of the PREMISES and the actual total cost of
construction of the OFFICE BUILDING. The BASE RENT will be paid in equal
monthly installments, without setoff or deduction, on the first day of each
month during the ORIGINAL TERM and any RENEWAL TERM, beginning on the
COMMENCEMENT DATE, prorated on a per diem basis for partial months.
3.2 Increases in Base Rent:
The phrase "RENT ADJUSTMENT DATE" wherever used in this LEASE means the first
anniversary of the COMMENCEMENT DATE, if such date is the first day of a
calendar month, or the first day of the next full calendar month immediately
following the month in which the first anniversary of the COMMENCEMENT DATE
occurs if such date is not the first day of a calendar month. Commencing with
the first RENT ADJUSTMENT DATE and on each anniversary thereof, the BASE RENT
shall be increased in proportion to the percentage increase in the Consumer
Price INDEX for all urban consumers ("CPIU") presently published monthly by the
Bureau of Labor Statistics of the United States Department of Labor
(hereinafter referred to as the "INDEX") or such other price index as the United
States government may hereafter use in lieu of the aforementioned INDEX. The
aforementioned percentage increase in the INDEX shall be derived from a ratio
having as its denominator the INDEX for the month of previous year's RENT
ADJUSTMENT DATE and a numerator equal to the INDEX for the month of the current
year's RENT ADJUSTMENT DATE. In no event, however, will any annual adjustment
to the BASE RENT result in a reduction, nor an increase of more than 2%.
3.3 Additional Rent:
TENANT hereby acknowledges and agrees that LANDLORD shall incur various
charges, costs and expenses in conjunction with the operation and maintenance
of LANDLORD'S PROPERTY, particularly the OFFICE BUILDING, pursuant to this
LEASE (which
3
<PAGE> 7
charges, costs and expenses are hereinafter collectively referred to as
"OPERATING COSTS") which OPERATING COSTS are more fully described in "EXHIBIT
C", attached hereto and made a part hereof. TENANT hereby agrees that it shall
pay to LANDLORD, in addition to the rent hereinabove referred to, a portion of
such OPERATING COSTS, which portion shall be determined by a ratio having as
its numerator the total number of square feet contained in the PREMISES and as
its denominator, the total number of square feet contained in the OFFICE
BUILDING (which ratio is hereinafter referred to as "TENANT'S PRO RATA SHARE").
LANDLORD and TENANT hereby mutually acknowledge and agree that, as of the date
of execution of this LEASE, TENANT'S PRO RATA SHARE is 66 2/3%, the exact
amount of which shall be determined upon delivery of exclusive possession and
certified to in writing, which writing shall be signed by LANDLORD and TENANT.
Further, LANDLORD shall have the right to make a good faith estimate as to the
OPERATING COSTS which LANDLORD reasonably expects to incur within any calendar
year and provide TENANT with written notification of such estimate (as well as
reasonable detail concerning its calculation) and TENANT shall pay to LANDLORD
one-twelfth (1/12) of such annual estimate, together with TENANT'S rent,
without further notice or demand, based upon LANDLORD'S most recent notice of
TENANT'S PRO RATA SHARE of the OPERATING COSTS. LANDLORD'S preliminary estimate
of such OPERATING COSTS is $6.20 per square foot. LANDLORD shall, within three
(3) months after the close of each calendar year, provide TENANT with an
itemized statement setting forth the actual OPERATING COSTS incurred by the
LANDLORD during said calendar year, as well as TENANT'S PRO RATA SHARE thereof.
Should the total of the TENANT'S estimated monthly payments actually made for
such year be less than TENANT'S PRO RATA SHARE, TENANT shall pay to LANDLORD
the full amount of any such deficiency within one (1) month after the date of
receipt of LANDLORD'S itemized statement. Should the total of TENANT'S
estimated monthly payments actually made be greater than the TENANT'S PRO RATA
SHARE of the increase in such OPERATING COSTS, TENANT shall be entitled to a
credit for the full amount of any such excess, which credit shall be set off
against estimated monthly payments to be made in the future, unless the term of
this LEASE has expired, in which case, such credit shall be paid to TENANT at
the time of rendering the itemized statement. LANDLORD shall keep books and
records reflecting actual Operating Expenses as calculated in accordance with
generally accepted accounting principles consistently applied. TENANT shall
have the right, exercisable within one (1) month after receipt of LANDLORD'S
annual itemized statement, upon giving two (2) days prior written notice, at
any time during normal business hours, to audit, with accountants selected by
TENANT, LANDLORD'S books and records relating to OPERATING COSTS for the time
period covered in such statement. Any excess charge discovered as a result of
such audit shall be credited against future monthly installments of annual
estimates, unless the then term of this LEASE shall have expired, in which
event, the full amount of such excess shall be immediately paid to tenant.
3.4 Time and Method of Payment:
Except where herein otherwise specifically provided, all rent and other
charges, payable pursuant to this LEASE are payable on the first day of each
and every calendar month during the ORIGINAL TERM or any RENEWAL TERM hereof,
at LANDLORD'S
4
<PAGE> 8
business address or at such other place as LANDLORD may from time to time
designate. LANDLORD shall have the right to demand and receive rent payments,
as well as any other sums of money payable to LANDLORD by TENANT pursuant to
this LEASE, in the form of legal tender of the United States of America;
provided, however, that unless LANDLORD so elects, TENANT shall have the right
to pay all such sums by means of TENANT'S check, payable to the order of
LANDLORD or such other party as LANDLORD may from time to time designate.
3.5 Late Payments:
All rent and other charges payable pursuant to this LEASE which are not paid
when due shall bear interest at the rate of one and one-half percent (1-1/2%)
per month and such interest shall be prorated on a daily basis and payable from
the day of default up to and including the day of payment.
SECTION 4: INSURANCE
4.1 Tenant's Required Insurance Coverages:
TENANT shall, at TENANT'S sole cost and expense, maintain and keep in full
force and effect during the ORIGINAL TERM or any RENEWAL TERM hereof, the
following forms of insurance in accordance with the terms and conditions
hereinafter set forth:
4.1.1 Public Liability Coverage:
public liability insurance coverage in amounts not less than $1,000,000 with
respect to the injury or death of one (1) person and $1,000,000 with
respect to any one (1) accident or occurrence, and coverage in an amount
not less than $500,000 per accident or occurrence with respect to property
damage. The insurance policies referred to in this Section 4.1.1 shall each
name LANDLORD as an additional named insured; and
4.1.2 Personal Property Coverage:
insurance which provides coverage for any damage of destruction to TENANT'S
personal property, contents, goods, furniture and fixtures maintained on or
about the PREMISES in an amount not less than eighty percent (80%) of the
fair market value of such personal property, contents, goods, furniture and
fixtures.
4.2 Insurance Certificates and Policy Provisions:
TENANT shall provide LANDLORD with certificates of the insurance required
pursuant to Section 4.1 above, on or before the COMMENCEMENT DATE of the
ORIGINAL TERM and upon any and all renewals of such insurance policies. Each
such policy of insurance shall provide, by means of an appropriate endorsement,
that it shall not be cancelled without at lease one (1) month's prior written
notice to LANDLORD.
5
<PAGE> 9
4.3 Landlord's Insurance Obligations:
LANDLORD shall have the obligation to maintain and keep in full force and
effect during the ORIGINAL TERM or any renewal term hereof, the following forms
of insurance in accordance with the terms and conditions hereinafter set forth.
4.3.1 Fire and Extended Coverage:
fire and extended coverage insurance which affords protection against
casualty to the OFFICE BUILDING and any other improvements located upon
LANDLORD'S PROPERTY in an amount not less than the full insurable value
thereof, exclusive of foundations, excavations and similar items not
subject to exposure; and
4.3.2 Rental Income Coverage:
rental income insurance which affords protection against the loss of rent
and other sums of money payable by TENANT to LANDLORD pursuant to this
LEASE, which coverage shall be in an amount not less than the total of all
such sums which the TENANT would reasonably expect to pay to the LANDLORD
during any twelve (12) month period; and
4.3.3 Public Liability Coverage:
public liability insurance which provides coverage with respect to the
injury or death of persons, as well as damage or destruction to property,
which insurance policies shall have such limits or liability as LANDLORD
shall deem reasonably necessary.
4.4 Tenant's Obligation to Reimburse:
TENANT hereby acknowledges and agrees that all insurance costs incurred by
LANDLORD pursuant to this Section 4 shall be deemed to be OPERATING COSTS and
that TENANT shall pay TENANT'S PRO RATA SHARE thereof in accordance with the
terms and conditions set forth in this LEASE. Should TENANT store or maintain
any materials or equipment, or do or permit any acts to be done which result in
an increase in the rate or premium of any insurance coverage required to be
provided by LANDLORD pursuant to this LEASE, TENANT shall immediately reimburse
LANDLORD for the full amount of any such increase.
4.5 Mutual Waiver of Liability:
LANDLORD and TENANT each hereby waive against the other, to the extent of any
recovery under a policy of insurance, its respective right of recovery for any
personal injury or for any and all loss to its property, real or personal,
which may be damaged or destroyed by any hazard or peril whatsoever.
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<PAGE> 10
4.6 Mutual Waiver of Subrogation:
LANDLORD and TENANT each hereby grant to the other, for and on behalf of any
insurance company providing any insurance coverage hereinabove required, a
waiver of any right of subrogation which any such insurance company may acquire
against the other party hereto by virtue of any loss sustained by such insurance
company.
SECTION 5: MAINTENANCE
5.1 Landlord's Maintenance Obligations:
LANDLORD shall provide or cause to be provided, for and on behalf of TENANT,
those maintenance and service functions specified in "EXHIBIT D", attached
hereto and made a part hereof. Further, LANDLORD shall maintain and make all
necessary structural repairs and replacements to the OFFICE BUILDING and all
other improvements, as well as the grounds and parking lot appurtenant thereto,
and located upon LANDLORD'S PROPERTY, provided that LANDLORD shall have
received actual notice that such repairs or replacements are necessary. TENANT
hereby acknowledges and agrees that all charges, costs and expenses incurred by
LANDLORD in conjunction LANDLORD'S performance of its obligations required
pursuant to this Section 5 shall be deemed to be OPERATING COSTS and that
TENANT shall pay TENANT'S PRO RATA SHARE thereof in accordance with the terms
and conditions set forth in this LEASE.
5.2 Tenant's Maintenance Obligations:
TENANT shall, at TENANT'S sole cost and expense, maintain the PREMISES and all
improvements located therein in the same condition in which they were received
or originally constructed, reasonable wear and tear, depreciation, damage and
loss from the elements, loss covered by insurance and other occurrences beyond
the reasonable control of the TENANT excepted. Further, TENANT shall maintain
the PREMISES and all other improvements located therein in a clean and sanitary
condition in accordance with all applicable federal, state, county and city
health, safety and sanitation laws, ordinances, regulations and rules and as
directed by the proper public officials during the ORIGINAL TERM or any RENEWAL
TERM hereof.
SECTION 6: TAXES
6.1 Real Estate Taxes:
LANDLORD hereby agrees to pay all real estate taxes and/or assessments (or any
other governmental charges or impositions made in lieu thereof) which are due
and payable during the ORIGINAL TERM or any RENEWAL TERM hereof, and which are
levied, assessed or imposed upon the LANDLORD'S PROPERTY and/or any
improvements located thereon (hereinafter referred to as "TAXES"). TENANT
hereby acknowledges and agrees that all TAXES shall be deemed to be OPERATING
COSTS and that TENANT
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shall pay TENANT'S PRO RATA SHARE thereof in accordance with the terms and
conditions set forth in this LEASE.
6.2 Other Taxes:
TENANT shall pay, prior to delinquency, all taxes, assessments, license fees,
and other public charges levied, assessed or imposed or which became payable
during the ORIGINAL TERM or any RENEWAL TERM hereof, with respect to any trade
fixtures, furnishings, equipment and all other personal property of TENANT
installed or located on the PREMISES.
SECTION 7: UTILITIES
7.1 Tenant's Submetered Utilities:
LANDLORD shall cause those utilities more fully described in "EXHIBIT E",
attached hereto and made a part hereof, to be delivered to the PREMISES,
separately submetered and the account to be maintained in TENANT'S name so that
the providing utility may issue its bills therefor directly to TENANT for
TENANT'S consumption thereof. TENANT shall pay, prior to delinquency, all
charges for any such utilities used by TENANT in occupying the PREMISES.
7.2 Common Utilities:
TENANT hereby acknowledges and agrees that, any utilities used by TENANT which
are not submetered as set forth in Section 7.1 above, together with TENANT'S
PRO RATA SHARE of any and all utilities charges incurred by LANDLORD with
respect to the maintenance, management and operation of LANDLORD'S PROPERTY,
the OFFICE BUILDING and any and all other improvements located upon LANDLORD'S
PROPERTY, shall be billed to TENANT by LANDLORD and TENANT shall pay TENANT'S
PRO RATA SHARE thereof within one (1) month after receipt of LANDLORD'S
statement therefor.
SECTION 8: CONSTRUCTION AND ALTERATION OF IMPROVEMENTS, ETC.
8.1 Landlord's Leasehold Improvements:
LANDLORD shall cause to be made or constructed such improvements to the
PREMISES as are more fully described in "EXHIBIT F", a copy of which is
attached hereto and made a part hereof (hereinafter referred to as the "TENANT
IMPROVEMENTS"). LANDLORD agrees to use its best efforts to cause the completion
of all of said TENANT IMPROVEMENTS prior to November 1, 1997, and TENANT agrees
that any TENANT IMPROVEMENTS which are not then completed and the completion of
which will not unreasonably interfere with TENANT'S use or occupancy of the
PREMISES will not delay TENANT'S obligation to pay rent pursuant to this LEASE.
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8.2 Alterations and Improvements:
TENANT shall not make any alterations or improvements to the PREMISES without
the prior written consent of the LANDLORD, which consent may, in the LANDLORD'S
sole and absolute discretion, be withheld. Further, TENANT shall not make any
structural alterations, modifications or improvements, nor install any
equipment, fixtures or other personal property, with or without the LANDLORD'S
consent, which shall impair the structural soundness of the PREMISES or the
OFFICE BUILDING.
8.3 Fixtures and Personal Property:
TENANT may, at TENANT'S sole cost and expense, install within the PREMISES such
contents, equipment, fixtures, furniture, goods and other personal property as
TENANT deems necessary for the conduct of TENANT'S business. LANDLORD hereby
agrees that any contents, equipment, fixtures, furniture, goods and other
personal property owned or leased by TENANT are the personal property of TENANT
and may be removed by TENANT on or before the expiration date of this LEASE, at
TENANT'S sole cost and expense, provided that such removal does not impair or
damage the PREMISES or the OFFICE BUILDING, unless TENANT shall immediately
repair and restore, at TENANT'S sole cost and expense, any impairment or damage
resulting from such removal.
SECTION 9: USE
9.1 Permitted Use:
The PREMISES and all improvements located thereon shall be used primarily for
general office purposes in conjunction with the conduct of TENANT'S business,
presently providing computer software consulting services (hereinafter referred
to as "TENANT'S USE") in the normal course of business and in accordance with
the terms and conditions set forth in this LEASE and for no other purpose or
use whatsoever without the prior written consent of LANDLORD, which consent may
not be unreasonably withheld or delayed.
9.2 Prohibited Uses:
TENANT shall not use or occupy, or permit the use or occupancy of the PREMISES,
in any unlawful manner or for any illegal purpose or in such manner as might
constitute a nuisance or violate the terms and conditions of this LEASE or of
any certificate of occupancy applicable to the PREMISES or for any purpose or
in any manner liable to cause structural injury to the PREMISES or OFFICE
BUILDING. TENANT shall not use or occupy or permit the use or occupancy of the
PREMISES or any improvements located thereon for other than purposes of a
nature and to an extent permitted by the codes, laws, ordinances, regulations
and rules of all applicable governmental authorities.
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SECTION 10: COMMON AREAS
10.1 Access to Common Areas:
The TENANT, its agents, assigns, customers, designees, employees, guests,
invitees, licensees, representatives, servants, successors, tenants, visitors
and others, shall have the right to use all driveways, hallways, general surface
parking areas, sidewalks and other common areas and facilities on or about
LANDLORD'S PROPERTY, jointly with other tenants.
10.2 Noninterference:
Neither TENANT nor its agents, assigns, customers, designees, employees,
guests, invitees, licensees, representatives, servants, successors, tenants,
visitors or others, shall use any of the aforementioned common areas and
facilities in a manner which obstructs or interferes with a reasonable use
thereof by others, and TENANT shall cooperate with LANDLORD and LANDLORD'S
agents in seeking to preclude anyone from using said common areas or facilities
in an obstructing or interfering manner.
SECTION 11: DAMAGE AND DESTRUCTION
11.1 Definitions:
The following definitions apply with respect to this Section 11 entitled
"Damage and Destruction".
11.1.1 Partial Destruction Defined:
The term "PARTIAL DESTRUCTION" wherever used herein shall be deemed to mean
the occurrence of an event which results in a portion of the PREMISES
and/or other improvements located in the PREMISES being damaged or
destroyed to an extent that TENANT remains able to conduct some, though
perhaps not all, of the business on the PREMISES which TENANT conducted
immediately prior to the occurrence of such PARTIAL DESTRUCTION.
11.1.2 Total Destruction Defined:
The term "TOTAL DESTRUCTION" wherever used herein shall be deemed to mean
the occurrence of an event which results in the damage and destruction to
all or a portion of the PREMISES and/or other improvements located in the
PREMISES such that TENANT is no longer able to conduct any of the business
on the PREMISES which TENANT conducted immediately prior to the occurrence
of such TOTAL DESTRUCTION.
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11.2 Partial Destruction:
In the event of a PARTIAL DESTRUCTION, TENANT shall immediately notify LANDLORD
of the occurrence thereof and LANDLORD shall proceed with all due diligence to
repair and restore the damaged portion of the PREMISES and/or other
improvements located in the PREMISES which were originally constructed or
installed by LANDLORD to their same condition as it existed immediately prior
to the occurrence of such event of PARTIAL DESTRUCTION; provided, however, that
LANDLORD shall have received sufficient insurance proceeds with which to do so.
All terms and conditions of this LEASE shall remain in full force and effect,
except that the rent which TENANT is required to pay pursuant to Section 3
above shall be equitably abated in proportion to the damaged proportion of the
PREMISES which is unfit for TENANT'S use and occupancy during the period of
such repair and reconstruction.
11.3 Total Destruction:
In the event of a TOTAL DESTRUCTION, the following provisions shall apply.
11.3.1 Prior to Last Year of Term:
Upon the occurrence of an event of TOTAL DESTRUCTION at a time when there
remains one (1) or more years on the then unexpired term of this LEASE,
LANDLORD shall proceed with all due diligence to repair and restore the
damaged portion of the PREMISES and/or other improvements located in the
PREMISES which were originally constructed or installed by LANDLORD to
their same condition as it existed immediately prior to the occurrence of
such event of TOTAL DESTRUCTION; provided, however, that LANDLORD shall
have received sufficient insurance proceeds with which to do so. This
LEASE shall remain in full force and effect except that the then unexpired
term of this LEASE shall be extended for the period of time equal to that
which is necessary to complete such repair and reconstruction and the rent
which TENANT is otherwise required to pay pursuant to Sections 3.1, 3.2 or
3.3 above, shall be totally abated during such repair and reconstruction
period. Upon the completion of such repair and reconstruction, TENANT'S
obligation to pay rent shall resume for the duration of the then unexpired
term of this LEASE.
11.3.2 Within the Last Year of Term:
Upon the occurrence of an event of TOTAL DESTRUCTION within the last one
(1) year of the then unexpired term of this LEASE and unless TENANT
exercises an option to extend the ORIGINAL TERM of this LEASE, either
LANDLORD or TENANT shall have the right to terminate this LEASE by
providing the other party with written notice of such election within
one (1) month after the date of occurrence of an event of TOTAL
DESTRUCTION. Should this LEASE not be so terminated, such event of TOTAL
DESTRUCTION shall be treated as though it had occurred prior to the last
year of the then unexpired term of this LEASE and the terms and conditions
set forth in Section 11.3.1 above shall apply.
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SECTION 12: APPROPRIATION AND CONDEMNATION
12.1 Appropriation Proceedings Defined:
The term "APPROPRIATION PROCEEDINGS" wherever used herein shall be deemed to
mean that all or any part of LANDLORD'S PROPERTY is made subject to any
proceeding by public authority or any other body vested with the power of
eminent domain, or in any way made subject to acquisition for public or
quasi-public purposes or uses, by appropriation, condemnation, the exercise of
the power of eminent domain, or otherwise or that a portion of LANDLORD'S
PROPERTY be made the subject thereof and which would result in an adverse
material effect upon the rights of TENANT under this LEASE.
12.2 Lease Terminated:
In the event of the institution of APPROPRIATION PROCEEDINGS, this LEASE shall
terminate as of the date of the actual taking by the condemning authorities.
The compensation award for any taking, whether for the whole or a portion of
the PREMISES, shall be the sole property of LANDLORD, whether such compensation
is awarded for diminution in the value or loss of the fee, or otherwise, and
TENANT hereby assigns to LANDLORD all of TENANT'S rights and title to and
interest in any such compensation award; provided, however, the TENANT shall be
entitled to pursue a separate action against the appropriating authority for:
the unamortized portion of any leasehold improvements installed by TENANT in
the PREMISES; the cost of removal of any leasehold improvements, fixtures and
other improvements installed by or at the expense of TENANT; TENANT'S
relocation expenses; and any separate award made by the appropriating authority
directly to TENANT, provided it does not reduce the award to LANDLORD.
SECTION 13: ADDITIONAL COVENANTS AND REPRESENTATIONS
13.1 Tenant's Additional Covenants and Representations:
The following covenants and representations are made by TENANT for the benefit
of LANDLORD.
13.1.1 Assignment and Subletting;
TENANT agrees not to assign this LEASE, or any interest therein, and not to
sublet the PREMISES, or any part thereof, without first obtaining the
written consent of LANDLORD, which consent shall not be unreasonably
withheld or delayed. The consent of the LANDLORD with respect to any of
the foregoing events must be obtained in each and every instance thereof.
TENANT shall, in the event of any assignment or subletting, permitted or
otherwise, remain liable as TENANT under this LEASE for the full
performance of all of the agreements, conditions, covenants and terms
herein contained, especially the payment of rent and
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other sums due pursuant to this LEASE, which must, unless the LANDLORD
otherwise elects in writing, be made directly to LANDLORD by TENANT,
notwithstanding any assignment or subletting.
13.1.2 Cessation of Services:
TENANT hereby agrees that LANDLORD shall not be liable to anyone for
cessation of any of the services the LANDLORD is required to provide under
this LEASE for any reason beyond the reasonable control of LANDLORD,
including, but not limited to, public utility services, heating,
ventilating and/or air conditioning, office cleaning, inability to
obtain fuel, electricity, service or supplies from the sources from which
they are usually obtained, or failures in the equipment used to provide
such services. Any such interruption of any of the above services shall
never be deemed an eviction or disturbance of the TENANT'S use or
occupancy of the PREMISES or any part thereof, or render the LANDLORD
liable to the TENANT for damages, or relieve the TENANT from performance
of the TENANT'S obligations under this LEASE, unless such interruption is
caused by LANDLORD. However, LANDLORD shall promptly take the necessary
steps to terminate such interruptions as expeditiously as possible under
the circumstances.
13.1.3 Compliance With Law:
TENANT shall, at its sole cost and expense, but subject to its right to
contest the validity thereof, promptly comply with the requirements of
every applicable statute, law, ordinance, fire regulation, and with every
applicable lawful regulation and order concerning the condition and
maintenance of the PREMISES to the extent that TENANT is obligated to
repair and maintain the same and with respect to the TENANT'S use or
occupancy of the PREMISES.
13.1.4 Encumbrances, Liens and Mortgages:
TENANT hereby agrees that TENANT shall not alienate, assign, encumber,
hypothecate, mortgage, pledge or otherwise permit any liens to attach to
the PREMISES, the OFFICE BUILDING and/or LANDLORD'S PROPERTY without the
prior written consent of the LANDLORD, which consent may, in the sole and
absolute discretion of the LANDLORD, be withheld. Further, TENANT hereby
covenants and agrees to promptly pay when due all claims for labor and/or
materials furnished in connection with TENANT'S maintenance, occupancy and
use of the PREMISES and TENANT shall not permit or suffer any liens or
encumbrances to attach thereto and shall indemnify, defend and save
LANDLORD harmless from and against any and all actions, causes of action,
claims, damages, expenses, judgments, liabilities and losses whatsoever
(including LANDLORD'S attorney's fees) resulting therefrom.
13.1.5 Landlord's Liability:
All trade fixtures, equipment, inventory and all other personal property
belonging to TENANT, its agents, assigns, customers, designees, employees,
guests, invitees,
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licenses, representatives, servants, successors, tenants, visitors and
others, located in or about the PREMISES, shall be at the sole risk of
TENANT, and LANDLORD shall not be liable for theft or misappropriation
thereof, nor for any damage or injury thereto, nor for any damage or
injury to TENANT, its agents, assigns, customers, designees, employees,
guests, invitees, licensees, representatives, servants, successors,
tenants, visitors and others, or to other persons; nor shall LANDLORD be
liable for any damage or injury to any property or person as a result of
fire, explosion, wind, snow, frost, steam, gas, electricity, any acts of
God, heat or cold, dampness, falling plaster and/or ceilings, sewers or
sewage odors, noise, leaks from any part of the building or by the
bursting or leaking of pipes, plumbing, electrical wiring and equipment
and fixtures of all kinds, or by any act or neglect of any tenant or any
person. Anything in this LEASE to the contrary notwithstanding, the
maximum liability which the TENANT or any party claiming by, through or
under TENANT, may impose upon the LANDLORD by reason of any agreement,
condition, covenant, provision or term contained in this LEASE or any
other document executed in connection herewith or any exhibits attached
hereto, shall be limited to the interest of the LANDLORD in and to the
PREMISES and, except to the extent of such interest, no party shall
institute any action, claim, demand or suit at law or in equity against
the LANDLORD, its agents, employees or representatives.
13.1.6 Right of Entry:
LANDLORD, its agents, employees, and subcontractors shall have the right
to enter upon the PREMISES at all reasonable hours for the purpose of
inspecting and/or making any repairs thereto. No such entrance shall be
deemed or held to be an ejectment, eviction, or dispossession, actual or
constructive, of TENANT, and LANDLORD shall incur no liability by reason
thereof.
13.1.7 Subordination, Nondisturbance and Attornment:
TENANT hereby agrees that LANDLORD shall have the right at any time, and
from time to time, to create any mortgage(s) or security interest(s) in
favor of any person(s) or entity(ies) for any reasons whatsoever, which
mortgage(s) or security interest(s) shall be wholly superior to the rights
of the TENANT pursuant to this LEASE. TENANT hereby agrees that it shall,
upon demand, execute any and all documents or instruments deemed necessary
or advisable by LANDLORD for the purpose of subjecting or subordinating
this LEASE and all rights conferred upon TENANT pursuant to this LEASE to
any such mortgage(s) or security interest(s) and should TENANT fail to
execute any such documents or instruments within two (2) weeks after
receipt thereof, LANDLORD shall have the right to do so for and on behalf
of TENANT as TENANT'S attorney-in-fact. However, LANDLORD hereby agrees
that any such document or instrument necessary for the purpose of
subordinating this LEASE shall provide that, if this LEASE is in full
force and effect, the right to exclusive possession of the PREMISES by the
TENANT and all of TENANT'S rights arising out of this LEASE shall not be
affected or disturbed by reason of the exercise by anyone of any rights
conferred pursuant to any such mortgage(s) or security interest(s). Should
any party acquire title to the PREMISES
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pursuant to the exercise of any rights conferred by such mortgage(s) or
security interest(s) this LEASE shall not be terminated or affected due to
a foreclosure or sale, or similar proceedings, rather any such party shall
be vested with the rights and obligations conferred upon the LANDLORD
pursuant to this LEASE. TENANT hereby agrees to attorn to any such
mortgagee or other person or entity as its new landlord, and this LEASE
shall continue in full force and effect as a direct lease between TENANT
and any new landlord, or such other person or entity, upon all agreements,
conditions, covenants and terms herein set forth. Further, TENANT hereby
agrees that it shall, upon demand by LANDLORD, execute an estoppel
certificate, in form and substance satisfactory to LANDLORD, for the
purpose of acknowledging any and all terms and conditions contained in
this LEASE, acknowledging that no condition of default exists with respect
thereto, if true, and acknowledging such other facts and circumstances as
LANDLORD may reasonably require.
13.2 Landlord's Additional Covenants and Representations:
The following covenants and representations are made by LANDLORD for the benefit
of TENANT.
13.2.1 Landlord's Title:
LANDLORD hereby represents that, prior to the COMMENCEMENT DATE, LANDLORD
will be the true and lawful owner of LANDLORD'S PROPERTY, the OFFICE
BUILDING and the PREMISES and LANDLORD has full power and authority
to make and enter into this LEASE.
13.2.2 Quiet Enjoyment:
LANDLORD covenants that upon TENANT'S paying the rent and observing and
performing all the covenants and conditions of this LEASE on TENANT'S part
to be observed and performed, TENANT may peacefully and quietly enjoy the
PREMISES, subject to the terms and conditions of the LEASE.
13.2.3 Underground Parking:
TENANT shall be entitled to the exclusive use of its PRO RATA SHARE of the
total number of automobile parking spaces located in the OFFICE BUILDING'S
underground garage parking area; 6 of which shall be free of charge and
the others shall be rented at the prevailing rate applicable to all
tenants in the OFFICE BUILDING.
13.2.4 Building Name:
LANDLORD acknowledges that TENANT occupies the largest premises in the
OFFICE BUILDING, that this LEASE is the first lease of space by any tenant
in the OFFICE BUILDING and that TENANT'S agreement to execute this LEASE
and locate in the OFFICE BUILDING was based in part upon obtaining the
right to
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select the name by which the OFFICE BUILDING will be commonly known during
the ORIGINAL TERM and any RENEWAL TERM. Accordingly, LANDLORD grants to
TENANT the right to select or approve the name by which the OFFICE
BUILDING will be commonly known during the ORIGINAL TERM and any RENEWAL
TERM.
13.2.5 Tenant's Exclusive Use:
LANDLORD acknowledges that TENANT occupies the largest premises in the
OFFICE BUILDING, that this LEASE is the first lease of space by any tenant
in the OFFICE BUILDING and that TENANT'S agreement to execute this LEASE
and locate in the OFFICE BUILDING was based in part upon obtaining the
right to be the only tenant in the OFFICE BUILDING whose primary business
is TENANT'S USE. Accordingly, LANDLORD agrees not to execute a lease with
any other tenant for space in the OFFICE BUILDING if such tenant is
engaged in a business similar to TENANT'S USE. Further, LANDLORD agrees
not to permit the assignment or subleasing by any tenant in the OFFICE
BUILDING of such tenant's rights under its lease to any party whose
business is similar to TENANT'S USE.
SECTION 14: DEFAULT
14.1 Conditions of Default:
This LEASE is made upon the condition that TENANT shall punctually and
faithfully perform all of its covenants and agreements as herein set forth.
Specifically, TENANT shall be in default of this LEASE upon the occurrence of
any of the following events:
14.1.1 Monetary Default:
TENANT fails to pay rent, or additional rent, or any additional charge or
amount of money to be paid by TENANT when and as provided in this LEASE,
and such failure shall continue uncorrected for a period of ten (10) days
after notice: or
14.1.2 Nonmonetary Default:
TENANT fails to promptly and fully perform and observe any of the terms
and conditions of this LEASE to be performed or observed by TENANT and not
relating to the payment of money and if such failure shall continue
uncorrected for a period of one (1) month after LANDLORD'S written notice
thereof to TENANT, unless any such last-mentioned failure cannot
reasonable be corrected within said one (1) month period, provided TENANT
shall have commenced in good faith to correct such failure within said one
(1) month period and shall proceed with all due diligence to continue to
correct such failure thereafter: or
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14.1.3 Solvency:
TENANT suffers any execution, attachment or other order of any court to be
issued upon or against the interest of TENANT in this LEASE and the same
shall continue for a period of one (1) month after TENANT receives notice
thereof; or if TENANT files a petition in bankruptcy or at such time as
TENANT voluntarily takes advantage of any bankruptcy, insolvency, or other
laws for the relief of debtors, is finally adjudicated bankrupt, or if a
petition or an answer is filed proposing the adjudication of TENANT as a
bankrupt, then when TENANT shall consent thereto or sixty (60) days after
the filing thereof, unless the same shall have been discharged or denied
prior thereto; or if TENANT makes an assignment for the benefit of
creditors.
14.2 Remedies for Default:
In the event TENANT defaults as set forth in Section 14.1 above, then and in
such event, in addition to any and all other rights and remedies allowed by law
and equity, LANDLORD may at its option, with notice, declare this LEASE
terminated, reenter and take possession of the PREMISES as provided in Section
15 below, and relet the PREMISES, or any part thereof, on such terms, conditions
and rental as LANDLORD may be commercially reasonable and apply the proceeds of
such reletting, after the deduction of LANDLORD'S costs and expenses, to the
rent reserved under this LEASE and hold TENANT liable for any balance of the
rent and other charges reserved hereunder which may remain unsatisfied or
unpaid.
SECTION 15: SURRENDER
15.1 Repossess Premises:
Upon the termination of this LEASE, or upon the termination of TENANT'S right to
possession of the PREMISES without the termination of this LEASE, TENANT shall
surrender possession and vacate the PREMISES immediately, and LANDLORD may
reenter into and repossess the PREMISES, and remove all persons and property
therefrom in the name manner and with the same right as if this LEASE had not
been made.
15.2 Tenant's Property:
Any and all property which may be removed from the PREMISES by LANDLORD
pursuant to Section 15.1 above, may be handled, removed, stored or otherwise
disposed of by LANDLORD at the sole risk, cost and expense of TENANT, and
LANDLORD shall in no event be responsible or liable for the preservation or the
safekeeping thereof. TENANT shall pay to LANDLORD, upon demand, any and all
expenses incurred by LANDLORD in removing and storing such property. If any
property shall remain on the PREMISES or in the possession of LANDLORD, and
shall not be retaken by TENANT within a period of one (1) month from and after
the time when the PREMISES are either abandoned or vacated by TENANT or
repossessed by LANDLORD, said property shall conclusively be deemed to have
been forever abandoned by TENANT.
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SECTION 16: UNAVOIDABLE DELAYS
16.1 Extraordinary Conditions:
The provisions of this Section 16 shall be applicable if there shall occur,
during the ORIGINAL TERM or any RENEWAL TERM thereof, any strikes, lockouts or
labor disputes; or inability to obtain labor or materials, or reasonable
substitutes therefor beyond the reasonable control of the party obligated to
perform; or acts of God, governmental restrictions, regulations or controls,
enemy or hostile government action, civil commotion, fire or other casualty, or
other conditions similar or dissimilar to those enumerated above beyond the
reasonable control of the party obligated to perform (each of which is
hereinafter referred to as an "EXTRAORDINARY CONDITION").
16.2 Excused Nonperformance:
Should LANDLORD or TENANT fail, as a result of any EXTRAORDINARY CONDITION, to
perform any obligation on their part to be performed pursuant to this LEASE,
such failure shall be excused and not be deemed to be a breach of this LEASE by
the party obligated to perform; provided, however, that the party obligated to
perform shall have provided the other party to this LEASE with written notice
of such event within ten (10) days after the occurrence thereof. Should any
right or option of either party to this LEASE to take any action under or with
respect to this LEASE be conditioned upon the same being exercised within any
prescribed period of time or before a certain date, such prescribed period of
time or such certain date shall be deemed to be extended or delayed for a
period of time equal to the delay occasioned by such EXTRAORDINARY CONDITION.
SECTION 17: MISCELLANEOUS
17.1 Additional Acts:
The LANDLORD and TENANT hereby mutually agree to execute, acknowledge and
deliver any and all such other agreements, documents, and instruments and to do
and perform any and all other acts and things as may be reasonably necessary
and proper to consummate the transaction contemplated by this LEASE.
17.2 Attorney's Fees:
If any legal action is necessary to enforce the terms and conditions of this
LEASE, the prevailing party shall be entitled to its reasonable attorney's fees
and costs after all appeals have been exhausted and a judgment is final, which
fees and costs shall be in addition to any other relief to which the prevailing
party might be entitled.
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HAZARDS") located or stored above, around, beneath or upon the PREMISES or
LANDLORD'S PROPERTY and shall indemnify, defend and hold TENANT harmless from
and against any and all cost, damage, expense or liability whatsoever
(including TENANT'S reasonable legal fees) with respect to LANDLORD'S breach of
the foregoing representation or such ENVIRONMENTAL HAZARDS not caused by
TENANT, its agents, assigns, employees, guests, invitees, subcontractors and
successors, other than as set forth in the REPORT. TENANT agrees not to do or
permit any activities at the PREMISES or LANDLORD'S PROPERTY which would create
or constitute ENVIRONMENTAL HAZARDS and shall indemnify, defend and hold
LANDLORD harmless from and against any and all cost, damage, expense or
liability whatsoever (including LANDLORD'S reasonable legal fees) with respect
to ENVIRONMENTAL HAZARDS created due to the acts or omissions of TENANT, its
agents, assigns, employees, guests, invitees, subcontractors and successors.
17.8 Merger and Amendment:
This LEASE, together with all exhibits attached hereto and agreements executed
in connection herewith (including exhibits attached thereto) supersedes any and
all other agreements, either oral or in writing, between the parties hereto
with respect to the leasing of the PREMISES and contains all of the agreements,
covenants and other obligations between the parties hereto with respect to such
transactions. No alterations, modifications or waivers of this LEASE Agreement,
or any exhibits attached hereto, or any agreements executed in connection
herewith (including exhibits attached thereto) shall be valid unless in writing
and duly executed by all parties hereto.
17.9 Notices:
Unless otherwise herein specifically provided, all acceptances, consents,
demands, elections, notices, offers, requests and other communications required
pursuant to this LEASE shall be in writing and shall be either hand-delivered
(with appropriate proof of delivery), sent via electronic facsimile (FAX) or
sent by certified mail, postage prepaid, return receipt requested. All such
notices shall be deemed given as of the date of receipt by the addressee or
three (3) days after the date of postmark of mailing, whichever shall first
occur. Changes of address shall be designated by written notice. All such
notices shall be addressed as follows:
if to LANDLORD: Place Renaissance, Ltd.
c/o Chelm Properties Incorporated
31000 Aurora Road
Solon, Ohio 44139
Attn: Kerry L. Chelm, President
(VOX: 216-439-4300)
(FAX: 216-439-4371)
if to TENANT: Conley, Canitano & Assoc., Inc.
Suite 390, Signature Square
25201 Chagrin Boulevard
20
<PAGE> 23
Beachwood, Ohio 44122
Attn: Nicholas A. Canitano, President
(VOX: 216-831-6240)
(FAX: 216-831-0317)
with a copy to: Mays, Karberg & Wachter
Suite 250, Corporate Circle
30100 Chagrin Boulevard
Cleveland, Ohio 44124-5705
Attn: Bruce K. Karberg, Esq.
(VOX: 216-464-3030)
(FAX: 216-765-1258)
17.10 Recording:
This LEASE may not be recorded; however, the parties hereto agree, at the
request of either of them, to execute a memorandum of lease or so-called short
form lease for recording, containing the names of the parties, the legal
description of the PREMISES, the ORIGINAL TERM of this LEASE and any other
information necessary for recording purposes.
17.11 Rules:
LANDLORD reserves the right to make such additional rules and regulations which
may be needful for the care, cleanliness and safety of the PREMISES, which
rules and regulations shall be binding upon the parties hereto as if inserted
herein at the time of the execution of this LEASE, provided that such rules and
regulations are not inconsistent with the terms and conditions of this LEASE.
17.12 Signs:
LANDLORD shall provide TENANT with a sign or signs which LANDLORD customarily
provides to other tenants in the OFFICE BUILDING for the purpose of indicating
that TENANT is occupying the PREMISES.
17.13 Successors and Assigns:
It is agreed that each and every agreement, condition, covenant and term herein
contained will extend to and be binding upon the respective administrators,
assigns, executors, heirs, representatives and successors of this parties
hereto.
17.14 Waiver:
No receipt of money by the LANDLORD from the TENANT with knowledge of the
breach of any condition, covenant or provision of this LEASE, or after the
termination hereof, or after final judgment for possession of the PREMISES,
shall be deemed to be a waiver of any such breach, nor shall it reinstate,
continue or extend the ORIGINAL TERM or any RENEWAL TERM hereof, or effect any
notice, demand, or suit. Any
21
<PAGE> 24
waiver or release by either LANDLORD or TENANT must be in writing and must be
signed by the party against whom enforcement is sought.
IN WITNESS WHEREOF, the parties hereto have executed this OFFICE LEASE
BETWEEN PLACE RENAISSANCE, LTD., AND CONLEY, CANITANO & ASSOC., INC., as of the
month, day and year first written above.
L A N D L O R D :
Signed in the presence of the Place Renaissance, Ltd.
following witnesses as to the a limited liability company formed
parties executing as LANDLORD: pursuant to the Laws of the State of Ohio
by: Chelm Properties IIIK, Ltd.
its Managing Member
/s/ Bruce Karberg
by: /s/ Kerry L. Chelm
Kerry L. Chelm
its Managing Member
/s/ (Illegible)
T E N A N T :
Signed in the presence of the Conley, Canitano & Assoc., Inc.,
following witnesses as to both a profit corporation formed pursuant
parties executing as TENANT: to the laws of the State of Ohio
/s/ Bruce Karberg
by: /s/ Nicholas A. Canitano
Nicholas A. Canitano, President
/s/ Patricia Melewski
22
<PAGE> 25
11/17/97
AMENDMENT TO LEASE
AGREEMENT, made this 21 day of November, 1997, by and between Place
Renaissance, Ltd., an Ohio limited liability company, ("Landlord") and Conley,
Canitano & Assoc., Inc., an Ohio profit corporation, ("Tenant").
WITNESSETH:
WHEREAS, by Lease dated January 3, 1997 Landlord leased to Tenant
certain space located on the second and third floors of the building at 5800
Landerbrook Drive, Mayfield Heights, Ohio 44124, containing approximately
17,235 square feet of space (the "Leased Premises").
WHEREAS, Landlord and Tenant have agreed to add additional square
footage to the Tenant's Demised Premises as hereinafter provided;
NOW THEREFORE, the parties hereby mutually covenant and agree as
follows:
1. Beginning on July 1, 1998, the Premises will be expanded to include
an additional 8,434 square feet of rentable space for a total square footage of
25,669 square feet.
2. Rent for the additional 8,434 square feet shall be an amount equal
to $15.50 per square foot per year. This amount shall be adjusted on the Rent
Adjustment Date and each anniversary thereof per the terms of section 3.2 of
the original Lease dated January 3, 1997.
3. Beginning on July 1, 1998, Tenant's Pro Rata Share of Operating
Costs in section 3.3 of the Lease dated January 3, 1997 shall be changed from
66 2/3% to 100%.
4. Tenant shall receive an allowance of $19.15 for each square foot of
space contained in the first floor of space in the Premises based on
approximately 8,434 square feet. Any costs for tenant Improvements in excess of
said allowance shall be paid by Tenant. Landlord and Tenant agree that the
plans and specifications for the Tenant Improvements will be itemized in
writing, which writing will be signed by Landlord and Tenant and attached as an
exhibit to this Amendment prior to the commencement of construction.
5. Except as herein otherwise provided, in all other respects, the
terms and conditions contained in the
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<PAGE> 26
Lease dated January 3, 1997 shall remain in full force and effect during the
remaining term of the Lease.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
this 24th day of November, 1997, as to Landlord and the 21st day of November,
1997 as the Tenant.
Signed in the Presence of: LANDLORD: PLACE RENAISSANCE, LTD.
/s/ Keith Arek /s/ Kerry Cheln
- -------------------------------- --------------------------------
/s/ Barbara Bell Managing Member
- -------------------------------- --------------------------------
Signed in the Presence of: TENANT; CONLEY, CANITANO &
ASSOC., INC.
/s/ Vicki R. Polley /s/ Karen W. Conley
- -------------------------------- --------------------------------
/s/ P. Kapelle Executive Vice President
- -------------------------------- --------------------------------
STATE OF OHIO )
) SS.
2
<PAGE> 1
Exhibit 10.34
[Oracle Logo]
ORACLE ALLIANCE AGREEMENT
This Oracle Alliance Agreement (the "Agreement") is between Oracle Corporation
("Oracle") and the Alliance Member identified below. The terms of this
Agreement shall apply to each Program license granted and to all services
provided by Oracle under this Agreement, which will be identified on one or
more Order Forms.
1. DEFINITIONS
1.1 "COMMENCEMENT DATE" means the date on which the Programs are delivered by
Oracle, or if no delivery is necessary, the Effective Date set forth on
the relevant order form.
1.2 "DESIGNATED SYSTEM" shall mean the computer hardware and operating system
designated on the relevant order form or Sublicense report for use in
conjunction with a Sublicensed Program, Development License, or
Marketing Support License.
1.3 "DOCUMENTATION" Means the user guides and manuals for installation and
use of the Program software. Documentation is provided in CD-ROM or
bound form, whichever is generally available.
1.4 "ORDER FORM" shall mean the document in hard copy of electronic form by
which the Alliance Member orders Program licenses, Sublicenses, and
services, and which is agreed to by the parties. The Order Form shall
reference the Effective Date of this Agreement.
1.5 "PROGRAM" shall mean the software in object code form distributed by
Oracle for which the Alliance Member is granted a license or grants a
Sublicense pursuant to this Agreement; and the media, Documentation, and
Updates therefor.
1.5 "SUBLICENSE ADDENDA" shall mean the addenda to this Agreement specifying
additional Sublicense terms and Sublicense rates and fees for the
various types of Sublicenses which may be granted by the Alliance Member.
1.7 "SUBLICENSE" shall mean a nonexclusive, nontransferable right granted
by or through the Alliance Member to an end user to use an object code
copy of the Programs with the Value-Added Package under authority of a
Sublicense Addendum. "Sublicensee" shall mean a third party who is
granted a Sublicense of the Programs with the Value-Added Package for
such party's own internal data processing purposes and not for purposes
of any further distribution.
1.8 "TECHNICAL SUPPORT" means Program support provided under Oracle's
policies in effect on the date Technical Support is ordered.
1.9 "UPDATE" shall mean a subsequent release of a Program which Oracle makes
generally available for Program Licenses at no additional license
fee other than media and handling charges, provided the Alliance Member
has ordered Technical Support for such licenses for the relevant time
period. Updates shall not include any release, option or future product
which Oracle licenses separately.
1.10 "VALUE-ADDED PACKAGE" shall mean the hardware or software products or
services having added value which are developed, sold, and/or licensed
with the Programs to a Sublicensee by the Alliance Member, as provided
under the applicable Sublicense Addenda.
2. RIGHTS GRANTED
2.1 DEVELOPMENT LICENSES AND TRIAL LICENSES
A. Oracle grants to the Alliance Member a nonexclusive license to use
the Development Licenses the Alliance Member obtains under this
Agreement and applicable Sublicense Addenda, as follows:
1. to develop or prototype the Value-Added Package on the Designated
System or on a backup system if the Designated System is inoperative, up
to any applicable maximum number of designated Users or other such
limitation as may be applicable;
2. to demonstrate the Programs to potential Sublicensees safely in
conjunction with the Value-Added Package;
3. to provide training and technical support to employees and to
customers solely in conjunction with the Value-Added package;
4. to use the Documentation provided with the Programs in support of the
Alliance Member's authorized use of the Programs; and
5. to copy the Programs for archival or backup purposes; no other
copies shall be made without Oracle's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be
reproduced in such copies. All archival and backup copies of the
Programs are subject to the terms of this Agreement.
6. The Alliance Member may order temporary trial licenses ("Trial
Licenses") for its evaluation purposes only, and not for development or
prototype purposes, for use during a period specified in the Order Form.
Each Order Form for Trial Licenses shall clearly state the trial period
and shall identify that the order is for a Trial License.
2.2 MARKETING SUPPORT LICENSES
Oracle grants to the Alliance Member a nonexclusive license to use
the Marketing Support Licenses the Alliance Member obtains under this
Agreement and applicable Sublicense Addenda, as follows:
A. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value-Added Package, up to any applicable maximum
number of designated Users or other such limitation as may be applicable;
B. to develop customized prototypes of the Value-Added Package for
prospective Sublicensees on the Designated System if the Alliance Member
does not receive any fees related to the development of such customized
prototypes;
C. to use the Documentation provided with the Programs in support of the
Alliance Member's authorized use of the Programs; and
D. to copy the programs for archival or backup purposes; no other copies
shall be made without Oracle's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be
reproduced in such copies. All archival and backup copies of the
Programs are subject to the terms of this Agreement.
2.3 SUBLICENSING
A. License to Sublicense Programs
<PAGE> 2
As further set forth in the applicable Sublicense Addenda, Oracle hereby
grants the Alliance Member a nonexclusive, nontransferable license to market
and grant Sublicenses, as set forth in such Sublicense Addenda and at the rates
and fees set forth in such Sublicense Addenda. The Alliance Member shall only
have the right to Sublicense Programs pursuant to an effective Sublicense
Addendum between the parties hereto
The Alliance Member shall Sublicense the Programs solely through a written
Sublicense agreement as provided under Section 2.3.9. Upon Oracle's request, the
Alliance Member shall provide Oracle with a copy of the Alliance Member's
standard Sublicense agreement.
B. SUBLICENSE AGREEMENT
Every Sublicense agreement shall include, at a minimum, contractual
provisions with:
1. Restrict use of the Programs to object code, subject to the restrictions
provided under the applicable Sublicense Addenda and consistent with the
Sublicense fees payable to Oracle;
2. Prohibit (a) transfer of the Programs except for temporary transfer in the
event to computer malfunction; (b) assignment, timesharing and rental of the
Programs; and (c) title to the Programs from passing to the Sublicensee or any
other party;
3. Prohibit the reverse engineering, disassembly or decompilation of the
Programs and prohibit duplication of the Programs except for a single backup or
archival copy;
4. Disclaim, to the extent permitted by applicable law, Oracle's liability for
any damages, whether direct, indirect, incidental or consequential, arising from
the use of the Programs;
5. Require the Sublicensee, at the termination of the Sublicense, to discontinue
use and destroy or return to the Alliance Member all copies of the Programs and
Documentation;
6. Prohibit publication of any results of benchmark tests run on the Programs;
7. Require the Sublicensee to comply fully with all relevant export laws and
regulations of the United States to assure that neither the Programs, nor any
direct product thereof, are exported, directly or indirectly, in violation of
United States law; and
8. Specify Oracle as a third party beneficiary of the Sublicense agreement to
the extent permitted by applicable law.
C. MARKETING/SUBLICENSING PRACTICES
In marketing and Sublicensing the Programs, the Alliance Member shall:
1. Not engage in any deceptive, misleading, illegal, or unethical practices
that may be detrimental to Oracle or to the Programs;
2. Not make any representations, warranties, or guarantees to Sublicensees
concerning the Programs that are inconsistent with or in addition to those made
in the Agreement or by Oracle; and
3. Comply with all applicable federal, state, and local laws and regulations in
performing its duties with respect to the Programs.
2.4 LIMITATIONS ON USE
The Alliance Member shall not use or duplicate the Programs (including the
Documentation) for any purpose other than as specified in this Agreement or
make the Programs available to unauthorized third parties. The Alliance Member
shall not (a) use the Programs for its internal data processing or for
processing customer data; (b) rent, electronically distribute, or timeshare the
Programs or market the Programs by interactive cable or remote processing
services or otherwise distribute the Programs other than as specified in this
Agreement; or (c) cause or permit the reverse engineering, disassembly, or
decompilation of the Programs, except to the extent required to obtain
interoperability with other independently created software or as specified by
law.
2.5 TITLE
Oracle shall retain all title, copyright, and other proprietary rights in
the Programs and any modifications or translations thereof. The Alliance Member
and its Sublicensees do not acquire any rights in the Programs other than those
specified in this Agreement.
2.6 TRANSFER OF PROGRAMS
The Alliance Member may transfer a Development License or Marketing
Support License within its organization upon notice to Oracle; transfers are
subject to the terms and fees specified in Oracles' transfer policy in effect
at the time of the transfer.
2.7 USE OF PROGRAMS BY THIRD PARTIES
The Alliance Member and each Sublicensee (as the case may be) shall have
the right to allow third parties to use each such party's licensed Programs for
the licensee's operations so long as the applicable licensee ensures that use
of the Programs is in accordance with the terms of this Agreement or the
applicable Sublicense agreement.
3. TECHNICAL SERVICES
3.1 TECHNICAL SUPPORT SERVICES
Technical Support services ordered by this Alliance Member will be
provided under Oracle's Technical Support policies in effect on the date
Technical Support is ordered.
3.2 TRAINING SERVICES
Oracle will provide training services agreed to by the parties under the
terms of this Agreement. For any on-site services requested by the Alliance
Member, the Alliance Member shall reimburse Oracle for actual, reasonable travel
and out-of-pocket expenses incurred.
4. FEES AND PAYMENTS
4.1 LICENSE FEES AND SUBLICENSE FEES
The Alliance Member may order Development Licenses or Marketing Support
Licenses at the standard Program license fees set forth in the Price List or at
the fees otherwise provided in a Sublicense Addendum. For each Sublicense
granted by the Alliance Member, the Alliance Member agrees to pay Oracle a
Sublicense fee as set forth in the applicable Sublicense Addenda. The Alliance
Member shall not be relieved of its obligation to pay Sublicense fees owed to
Oracle by the nonpayment of such fees by the Sublicensee.
The Alliance Member is free to determine unilaterally its own license fees
to its Sublicensees. If the Alliance Member or a Sublicensee upgrades the
Programs to a larger computer, transfers the Programs outside the United States
and/or to another operating system, or increases the licensed number of Users,
the Alliance Member will pay additional Sublicense fees to Oracle as provided
under the Oracle's transfer policies and rates in effect at the time the
Program is upgraded or transferred.
4.2 TECHNICAL SUPPORT FEES
<PAGE> 3
Technical Support services ordered by the Alliance Member for
Development Licenses and Marketing Support Licenses will be provided
under Oracle's Technical Support policies and rates in effect on the
date Technical Support is ordered.
4.3 GENERAL PAYMENT TERMS
Except as otherwise provided in a Sublicense Addendum, all fees shall
be due and payable 30 days from the invoice date. Fees due by the
Alliance Member shall not be subject to set off for any claims against
Oracle. All payments made shall be in United States currency and shall
be made without deductions based on any taxes or witholdings, except
where such deduction is based on Oracle's gross income. Any amounts
payable by the Alliance Member hereunder which remain unpaid after the
due date shall be subject to a late charge equal to 1.5% per month from
the due date until such amount is paid. The Alliance Member agrees to
pay applicable media and shipping charges. The Alliance Member shall
issue a purchase order, or alternative document acceptable to Oracle, on
or before the Effective Date of the applicable Order Form.
4.4 TAXES
The fees listed in this Agreement do not include taxes: If Oracle is
required to pay sales, use, property, value-added, or other taxes based
on the Licenses, Sublicenses or services granted under this Agreement or
on the Alliance Member's or a Sublicensee's use of Programs or services,
then such taxes shall be billed to and paid by the Alliance Member. This
shall not apply to taxes based on Oracle's income.
5. RECORDS
5.1 RECORDS INSPECTION
The Alliance Member shall maintain adequate books and records in
connection with activity under this Agreement. Such records shall
include, without limitation, executed Sublicense agreements, the
information required in or related to the Sublicense reports required
under a Sublicense Addendum, the number of copies of Programs used or
Sublicensed by the Alliance Member, the computers on which the Programs
are installed, and the number of Users using the Programs. Oracle may
audit the relevant books and records of the Alliance Member and Alliance
Member's use of the Programs. Any such audit shall be conducted during
regular business hours at the Alliance Member's offices and shall not
interfere unreasonably with the Alliance Member's business activities.
If an audit reveals that the Alliance Member has underpaid fees to
Oracle, the Alliance Member shall be invoiced for such underpaid fees.
Audits shall be made no more than once annually.
5.2 NOTICE OF CLAIM
The Alliance Member will notify the Oracle legal department promptly
in writing of: (a) any claim or proceeding involving the Programs that
comes to its attention; and (b) any material change in the management or
control of the Alliance Member.
6. TERM AND TERMINATION
6.1 TERM
This Agreement shall become effective on the Effective Date and shall
be valid until the expiration or termination of all Sublicense Addenda
hereunder, unless terminated earlier as set forth herein. If not
otherwise specified on the Order Form, each Program license granted
under this Agreement shall remain in effect perpetually under the terms
of this Agreement unless the license or this Agreement is terminated as
provided in this Article 8. The term of each Sublicense Addendum
hereunder shall be as set forth in each such Addendum.
6.2 TERMINATION BY THE ALLIANCE MEMBER
The Alliance Member may terminate any Program license or any
Sublicense Addenda at any time; however, termination shall not relieve
the Alliance Member's obligations specified in Section 6.5.
6.3 TERMINATION BY ORACLE
Oracle may terminate any Program license, any Sublicense Addenda, or
this Agreement upon written notice if the Alliance Member materially
breaches this Agreement and fails to correct the breach within 30 days
following written notice specifying the breach.
6.4 FORCE MAJEURE
Neither party shall be liable to the other for failure or delay in
the performance of a required obligation if such failure or delay is
caused by strike, riot, fire, flood, natural disaster, or other similar
cause beyond such party's control, provided that such party gives prompt
written notice of such condition and resumes its performance as soon as
possible, and provides further that the other party may terminate this
Agreement if such condition continues for a period of one hundred eighty
(180) days.
6.5 EFFECT OF TERMINATION
Upon expiration or termination of a Sublicense Addendum or this
Agreement, all of the Alliance Member's rights to market and Sublicense
the Programs as set forth in such Sublicense Addendum of this Agreement
shall cease.
The termination of this Agreement, a Sublicense Addendum, or any
license shall not limit either party from pursuing any other remedies
available to it, including injunctive relief, nor shall such termination
relieve the Alliance Member's obligation to pay all fees that have
accrued or that are owed by the Alliance Member under a Sublicense
Addendum or any Order Form, or that appear in a Sublicense report. The
parties' rights and obligations under Sections 2.4, 2.5, 2.6 and
Articles 4, 5, 6, 7, and 8 shall survive termination of this Agreement.
Upon termination, the Alliance Member shall cease using, and shall
return or destroy, all copies of the applicable Programs.
7. INDEMNITY, WARRANTIES, REMEDIES
7.1 INFRINGEMENT INDEMNITY
Oracle will defend and indemnify the Alliance Member against a claim
that Programs infringe a copyright or patent or other intellectual
property right, provided that: (a) the Alliance Member notifies Oracle
in writing within 30 days of the claim; (b) Oracle has sole control of
the defense and all related settlement negotiations; and (c) the
Alliance Member provides Oracle with the assistance, information and
authority necessary to perform Oracle's obligations under this Section.
Reasonable out-of-pocket expenses incurred by the Alliance Member in
providing such assistance will be reimbursed by Oracle. Oracle shall
have no liability for any claim of infringement based on use of a
superseded or altered release of Programs if the infringement would have
been avoided by the use of a
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<PAGE> 4
current unaltered release of the Programs which Oracle provides to the
Alliance Member.
In the event the Programs are held or are believed by Oracle to
infringe. Oracle shall have the option, at its expense, to (a) modify the
Programs to be noninfringing; or (b) obtain for the Alliance Member a
license to continue using the Programs. If it is not commercially
reasonable to perform either of the above options, then Oracle may
terminate the license for the infringing Programs and refund the license
fees paid for these Programs. This Section 7.1 states Oracle's entire
liability and the Alliance Member's exclusive remedy for infringement.
7.2 WARRANTIES AND DISCLAIMERS
A. PROGRAM WARRANTY
Oracle warrants for a period of one year from the Commencement Date
that each unmodified Program will perform the functions described in the
Documentation.
B. MEDIA WARRANTY
Oracle warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for 90 days from the
Commencement; Date.
C. SERVICES WARRANTY
Oracle warrants that its Technical Support and training services will
be performed consistent with generally accepted industry standards. This
warranty shall be valid for 90 days from performance of service.
D. DISCLAIMERS
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Oracle does not warrant that the Programs will operate in
combinations other than as specified in the Documentation or that the
operation of the Programs will be uninterrupted or error free.
Pre-Production releases of Programs and computer-based training products
and distributed "As is."
The Alliance Member shall not make any warranty on Oracle's behalf.
7.3 EXCLUSIVE REMEDIES
For any breach of the warranties contained in Section 7.2 above, the
alliance Member's exclusive remedy, and Oracle's entire liability, shall
be:
A. FOR PROGRAMS
The correction of Program errors that cause breach of the warranty,
or if Oracle is unable to make the Program operate as warranted, the
Alliance Member shall be entitled to recover the fees paid to Oracle for
the Program license.
B. FOR MEDIA
The replacement of defective media returned within 90 days of the
Commencement Date.
C. FOR SERVICES
The reperformance of the services, or if Oracle is unable to perform
the services as warranted, the Alliance Member shall be entitled to
recover the fees paid to Oracle for the unsatisfactory services.
7.4 INDEMNIFICATION OF ORACLE
The Alliance Member agrees to enforce the terms of its Sublicense
agreement required by the Agreement so as to effect a timely cure of any
Sublicense breach, and to notify Oracle of any known breach of such terms.
The Alliance Member will defend and indemnify Oracle against:
A. All claims and damages to Oracle arising from any use by the Alliance
Member or its Sublicensees of any product not provided by Oracle but used
in combination with the Programs if such claim would have been avoided by
the exclusive use of the Programs; and
B. All claims and damages to Oracle caused by the Alliance Member's
failure to include the required contractual terms set forth in Section
2.3B hereof in each Sublicense agreement.
7.5 EQUITABLE RELIEF
The Alliance Member acknowledges that any breach of its obligations
with respect to proprietary rights of Oracle will cause Oracle irreparable
injury for which there are inadequate remedies at law and that Oracle
shall be entitled to equitable relief in addition to all other remedies
available to it.
8. GENERAL, TERMS AND CONDITIONS
8.1 NONDISCLOSURE
By virtue of this Agreement, the parties may have access to
information that is confidential to one another ("Confidential
Information"), Confidential Information shall be limited to the Programs,
the terms and pricing under this Agreement, and all information
clearly identified as confidential.
A party's Confidential Information shall not include information
that: (a) is or becomes a part of the public domain through no act or
omission of the other party; (b) was in the other party's lawful
possession prior to the disclosure and had not been obtained by the other
party either directly or indirectly from the disclosing party; (c) is
lawfully disclosed to the other party by a third party without restriction
on disclosure; or (d) is independently developed by the other party. The
Alliance Member shall not disclose the results of any benchmark tests of
the Programs to any third party without Oracle's prior written approval.
The parties agree to hold each other's Confidential Information in
confidence during the term of this Agreement and for a period of two years
after termination of this Agreement. The parties agrees, unless required
by law, not to make each other's Confidential Information available in
any form to any third party for any purpose other than the implementation
of this Agreement. Each party agrees to take all reasonable steps to
ensure that Confidential Information is not disclosed or distributed by
its employees or agents in violation of the terms of this Agreement.
8.2 COPYRIGHTS
The Programs are copyrighted by Oracle. The Alliance Member shall retain
all Oracle copyright notices on the Programs used by the Alliance Member
under its Development Licenses or Marketing Support Licenses. The
Alliance Member shall include the following on all copies of the Programs
in software Value-Added Packages incorporating the Programs distributed by
the Alliance Member:
A. A reproduction of Oracle's copyright notice; or
B. A copyright notice indicating that the copyright is vested in the
Alliance Member containing the following
1. A "d" in a circle and the word "copyright";
2. The Alliance Members Name;
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<PAGE> 5
3. The date of copyright; and
4. The words "All Rights Reserved."
Such notices shall be placed on the Documentation, the sign-on
screen for any software Value-Added Package incorporating the Programs, and
the diskette or tape labels. Notwithstanding any copyright notice by the
Alliance Member to the contrary, the copyright to the Program included in
any such application package shall remain in Oracle. Other than as
specified above, on any reproduction or translation of any Programs,
Documentation, or promotional material, the Alliance Member agrees to
reproduce Oracle's copyright notices intact.
8.3 TRADEMARKS
"Oracle" and any other trademarks and service marks adopted by Oracle to
identify the Programs and other Oracle products and services belong to
Oracle; the Alliance Member will have no rights in such marks except as
expressly set forth herein and as specified in writing from time to time.
The Alliance Member's use of Oracle's trademarks shall be under Oracle's
trademark policies and procedures in effect from time-to-time. The
Alliance Member agrees not to use the trademark "ORACLE," or any mark
beginning with the letters "Ora," or any other mark likely to cause
confusion with the trademark "ORACLE" as any portion of the Alliance
Member's tradename, trademark for the Alliance Member's Value-Added
Package, or trademark for any other products of the Alliance Member. The
Alliance Member shall have the right to use the trademark "ORACLE" and
other Oracle trademarks solely to refer to Oracle's Programs, products and
services.
The Alliance Member agrees with respect to each registered trademark of
Oracle, to include in each advertisement, brochure, or other such use of
the trademark, the trademark symbol "circle R" and the following
statement:
_____ is a registered trademark of Oracle Corporation, Redwood City,
California.
Unless otherwise notified in writing by Oracle, the Alliance Member
agrees with respect to every other trademark of Oracle, to include in each
advertisement, brochure, or other such use of the trademark, the symbol
"TM" and the following statement:
_____ is a trademark of Oracle Corporation, Redwood City, California.
The Alliance Member shall not market the Oracle Programs in any
way which implies that the Oracle Programs are the proprietary product of
the Alliance Member or of any party other than Oracle. Oracle shall not
have any liability to the Alliance Member for any claims made by third
parties relating to the Alliance Member's use of Oracle's trademarks.
6.4 RELATIONSHIPS BETWEEN PARTIES
In all matters relating to this Agreement, the Alliance Member
will act as an independent contractor. The relationship between Oracle and
the Alliance Member is that of licensor/licensee. Neither party will
represent that it has any authority to assume or create any obligation,
express or implied, on behalf of the other party, nor to represent
the other party as agent, employee, franchisee, or in any other capacity.
Nothing in the Agreement shall be construed to limit either party's right
to independently develop or distribute software which is functionally
similar to the other party's product, so long as proprietary information
of the other party is not included in such software.
8.6 ASSIGNMENT
The Alliance Member may not assign or otherwise transfer any rights
under this Agreement without Oracle's prior written consent.
8.9 NOTICE
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given when
mailed by first class mail to the first address listed in the relevant
Order Form (if to the Alliance Member) or to the Oracle address on the
Order Form (if to Oracle).
To expedite order processing, the Alliance Member agrees that Oracle may
treat documents faxed by the Alliance Member to Oracle as original
documents; nevertheless, either party may require the other to exchange
original signed documents.
8.7 GOVERNING LAW JURISDICTION
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the substantive and procedural laws of the
State of California and shall be deemed to be executed in Redwood
City, California. The parties agree that any legal action or proceeding
relating to this Agreement shall be instituted in any state or federal
court in San Francisco or San Mateo County, California. Oracle and
the Alliance Member agree to submit to the jurisdiction of, and agree that
venue is proper in, these courts in any such legal action or proceeding.
8.9 SEVERABILITY
In the event any provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions of this Agreement will remain in
full force and effect.
8.9 EXPORT
The Alliance Member agrees to comply fully with all relevant export laws
and regulations of the United States ("Export Law") to assure that neither
the Programs, nor any direct product thereof, are (a) exported, directly
or indirectly, in violation of Export Laws; or (b) are intended to be used
for any purposes prohibited by the Export Laws, including, without
limitation, nuclear, chemical, or biological weapons proliferation.
8.10 LIMITATION OF LIABILITY
In no event shall either party be liable for any indirect, incidental,
special or consequential damages, or damages for loss of profits, revenue,
data or use, incurred by either party or any third party, whether in an
action in contract or tort, even if the other party or any other person
has been advised of the possibility of such damages. Oracle's liability
for damages hereunder shall in no event exceed the amount of fees paid by
the Alliance Member under this Agreement, and if such damages result from
the Alliance Member's or Sublicensee's use of the Program or services,
such liability shall be limited to fees paid for the relevant Program or
services giving rise to the liability.
The provisions of this Agreement allocate the risks between Oracle
and the Alliance Member. Oracle's pricing
5
<PAGE> 6
reflects this allocation of risk and the limitation of liability specified
herein.
8.11 FEDERAL GOVERNMENT SUBLICENSES
If the Alliance Member grants a Sublicense to the United States
government, the Programs shall be provided with "Restricted Rights" and the
Alliance Member will place a legend. In addition to applicable copyright
notices, on the documentation, and on the tape or diskette label, substantially
similar to the following:
RESTRICTED NIGHTS LEGEND
Programs delivered subject to the DOD FAR Supplement are "commercial computer
software" and use, duplication and disclosure of the Programs shall be subject
to the licensing restrictions set forth in the applicable license agreement.
Otherwise, Programs delivered subject to the Federal Acquisition Regulations
are "restricted computer software" and use, duplication and disclosure of the
Programs shall be subject to the restrictions in FAR 52.227.14, Right in Data -
General, including Alternate III (June 1987)."
8.12 WAIVER
The waiver by either party of any default or breach of this Agreement
shall not constitute a waiver of any other or subsequent default or breach.
Except for actions for non-payment or breach of Oracle's proprietary rights in
the Programs, no action, regardless of form, arising out of this Agreement may
be brought by either party more than two years after the cause of action has
accrued.
8.13 ENTIRE AGREEMENT
This Agreement constitutes the complete agreement between the parties
and supersedes all prior or contemporaneous agreements or representations,
written or oral, concerning the subject matter of this Agreement. This
Agreement may not be modified or amended except in a writing signed by a duly
authorized representative of each party; no other act, document, usage or
custom shall be deemed to amend or modify this Agreement.
It is expressly agreed that the terms of this Agreement and any Order
Form shall supersede the terms in any Alliance Member purchase order or other
ordering document. This Agreement shall also supersede the terms of any
unsigned or "shrinkwrap" license included in any package, media, or electronic
version of Oracle-furnished software and any such software shall be licensed
under the terms of this Agreement, provided that the use limitations contained
in an unsigned ordering document shall be effective for the specified licenses.
The Effective Date of this Agreement shall be March 4, 1998
EXECUTED BY THE ALLIANCE MEMBER: EXECUTED BY ORACLE CORPORATION:
<TABLE>
<S> <C>
Authorized Signature /s/ Kenneth L. Conley Authorized Signature: /s/ Daniel J. Draayers
---------------------- -----------------------
Name: Kenneth L. Conley Name: Daniel J. Draayers
------------------------------------- --------------------------------------
Title: Pres. & COO Title: Contract Manager
------------------------------------ --------------------------
</TABLE>
Oracle Corporation
500 Oracle Parkway
Redwood Shores, GA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation
7-97
<PAGE> 7
AMENDMENT ONE
to the
ORACLE ALLIANCE AGREEMENT
between
CCAI
and
ORACLE CORPORATION
This document ("Amendment One") amends the Oracle Alliance Agreement and all
amendments and addenda thereto (the "Agreement") between the Alliance Member and
Oracle dated March 4, 1998. The parties hereby agree to amend the Agreement as
follows:
1. Oracle grants to Alliance Member a nonexclusive license to use only the
Marketing Support Licenses granted in Section 2.2 of the Agreement.
Notwithstanding anything in the Agreement to the contrary, Alliance member
may not sublicense Programs, or use Development Licenses or Trial Licenses.
The Effective Date of this Amendment One is ___________, 1998.
CCAI ORACLE CORPORATION
By: /s/ Kenneth L. Conley By:
-------------------------- -----------------------------
Name: Kenneth L.Conley Name:
------------------------- ---------------------------
Title: Pres. & COO Title:
------------------------ --------------------------
<PAGE> 1
Exhibit 10.36
AMENDMENT TO AMENDED AND RESTATED SHARE REDEMPTION
--------------------------------------------------
AND PURCHASE AGREEMENT
----------------------
THIS AMENDMENT TO AMENDED AND RESTATED SHARE REDEMPTION AND PURCHASE
AGREEMENT (this "Agreement"), dated as of October 13, 1997, among Conley,
Canitano & Associates, Inc., an Ohio corporation ("CCAI"), Joseph Minadeo
("Minadeo"), and Karen M. Conley, Nicholas A. Canitano ("Nick Canitano"), and
Annette M. Canitano (collectively, the "Management Shareholders") amends
Section 2(e) of the Amended and Restated Share Redemption and Purchase
Agreement, dated July 1, 1997 (the "Original Agreement").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. AMENDMENT TO SECTION 2(e). Section 2(e) of the Original Agreement
is hereby amended and restated in its entirety as follows:
"Upon the consummation of any Sale of the Company prior to June
30, 1998, CCAI shall pay Minadeo an amount equal to an aggregate of
$200,000 in the same form of consideration as paid out in such sale at
the time of the closing of such sale. Upon consummation of any
Recapitalization prior to June 30, 1998, CCAI shall pay Minadeo an
amount equal to an aggregate of $200,000 multiplied by a fraction
representing the aggregate fractional interest in CCAI purchased by any
third party investor(s) in such Recapitalization at the time of the
closing thereof."
2. CONTINUING EFFECTIVENESS OF ORIGINAL AGREEMENT. As amended hereby,
the Original Agreement is and shall remain in full force and effect in
accordance with its respective terms and conditions.
3. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute one and the same instrument.
<PAGE> 2
2
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Karen M. Conley
----------------------------------
Title: Secretary Treasurer
-------------------------------
/s/ Karen M. Conley
-------------------------------------
Karen M. Conley
/s/ Nicholas A. Canitano
-------------------------------------
Nicholas A. Canitano
/s/ Annette M. Canitano
-------------------------------------
Annette M. Canitano
JOSEPH MINADEO
/s/ Joseph Minadeo
-------------------------------------
<PAGE> 1
Exhibit 10.37
AMENDMENT NO. 2 TO THE
CONLEY, CANITANO & ASSOCIATES, INC.
1997 EQUITY AND PERFORMANCE
INCENTIVE PLAN (THE "PLAN")
1. AMENDMENT. Section 3(a) of the Plan is hereby amended and restated to
read in its entirety as follows:
"(a) Subject to adjustment as provided in Section 3(b) and Section 8
of this Plan, the number of Common Shares that may be issued or transferred
(i) upon the exercise of Option Rights, (ii) as Restricted Shares and
released from substantial risks of forfeiture thereof, (iii) as Deferred
Shares or (iv) in payment of dividend equivalents paid with respect to
awards made under the Plan shall not exceed in the aggregate Two Million
Five Hundred Thousand (2,5000,000) Common Shares, plus any shares described
in Section 3(b). Such shares may be shares of original issuance."
2. REAFFIRMATION. As amended hereby, the Plan is and shall remain in full
force and effect in accordance with its respective terms and conditions.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
59909) of our reports dated December 3, 1998 and June 8, 1998, on our audits of
the financial statements and financial statement schedules of Conley, Canitano &
Assoc., Inc. and Kelly-Levey & Associates, Inc. respectively. We also consent
to the references to the firm under the captions "Experts" and "Selected
Financial Data."
PricewaterhouseCoopers LLP
December 22, 1998
<PAGE> 1
Exhibit 24
DIRECTOR AND/OR OFFICER OF
CONLEY, CANITANO & ASSOCIATES, INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Conley, Canitano & Associates,
Inc., an Ohio corporation (the "Corporation"), hereby constitutes and appoints
Kenneth L. Conley and Paul Farmer, or any of them, with full power of
substitution and resubstitution, as attorneys or attorney of the undersigned,
for him or her and in his or her name, place and stead, to sign and file under
the Securities Act of 1933 one or more Registration Statement(s) on Form S-1
relating to the registration for sale of the Corporation's Common Stock, and any
and all amendments, supplements and exhibits thereto, including pre-effective
and post-effective amendments or supplements, and any and all applications or
other documents to be filed with the Securities and Exchange Commission
pertaining to such registration(s), with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED as of August 15, 1998.
/s/ Ivan J. Winfield Director
- ------------------------------------- -------------------------------------
Signature Title
Ivan J. Winfield
- -------------------------------------
Name