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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 27, 1999
REGISTRATION NO. 333-85651
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CYSIVE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7371 54-1698017
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation Classification Code Number)
or organization)
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11480 SUNSET HILLS ROAD
SUITE 200 E
RESTON, VIRGINIA 20190
(703) 742-0865
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
NELSON A. CARBONELL, JR.
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
CYSIVE, INC.
11480 SUNSET HILLS ROAD
SUITE 200 E
RESTON, VIRGINIA 20190
(703) 742-0865
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<S> <C>
STEVEN A. MUSELES, ESQ. PAUL V. ROGERS, ESQ.
HOGAN & HARTSON L.L.P. HALE AND DORR LLP
555 THIRTEENTH STREET, N.W. 1455 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004 WASHINGTON, D.C. 20004
TELEPHONE: (202) 637-5600 TELEPHONE: (202) 942-8400
TELECOPY: (202) 637-5910 TELECOPY: (202) 942-8484
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1999
PROSPECTUS
LOGO
3,350,000 Shares
Common Stock
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This is an initial public offering of shares of common stock of Cysive, Inc. We
are offering 3,000,000 shares in this offering. A selling stockholder is
offering an additional 350,000 shares. We will not receive any proceeds from the
sale of the shares by the selling stockholder. No public market currently exists
for our common stock.
We anticipate that the initial public offering price will be between $11.00 and
$13.00 per share. We have applied for quotation of our common stock on the
Nasdaq National Market under the symbol "CYSV."
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 5.
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<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price $ $
Underwriting discount and commissions $ $
Proceeds to us $ $
Proceeds to selling stockholder $ $
</TABLE>
The underwriters have an option to purchase 252,500 additional shares of common
stock from us and 250,000 additional shares from the selling stockholder at the
initial public offering price to cover any over-allotments of shares at anytime
until 30 days after the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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THOMAS WEISEL PARTNERS LLC
FIRST UNION CAPITAL MARKETS CORP.
FRIEDMAN BILLINGS RAMSEY
The date of this prospectus is , 1999
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 5
Special Note Regarding Forward-Looking
Statements.......................... 10
Use of Proceeds....................... 11
Dividend Policy....................... 11
S Corporation Distribution............ 11
Capitalization........................ 12
Dilution.............................. 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
</TABLE>
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PAGE
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Business.............................. 23
Management............................ 38
Related Party Transactions............ 45
Principal and Selling Stockholder..... 46
Description of Capital Stock.......... 47
Shares Eligible for Future Sale....... 51
Underwriting.......................... 53
Validity of the Shares................ 55
Experts............................... 55
Where You Can Find More Information... 55
Index to Financial Statements......... F-1
</TABLE>
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PROSPECTUS SUMMARY
OUR COMPANY
Cysive is a leading software engineering firm that architects and builds
complex, highly customized systems supporting large scale e-businesses.
E-businesses are companies that conduct a significant portion of their business
through electronic commerce channels which are integrated with existing internal
systems, such as accounting, billing, manufacturing and inventory control. Since
commencing operations in 1994, we have used advanced Internet technologies to
build our customers' e-business capabilities. We design architectures, or the
underlying structure of software systems, which can handle high volumes of
customer interaction, operate reliably 24 hours per day, seven days per week and
expand to meet the growth requirements of large scale e-businesses. Due to the
complex design and sophisticated integration requirements of our projects, we
employ software engineers with extensive technology expertise. Our software
engineers, who have an average of 10 years experience, use a well-defined
process to deliver reliable and secure, customized systems on a timely basis.
Given our technology expertise, we target corporate customers who require
highly complex systems to meet the growth demanded by their e-business
strategies. For example, we built Cisco Systems, Inc.'s Internetworking Products
Center, which is the core of Cisco's electronic commerce site and accounted for
approximately 60% of Cisco's fiscal 1999 total revenues of $12.2 billion. In
addition to Cisco, we have built systems for customers including Classified
Ventures, Inc./Cars.com, DaimlerChrysler Corporation, Equifax Secure, Inc.,
First Union Corporation, Sylvan Prometric and UUNet Technologies, Inc.
OUR MARKET OPPORTUNITY
In the mid-1990s, a first wave of commercial Internet usage achieved
widespread adoption. At this time, the immediate objective for most companies
was to establish a web site, which was typically maintained separately from the
enterprise systems at the core of the business. Today, we believe a second wave
is beginning, spearheaded by the companies whose use of the Internet has evolved
from a marketing orientation to a business, or transactional, orientation. These
companies are building their information technology systems to transact
directly, seamlessly and instantaneously with customers, suppliers, partners and
distributors around the world. To truly automate all of the functions associated
with an e-business transaction, companies cannot simply link Internet customers
directly to their existing internal systems, which were built for a defined
number of specifically trained employees. An advanced technology approach is
necessary in which business logic, or all of the business procedures and rules,
is built into a core architecture that bridges these existing systems with the
Internet. A successful e-business architecture must present business functions
to customers in a simple format, yet provide comprehensive access to all of the
information and transactional capabilities the business has to offer.
Advantages achieved by e-businesses that were the first to conduct business
on the Internet will be lost if their transactional systems cannot handle
increased user demand. Therefore, we believe a greater portion of future
corporate Internet spending will be in the implementation and integration of
advanced Internet systems. Companies like Cysive that have the Internet
technology expertise, a defined, repeatable and rigorous process and a strong,
proven track record in building e-business architectures will drive business on
the Internet.
OUR SOLUTION
Cysive engineers and deploys advanced systems that enable our customers to
transact business electronically. To build e-business systems demanded by our
customers, we emphasize the following key elements:
ADVANCED E-BUSINESS ARCHITECTURES. We focus on architecting and building
complex, highly customized systems based on Internet technologies rather than
broadly providing strategy, consulting and
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design services. Our expertise lies in building the systems driving large scale
e-businesses, which we believe differentiates us from our competitors in the
market.
HIGHLY EXPERIENCED SOFTWARE ENGINEERS. The complexity of the systems we
build requires us to employ software engineers with proven technology expertise
and many years of experience. Our software engineers have on average 10 years of
experience. This significant level of experience enhances our teams'
productivity and enables us to maximize our utilization rates by making our
software engineers interchangeable across varying projects regardless of the
technologies employed.
SWAT TEAM APPROACH. The high productivity of our experienced software
engineers enables us to build extensive e-business systems with our Software and
Technologies, or SWAT, teams that are comprised of a small number of engineers.
For example, we built Cisco's system with a team of only six software engineers.
By using our SWAT teams, we shorten the delivery time of a project and increase
the likelihood of success, reducing the overall project cost to the customer.
Through this approach, we are able to focus our customers on the total value of
the project, rather than on hourly billing rates. As a result of our high levels
of productivity, we consistently generate revenues per software engineer in
excess of $325,000.
RIGOROUS DEVELOPMENT PROCESS. For every project undertaken, our software
engineers adhere to the Cysive development process. Having a well-defined
process helps to mitigate risk and ensure consistent quality, and enables us to
build dynamic and cost-effective systems more rapidly.
SOPHISTICATED KNOWLEDGE MANAGEMENT. We have spent considerable resources
implementing tools which we use to stay apprised of emerging technologies and
practices. These tools, which we refer to as our knowledge management process,
comprise two elements. Our technology group continually evaluates new products
to identify advanced technologies and is also responsible for on-going
proficiency training. In addition, we have a centralized knowledge base which
our software engineers access through our intranet and use to share their
project experiences.
THOROUGH QUALITY ASSURANCE PROCESS. We adhere to a thorough quality
assurance process to identify and manage risk. In addition to risk management,
our quality assurance approach facilitates the sharing of ideas and technologies
among project managers, enables us to scale our business while maintaining high
levels of quality and allows us to make objective, value-added recommendations
to our customers during the course of a project.
OUR GROWTH STRATEGY. Our objective is to strengthen our position as a
leading e-business engineering firm. The key elements of our growth strategy are
to:
- attract and retain highly experienced software engineers;
- expand existing and establish new customer relationships;
- expand Cysive's brand recognition;
- enhance our geographic presence; and
- continue to build and deploy advanced technologies.
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THE OFFERING
Common stock offered by us............ 3,000,000 shares
Common stock offered by selling
stockholder........................... 350,000 shares
Common stock outstanding after the
offering.............................. 11,127,000 shares
Use of proceeds....................... We will receive net proceeds from
this offering of $32.7 million,
assuming an initial public offering
price of $12.00 per share. We intend
to use the net proceeds of this
offering for general corporate
purposes, including working capital,
expansion of operations and sales and
marketing activities. We will not
receive any proceeds from the sale of
shares by the selling stockholder.
Nasdaq National Market symbol......... CYSV
Common stock outstanding after this offering excludes 6,209,888 shares of
common stock issuable upon exercise of outstanding options as of September 24,
1999, at a weighted average exercise price of $1.28 per share.
ABOUT THIS PROSPECTUS
- You should read this summary together with the more detailed information
and financial statements and the related notes included elsewhere in this
prospectus.
- All references in this prospectus relating to the number of shares of our
common stock and options reflect our 2.25-to-1 stock split effected on
September 24, 1999.
- Unless otherwise specifically stated, the information in this prospectus
does not take into account the possible issuance of additional shares of
common stock to the underwriters to cover over-allotments.
------------------------------
We founded Cysive in 1993 as a Virginia corporation, and reorganized on
September 24, 1999 as a Delaware corporation. Our principal office is located at
11480 Sunset Hills Road, Suite 200 E, Reston, VA 20190. Our telephone number is
703.742.0865. We maintain a web site at www.cysive.com. Information contained on
our web site is not incorporated by reference into this prospectus.
Cysive is a trademark of Cysive, Inc. This prospectus also includes
trademarks and trade names of other parties.
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SUMMARY FINANCIAL DATA
The following table summarizes our financial data and has been derived from
our audited financial statements for each of the years in the three-year period
ended December 31, 1998 and our unaudited financial statements for the six-month
periods ended June 30, 1998 and 1999, included elsewhere in this prospectus. The
pro forma statement of operations data are unaudited and are presented to
reflect the provision for federal and state income taxes as if we had been
subject to federal and state income taxation as a C corporation. We have
adjusted our balance sheet data to reflect: (1) the sale of the 3,000,000 shares
of common stock offered by this prospectus and the initial use of the estimated
net proceeds, assuming an initial public offering price of $12.00 per share and
after deducting the underwriting discount and commissions and estimated offering
expenses; (2) the recording of deferred income taxes resulting from the change
from an S corporation to a C corporation; and (3) the payment of a distribution
representing the estimated earned and previously undistributed taxable S
corporation income, estimated to be $1.4 million as of June 30, 1999. For
further detail and explanation of period-to-period changes, the information
shown below should be read together with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes included
elsewhere in this prospectus.
<TABLE>
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YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- --------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues........................................... $5,557 $7,711 $9,142 $3,193 $ 9,424
Direct costs....................................... 2,056 2,798 3,742 1,809 3,473
---------- ----------- ----------- ---------- -----------
Gross profit....................................... 3,501 4,913 5,400 1,384 5,951
Operating expenses:
General and administrative....................... 2,009 2,754 2,725 1,009 2,574
Sales and marketing.............................. 232 760 1,824 672 1,720
Stock compensation............................... -- -- 69 -- 13,285
---------- ----------- ----------- ---------- -----------
Total operating expenses....................... 2,241 3,514 4,618 1,681 17,579
Operating income (loss)............................ 1,260 1,399 782 (297) (11,628)
Other income (expense), net........................ 17 23 14 15 25
---------- ----------- ----------- ---------- -----------
Net income (loss).................................. $1,277 $1,422 $ 796 $ (282) $(11,603)
========== =========== =========== ========== ===========
Weighted average shares outstanding................ 6,777,000 6,777,000 6,777,000 6,777,000 8,127,000
Weighted average shares and common stock
equivalents...................................... 7,473,800 7,766,211 7,993,659 6,777,000 8,127,000
Pro forma net income (loss)........................ $489 $(12,637)
=========== ===========
Pro forma earnings (loss) per share:
Basic............................................ $0.07 $(1.55)
Diluted.......................................... $0.06 $(1.55)
</TABLE>
<TABLE>
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JUNE 30, 1999
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 869 $32,730
Working capital............................................. 3,351 34,865
Total assets................................................ 5,792 37,837
Stockholders' equity........................................ 3,974 35,232
</TABLE>
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RISK FACTORS
An investment in our common stock involves risks. You should carefully
consider the risks described below and the other information in this prospectus
including our financial statements and the related notes before you decide to
buy our common stock. The trading price of our common stock could decline due to
any of these risks, and you could lose all or part of your investment.
BECAUSE WE RELY ON HIGHLY TRAINED AND EXPERIENCED PERSONNEL TO DESIGN AND BUILD
COMPLEX SYSTEMS FOR OUR CUSTOMERS, OUR INABILITY TO ATTRACT AND RETAIN QUALIFIED
EMPLOYEES WOULD IMPAIR OUR ABILITY TO PROVIDE OUR SERVICES TO EXISTING AND NEW
CUSTOMERS
Our future success depends in large part on our ability to attract and
retain highly trained and experienced software engineers as well as recruiters,
other technical personnel and sales and marketing professionals of various
experience levels. If we fail to attract and retain these personnel, we may be
unable to complete existing projects or bid for new projects of similar size,
which could reduce our revenues. While attracting and retaining experienced
software engineers is critical to our business and growth strategy, maintaining
our current level of software engineer experience, averaging 10 years, may be
particularly difficult. Skilled software engineers are in short supply, and this
shortage is likely to continue for some time. As a result, competition for these
people is intense, and the industry attrition rate for them is high.
Additionally, we plan to open new offices in a number of geographic markets to
attract and retain new employees. Our failure to open new offices or to open
them in areas which experienced software engineers would find attractive could
limit our ability to attract and retain qualified personnel. Moreover, even if
we are able to grow and expand our employee base, the resources required to
attract and retain these employees may adversely affect our operating margins.
IN 1998 AND THE FIRST SIX MONTHS OF 1999, MORE THAN 65% OF OUR REVENUES WERE
DERIVED FROM OUR FIVE LARGEST CUSTOMERS, AND WE EXPECT TO CONTINUE TO RELY ON A
LIMITED NUMBER OF CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES; AS A
RESULT, THE LOSS OF OR A SIGNIFICANT REDUCTION IN THE WORK PERFORMED FOR ANY OF
THEM COULD RESULT IN REDUCED REVENUES AND EARNINGS
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of customers. As a result, the loss of or
significant reduction in the work performed for any significant customer could
reduce our revenues. In 1998, our five largest customers represented 65.3% of
our revenues: Cisco Systems, Inc., 19.6%; Classified Ventures, Inc./Cars.com,
18.0%; Sylvan Prometric, 12.5%; DaimlerChrysler Corporation, 8.5%; and First
Union Corporation, 6.7%. For the six-month period ended June 30, 1999, our five
largest customers represented 82.5% of our revenues: Sylvan Prometric, 35.1%;
Classified Ventures, Inc./Cars.com, 15.2%; Equifax Secure, Inc., 13.4%; Cisco
Systems, Inc., 10.2%; and UUNet Technologies, Inc., 8.6%. The volume of work
that we perform for a specific customer is likely to vary from period to period,
and a significant customer in one period may not use our services in a
subsequent period. In addition, a failure to collect a large account receivable
from any of these customers could significantly reduce our assets and
profitability.
BECAUSE THE NUMBER OF OUR CUSTOMERS, EMPLOYEES AND OFFICES HAS GROWN RAPIDLY
SINCE JANUARY 1, 1998, AND WE EXPECT THIS GROWTH RATE TO CONTINUE, WE MAY HAVE
DIFFICULTY MANAGING OUR GROWTH EFFECTIVELY, WHICH COULD ADVERSELY AFFECT THE
QUALITY OF OUR SERVICES AND OUR ABILITY TO REMAIN PROFITABLE
We have grown rapidly and expect to continue to grow rapidly by both hiring
new employees and serving new businesses and geographic markets. Our growth has
placed and will continue to place a significant strain on our management and
operating and financial systems. In addition, our management has limited
experience managing a business of our current size. Our employee base grew from
42 to 121 between January 1, 1998 and September 24, 1999, and our sales and
marketing vice presidents have only joined Cysive in the last 18 months. As a
result, our personnel, systems, procedures and controls may be inadequate to
support our future operations. Our current growth rate may not be sustainable
for the long-term.
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BECAUSE OUR CUSTOMERS RETAIN US ON A PROJECT-BY-PROJECT BASIS, RATHER THAN UNDER
LONG-TERM CONTRACTS, WE MAY NOT BE ABLE TO ACCURATELY PREDICT OUR REVENUES,
WHICH MAY ADVERSELY AFFECT OUR OPERATING MARGINS
Our operating expenses, including employee salaries, rent and
administrative expenses, are relatively fixed and cannot be reduced on short
notice to compensate for unanticipated variations in the number or size of
projects in progress. Because we incur costs based on our expectations of future
revenues, our failure to predict our revenues accurately may result in our costs
becoming a larger percentage of our revenues which would reduce our margins. If
a customer defers, modifies or cancels a project, we may be unable to rapidly
redeploy our employees to other projects to minimize underutilization of
employees and avoid a negative impact to our operating results.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY, CAUSING OUR STOCK PRICE TO DECLINE
Our quarterly revenues and operating results have varied in the past and
are likely to vary significantly from quarter to quarter. This fluctuation may
cause our operating results to be below the expectations of securities analysts
and investors, and the price of our stock may fall. Factors that could cause
quarterly fluctuations include:
- the loss of a significant customer or project;
- our employee utilization rate, including our ability to transition
employees quickly from completed or terminated projects to new projects;
- the introduction of new services or changes in pricing policies by us or
our competitors;
- our ability to manage costs, including employee costs and support
services costs; and
- costs related to the expected opening or expansion of our offices.
In any given quarter, most of our revenues have been attributable to a
limited number of customers and we expect this to continue. As a result, the
cancellation or deferral of even a small number of contracts in a particular
quarter could significantly reduce our revenues, which would hurt our quarterly
financial performance. In addition, a substantial portion of our costs are
relatively fixed and based upon anticipated revenues. A failure to book an
expected order in a given quarter or the need to provide training to our
employees on new technologies as occurred in the fourth quarter of 1997 and the
first half of 1998 would not be offset by a corresponding reduction in costs and
could adversely affect our operating results. As a result of these factors, we
believe that period-to-period comparisons of our revenues and operating results
are not necessarily meaningful.
WE DEPEND ON OUR CHIEF EXECUTIVE OFFICER, AND HIS LOSS MAY ADVERSELY AFFECT OUR
ABILITY TO ATTRACT AND RETAIN CUSTOMERS, MAINTAIN A COHESIVE CULTURE AND COMPETE
EFFECTIVELY
We believe that our success depends on the continued employment of our
Chief Executive Officer, Nelson A. Carbonell, Jr. If Mr. Carbonell were unable
or unwilling to continue in his present position, he would be very difficult to
replace and our business could be adversely affected. Mr. Carbonell is
particularly important to our business in providing strategic direction,
managing our operations and creating and maintaining a cohesive culture. He has
also been involved in establishing and expanding customer relationships.
APPROXIMATELY 39% OF OUR CURRENT SOFTWARE ENGINEERS ARE NOT U.S. CITIZENS AND
MAY BE FORCED TO LEAVE CYSIVE WHEN THEIR TEMPORARY VISAS EXPIRE, AND WE MAY BE
UNABLE TO ATTRACT AND RETAIN ADDITIONAL FOREIGN NATIONALS DUE TO LIMITS IMPOSED
ON THE NUMBER OF VISAS ISSUED BY THE U.S. GOVERNMENT
We depend on software engineers who are not U.S. citizens, and the loss of
a significant number of these personnel would make it difficult to serve our
customers and grow our business. These software engineers are permitted to work
in the United States for up to six years under temporary H-1B visas. Most of our
software engineers working under H-1B visas were originally sponsored by former
employers and, as a result, hold visas which expire in less than six years from
their date of employment by Cysive. As of September 24, 1999, 30, or 38.5%, of
our software engineers were working under H-1B visas. The U.S.
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Immigration and Naturalization Service limits the number of new H-1B visas
issued in each fiscal year, and if this limit is reached, our supply of
potential software engineers will be limited. In addition, changes in existing
U.S. immigration laws that make it more difficult for potential employees to
obtain H-1B visas could impair our ability to compete for and provide services
to customers and could adversely affect our business, financial condition and
results of operations.
COMPETITION FROM LARGER, MORE ESTABLISHED COMPETITORS WITH GREATER FINANCIAL
RESOURCES AND FROM NEW ENTRANTS COULD RESULT IN PRICE REDUCTIONS, REDUCED
PROFITABILITY AND LOSS OF CURRENT OR FUTURE CUSTOMERS
The e-business engineering market is intensely competitive and faces rapid
technological change. We expect competition to continue and intensify, which
could result in price reductions, reduced profitability and the loss of current
or future customers. Our competitors fall into four major categories:
- Internet professional services providers;
- internal information technology departments of current and potential
customers;
- large information technology consulting services providers; and
- traditional information technology services providers.
Many of our competitors have longer operating histories and customer
relationships, greater financial, technical, marketing and public relations
resources, larger customer bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in customer needs. This ability may place us at a
disadvantage in responding to our competitors' pricing strategies, technological
advances, advertising campaigns, strategic partnerships and other initiatives.
In addition, there are low barriers to entry into our business because the costs
to provide information technology services are relatively low. We do not own any
technologies that preclude or inhibit competitors from entering our industry.
Therefore, we expect to continue to face additional competition from new
entrants into our industry.
WE ENTER INTO NON-COMPETE AGREEMENTS WITH SOME OF OUR CUSTOMERS, WHICH REDUCES
THE NUMBER OF OUR POTENTIAL CUSTOMERS AND SOURCES OF REVENUES
A substantial portion of our business involves the development of software
applications for specific projects. Ownership of customer-specific software is
generally retained by the customer, although we retain rights to some of the
applications, processes and other intellectual property developed in connection
with projects. We sometimes agree, however, not to reuse this customer-specific
software when building architectures for a customer's competitors. In addition,
we occasionally agree not to build any type of architecture for a customer's
competitors for limited periods of time, which have been as long as two years.
These non-compete agreements reduce the number of our potential customers and
our sources of revenues.
BECAUSE OUR BUSINESS OF SOFTWARE ENGINEERING INVOLVES CREATING AND USING
INTELLECTUAL PROPERTY, MISAPPROPRIATION OF AND DISPUTES REGARDING INTELLECTUAL
PROPERTY COULD HARM OUR REPUTATION, ADVERSELY AFFECT OUR COMPETITIVE POSITION
AND COST US MONEY
If third parties infringe or misappropriate our trade secrets, trademarks
or other proprietary information, or if disputes arise with customers concerning
intellectual property we create for them and/or license from them, our
reputation, competitive position and relationships with customers could be
damaged. We could be required to spend significant amounts of time and financial
resources to defend our company, and our managerial resources could be diverted.
OUR BUSINESS IS TECHNOLOGY DRIVEN, AND IF WE HAVE DIFFICULTY RESPONDING TO
CHANGING TECHNOLOGY, INDUSTRY STANDARDS AND CUSTOMER PREFERENCES, WE COULD LOSE
CUSTOMERS, WHICH WOULD REDUCE OUR REVENUES
We have derived and expect to continue to derive a substantial portion of
our revenues from creating e-business systems that are based upon the latest,
most advanced technologies and are capable of adapting to future technologies.
Our success depends on our ability to offer services that stay at the forefront
of
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continuing changes in technology, evolving industry standards and changing
customer preferences. Our failure to create e-business systems that use these
technologies could cause us to lose current and potential business
opportunities, resulting in reduced revenues. Additionally, to the extent
technology becomes standardized or simplified, there may be less demand for our
services.
OUR BUSINESS COULD BE NEGATIVELY AFFECTED BY YEAR 2000 ISSUES
Year 2000 issues may adversely affect our business and our customers'
businesses. On January 1, 2000, many computer systems could fail or malfunction
because they may be unable to distinguish 21st century dates from 20th century
dates. As a result, computer systems used by many companies, including us, our
customers and our potential customers, may need upgrades to comply with year
2000 requirements. These customers and potential customers may choose to
allocate their available funds to these upgrades instead of purchasing our
services, which could result in reduced revenues for Cysive. We do not currently
have any information concerning the year 2000 compliance status of our customers
nor do we intend to request this information. In addition, any failure by our
internal systems or the systems that we create for our customers could have a
material adverse effect on our operations and could result in costly litigation.
The worst case scenario for year 2000 problems for us would be the need to cease
normal operations for an indefinite period of time while we attempt to respond
to our own or, help with our customers' year 2000 problems, without having full
internal operational capabilities. For information on how we are addressing year
2000 issues, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Year 2000 Readiness Disclosure."
CURRENTLY, OUR BUSINESS DEPENDS ON INTEGRATING INTERNET-RELATED TECHNOLOGY INTO
OUR CUSTOMERS' BUSINESSES, AND, AS A RESULT, OUR BUSINESS WILL SUFFER IF USE OF
THE INTERNET AS A MEANS FOR COMMERCE DECLINES
If commerce on the Internet does not continue to grow or grows slower than
expected, the need for our e-business enabling services could decline, resulting
in fewer projects and reduced revenues. Consumers and businesses may reject the
Internet as a viable commercial medium for a number of reasons, including:
- actual or perceived lack of security of information;
- lack of access and ease of use;
- congestion of Internet traffic or other usage delays;
- inconsistent quality of service;
- increases in access costs to the Internet;
- evolving government regulation;
- uncertainty regarding intellectual property ownership;
- costs associated with the obsolescence of existing infrastructure; and
- economic viability of the Internet commerce model.
SOME OF OUR CUSTOMERS ARE SMALL OR HAVE LITTLE OR NO OPERATING HISTORY, RAISING
THE POSSIBILITY THAT THEY MAY LACK SUFFICIENT CASH FLOW TO PAY OUR FEES
We believe that an increasing portion of our future revenues could be
derived from emerging companies, like our current customer LeapIT.com, formed
specifically to conduct business over the Internet. These companies often have
little or no earnings or cash flow, and their businesses are more likely to fail
than those of more mature companies. As a result, they may be unable to pay our
fees in a timely fashion or at all.
OUR DIRECTORS, EXECUTIVE OFFICERS AND THEIR AFFILIATES WILL OWN APPROXIMATELY
70% OF OUR COMPANY AND, CONSEQUENTLY, WILL CONTROL STOCKHOLDER ACTIONS AFTER
THIS OFFERING AND MAY VOTE THEIR SHARES IN WAYS IN WHICH YOU DISAGREE
Upon completion of this offering, our directors, executive officers and
their affiliates will own approximately 70% of our outstanding common stock. As
a result, these stockholders will be able to
8
<PAGE> 12
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. They
will also be able to block an unsolicited tender offer. Accordingly, this
concentration of ownership could delay or prevent a third party from acquiring
control of Cysive at a premium over the then-current market price of our common
stock.
OUR COMMON STOCK HAS NOT TRADED PUBLICLY AND MAY NOT TRADE ACTIVELY AFTER THIS
OFFERING
Prior to this offering, you could not buy or sell our common stock
publicly. Accordingly, we cannot assure you that an active public trading market
for our stock will develop or be sustained after this offering.
THE INITIAL PUBLIC OFFERING PRICE MAY NOT BE INDICATIVE OF THE MARKET PRICE OF
OUR COMMON STOCK AFTER THIS OFFERING
We will determine the initial public offering price for our common stock
through negotiation with the underwriters. The market price after this offering
may vary significantly from the initial offering price in response to any of the
following factors, some of which are beyond our control:
- changes in financial estimates or investment recommendations by
securities analysts relating to our stock;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures, technological
innovations or capital commitments;
- loss of a major customer;
- additions or departures of key personnel; and
- fluctuations in the stock price and volume of traded shares especially in
the traditionally volatile Internet-related and technology sectors.
THE MARKET PRICE OF OUR COMMON STOCK, LIKE THE MARKET PRICES OF THE STOCKS OF
OTHER INTERNET-RELATED AND TECHNOLOGY COMPANIES, MAY FLUCTUATE WIDELY AND
RAPIDLY
The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of Internet-related and
technology companies have frequently reached elevated levels following their
initial public offerings. These levels may be unsustainable and may not bear any
relationship to these companies' operating performances. If the market price of
our common stock reaches an elevated level following this offering, it may
materially and rapidly decline. In the past, following periods of volatility in
the market price of a company's securities, stockholders have often instituted
securities class action litigation against the company. If we were involved in a
class action suit, it could be costly and divert the attention of management.
Furthermore, if adversely determined, a class action suit would negatively
impact our profitability and have a material adverse effect on our business,
financial condition and results of operations.
WE HAVE BROAD DISCRETION OVER THE USE OF THE $32.7 MILLION OF PROCEEDS FROM THIS
OFFERING AND MAY FAIL TO USE THEM EFFECTIVELY TO GROW OUR BUSINESS
We have significant flexibility in using the proceeds we receive from this
offering and may fail to use the proceeds effectively to grow our business.
Because the proceeds are not required to be allocated to any specific investment
or transaction, you cannot determine at this time the value or appropriateness
of our use of the proceeds.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AND PAY A HIGHER PRICE
FOR OUR COMMON STOCK THAN EXISTING STOCKHOLDERS
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, assuming an initial public offering price of $12.00 per share, you will
experience immediate and substantial dilution of approximately $8.83 per share.
9
<PAGE> 13
THE SALE OR AVAILABILITY FOR SALE OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK
COULD ADVERSELY AFFECT OUR STOCK PRICE
Sales of a substantial number of shares of common stock after this
offering, or the perception that these sales could occur, could adversely affect
the market price of our common stock and impair our ability to raise capital
through the sale of additional equity securities. After this offering, we will
have 11,127,000 shares of our common stock outstanding. All of the shares sold
in the offering will be freely transferable without restriction or further
registration, except for any shares purchased by our "affiliates," as defined in
Rule 144. Of the 8,127,000 shares of common stock outstanding prior to this
offering, 7,777,000 shares will be "restricted securities" as defined in Rule
144 and may be sold in absence of registration in accordance with Rule 144 or
Rule 701 under the Securities Act or another exemption from registration.
OUR FORMER STATUS AS AN S CORPORATION COULD EXPOSE US TO LIABILITY EXCEEDING
$1.5 MILLION AND ADVERSELY AFFECT OUR PROFITABILITY
Since our founding in 1993, we have been treated as an S corporation under
the Internal Revenue Code of 1986, as amended. In connection with the completion
of this offering, we will convert to a C corporation. If the IRS or any state
taxing authority were to challenge our prior S corporation status, we could be
liable to pay corporate taxes on our income, at the effective corporate tax
rate, for all or a part of the period in which we operated as an S corporation,
plus interest and possibly penalties. These taxes, interest and penalties could
exceed $1.5 million. It is estimated that the potential liability for corporate
taxes due to our change from an S corporation to a C corporation is $1.0
million.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. Forward-looking statements relate to future events
or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "could," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future events or results.
10
<PAGE> 14
USE OF PROCEEDS
We estimate the net proceeds from the sale of the 3,000,000 shares of
common stock offered by this prospectus will be $32.7 million, or $35.5 million
if the underwriters exercise their over-allotment option in full, assuming an
initial public offering price of $12.00 per share and after deducting the
underwriting discount and commissions and estimated offering expenses. We will
not realize any proceeds from the sale of common stock by the selling
stockholder.
Our primary purposes for this offering are to obtain additional equity
capital, create a public market for our common stock and facilitate future
access to public markets. We expect to use the net proceeds for general
corporate purposes, including working capital, expansion of operations and sales
and marketing activities. Pending these uses, we will invest the net proceeds of
this offering in investment grade, interest-bearing securities.
DIVIDEND POLICY
We currently intend to retain all of our earnings for the future operation
and growth of our business and do not intend to pay cash dividends in the
foreseeable future. Since we commenced operations in 1994, we have paid $3.2
million and will pay additional distributions, estimated to be $1.4 million, to
our stockholders in the form of cash distributions to enable them to pay income
taxes on our income, as described under "S Corporation Distribution" below and
Note 2 of the notes to our financial statements included elsewhere in this
prospectus. The payment of cash dividends in the future will depend upon our
results of operations and financial condition and any other factors as the board
of directors may consider or deem appropriate.
S CORPORATION DISTRIBUTION
We have been treated as an S corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended, since we were founded in 1993. As a result of
our S corporation status, our taxable income has been taxed, for federal and
state income tax purposes, directly to our stockholders. Our S corporation
status will terminate upon completion of this offering, and accordingly, we will
have to pay federal and state income taxes. For more information on this
subject, see Note 2 of the notes to our financial statements included elsewhere
in this prospectus.
We intend to distribute to our stockholders of record immediately prior to
the offering, on a pro rata basis, the undistributed balance of cumulative
income taxed or taxable to these stockholders immediately prior to the
completion of this offering. This amount will be limited to the lesser of the
federal or applicable state accumulated taxable income to avoid any dividend
characterization. As of June 30, 1999, $1.4 million of our taxable income was
taxed or is taxable to our stockholders and not distributed. The actual
distribution will be adjusted through the date of the closing of this offering.
You will not receive any of this distribution.
11
<PAGE> 15
CAPITALIZATION
The following table presents our capitalization as of June 30, 1999 on: (1)
an actual basis; and (2) a pro forma as adjusted basis to reflect: (a) the sale
of the common stock offered by this prospectus assuming an initial public
offering price of $12.00 per share and after deducting the underwriting discount
and commissions and estimated offering expenses; (b) the recording of deferred
income taxes resulting from the change from an S corporation to a C corporation;
and (c) the payment of the S corporation distribution. You should read this
information together with our financial statements and the related notes
included elsewhere in this prospectus. The number of shares of common stock
issued and outstanding does not include 5,641,200 shares of common stock
reserved for issuance upon exercise of outstanding options.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, no shares issued or outstanding, actual and
pro forma, as adjusted;................................... -- --
Common stock, $0.01 par value, 75,000,000 shares authorized,
8,127,000 shares issued or outstanding, actual; 75,000,000
shares authorized, 11,127,000 shares issued and
outstanding, pro forma as adjusted........................ $ 81 $ 111
Additional paid-in capital.................................. 24,460 57,159
Deferred stock compensation................................. (10,032) (10,032)
Retained earnings (deficit)................................. (10,535) (12,006)
-------- --------
Total stockholders' equity............................. 3,974 35,232
-------- --------
Total capitalization.............................. $ 3,974 $ 35,232
======== ========
</TABLE>
12
<PAGE> 16
DILUTION
As of June 30, 1999, the pro forma net tangible book value of our common
stock was approximately $2.5 million, or $0.31 per share of common stock, after
giving effect to the proposed S corporation distribution as if it had occurred
as of June 30, 1999. Pro forma net tangible book value per share represents the
amount of our stockholders' equity less intangible assets, divided by 8,127,000
shares of common stock outstanding as of June 30, 1999.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of common stock in this offering and the pro
forma net tangible book value per share of common stock immediately after
completion of this offering. After giving effect to the sale by us of 3,000,000
shares of common stock in this offering, at an assumed initial public offering
price of $12.00 per share and after deducting the underwriting discount and
commissions and estimated offering expenses, our pro forma net tangible book
value as of June 30, 1999 would have been $35.2 million or $3.17 per share. This
amount represents an immediate increase in net tangible book value of $2.86 per
share to existing stockholders and an immediate dilution in net tangible book
value of $8.83 per share to purchasers of common stock in this offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $0.31
Increase per share of common stock attributable to new
investors.............................................. 2.86
-----
Pro forma net tangible book value per share after the
offering.................................................. 3.17
------
Dilution per share to new investors......................... $ 8.83
======
</TABLE>
The following table presents on a pro forma basis as of June 30, 1999, the
difference between the number of shares of common stock purchased from Cysive,
the total consideration paid to Cysive and the average price paid by existing
stockholders and by new investors, before deduction of the underwriting discount
and commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 8,127,000 73.0% $ 1,107,800 3.0% $ 0.14
New investors.............................. 3,000,000 27.0 36,000,000 97.0 12.00
---------- ----- ----------- -----
Total............................ 11,127,000 100.0% $37,107,800 100.0%
===== =====
</TABLE>
The table above assumes no exercise of stock options outstanding at
September 24, 1999. As of September 24, 1999, we had options outstanding to
purchase a total of 6,209,888 shares of common stock at a weighted average
exercise price of $1.28 per share under our Amended and Restated 1994 Stock
Option Plan. To the extent any of these outstanding options are exercised, there
will be further dilution to new investors.
13
<PAGE> 17
SELECTED FINANCIAL DATA
The following statement of operations data for each of the years in the
five-year period ended December 31, 1998 and the balance sheet data as of
December 31, 1994, 1995, 1996, 1997 and 1998 have been derived from Cysive's
financial statements, which have been audited by Ernst & Young LLP, independent
auditors. The statement of operations data for the six months ended June 30,
1998 and 1999 and the balance sheet data as of June 30, 1999 are unaudited and
are derived from our unaudited financial statements. In our opinion, the
unaudited financial data include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information
shown in those data. The pro forma net income and pro forma earnings per share
data are unaudited and are presented to reflect the provision for federal and
state income taxes as if we had been required to pay federal and state income
taxes as a C corporation during each of the periods presented. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the full year. For further detail and explanation of
period-to-period changes, selected financial data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues...................... $948 $2,993 $5,557 $7,711 $9,142 $ 3,193 $ 9,424
Direct costs.................. 534 1,557 2,056 2,798 3,742 1,809 3,473
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.................. 414 1,436 3,501 4,913 5,400 1,384 5,951
Operating expenses:
General and
administrative............ 110 497 2,009 2,754 2,725 1,009 2,574
Sales and marketing......... 141 241 232 760 1,824 672 1,720
Stock compensation.......... -- -- -- -- 69 -- 13,285
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses................ 251 738 2,241 3,514 4,618 1,681 17,579
Operating income (loss)....... 163 698 1,260 1,399 782 (297) (11,628)
Other income (expense), net... -- (1) 17 23 14 15 25
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............. $163 $ 697 $1,277 $1,422 $ 796 $ (282) $(11,603)
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) per share:
Basic....................... $0.03 $0.10 $0.19 $0.21 $0.12 $(0.04) $(1.43)
Diluted..................... $0.03 $0.10 $0.17 $0.18 $0.10 $(0.04) $(1.43)
Weighted average shares
outstanding................. 5,677,398 6,775,311 6,777,000 6,777,000 6,777,000 6,777,000 8,127,000
Weighted average shares and
common stock equivalents.... 5,677,398 6,775,311 7,473,800 7,766,211 7,993,659 6,777,000 8,127,000
Pro forma net income (loss)... $489 $(12,637)
========== ==========
Pro forma earnings (loss) per
share:
Basic....................... $0.07 $(1.55)
Diluted..................... $0.06 $(1.55)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
---- ---- ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $ 23 $294 $ 456 $ 690 $ 612 $ 869
Working capital............................................. 157 722 1,032 1,948 2,150 3,351
Total assets................................................ 306 970 1,753 2,421 3,163 5,792
Stockholders' equity........................................ 173 837 1,478 2,214 2,519 3,974
</TABLE>
14
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with "Selected Financial
Data" and our financial statements and the related notes included elsewhere in
this prospectus.
OVERVIEW
We are a leading software engineering firm that architects and builds
complex, highly customized systems supporting large scale e-businesses. We
design architectures, or the underlying structure of software systems, which can
handle high volumes of customer interaction, operate reliably 24 hours per day,
seven days per week, or 24/7, and expand to meet the growth requirements of
large scale e-businesses.
Prior to 1997, we built large scale, distributed systems using approaches
and technologies that are the foundations for current Internet applications. At
that time, our advanced technology focus required a sales effort led by
technology savvy project managers. In late 1996 and early 1997, our technology
group evaluated and developed software prototypes using key Internet
technologies such as Java, XML and CORBA. After successfully deploying our first
e-business system in mid-1997, we began to target customers who were making
significant investments in their e-business applications. As a result, there was
a fundamental shift in our business strategy away from general purpose
distributed systems to customized e-business applications. As part of this
strategy, in the fourth quarter of 1997 and the first half of 1998, we spent
considerable resources to accomplish two specific goals. Our first goal was to
train all of our software engineers with advanced Internet technologies that had
been researched and prototyped by our technology group. Our second goal was to
deploy a direct sales force capable of selling e-business applications. These
initiatives significantly impacted our results of operations for these three
quarters. Specifically, the generation of a sales pipeline of e-business
applications and the deployment of our sales force affected our revenues and
sales and marketing expenses. In addition, the completion of two of our largest
distributed systems combined with the extensive training of our software
engineers caused our utilization rates and gross margins to decline during these
quarters. As reflected in our latest results, these investments positioned us to
emerge in the second half of 1998 as a leading e-business engineering firm.
We derive our revenues from software engineering services which are
provided primarily on a time and materials basis. Revenues are recognized and
billed monthly by multiplying the number of hours expended by our software
engineers in the performance of the contract by the established billing rates.
Our customers reimburse us for direct expenses allocated to a project such as
airfare, lodging and meals. Consequently, these direct reimbursements are
excluded from revenues.
Our financial results may fluctuate from quarter-to-quarter based on
factors such as the number of projects, the amount and timing of our customers'
expenditures, employee utilization rates, hourly billing rates and general
economic conditions. Revenues from a few large customers may constitute a
significant portion of our total revenues in a particular quarter or year. For
example, in 1998, our five largest customers represented 65.3% of our revenues.
For the six-month period ended June 30, 1999, our five largest customers
represented 82.5% of our revenues. The following table identifies these
customers and the percentage of our revenues derived from each.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 SIX MONTHS ENDED JUNE 30, 1999
- --------------------------------------------------------- ---------------------------------------------------------
CUSTOMER % OF REVENUES CUSTOMER % OF REVENUES
- ------------------------------------------ ------------- ------------------------------------------ -------------
<S> <C> <C> <C>
Cisco Systems, Inc. 19.6% Sylvan Prometric 35.1%
Classified Ventures, Inc./Cars.com 18.0% Classified Ventures, Inc./Cars.com 15.2%
Sylvan Prometric 12.5% Equifax Secure, Inc. 13.4%
DaimlerChrysler Corporation 8.5% Cisco Systems, Inc. 10.2%
First Union Corporation 6.7% UUNet Technologies, Inc. 8.6%
</TABLE>
Revenues from any given customer will vary from period to period; however,
we expect that significant customer concentration will continue for the
foreseeable future. To the extent that any significant customer uses less of our
services or terminates its relationship with us, our revenues may
15
<PAGE> 19
decline substantially. We attempt to mitigate our revenue concentration issues
by contractual wind-down provisions and by rapid redeployment of our software
engineers.
The number of Cysive employees increased from 19 as of January 1, 1996 to
89 as of June 30, 1999. We actively recruit software engineers and support staff
and expect the total number of employees to increase significantly during the
remaining months of 1999 and into the foreseeable future. Direct costs consist
primarily of compensation and benefits for our software engineers and the
non-billable portion of other direct project costs. We expect that our per
capita direct costs will increase over time due to wage increases and inflation.
In addition, these costs may increase after the offering because prospective
employees may perceive that the stock option component of our compensation
package is not as valuable as it was prior to the offering. Our gross margins
are affected by trends in the utilization rate of our software engineers,
defined as the percentage of our software engineers' time billed to customers,
divided by the total available hours in a period, less holidays. If a project
ends earlier than scheduled, we may need to redeploy our project personnel. Any
resulting non-billable time may adversely affect our gross margins.
General and administrative expenses consist primarily of compensation and
benefits for our management, finance and administration, human resources,
information technology, recruiting and the non-billable portion of our quality
assurance and regional management personnel. In addition, general and
administrative expenses include depreciation and amortization and general
operating expenses such as telephones, office supplies, travel, outside
professional services, training and facilities costs. We expect general and
administrative expenses to increase as we add additional personnel, expand our
information systems, open new offices, increase our recruiting efforts and incur
additional costs related to the growth of our business and operations as a
public company.
Sales and marketing expenses consist primarily of salaries, commissions,
benefits, marketing programs and travel costs associated with our sales and
marketing efforts. We sell our services through a direct sales force organized
by geographic region. We expect sales and marketing expenses to increase as we
continue to build a direct sales force and expand our marketing programs.
Stock compensation expense consists of grants of options to purchase
3,003,750 shares of common stock at an exercise price below the fair market
value of the common stock on the date of grant, resulting in a non-cash
compensation charge of $28.4 million. Stock compensation expense of $13.3
million was recorded in the quarter ended June 30, 1999. The remaining balance
of $15.1 million will be amortized over the remaining vesting schedule through
the quarter ended September 30, 2003.
16
<PAGE> 20
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenues and selected statement of operations data as a
percentage of revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs..................................... 37.0 36.3 40.9 56.7 36.9
----- ----- ----- ----- -------
Gross profit..................................... 63.0 63.7 59.1 43.3 63.1
Operating expenses:
General and administrative..................... 36.1 35.7 29.8 31.6 27.3
Sales and marketing............................ 4.2 9.9 20.0 21.0 18.2
Stock compensation............................. -- -- 0.8 -- 141.0
----- ----- ----- ----- -------
Total operating expenses............... 40.3 45.6 50.6 52.6 186.5
Operating income (loss).......................... 22.7 18.1 8.5 (9.3) (123.4)
Other income, net................................ 0.3 0.3 0.2 0.5 0.3
----- ----- ----- ----- -------
Net income (loss)................................ 23.0% 18.4% 8.7% (8.8)% (123.1)%
===== ===== ===== ===== =======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenues increased $6.2 million, or 195.1%, to $9.4 million for
the six months ended June 30, 1999 from $3.2 million for the same period in
1998. This increase in revenues primarily reflects the more mature direct sales
model established in mid-1998, the benefits of which were not fully realized
until early 1999. As a result of our direct sales efforts, our number of
customers increased to 21 for the six months ended June 30, 1999 from 12 for the
same period in 1998. In addition, as we completed several large distributed
systems and migrated to e-business applications, our average billing rates
increased.
Direct Costs. Direct costs increased $1.7 million, or 92.0%, to $3.5
million for the six months ended June 30, 1999 from $1.8 million for the same
period in 1998. As a percentage of revenues, direct costs decreased to 36.9% for
the six months ended June 30, 1999 from 56.7% for the same period in 1998. This
significant decrease as a percentage of revenues was primarily attributable to
our low utilization rates in 1998, which resulted from the completion of two of
our largest distributed systems and the extensive training of all of our
software engineers during the first half of 1998. The average utilization rate
increased to 88.5% for the six months ended June 30, 1999 from 54.2% for the
same period in 1998.
Gross Profit. Gross profit increased $4.6 million, or 329.9%, to $6.0
million for the six months ended June 30, 1999 from $1.4 million for the same
period in 1998. Because our revenue growth exceeded the rate that direct costs
increased, the gross margin increased to 63.1% for the six months ended June 30,
1999 from 43.3% for the same period in 1998.
General and Administrative. General and administrative expenses increased
$1.6 million, or 155.1%, to $2.6 million for the six months ended June 30, 1999
from $1.0 million for the same period in 1998. As a percentage of revenues,
general and administrative expenses decreased to 27.3% for the six months ended
June 30, 1999 from 31.6% for the same period in 1998. This decrease was due
primarily to our ability to spread our costs over a greater revenue base,
particularly with respect to depreciation and amortization. This operating
leverage, however, was partially offset by the expansion of our office in the
metropolitan area of San Jose, CA in September 1998 as well as additional
corporate administrative hires.
Sales and Marketing. Sales and marketing expenses increased $1.0 million,
or 156.0%, to $1.7 million for the six months ended June 30, 1999 from $672,000
for the same period in 1998. As a percentage of revenues, sales and marketing
expenses decreased to 18.2% for the six months ended June 30, 1999 from 21.0%
for the same period in 1998. This decrease was primarily due to the significant
expansion of our direct sales force in the first half of 1998 without the
benefit of revenues generated by
17
<PAGE> 21
those hires. This decrease was partially offset by additional hires in the
marketing group and the execution of our marketing program in the first half of
1999.
Stock Compensation. We recorded $13.3 million in stock compensation
expense in the six-month period ended June 30, 1999. This expense represents the
difference between the deemed fair market value of the underlying options and
their exercise price.
Operating Income (Loss). Operating loss increased $11.3 million to $11.6
million for the six months ended June 30, 1999 from an operating loss of
$297,000 for the same period in 1998. The operating loss margin increased to
123.4% for the six months ended June 30, 1999. Excluding the impact of the stock
compensation expense for the six months ended June 30, 1999, operating income
increased $2.0 million to $1.7 million for the six months ended June 30, 1999
from an operating loss of $297,000 for the same period in 1998. Excluding the
impact of the stock compensation expense, the operating margin increased to
17.6% for the six months ended June 30, 1999.
Other Income, Net. Other income, net increased $10,000, or 63.6%, to
$25,000 for the six months ended June 30, 1999 from $15,000 for the same period
in 1998 primarily due to gains on the sale of fixed assets and the timing of
matching charitable contributions made on behalf of our employees.
Net Income (Loss). Net loss increased $11.3 million to $11.6 million for
the six months ended June 30, 1999 from a loss of $282,000 for the same period
in 1998 due primarily to the stock compensation expense recorded in the
six-month period ended June 30, 1999. As a result of the above factors, the net
loss margin increased to 123.1% for the six months ended June 30, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased $1.4 million, or 18.6%, to $9.1 million in
1998 from $7.7 million in 1997. This increase in revenues reflected a larger
number of customers, which totaled 23 in 1998 as compared to 15 in 1997. In
addition, our higher revenues were a result of our ability to increase our
billing rates in 1998 as we more fully migrated our business model to e-business
applications. The benefits of this larger customer base and our higher billing
rates, however, were offset in part by two factors. First, our business model
shifted, affecting the fourth quarter of 1997 and the first two quarters of
1998. Second, we completed projects in early 1998 for our two largest customers
in 1997. As discussed above, we made significant investments in our direct sales
force, the benefits of which were not realized until the second half of 1998.
Consequently, while we ended 1998 with a greater number of customers, most of
their associated projects did not start until the second half of the year.
Direct Costs. Direct costs increased $944,000, or 33.7%, to $3.7 million
in 1998 from $2.8 million in 1997. As a percentage of revenues, direct costs
increased to 40.9% in 1998 from 36.3% in 1997. This significant increase as a
percentage of revenues was primarily due to our low utilization rates in the
first half of 1998 which correlated with the completion of two large scale
distributed systems and our efforts to train all of our software engineers. The
average utilization rate decreased to 70.5% in 1998 from 79.9% in 1997.
Gross Profit. Gross profit increased $487,000, or 9.9%, to $5.4 million in
1998 from $4.9 million in 1997. Because direct costs increased at a higher rate
than our revenue growth, the gross margin decreased to 59.1% in 1998 from 63.7%
in 1997.
General and Administrative. General and administrative expenses decreased
$29,000, or 1.0%, to $2.7 million in 1998 from $2.8 million in 1997. As a
percentage of revenues, general and administrative expenses decreased to 29.8%
in 1998 from 35.7% in 1997. This decrease as a percentage of revenues was
primarily attributable to our ability to spread our costs over a greater revenue
base. The benefits of this operating leverage were partially offset by the
opening of a new office in the metropolitan area of San Jose, CA in May 1998 and
the expansion of our Reston, VA office in August 1998.
Sales and Marketing. Sales and marketing expenses increased $1.1 million,
or 139.8%, to $1.8 million in 1998 from $761,000 in 1997. As a percentage of
revenues, sales and marketing expenses increased to
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<PAGE> 22
20.0% in 1998 from 9.9% in 1997. This increase was primarily due to the
significant expansion of our direct sales force in the first half of 1998. In
addition, at the end of 1998 we hired a dedicated marketing staff and
implemented a more extensive marketing program.
Stock Compensation. Stock compensation reflects non-qualified stock
options granted at exercise prices below fair market value, which vested upon
the achievement of select performance goals at the end of 1998.
Operating Income (Loss). Operating income decreased $617,000, or 44.1%, to
$782,000 in 1998 from $1.4 million in 1997. As a result of the above factors,
the operating margin decreased to 8.5% in 1998 from 18.1% in 1997.
Other Income, Net. Net other income decreased $9,000, or 40.2%, to $14,000
in 1998 from $23,000 in 1997. This decrease was primarily due to the interest
expense we incurred from borrowings under our line of credit during 1998 to
support our internal growth.
Net Income (Loss). Net income decreased $626,000, or 44.0%, to $796,000 in
1998 from $1.4 million in 1997. As a result of the above factors, the net margin
decreased to 8.7% in 1998 from 18.4% in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues increased $2.2 million, or 38.8%, to $7.7 million in
1997 from $5.6 million in 1996. This increase in revenues primarily reflected an
increase in the number of customers to 15 in 1997 from eight in 1996.
Direct Costs. Direct costs increased $743,000, or 36.1%, to $2.8 million
in 1997 from $2.1 million in 1996. As a percentage of revenues, direct costs
decreased slightly to 36.3% in 1997 from 37.0% in 1996. The slight decrease
during 1997 as a percentage of revenues was primarily attributable to our higher
utilization rates in 1997. The average utilization rate increased to 79.9% in
1997 from 72.8% in 1996.
Gross Profit. Gross profit increased $1.4 million, or 40.3%, to $4.9
million in 1997 from $3.5 million in 1996. Because of increased revenues derived
from larger headcount and an increase in utilization rates, the gross margin
increased to 63.7% in 1997 from 63.0% in 1996.
General and Administrative. General and administrative expenses increased
$744,000, or 37.0%, to $2.8 million in 1997 from $2.0 million in 1996. As a
percentage of revenues, general and administrative expenses decreased slightly
to 35.7% in 1997 from 36.1% in 1996. Our higher expenses resulted from an
increase in the number of general and administrative personnel, expansion of our
facilities in Reston, VA and a full year of expenses from the opening of a new
office in the metropolitan area of Chicago, IL in May 1996. The slight decrease
as a percentage of revenues reflects the greater operating leverage from
spreading these expenditures over a larger revenue base.
Sales and Marketing. Sales and marketing expenses increased $529,000, or
227.7%, to $760,000 in 1997 from $232,000 in 1996. As a percentage of revenues,
sales and marketing expenses increased to 9.9% in 1997 from 4.2% in 1996. This
increase was primarily due to increased travel and marketing activities.
Operating Income (Loss). Operating income increased $139,000, or 11.1%, to
$1.4 million in 1997 from $1.3 million in 1996. As a result of the above
factors, the operating margin decreased to 18.1% in 1997 from 22.7% in 1996.
Other Income, Net. Net other income increased $6,000, or 35.5%, to $24,000
in 1997 from $17,000 in 1996. This increase was primarily due to the interest
income earned on higher average cash balances maintained during 1997.
Net Income (Loss). Net income increased $146,000, or 11.4%, to $1.4
million in 1997 from $1.3 million in 1996. As a result of the above factors, the
net margin decreased to 18.4% in 1997 from 23.0% in 1996.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly financial data for the
periods indicated. We derived this data from our unaudited financial statements,
and in our opinion, they include all adjustments, which consist only of normal
recurring adjustments, necessary to present fairly the financial results for the
periods. Our quarterly operating results have varied significantly in the past
and will continue to do so in the future due to a number of factors including,
but not limited to, changes in average billing rates, utilization rates and
personnel additions, as well as the timing of expenses. Accordingly, our results
for any given quarter or series of quarters are not necessarily indicative of
our results for any future period. However, our quarterly operating results may
represent trends which aid in understanding our business.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1997 1997 1997 1997 1998 1998 1998
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATION DATA
Revenues........................ $1,727 $2,016 $2,130 $1,839 $1,633 $1,560 $2,585
Gross profit.................... 1,136 1,295 1,404 1,077 720 664 1,617
Operating expenses:
General and administrative.... 649 702 692 711 440 569 729
Sales and marketing........... 201 206 188 165 218 453 486
Stock compensation............ -- -- -- -- -- -- 28
Operating income (loss)......... 286 387 524 201 62 (358) 374
Net income (loss)............... $ 294 $ 394 $ 533 $ 201 $ 73 $ (354) $ 381
====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF REVENUES
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................... 65.8 64.2 65.9 58.6 44.1 42.6 62.6
Operating expenses:
General and administrative.... 37.6 34.8 32.5 38.7 26.9 36.5 28.2
Sales and marketing........... 11.6 10.2 8.9 9.0 13.4 29.1 18.8
Stock compensation............ -- -- -- -- -- -- 1.1
Operating income (loss)......... 16.6 19.2 24.5 10.9 3.8 (23.0) 14.5
Net income (loss)............... 17.0% 19.5% 25.0% 10.9% 4.5% (22.7)% 14.7%
====== ====== ====== ====== ====== ====== ======
<CAPTION>
QUARTER ENDED
---------------------------------
DEC. 31, MAR. 31, JUNE 30,
1998 1999 1999
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATION DATA
Revenues........................ $3,364 $4,178 $ 5,246
Gross profit.................... 2,399 2,324 3,627
Operating expenses:
General and administrative.... 987 1,059 1,515
Sales and marketing........... 666 760 960
Stock compensation............ 41 19 13,265
Operating income (loss)......... 705 486 (12,113)
Net income (loss)............... $ 696 $ 497 $(12,099)
====== ====== ========
AS A PERCENTAGE OF REVENUES
Revenues........................ 100.0% 100.0% 100.0%
Gross profit.................... 71.3 55.6 69.1
Operating expenses:
General and administrative.... 29.4 25.4 28.9
Sales and marketing........... 19.8 18.2 18.3
Stock compensation............ 1.2 0.4 252.9
Operating income (loss)......... 20.9 11.6 (230.9)
Net income (loss)............... 20.7% 11.9% (230.6)%
====== ====== ========
</TABLE>
Revenues. For the three quarters ended September 30, 1997, the
quarter-to-quarter revenue increases were primarily a result of increases in
utilization rates from 73% to 93%. Revenues declined from the quarter ended
December 31, 1997 through the quarter ended June 30, 1998 because the
utilization rates decrease from 75% to 52% which was offset by a billing rate
increase of $45.00 average per hour over the same period. For the period ended
September 30, 1998 through June 30, 1999, revenues increased primarily as a
result of increases in utilization rates from 86% to 92% and increases in
billable personnel from 31 to 58.
Operating expenses. General and administrative expenses as a percentage of
revenues generally declined during the periods shown, reflecting greater
operating leverage from spreading these expenditures over a larger revenue base.
Increases in the second and fourth quarters relate to our annual technical
offsite meeting held in the second quarter and our annual company meeting held
in the fourth quarter. Sales and marketing expenses as a percentage of revenues
decreased from March 31, 1997 through December 31, 1997 due to increased
operating leverage. Beginning in the first quarter of 1998 through the second
quarter of 1999, the sales and marketing expenses as a percentage of revenues
increased due to the expansion of our direct sales force and the establishment
of a marketing function. Stock compensation expense beginning in the quarter
ended September 30, 1998 through the quarter ended June 30, 1999 represented the
vesting of options granted at a value below fair market value.
LIQUIDITY AND CAPITAL RESOURCES
In September 1999, we renewed our line of credit with Merrill Lynch
Business Financial Services Inc. under which we are entitled to draw up to $2.5
million in borrowings. We intend to use any borrowings under the line of credit
for working capital purposes. The interest rate on amounts borrowed under the
line of credit is calculated using the 30-day dealer commercial paper rate as
quoted in The Wall Street
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<PAGE> 24
Journal, plus 2.65% per annum. The credit facility expires in September 2000.
Any borrowings under the line of credit will be secured by all of our assets.
The line of credit requires our financial ratios to be in compliance with the
debt covenants. At June 30, 1999, we had no outstanding borrowings under the
line of credit.
Cash and cash equivalents were $869,000 at June 30, 1999, $612,000 at
December 31, 1998 and $690,000 at December 31, 1997. Net cash provided by
operating activities was $659,000 for the period ended June 30, 1999, $731,000
in 1998, $1.0 million in 1997 and $1.1 million in 1996. Capital expenditures of
$187,000 for the six months ended June 30, 1999, $249,000 in 1998, $80,000 in
1997 and $279,000 in 1996, were used primarily for computer equipment, office
equipment and leasehold improvements related to our growth. Capital expenditures
for the remainder of 1999 are expected to be $210,000 and will be made
principally for computer equipment, internally used software purchases and
leasehold improvements to support our growth.
We expect to fund the S corporation distribution out of cash from operating
activities.
We anticipate that the net proceeds of this offering, together with
existing sources of liquidity and funds generated from operations, should be
adequate to fund our currently anticipated cash needs through at least the next
18 months. To the extent we are unable to fund our operations from cash flows,
we 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, the financing will be
obtainable on favorable terms.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of these systems could fail or malfunction because they
may be unable to distinguish 21st century dates from 20th century dates. As a
result, computer systems and software used by many companies, including us, our
customers and our potential customers, may need upgrades to comply with year
2000 requirements.
To become ready for year 2000, in 1999 we upgraded our network and
operating systems and purchased year 2000 compliant servers, workstations,
software packages and peripheral devices. We have also purchased year 2000
compliance testing software which we have used to test our systems. These tests
resulted in no material failures. As a result of our upgrades, new purchases and
our year 2000 testing, we believe that our principal internal systems are year
2000 compliant. However, the Company will continue to assess and test our
internal systems to ensure that all additions and/or modifications to our
systems meet the Company's specifications for year 2000 compliance. Because we
and our customers depend, to a very substantial degree, upon the proper
functioning of our computer systems, a failure of our systems to correctly
recognize dates beyond December 31, 1999 could materially disrupt our operations
and adversely affect our business, financial condition and results of
operations.
The year 2000 problem may also affect third-party software products that
are incorporated into the business systems that we create for our customers. Our
customers license software directly from third party suppliers, but at our
customers' request, we will discuss year 2000 issues with these suppliers and
will perform internal testing on their products. We do not guarantee that the
software licensed by these suppliers is year 2000 compliant. Any failure on our
part to provide year 2000 compliant e-business systems to our customers could
result in financial loss, harm to our reputation and liability to others.
We do not currently have any information concerning the year 2000
compliance status of our customers nor do we intend to examine our customers for
year 2000 compliance. Our current or potential customers may incur significant
expenses to achieve year 2000 compliance. If our customers are not year 2000
compliant, they may experience material costs to remedy problems or may face
litigation costs. In either case, year 2000 issues could reduce or eliminate the
budgets that current or potential customers could have for purchases of our
services. In addition, we anticipate that some of our customers will put
restrictions on new software being placed into operation within their systems
environment in the final four
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<PAGE> 25
to six weeks of 1999. As a result, our business, financial condition and results
of operations could be adversely affected.
We have funded the costs to become year 2000 compliant from operating cash
flows and have not separately accounted for these costs in the past. To date,
these costs have not been material. We will incur additional costs related to
year 2000 compliance for administrative personnel to manage the process of
remaining year 2000 compliant. The possibility exists that we may experience
problems and costs with year 2000 compliance, which could divert management's
time from ordinary business activities and have a material adverse effect on our
business, financial condition and operating results. The worst case scenario for
year 2000 problems for us would be the need to cease normal operations for an
indefinite period of time while we attempt to respond to our own year 2000
problems.
Our year 2000 contingency plan is now completed. The cost of maintaining
our plan is not expected to be material.
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<PAGE> 26
BUSINESS
OVERVIEW
Cysive is a leading software engineering firm that architects and builds
complex, highly customized systems supporting large scale e-businesses.
E-businesses are companies that conduct a significant portion of their business
through electronic commerce channels which are integrated with their existing
internal systems, such as accounting, billing, manufacturing and inventory
control. Since commencing operations in 1994, we have used advanced Internet
technologies to build our customers' e-business capabilities. We design
architectures, or the underlying structure of software systems, which can handle
high volumes of customer interaction, operate reliably on a 24/7 basis and
expand to meet the growth requirements of large scale e-businesses. Due to the
complex design and sophisticated integration requirements of our projects, we
employ software engineers with extensive technology expertise. Our software
engineers, who have an average of 10 years experience, use a well-defined
process to deliver reliable and secure custom systems on a timely basis.
Given our technology expertise, we target corporate customers who require
highly complex systems to meet the growth demanded by their e-business
strategies. For example, we built Cisco Systems, Inc.'s Internetworking Products
Center, which is the core of Cisco's electronic commerce site and accounted for
approximately 60% of Cisco's fiscal 1999 total revenues of $12.2 billion. In
addition to Cisco, we have built systems for customers including Classified
Ventures, Inc./Cars.com, DaimlerChrysler Corporation, Equifax Secure, Inc.,
First Union Corporation, Sylvan Prometric and UUNet Technologies, Inc.
INDUSTRY BACKGROUND
In the mid-1990s, a first wave of commercial Internet usage achieved
widespread adoption. The Internet brought technology standardization to business
through a common set of protocols, languages and applications, such as HTTP,
HTML and web browsers. Although many companies comprehended the magnitude of
potential technological and communications advancements provided by the
Internet, they lacked the resources to implement Internet-based technologies.
The immediate objective for most companies at this time was to establish an
Internet presence. These companies used the Internet to communicate with
customers and launched their web sites as colorful online marketing brochures.
With little ability to automate business processes or execute transactions,
these sites were maintained separately from the enterprise systems at the core
of the business which, in turn, had not been designed to communicate with the
standards-based architecture of the Internet. Simple, small-scale functions such
as customer inquiries to the web sites were handled through text-based scripts,
such as CGI and Perl, which had neither the structure nor the capability of a
software program, but sufficed for this early-stage environment. As a result,
many of today's Internet professional services providers focus on providing
strategy, design and technology services to enable companies to build an initial
presence on the Internet rather than the specialized technology expertise
required to create successful e-businesses which are capable of accommodating
rapid growth.
Today, we believe a second wave is beginning, spearheaded by the companies
whose use of the Internet has evolved from a marketing orientation to a
business, or transactional, orientation. For these companies, the web site has
quickly evolved from a simple marketing tool into an advanced software
application at the core of their businesses. International Data Corporation
estimates U.S. corporate Internet spending to increase from $85 billion in 1999
to $203 billion by 2002. Many companies are building their information
technology systems to transact directly, seamlessly and instantaneously with
customers, suppliers, partners and distributors around the world. These
e-business capabilities are rapidly creating new markets, communications
channels and revenue growth opportunities, while enabling companies to reduce
costs, improve operating efficiencies, shorten cycle times and improve
communications.
To truly automate all of the functions associated with an e-business
transaction, companies cannot simply link Internet customers directly to their
existing internal systems. These existing systems were
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<PAGE> 27
designed for a defined number of specifically trained employees. In addition,
each system typically was built to provide a very specific function such as
accounting, billing, product configuration, manufacturing or inventory control.
As a result, with each system serving distinct purposes, it is extremely
difficult for a customer to have a user-friendly, customer service focused
experience without significant integration of existing internal systems.
To integrate the existing internal systems, an advanced technology approach
is necessary in which business logic, or all of the business procedures and
rules, is built into a core architecture that bridges these existing systems
with the Internet. This core architecture handles all of the business functions
that previously could only be executed by specially trained personnel, including
preferred customer discounting, credit approval, product configuration, pricing,
billing, accounting, inventory control and order and delivery scheduling. A
successful e-business architecture must present business functions to customers
in a simple format, yet provide comprehensive access to all of the information
and transactional capabilities the business has to offer. In addition, the
software systems that integrate the Internet with the existing internal systems
must be carefully designed to handle extremely large volumes of Internet traffic
and ensure 24/7 reliability. This architecture requires software engineering
expertise in areas like: load balancing to spread traffic across servers;
caching to make data access immediate; thread and connection pooling to
optimally use system resources; and data conversion to convert data into usable
Internet formats. These architectures use a component-based design which is
flexible and extensible to meet the needs of the business as it grows.
Advantages achieved by e-businesses that were the first to conduct business
on the Internet will be lost if their transactional systems cannot handle
increased user demand. Therefore, we believe a greater portion of future
corporate Internet spending will be in the implementation and integration of
advanced Internet systems. Companies like Cysive that have the Internet
technology expertise, a defined, repeatable and rigorous process and a proven
track record in building e-business architectures will drive business on the
Internet.
THE CYSIVE SOLUTION
Cysive engineers and deploys advanced systems that enable our customers to
transact business electronically. To build the e-business systems demanded by
our customers, we emphasize the following key elements:
ADVANCED E-BUSINESS ARCHITECTURES
The core of our business is to architect and build complex, highly
customized systems based on Internet technologies. Our expertise lies in
building the systems driving large scale e-businesses. For example, Cysive built
the architecture for First Union Corporation's online automated account stand-in
system which is accessible through multiple channels by First Union's more than
16 million retail and corporate customers. When First Union's mainframe-based
systems become overloaded, this system stands-in for all online channels,
including interactive voice response and the Internet. We believe our ability to
successfully deploy truly large scale systems is a key point of differentiation
in our market. Furthermore, the knowledge and confidence gained from building
customized systems critical to our customers' businesses generates a high level
of repeat business from our customers. For example, in the first half of 1999,
75% of our customers from whom we generated over $100,000 of revenues were
customers in prior years. In addition, our focus on the latest, most advanced
technology helps us to recruit highly experienced software engineers who desire
a culture and environment that takes pride in implementing the newest
technologies.
HIGHLY EXPERIENCED SOFTWARE ENGINEERS
The integration of existing and emerging technologies required to build our
customers' e-business systems is highly complex and requires expertise across a
broad array of technologies. Our software engineers must have extensive
knowledge in advanced technologies like XML, Java, C++, Distributed
24
<PAGE> 28
Objects, like CORBA and DCom, and Relational and Object Database Management
Systems. In addition, they must have experience interfacing with older system
technologies. As a result, we employ software engineers with proven technology
expertise and many years of experience. Our software engineers have on average
10 years of experience. Furthermore, 94% of our software engineers have
technical undergraduate degrees and 50% have advanced degrees. This significant
level of experience enhances our teams' productivity and enables us to maximize
our utilization rates by making our software engineers interchangeable across
varying projects regardless of the technologies employed.
SWAT TEAM APPROACH
The high productivity of our experienced software engineers enables us to
build extensive e-business systems with Software and Technologies, or SWAT,
teams that are comprised of a small number of engineers. For example, with a
team of only six software engineers, we built Cisco Systems' Internetworking
Product Center, which, according to Cisco, generated approximately 60% of
Cisco's fiscal 1999 total revenues. We believe smaller teams increase
efficiency, enhance the ability of a team to share ideas, expertise and project
development information and reduce the margin for error. As a result, we believe
that by using our SWAT teams, we shorten the delivery time of a project and
increase the likelihood of success, reducing the overall project cost to the
customer. Through this approach, we are able to focus our customers on the total
value of the project, rather than on hourly billing rates. In addition, our
efficient, SWAT team approach allows us to quickly redeploy teams once a project
is completed and to grow our business without having to add large numbers of
software engineers. As a result of our high levels of productivity, we
consistently generate revenues per software engineer in excess of $325,000.
RIGOROUS DEVELOPMENT PROCESS
For every project undertaken, our software engineers adhere to the Cysive
development process. This approach begins with a comprehensive assessment of a
customer's needs followed by the development of a series of milestones comprised
of three distinct phases: architecture and analysis; design and development; and
testing and deployment. Having this well-defined process helps to mitigate risk
and ensure consistent quality, and enables us to build dynamic and
cost-effective systems more rapidly. The Cysive development process also ensures
that our customers have the flexibility to continuously modify their projects as
their needs evolve. By streamlining our processes and producing noticeable
efficiencies, the Cysive development process helps to build customer confidence
and consequently generate greater repeat business.
SOPHISTICATED KNOWLEDGE MANAGEMENT
We have spent considerable resources implementing tools which we use to
stay apprised of emerging technologies and practices. These tools, which we
refer to as our knowledge management process, comprise two elements. First, our
technology group continually evaluates new products to identify the most
advanced technologies and is also responsible for on-going proficiency training.
Second, we have a centralized knowledge base accessible through our intranet
which our engineers use to share their project experiences. This knowledge base
is accessible by Cysive software engineers anytime from any remote location
through our corporate intranet. Together, the technology group and our knowledge
base help to disseminate our accumulated project experience to all employees,
enhance the reusability of processes and accelerate the professional development
of our software engineers by keeping them abreast of new technologies.
THOROUGH QUALITY ASSURANCE PROCESS
We adhere to a thorough quality assurance process to identify and manage
risk. To distribute knowledge across our company and to help maintain
objectivity within each project, we use a project manager from outside of a
given project team to serve as the quality assurance supervisor who monitors and
evaluates a project's development. The supervisor is responsible for a monthly
review meeting and report focused on the scope, schedule and cost of the
project. As a result, all project managers are subject to as well as oversee the
quality assurance process. In addition to risk management, our quality assurance
approach facilitates the sharing of ideas and technologies among project
managers, enables us to grow our
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business while maintaining high levels of quality and allows us to make
objective, value-added recommendations to our customers during the course of a
project.
CYSIVE GROWTH STRATEGY
Our objective is to strengthen our position as a leading e-business
engineering firm. The key elements of our growth strategy are to:
ATTRACT AND RETAIN HIGHLY EXPERIENCED SOFTWARE ENGINEERS
Attracting and retaining qualified software engineers is critical to our
growth. We identify and attract seasoned software engineers through a broad
range of sources, including internal referrals, other technology companies and
technical associations, the Internet and advertisements in technical
periodicals. We place a strong emphasis on hiring software engineers who have
several years of industry experience and proven technical expertise. To ensure
that we hire qualified software engineers, we employ a seven-step recruiting
process that incorporates multiple examinations to evaluate a candidate's
technical qualifications. Our focus on complex projects, coupled with our
exacting recruiting standards, has created a culture that fosters proven
competence with advanced technologies and helps us to attract and retain highly
qualified personnel. For example, since January 1, 1999, we have hired 45% of
our existing software engineers based on internal referrals and believe that our
attrition rate of less than 5% is well below the industry average.
EXPAND EXISTING AND ESTABLISH NEW CUSTOMER RELATIONSHIPS
Our ability to further penetrate our existing customer base and establish
relationships with new customers is essential to our growth. Because our
strategy revolves around delivering highly customized e-business systems for our
customers' critical business applications, we approach the customer relationship
from a long-term perspective. We target corporate customers who are investing
significant resources on Internet-focused business strategies that require
complex technology systems. While further penetration of our existing customer
base is important, we aggressively seek new customer relationships through our
direct sales efforts, new marketing activities, referral-driven sales and
strategic technology partnerships.
EXPAND CYSIVE'S BRAND RECOGNITION
Our reputation and track record with customers are key to our success. To
augment the reputation and track record that we have established from
successfully implementing many e-business systems, we are launching an
aggressive marketing campaign aimed at chief executive officers, chief
information officers and electronic commerce managers to build brand recognition
and generate sales leads. Our success in communicating the Cysive brand will
drive our visibility with potential customers, industry partners and prospective
employees.
ENHANCE OUR GEOGRAPHIC PRESENCE
Continued geographic expansion gives us access to a broader base of highly
qualified software engineers and customers. We plan to establish a local
presence in several of the key technology markets to increase our visibility
with and ability to evaluate a larger number of potential software engineers.
Decreasing the travel burden placed on our software engineers should
significantly enhance our ability to hire and retain people with the skill level
we desire and help us to maintain our low attrition rates. Moreover, a broader
geographic presence will help us to service our existing customers better and to
establish new relationships. In addition, we intend to capitalize on local
offices to enhance our regional marketing efforts. We have already established
offices in the metropolitan areas of Washington, D.C., San Jose, CA, Atlanta, GA
and Chicago, IL and plan to open offices in the metropolitan areas of Los
Angeles, CA and Dallas, TX.
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CONTINUE TO BUILD AND DEPLOY ADVANCED TECHNOLOGIES
Deployment of advanced technologies is essential to our ability to deliver
customized e-business systems. The core architectures that our software
engineers build for our customers serve as the foundation for future application
developments and, therefore, need to be reliable and secure. These systems must
also be able to sustain rapid growth without requiring significant modification.
These architectures cannot be developed solely by using packaged applications
but instead require the integration of an array of existing and emerging
technologies. Maintaining a leadership position in understanding and using the
latest technologies is critical to our growth, and we will continue to dedicate
significant resources in this area. For example, we have established a
technology group with the primary objectives of keeping our software engineers
abreast of the latest innovations in technology and enabling each of them to
bring the acquired expertise to any customer project. Our software engineers
staff this group on a rotating basis to learn the practical intricacies of the
latest technologies and are able to subsequently disseminate their learning
across all areas of our company.
CASE STUDIES
The following are descriptions of representative projects which we have
completed, or in the case of Sylvan Prometric and Equifax Secure, Inc., are
ongoing. Financial and statistical data included in these descriptions have been
provided by the applicable customers.
CISCO SYSTEMS, INC.
Cysive SWAT Team Six software engineers over a period of 14 months.
Customer Description Cisco operates one of the world's largest Internet
commerce sites, generating electronic commerce
revenues of $32 million per day. The order
processing engine supporting this site is the
Internetworking Product Center, or IPC, through
which Cisco's largest enterprise customers have
exclusive access to tailor large, complex
networking solutions online and place their orders
directly with Cisco.
Customer Challenge In early 1997, the IPC handled 300 orders per day
over the Internet. As the IPC's popularity
increased, customer demand exceeded its capacity.
To ensure that the system could handle
significantly higher levels of customer demand,
Cisco needed to overhaul the IPC architecture with
a state-of-the-art electronic commerce engine.
Cysive Deliverable Cysive worked with Cisco to identify system
requirements to support the growing complexity and
volume requirements of Cisco's online order demand.
The resulting server-side Java-based order
processing engine, built by Cysive's software
engineers in collaboration with Cisco and run on a
Cisco network architecture, provides reliability,
accelerated performance and the ability to
accommodate rapid growth.
Key Features - By allowing the IPC to share data and system
resources across multiple transactions and by
maintaining continuous server connections
throughout long, complex transactions, the IPC
can process nearly 300% more orders, accounting
for nearly 60% of Cisco's $12.2 billion in
revenues for its 1999 fiscal year.
- Significant performance improvements were
realized. The speed of one-third of the most
commonly used application transactions increased
five to 10 times over previous levels, while the
speed of the remaining two-thirds doubled.
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- The new component-based IPC system provides
greater overall flexibility. Because we built the
architecture as a reusable set of components, in
a follow-on project we reused approximately 60%
of the code for another application in a new area
of the business, cutting the subsequent
development time in half.
CLASSIFIED VENTURES, INC./CARS.COM
Cysive SWAT Team Six software engineers over a period of four
months.
Customer Description Cars.com is a division of Classified Ventures, a
Chicago-based company formed by eight leading media
companies including The Tribune Company, Central
Newspapers, Inc., Gannett Co. Inc., The New York
Times Co. and The Washington Post Company. To begin
transitioning its offline classified listings
business to an Internet-based model, Classified
Ventures sought to develop Cars.com, a web site
that allows users to quickly search and locate
vehicles by make, model, location, price, mileage
and other attributes from across the nation.
Customer Challenge Cars.com needed an architecture that would allow a
high volume of users to quickly and easily find the
car they want, read auto reviews and expert car
buying advice, and obtain information on loans and
leases. After a competitor's system failed to meet
high volume demand, Classified Ventures turned to
Cysive.
Cysive Deliverable Cysive rearchitected the Cars.com site, creating a
flexible system that can handle extremely high user
volumes. As of August 1999, the site served over
1.5 million page views per day with one million
unique visitors per month. In June 1999, Media
Metrix ranked the site as the second most
trafficked automotive site on the Internet. The
architecture enables real-time data from over 130
affiliate newspapers across the United States.
Key Features - Every page request on the Cars.com site employs
technology called Java servlets. Servlet
architectures do not require the program to re-
execute for each request, which can slow down
performance. This design enables the system to
handle more transactions simultaneously.
- One of the key challenges to creating a flexible
system adaptable to millions of transactions per
day is to ensure that information is up-to-date
and reliable. At these traffic volumes, even the
most advanced databases are challenged to both
read and provide information and write and
maintain information. We created a system that
addresses this challenge by optimizing database
resources.
- We designed and delivered specialized caching
techniques that keep reusable information in the
middle tier of the application so it can be
quickly accessed without returning to the
database. This design helps to ensure data
integrity, performance and reliability.
- The component-based architecture allows for a
high degree of reuse as the system extends to
include new functions, enabling Cars.com to adapt
and change to market conditions. In addition, we
have been able to reuse many of these components
for other Classified Ventures projects.
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EQUIFAX SECURE, INC.
Cysive SWAT Team Eight software engineers over a period of four
months.
Customer Description Equifax Secure, Inc., a wholly owned subsidiary of
Equifax, Inc., provides electronic commerce
solutions that enable enterprises to authenticate
consumer identity, secure business applications and
manage digital certificates and directories for
highly secure, private electronic commerce over the
Internet and other networks.
Customer Challenge Equifax Secure's objective was to build a high
performance system on which to run Equifax Secure's
electronic commerce solution. Equifax Secure
solutions significantly reduce the risk, cost and
complexity of assuring the privacy and security of
electronic transactions over the Internet and other
networks. Equifax Secure offers a fee-based service
for corporate customers across a wide range of
industries that need to identify Internet users
with a high degree of certainty. Equifax Secure's
customers include companies such as eBay and
Security First National Bank.
Cysive Deliverable We built the Internet application software that
supports Equifax Secure's patent-pending, remote
consumer authentication process. The system queries
consumers for specific personal information,
matches the response to information in Equifax's
databases and other sources and evaluates the
information as to its reliability, reporting the
results back to the Equifax Secure customer.
Key Features - The system is designed to handle up to 4,000
concurrent users and handle 400 transactions per
minute.
- The system has been designed for flexibility and
to adapt to the future needs of Equifax. It
employs a component-based architecture that has
specific business functionality for consumer
authentication that is layered on top of
generalized services for infrastructure and data
access. These last two can be reused for
follow-on applications, reducing the cost and
time to market for Equifax Secure.
FIRST UNION CORPORATION
Cysive SWAT Team Three software engineers over a period of three
months.
Customer Description One of the nation's largest financial institutions,
First Union provides financial services to more
than 16 million retail and corporate customers.
Customer Challenge The ability to deliver account information to
customers with reliability and security is central
to First Union's business. First Union's objective
was to provide 100% reliable customer service in a
cost-effective manner, delivering account
information through automated channels such as
interactive voice response telephony and the
Internet. As the number of its customers increased,
First Union realized that it needed back-up for its
legacy systems to deal with unexpected volume
spikes and power outages, or for scheduled outages,
to maintain reliable 24/7 delivery of information.
Cysive Deliverable Cysive built a dynamic, highly available system
that delivers balance and transaction information
to First Union account holders. We designed the
system to stand-in for all online channels
including the
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interactive voice response telephony and the
Internet, and to expand as First Union's business
grows.
Key Features - The new system can handle high volumes of
information with reliability and security. By
caching or storing the data for the most popular
customer inquiries between the mainframe and the
online channels, the design reduces the burden on
the system and improves performance.
- The architecture is designed to reduce the risk
of service failure by employing a highly
available software application running on highly
available servers. The application is designed to
balance transactions across multiple servers. If
one or more servers goes down, the application
automatically moves customer traffic to the
remaining redundant servers without an
interruption in service. The new system, in its
initial implementation, has stood in for 50% to
70% of voice response unit inquiries.
- By automating the account inquiry traffic, the
new system provides timely account information to
First Union customers, thereby reducing the
number of inquiries directed to the customer
service support center. The new system has the
potential to reduce First Union's costs on a per
call basis up to 80%.
SYLVAN PROMETRIC
Cysive SWAT Team 16 software engineers deployed on two different
ongoing projects.
Customer Description Sylvan Prometric is the technology-based testing
division of Sylvan Learning Systems, Inc., a
leading worldwide provider of computer-based
testing services. Sylvan operates 3,500 testing
centers in 130 countries and supports 35 monetary
currencies and 25 languages. Sylvan currently
delivers over 500,000 tests per month.
Customer Challenge Scheduling and registration of Sylvan Prometric
test candidates is a business process central to
the success of the company. To maintain its
leadership position, Sylvan continually seeks to
enhance and improve its processes and technologies.
Sylvan Learning Systems acquired a large competitor
several years ago and, to date, has been operating
with multiple, disparate scheduling and
registration systems. These systems needed to be
fully integrated to maximize the competitive value
of Sylvan's growing distribution channels and to
leverage Internet connectivity for its customers.
Cysive Deliverable We are developing a comprehensive system for all
worldwide registration and scheduling of test
candidates through the Internet, call centers and
an automated voice response telephony system. We
also are developing an underlying corporate
intranet-based system to provide Sylvan with an
efficient, lower cost means for managing key
business processes.
Key Features - Using Internet-based technologies and
infrastructures, Cysive is building a single,
centralized scheduling and registration resource
for Sylvan. With features such as automated
registration and scheduling for tests, electronic
reporting of test results and the ability to
store customer information including candidate
eligibility, candidate demographics and testing
history, Sylvan should be able to improve
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the efficiency and customer service of its
testing services while reducing operating costs.
- We are building an underlying intranet-based
system through which Sylvan can manage its
business processes such as: reporting
capabilities for global business operations;
integrating the financial system; and enabling
test centers around the world to administer their
own specific solutions for scheduling and
registration.
- This approach will consolidate and streamline all
activities associated with the scheduling and
registration process. Today, Sylvan handles most
registrations using call center representatives.
With the new system, Sylvan expects to generate
80% of the registrations through the Internet and
individual testing centers, significantly
reducing call center operating costs and
improving customer service and business
performance.
THE CYSIVE DEVELOPMENT PROCESS
Cysive uses a multi-phase development process that simplifies the
management of and reduces the risks associated with project development. Our
development approach starts with a comprehensive assessment that identifies the
scope, architecture, schedule and cost of building a customer's e-business
system. After this initial assessment, the project consists of incremental
milestones that produce deliverables over a time period which typically spans
eight to 16 weeks. These milestones allow for a controlled, customized and
repeatable process that reduces costs and ensures delivery. Within each
milestone, our development process comprises three phases: architecture and
analysis, design and development, and testing and deployment. Throughout each
milestone, Cysive project managers perform routine quality assurance reviews to
ensure we deliver the system on time, on budget and with the appropriate
functionality.
COMPREHENSIVE INITIAL ASSESSMENT
The Cysive assessment evaluates the customer's e-business strategy and
gives an immediate, clear and concise understanding of the e-business system
needed to meet our customer's business objectives. We provide a system blueprint
that details the high level architecture, including the system's key components
and processes, and the requirements, including every function and interaction,
the new system will deliver. We also produce a detailed project plan with our
recommendations for the organization, process, schedule, staffing and cost of
the project.
The assessment determines the project milestones required for successful
delivery. Each milestone has an inventory of specific related functions, and
within each milestone we complete the three phases of the Cysive development
process. By building, testing and deploying the system in milestone increments,
we ensure timely and accurate delivery of the system. Moreover, the milestones
can often be completed in parallel, significantly reducing the time to market of
the system.
THE DEVELOPMENT PROCESS: ARCHITECTURE AND ANALYSIS PHASE
The architecture and analysis phase produces detailed requirements and
system architecture specifications to ensure smooth, predictable project
execution. As part of this phase, we deliver the following:
- Requirements Specification: We produce a detailed description of
functional needs as well as non-functional requirements, including
performance, reliability and security requirements.
- High Level Object Model: We develop a model that highlights the
software components of the system, its business functions and
interrelationships.
- Updated Project Plan: We update the schedule, tasks, resource
requirements and organization chart in the project plan.
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- Technical and Software Architecture Specification: We specify
software partitioning, other products, protocols and deployment
options.
- Frameworks and Graphical User Interface Prototypes: We partially
develop the system that provides an early demonstration of its
functionality and conduct end-to-end testing to reduce risk.
THE DEVELOPMENT PROCESS: DESIGN AND DEVELOPMENT PHASE
During the design and development phase, we refine the system architecture
and write and test the source code. As part of this phase, we deliver the
following:
- Design Documentation: We provide sequence diagrams and a greater
level of detail to the object model developed in the prior phase.
- Source Code Written: We write the code to implement each business
function in the system.
- Testing: We begin with unit testing, followed by incremental
integration and regression testing.
- Functional System Demonstration: As we complete each milestone, a
demonstration of the systems' functionality becomes available for
review.
THE DEVELOPMENT PROCESS: TESTING AND DEPLOYMENT PHASE
The final phase of the Cysive development process starts during the
analysis phase when the project team evaluates and selects the best testing
tools for a customer's system test. A three-step testing process begins with:
- System Test and User Acceptance Planning: We detail the processes
for conducting the system test, define how and when performance and
stress testing will be conducted, detail reporting and tracking of
software defects and outline test team member roles.
- System Test: The system test requires completion of all milestones,
integration and regression testing. The system test team works
together with the development team to identify any defects in the
software, make appropriate fixes and execute additional test cycles
until all defects are eliminated.
- User Acceptance Test/Pilot: The last step in the testing phase
includes final testing of the software and release to a subset of
the user community. The pilot process develops a core group of users
to debug the system in its actual production environment and to help
accelerate training when made available to a broader user community.
- System Deployment: After final testing, we deploy the system and
monitor its performance through feedback from future milestones of
the project.
QUALITY ASSURANCE
Cysive's thorough quality assurance process mitigates risk and addresses
critical issues as they arise to ensure that we deploy our customers' e-business
systems successfully and on schedule. The mandatory process involves monthly
two-day evaluations conducted by a senior level software engineer who serves as
a supervisor to a project team. To distribute knowledge across our company and
to help maintain objectivity within each project, we use a project manager from
outside of a given project team to serve as the quality assurance supervisor who
monitors and evaluates a project's development. This supervisor is responsible
for a monthly review meeting and report focused on the scope, schedule and cost
of the project. This senior level supervisor evaluates the status reports,
assists in the resolution of technical problems and ensures adherence to the
development process. In addition, the supervisor is responsible for continually
assessing a customer's internal processes and helps to make objective,
value-added recommendations to our customers. This process imposes a discipline
to our projects that helps to shorten time-to-deployment cycles by as much as
one to three months. In addition to ensuring a high quality deliverable, the
quality assurance process helps to give our software engineers valuable project
experience. By making every one of our senior software engineers responsible for
quality assurance, the process
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facilitates the sharing of knowledge and helps us to maintain high levels of
quality as we scale the business. In addition, throughout the quality assurance
process, project documentation and data are continually fed into our knowledge
base.
KNOWLEDGE MANAGEMENT
We spend considerable resources implementing practices by which we stay
apprised of emerging technologies and best practices which we refer to as our
knowledge management process. We approach Cysive knowledge management in two
important ways:
TECHNOLOGY GROUP
Our technology group comprises four full-time software engineers who lead
our efforts in research and development, training and information exchange.
Members of the technology group serve as practice leaders for our software
engineers in the latest technologies, languages, tools and environments.
Accordingly, their primary job is to continually lead the evaluation of new
products to identify advanced technologies and disseminate this information
throughout our company using the knowledge base. As a result of the resources we
commit and the expertise of our technology team, our software engineers employ
the latest proven software engineering tools, multi-tier architectures and
frameworks. By pre-screening all of our tools and technologies, we are able to
architect advanced systems and consistently deliver proven results on critical
business projects. In addition, while our technology group has industry leading
experience in technologies including XML, Java, C++, Internet application
servers, Distributed Objects including CORBA and DCom, and Relational and Object
Database Management Systems, we spend significant resources on developing the
most advanced technologies. For example, our technology group is currently
researching emerging technologies like Natural Language Processing and
Model-Based Reasoning. In addition, our technology group is responsible for
ongoing proficiency training and the certification testing for all of our
software engineers.
KNOWLEDGE BASE
Over the past two years, Cysive has spent significant resources building an
extensive knowledge base. The knowledge base, which our software engineers
access from remote locations via a secure corporate intranet, is the central
repository for detailed information on every customer project Cysive conducts.
For each system being built, the knowledge base contains a project file
detailing customer information, a description of the project including the
requirements analysis, project plans, architecture designs and quality assurance
reviews, and a list of the technology products utilized on the project. Finally,
the knowledge base also contains relevant white papers, technical tips and
technology articles that may be of interest to our software engineers.
This knowledge base, which enables us to leverage and reapply our
accumulated experience, is a critical resource for both our software engineers
and management. Using the knowledge base's powerful search and display tools,
users can quickly traverse information links to related information and
documents. As a result, our software engineers can readily reference plans and
specifications from prior projects. This real-time access to information enables
our software engineers to condense the delivery time and to mitigate the
potential problems of a project by identifying those techniques and products
that have already been successfully employed in similar systems. In addition, by
providing information on project progress and customer needs, the knowledge base
helps management prepare for customer meetings and project reviews.
A key component of the knowledge base is the technology pipeline, which is
our repository of evaluations of technologies, tools and products. Prior to use
on a customer project, all products are carefully evaluated. The technology
pipeline contains reviews of over 115 products in 22 technology categories.
While the technology pipeline is an invaluable resource for our software
engineers, it is also an important method by which we conduct training and
development. The evaluation process that we employ involves all of our software
engineers. While between projects, our software engineers, under the direction
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of our technology team, work on one or more of the seven stages we have outlined
in the evaluation of a product. Having our software engineers conduct these
evaluations affords them the opportunity to continually work with a variety of
new technologies. A product can then be used on a customer project once it has
successfully completed all of the stages of the Cysive evaluation process.
Initial implementation of new technologies are generally performed by the
software engineers who were part of the technology's evaluation team. In this
manner, we ensure that our customers receive both a proven technology and a team
of software engineers with expertise to deliver that technology.
CULTURE
We continue to build our corporate culture around a common set of values
based on excellence, discipline and results. Our software engineers understand
that we hire only high caliber technical people because our customers demand a
high level of execution. We believe we have instilled in our software engineers
the sense of challenge as well as pride in having helped to build some of the
most technically complex systems in today's e-business environment. By growing
our business internally, we have been able to instill this value set to all of
our professionals on an individual basis. Our culture contributes to our low
attrition rate of less than 5%.
While we focus on excellence and quality, we also foster and maintain a
culture based on innovation, challenge and teamwork to attract and retain the
level of software engineer we demand. In addition, we attempt to create an
environment that promotes cooperative relationships and encourages teamwork. To
ensure rapid deployment of our software engineers, we promote flexibility, speed
and open communication. In addition, to ensure continued development of our
technical staff, we place a high priority on training. We conduct training in a
number of important ways by:
- requiring time for training, so that our software engineers have the
opportunity to assess and master emerging technologies;
- mandating an initial two-week boot camp for new employees;
- conducting two annual company meetings centered around technical
themes;
- sending our software engineers to conferences after which they are
required to write white papers for internal distribution;
- providing training in preparation for three levels of technical
certification;
- purchasing reference materials for our software engineers who in
return write reviews of the materials; and
- offering ongoing internal technology seminars.
RECRUITING
Cysive's continued success and growth depends on our ability to attract and
retain high caliber technical talent. We have a stringent recruiting process
that ensures the technical capability of all of our hires. Given the importance
of recruiting to our company, every professional within Cysive is dedicated to
our recruiting efforts, from our six technical recruiting experts to our
software engineers, management and sales and marketing staff.
We target software engineers with extensive experience and demonstrated
expertise working throughout the technology development lifecycle, from
architecture and design through the development, testing and deployment of
complex technical solutions. Only software engineers with this depth and range
of technology expertise possess the skills required to architect and build
e-business systems that integrate advanced Internet-based technologies with
multiple existing internal systems.
We employ a seven-step hiring process. After initially seeking and
identifying candidates who meet our rigorous standards, our recruiting experts
conduct an initial phone interview with technical questions to screen for high
caliber talent. Candidates then take an hour-long technical test, proceed to a
project manager-level technical screen, face-to-face interviews with a regional
director, project manager and software engineers and a discussion with a senior
executive officer. We maintain a detailed candidate pipeline that tracks all
steps of the process. The capability to analyze this data by skill level, years
of
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experience, region, salary, source, recruiter, visa status and time-to-close
allows us to constantly monitor and improve our recruiting efforts.
To attract potential software engineers, we target multiple functional
areas. We have a number of recruiting efforts aimed at the local, regional and
national markets to help us identify the industry's most seasoned technical
talent. Since January 1, 1997, we have built a reference database which is
comprised of internal referrals from our software engineers and has accounted
for 45% of our hires to date. We also research and identify companies and
technical associations with suitable technical talent and employ advanced
Internet search capabilities to identify potential candidates. Finally, we
advertise in technical and trade periodicals that appeal to software engineers.
SALES AND MARKETING
Our sales efforts are targeted at corporate customers who are investing
significant resources in their e-business strategies and consequently require
complex technology systems to meet the growth of these strategies. We have a
sales force of 13 professionals that covers three geographic regions: east,
central and west. In each region, we have a senior regional sales manager and a
supporting team of account managers. By structuring our sales organization along
geographic lines and separating account management from delivery, we are better
able to capitalize on regional opportunities and provide higher levels of local
account management and support to our customers. In working with our customers,
we employ a collaborative sales approach that combines the business and
technical knowledge of our salespeople and software engineers. While the account
managers have responsibility for the business aspects of a customer
relationship, they are also held accountable for project progress and delivery.
As a result, they must work closely with the project teams to ensure the
successful completion of all customer projects.
Given our successful completion of several high profile e-business systems,
many sales leads result from referrals. In addition, our sales force actively
generates leads through a combination of direct mail, targeted events with
industry thought leaders and cooperative marketing with industry partners. To
augment our sales efforts, we also have a separate marketing effort comprised of
three professionals. Cysive's marketing group focuses on two key objectives.
First, we focus on building brand recognition at a national level to drive
business growth and support our recruiting efforts. Second, we focus on
developing and cultivating leads for the sales force amongst our target audience
of chief executive officers, chief information officers and electronic commerce
managers. To achieve these objectives, we employ a consistent communication
strategy based on standards for our logo, corporate identity, visual elements
and messages across all marketing channels. In addition, to enhance our brand
reputation and credibility, we utilize:
- a public relations program focused on building awareness and
recognition through industry and business press, industry analysts
and major industry forums;
- a comprehensive web site focused on customer case studies and
testimonials;
- national and regional advertising;
- on-site marketing programs at customer projects to enhance
visibility within the customer environment; and
- seminars to increase the visibility of our executives and provide
lead generation opportunities.
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CUSTOMERS
The following is a representative list of our customers for 1998 and the
current year.
<TABLE>
<S> <C>
AT&T Corp. John Deere & Co., Inc.
CareerPath.com, Inc. Knight Ridder New Media
Cisco Systems, Inc. LeapIT.com
Classified Ventures, Inc./Cars.com Medibuy, Inc.
DaimlerChrysler Corporation MicroStrategy, Inc.
Equifax Secure, Inc. Qualcomm, Inc.
First Union Corporation Sylvan Prometric
Fleet Bank UOP, Inc.
Hub Group, Inc. UUNET Technologies, Inc.
</TABLE>
In 1998, our five largest customers represented 65.3% of our revenues:
Cisco Systems, Inc., 19.6%; Classified Ventures, Inc./Cars.com, 18.0%; Sylvan
Prometric, 12.5%; DaimlerChrysler Corporation, 8.5%; and First Union
Corporation, 6.7%. For the six-month period ended June 30, 1999, our five
largest customers represented 82.5% of our revenues: Sylvan Prometric, 35.1%;
Classified Ventures, Inc./Cars.com, 15.2%; Equifax Secure, Inc., 13.4%; Cisco
Systems, Inc., 10.2%; and UUNet Technologies, Inc. 8.6%. The volume of work that
we perform for a specific customer is likely to vary from period to period, and
a significant customer in one period may not use our services in a subsequent
period. In addition, a failure to collect a large account receivable from any of
these customers could significantly reduce our assets and adversely affect our
business, financial condition and results of operations.
COMPETITION
The e-business engineering market is intensely competitive and faces rapid
technological change. We expect the competition to continue and intensify, which
could result in price reductions, reduced profitability and loss of current or
future customers. Our competitors fall into four major categories:
- Internet professional services providers, such as Proxicom, Inc.,
Scient Corporation and Viant Corporation;
- internal information technology departments of current and potential
customers;
- large information technology consulting services providers, such as
Andersen Consulting LLP, Electronic Data Systems Corporation,
International Business Machines Corporation and
PricewaterhouseCoopers, LLC; and
- traditional information technology services providers, such as
Sapient Corporation.
Many of our competitors have longer operating histories and customer
relationships, greater financial, technical, marketing and public relations
resources, larger customer bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in customer needs. This may place us at a disadvantage
in responding to our competitors' pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives. In
addition, there are low barriers to entry into our business because the costs to
provide information technology services are relatively low. We do not own any
technologies that preclude or inhibit competitors from entering our industry.
Therefore, we expect to continue to face additional competition from new
entrants into our industry.
We believe that the principal competitive factors in our business are:
- advanced technical knowledge;
- the reputation and experience of professionals delivering services;
- customer value and service;
- the success and reliability of the delivered system; and
- the ability to attract and retain highly skilled, experienced
professionals.
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<PAGE> 40
We believe that we presently compete favorably with respect to each of
these factors. The market for our services is evolving, however, and we may be
unable to compete successfully in the future.
EMPLOYEES
As of September 24, 1999, we had 121 employees, of whom 78 were software
engineers. Of these 78 software engineers, 30, or 38.5%, are working in the
United States under an H-1B visa. Moreover, 24 of our software engineers who are
working under H-1B visas have applied for permanent residency with the U.S.
Immigration and Naturalization Service. We believe our relationship with our
employees is good. None of our employees is represented by a union.
INTELLECTUAL PROPERTY RIGHTS
Our proprietary knowledge base and other intellectual property rights that
we develop for our customers are an integral part of our business. While
ownership of custom work product is generally retained by the customer, we
retain a royalty-free license to use some or all of the applications, processes
and intellectual property developed in connection with customer projects. This
information is accessible on our knowledge base only to our employees via our
secure corporate intranet. We enter into confidentiality agreements with our
employees, generally require that our software engineers and customers enter
into similar agreements and limit access to and distribution of our knowledge
base. In addition, we will enter into non-competition agreements with all of our
key employees upon completion of this offering. The steps we have taken in this
regard may not be adequate to deter misappropriation of our proprietary
information, and we may be unable to detect unauthorized use and take
appropriate steps to enforce our intellectual property rights.
FACILITIES
Our principal headquarters is located in Reston, VA. The lease for our
headquarters expires in June 2003. We also have offices in the metropolitan
areas of Chicago, IL, San Jose, CA, Atlanta, GA and plan to open offices in the
metropolitan areas of Los Angeles, CA and Dallas, TX. We do not own any real
estate. We do not consider any specific leased location to be material to our
operations and believe that equally suitable alternative locations are available
in all areas where we currently do business.
LEGAL PROCEEDINGS
We are not a party to any pending material legal proceedings.
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<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEE AND DIRECTORS
The following table presents information about each of our executive
officers, key employee and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Nelson A. Carbonell, Jr................... 36 Chairman of the Board, President, Chief
Executive Officer and Founder
John R. Lund.............................. 37 Chief Financial Officer, Treasurer,
Secretary and Director
Michael E. Price.......................... 51 Chief Technology Officer
Robert C. Rubinstein...................... 58 Chief Operating Officer
Joseph M. Rymsza.......................... 32 Vice President, Sales
John M. Saaty............................. 31 Vice President, Marketing
Penny J. Jobin............................ 43 Director of Recruiting
Jon S. Korin.............................. 45 Director
Eric J. Magleby........................... 38 Director and Founder
John M. Sabin............................. 44 Director
</TABLE>
Nelson A. Carbonell, Jr. founded Cysive and has served as President, Chief
Executive Officer and Chairman of the board of directors since we commenced
operations in 1994. From February 1991 until March 1994, Mr. Carbonell served as
Director of Commercial Systems, Inc. at PRC, Inc., now a subsidiary of Litton
Industries. PRC Inc. is a leading provider of information technology and
systems-based solutions for the U.S. government and commercial customers. Mr.
Carbonell serves on the Executive Committee of the Washington-Baltimore Young
President's Organization. Mr. Carbonell received a B.S. in Electrical
Engineering from George Washington University in 1985.
John R. Lund has served as our Treasurer since December 1995, our Chief
Financial Officer since April 1997 and our Secretary since April 1999. From
December 1995 until April 1997, Mr. Lund served as our Vice President of
Finance. From December 1994 until December 1995, Mr. Lund was Vice President of
Finance for Public Sector, Inc., a subsidiary of PRC, Inc. From January 1992
until December 1994, Mr. Lund served as Director of Management Reporting and
Budgets for PRC, Inc. Mr. Lund received a B.S. in Accounting from Brigham Young
University in June 1986. Mr. Lund has been a director since April 1999.
Michael E. Price has served as our Chief Technology Officer since November
1997. From October 1995 until November 1997, Mr. Price served as our Vice
President of Technology. From October 1993 until October 1995, Mr. Price served
as a member of the technical staff of MRJ Technology Solutions, a provider of
information systems and engineering services primarily to the U.S. government.
Robert C. Rubinstein has served as our Chief Operating Officer since July
1999. From March 1999 until July 1999, Mr. Rubinstein served as our Vice
President of Consulting. From August 1997 until March 1999, Mr. Rubinstein
served as Vice President of the Communications Operations and Maintenance
Support Sector of MRJ Technology Solutions, managing their Computer &
Communications Support and Communications Operations and Maintenance Support
contracts. From August 1994 until August 1997, Mr. Rubinstein served as the
Director of the Network Systems Division of MRJ and was responsible for
government and commercial networking and enterprise application development. Mr.
Rubinstein received a B.A. in Mathematics from California State University at
Los Angeles in 1963.
Joseph M. Rymsza has served as our Vice President of Sales since March
1998. From October 1991 until February 1998, Mr. Rymsza served in numerous
domestic and international sales management capacities for Object Design, Inc.,
a developer of object-oriented databases. Mr. Rymsza received a B.S.E.E. in
Electrical and Computer Engineering from the University of Notre Dame in 1989.
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<PAGE> 42
John M. Saaty has served as our Vice President of Marketing since July
1999. From December 1998 until June 1999, Mr. Saaty served as our Director of
Marketing. From August 1995 until November 1998, Mr. Saaty served as a brand
manager for Intel Corp. responsible for microprocessor brand strategy and
marketing, and as a product marketing manager for consumer desktop PCs. Mr.
Saaty received a B.A. in English from Northwestern University in 1990 and an
M.B.A. in Marketing from The Wharton School of the University of Pennsylvania in
1995.
Penny J. Jobin has served as our Director of Recruiting since September
1995. From January 1993 until August 1995, Ms. Jobin served as Director of
Technical Recruiting at Paul-Tittle Associates, an executive search firm in
McLean, Virginia. Ms. Jobin received a B.S. in Business Administration from
George Mason University in 1980.
Jon S. Korin has served as a Director since April 1997. Mr. Korin has
served as vice president of strategic development for PRC, Inc. since June 1993.
He is a board member and past president of the National Capital chapter of the
Association for Corporate Growth and a board member of the IT Services Division
of the Information Technology Association of America. Mr. Korin received a B.S.
from The Wharton School of the University of Pennsylvania in May 1976 and
attended the New York University Graduate School of Business.
Eric J. Magleby has served as a Director and an account manager since we
commenced operations in 1994. From February 1994 until April 1999, Mr. Magleby
was also our Executive Vice President. Prior to joining Cysive in 1993, Mr.
Magleby worked in various sales and management positions at PRC, Inc. Mr.
Magleby received a B.S. in 1985 and M.S. in 1990 from Brigham Young University.
John M. Sabin has served as a Director since April 1997. Mr. Sabin
currently acts as a business consultant. From May 1998 until September 1999, Mr.
Sabin served as Executive Vice President and Chief Financial Officer of Hudson
Hotels Corporation. Hudson Hotels Corporation is public hotel ownership and
management company. From February 1997 until May 1998, Mr. Sabin served as
Senior Vice President and Treasurer of Vistana, Inc., a public company that
owns, operates and develops time share resorts, and served as Chief Financial
Officer of Vistana from February 1997 until November 1997. From June 1996 until
February 1997, Mr. Sabin served as Vice President of Finance of Choice Hotels
International, Inc., a public hotel franchisor, and served as Vice President of
Mergers and Acquisitions from June 1995 to February 1997. From December 1993
until October 1996, he served as Vice President of Finance and Assistant
Treasurer of Manor Care, Inc., the former parent of Choice Hotels International,
Inc. Mr. Sabin is a Director and non-Executive Chairman of the Board of
Competitive Technologies, Inc., a public technology licensing and transfer
company. Mr. Sabin received his B.S., M.Acc. and M.B.A. degrees from Brigham
Young University and a J.D. degree from the J. Reuben Clark Law School at
Brigham Young University.
BOARD COMPOSITION
We currently have five directors. Upon completion of this offering, the
terms of office of the directors will be divided into three classes: Class I,
whose term will expire at the annual meeting of stockholders to be held in 2000;
Class II, whose term will expire at the annual meeting of stockholders to be
held in 2001; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. The Class I directors are Messrs. Carbonell and
Magleby, the Class II directors are Messrs. Lund and Sabin and the Class III
director is Mr. Korin. At each annual meeting of stockholders after the initial
classification or special meeting held in place of an annual meeting, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election or similar special meeting. If the board of directors
increases the number of directors, the newly created directorships will be
distributed among the three classes so that each class of directors will, as
nearly as possible, consist of one-third of the directors. This classification
of our board of directors may delay or prevent changes in control or management
of Cysive.
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<PAGE> 43
BOARD COMMITTEES
Our board of directors has established an audit committee, a compensation
committee and an executive committee. The audit committee consists of Messrs.
Sabin and Korin and assists the board of directors in fulfilling its
responsibilities of ensuring that management maintains an adequate system of
internal controls. The audit committee also:
- recommends an independent audit firm to audit financial statements and to
perform services related to the audit;
- reviews the scope and results of the audit with the independent auditors;
- considers the adequacy of the internal accounting control procedures;
- and considers auditors' independence.
The compensation committee determines the salaries and incentive
compensation of Cysive's officers and provides recommendations for the salaries
and incentive compensation of other employees and software engineers. The
compensation committee also administers Cysive's various incentive compensation,
stock and benefit plans. The compensation committee consists of Messrs. Sabin,
Magleby and Korin.
The executive committee determines the objectives and performance criteria
of each member of Cysive's management team. The executive committee consists of
Messrs. Carbonell and Lund.
DIRECTOR COMPENSATION
Each non-employee director currently receives $1,000 of cash compensation
and reimbursement for reasonable travel expenses for each board meeting
attended. In addition, each director receives a stock option for the purchase of
20,000 shares of common stock for each year of service.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by our
Chief Executive Officer and all other executive officers whose salary and bonus
for services rendered in all capacities for the year ended December 31, 1998
exceeded $100,000. We use the term "named executive officers" to refer to these
people in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION(S) SALARY BONUS
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Nelson A. Carbonell, Jr., Chairman, President and Chief
Executive Officer......................................... $167,500 $143,422
John R. Lund, Chief Financial Officer....................... 118,077 58,144
Michael E. Price, Chief Technology Officer.................. 118,221 58,144
Joseph M. Rymsza, Vice President, Sales..................... 151,139 25,000
</TABLE>
Mr. Rymsza's salary includes sales commissions earned in the amount of $49,571.
40
<PAGE> 44
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows grants of stock options to each of our named
executive officers during the year ended December 31, 1998. The percentages in
the table below are based on options to purchase 1,543,500 shares of common
stock, granted under our stock option plan in the year ended December 31, 1998
to our employees and directors. The exercise price per share of each option was
equal to the fair market value of the common stock on the date of grant as
determined by the board of directors. Potential realizable values are net of
exercise price before taxes and are based on the assumption that our common
stock appreciates at the annual rate shown, compounded annually, from the date
of grant until the expiration of the 10-year term. These numbers are calculated
based on the requirements of the SEC and do not reflect our estimate of future
stock price growth.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- -------------------------------- ---------- ------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nelson A. Carbonell, Jr......... -- -- -- -- -- --
John R. Lund.................... 88,763 5.8% $1.38 1/19/08 $ 77,035 $195,221
46,238 3.0% 0.83 1/19/08 24,135 61,163
Michael E. Price................ 135,000 8.7% 1.38 1/19/08 117,163 296,914
Joseph M. Rymsza................ 257,193 16.7% 1.38 3/1/08 223,212 565,661
80,307 5.2% 0.83 3/1/08 41,918 106,230
</TABLE>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table presents summary information with respect to stock
options owned by the named executive officers at December 31, 1998, and with
respect to stock options exercised by the named executive officers during the
fiscal year ended December 31, 1998. No options were exercised in 1998. There
was no public trading market for the common stock as of December 31, 1998.
Accordingly, the values of unexercised in-the-money options shown below have
been calculated on the basis of the assumed initial public offering price of
$12.00 per share, less the applicable exercise price per share, multiplied by
the number of shares underlying those options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Nelson A. Carbonell, Jr...................... 1,237,500 -- $13,847,625 --
John R. Lund................................. 135,000 202,500 1,490,400 $2,188,806
Michael E. Price............................. 202,500 135,000 2,282,175 1,433,700
Joseph M. Rymsza............................. 112,500 225,000 1,216,834 2,411,584
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of our executive
officers and key employees. Each agreement has an initial term of three years
and will be extended for two additional years unless we or the employee elects
to terminate the agreement 60 days prior to the third anniversary of the
effective date of the employment agreements. Under these agreements, these
employees will receive an initial annual base salary that may be increased by
our board of directors based on performance objectives they establish, and an
annual bonus based upon our performance. These employees also will receive
options to acquire shares of common stock at the initial public offering price.
With respect to the other options shown below, one-fourth will vest on each
anniversary of the closing date of this offering, provided that all these
options will vest in full upon both a change in control and a termination within
one year of the
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<PAGE> 45
change of control. The following table shows information about the employment
agreements we have entered into with our executive officers.
<TABLE>
<CAPTION>
INITIAL ANNUAL
NAME BASE SALARY OPTIONS
- ------------------------------------------------------------ -------------- -------
<S> <C> <C>
Nelson A. Carbonell, Jr. ................................... $185,000 --
John R. Lund................................................ 135,000 150,000
Michael E. Price............................................ 125,000 90,000
Robert C. Rubinstein........................................ 125,000 --
Joseph M. Rymsza............................................ 125,000 --
John M. Saaty............................................... 125,000 --
Penny J. Jobin.............................................. 82,530 --
</TABLE>
In addition to the compensation in the table above, each employee is
eligible to receive an annual bonus, conditioned upon individual and company
wide performance criteria established by the board of directors. Employees are
eligible to receive the following percentage of their base salary as bonuses:
Nelson A. Carbonell, Jr., 150%; John R. Lund, 75%; Michael E. Price, 60%; Robert
C. Rubinstein, 60%; Joseph M. Rymsza, 100%; John M. Saaty, 60%; and Penny J.
Jobin, 60%. In addition, if the Company and an employee meet and exceed the
performance criteria, the employee may receive an additional bonus equal to a
portion of the Company's revenues in excess of the original targets.
If, during the term of one of these agreements, we terminate the employee's
employment without cause or the employee terminates his or her employment for
good reason, the employee will be entitled to receive his or her base salary and
all employee benefits for a period of one year from the date of the termination
of employment. Under the terms of these agreements, these employees have agreed
to preserve the confidentiality and the proprietary nature of all information
relating to our business during the term of the agreement and for three years
after the term of the agreement ends. In addition, each of these employees has
agreed to non-competition and non-solicitation provisions that will be in effect
during the term of his or her agreement and for two years after the term of the
agreement ends.
STOCK PLANS
STOCK OPTIONS
The 1994 Option Plan provides for the grant of restricted stock and other
stock-based awards and stock options. 11,350,000 shares of common stock are
authorized to be issued under the 1994 Option Plan, of which options to purchase
5,140,112 shares of common stock are available for grant under the 1994 Option
Plan as of September 24, 1999. The number of shares authorized to be issued
under the 1994 Option Plan will also be increased by 15% of any increase in
Cysive's outstanding shares (other than increases resulting from the stock
issuance under the 1994 Option Plan). Options to purchase 6,209,888 shares of
common stock at a weighted average exercise price of $1.28 per share were
outstanding under the 1994 Option Plan as of September 24, 1999.
The 1994 Option Plan will be amended and restated concurrently with the
closing of this offering to permit the granting of options to purchase shares of
common stock intended to qualify as incentive options under the Internal Revenue
Code and options that do not qualify as incentive options. The exercise price of
each non-qualified options will be determined by the compensation committee but
may not be less than 85% of the fair market value of our common stock on the
date of grant. For incentive options, the exercise price may not be less than
100%, or 110% in the case of 10% stockholders, of the fair market value of our
common stock on the date of grant.
The term of each option will be fixed by the compensation committee and may
not exceed 10 years from the date of grant. The compensation committee will
determine at what time or times each option may be exercised and the period of
time, if any, after retirement, death, disability or termination of
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<PAGE> 46
employment during which options may be exercised. Options may be made
exercisable in installments. The exercisability of options may be accelerated by
the compensation committee.
The compensation committee may also award:
- shares of common stock to participants. These stock awards may be
conditioned on the achievement of performance goals and/or continued
employment with us through a specified restricted period. If the
performance goals and any other restrictions are not attained, the
participant will forfeit his or her restricted shares. The purchase price
of restricted shares of common stock will be determined by the committee.
- deferred stock units, which are ultimately payable in the form of
unrestricted shares of common stock. A deferred stock award may be
conditioned or restricted in whatever manner the compensation committee
may determine. These conditions and restrictions may include the
achievement of performance goals and/or continued employment with us
through a specified restricted period. If the performance goals and other
restrictions are not attained, the participant will forfeit his or her
deferred stock units. During the deferral period, the deferred stock
units may be credited with dividend equivalent rights.
- shares of common stock at no cost or for a purchase price determined by
the compensation committee which are free from any restrictions under the
stock option plan. Unrestricted shares of common stock may be issued to
participants in recognition of past services or other valid
consideration, and may be issued in lieu of cash compensation to be paid
to participants.
- performance stock awards to participants entitling the participants to
receive shares of common stock upon the achievement of performance goals
and other conditions determined by the compensation committee.
- dividend equivalent rights entitling the recipient to receive credits for
dividends that would be paid if the recipient had held a specified number
of shares of common stock. Dividend equivalent rights may be granted as a
component of another award or as a freestanding award. Dividend
equivalent rights credited under the stock option plan may be paid
currently or be deemed to be reinvested in additional shares of common
stock, and may accrue additional dividend equivalent rights after
reinvestment at fair market value at the time of deemed reinvestment.
Dividend equivalent rights may be settled in cash, common stock or a
combination of cash and shares, in a single installment or installments,
as specified in the award. Awards payable in cash on a deferred basis may
provide for crediting and payment of interest equivalents.
- a right to receive a number of shares or, in the discretion of the
compensation committee, an amount in cash or a combination of shares and
cash, based on the increase in the fair market value of the shares
underlying the right during a stated period specified by the compensation
committee. The compensation committee may approve the grant of these
stock appreciation rights related or unrelated to stock options. Upon
exercise of a stock appreciation right that is related to a stock option
granted, the holder of the related option will surrender the option for
the number of shares as to which the stock appreciation right is
exercised and will receive payment of an amount computed as provided in
the stock appreciation right award. Generally, a stock appreciation right
granted in connection with a stock option will be exercisable at the time
or times, and only to the extent that, the related stock option is
exercisable, and will not be transferable except to the extent that the
related option may be transferable.
PERFORMANCE AND ANNUAL INCENTIVE AWARDS
Our stock option plan authorizes the compensation committee to grant
multi-year and annual incentive awards based upon achievement of pre-established
performance goals, including awards that qualify as "performance-based
compensation" for purposes of the Internal Revenue Code. The grant, exercise
and/or settlement of a performance award may be made contingent upon achievement
of pre-established performance goals. Achievement of performance goals will be
measured over a performance period of up to 10 years, as specified by the
committee.
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<PAGE> 47
The amount of an incentive award is based upon the achievement of a
performance goal or goals based upon business criteria during a given
performance period specified by the committee. The committee may specify the
amount of the incentive award as a percentage of these business criteria, a
percentage in excess of a threshold amount or as another amount which need not
bear a strictly mathematical relationship to these business criteria.
OTHER STOCK-BASED AWARDS
The committee is authorized to grant to participants other awards that may
be based on or related to our common stock, including:
- convertible or exchangeable debt securities;
- other rights convertible or exchangeable into shares;
- purchase rights for shares;
- incentive awards with value and payment contingent upon performance; and
- incentive awards valued by reference to the performance of specified
subsidiaries or business units.
1999 EMPLOYEE STOCK PURCHASE PLAN
The Cysive, Inc. 1999 Employee Stock Purchase Plan will permit eligible
employees to purchase shares of common stock at a discount. All Cysive employees
whose customary employment is more than 20 hours per week and for more than five
months in any calendar year are eligible to participate in this plan, provided
that any employee who would own 5% or more of the total combined voting power or
value of Cysive's stock immediately after any grant is not eligible to
participate. During purchase periods, we will withhold amounts through payroll
deductions for eligible employees who elect to participate in this plan. At the
end of each purchase period, we will use accumulated payroll deductions to
purchase stock at a price equal to no less than 85% of the market price on the
first or last business day of each offering period on behalf of our eligible
employees who are participating in the plan. We have reserved 1,125,000 shares
of common stock for issuance under this plan.
401(K) PLAN
We sponsor the Cysive 401(k) Profit Sharing Plan, a defined contribution
plan intended to qualify under Section 401 of the Internal Revenue Code.
Employees who are at least 21 years old are generally eligible to participate
and may enter the Plan as of the first day of any calendar quarter. Participants
may make pre-tax contributions to the plan of up to 15% of their eligible
earnings, so long as these contributions do not exceed a statutorily prescribed
annual limit. Each participant is fully vested in his or her contributions and
the investment earnings. We make matching contributions to the plan equal to
100% of the first 6% of a participant's contribution. Each participant is vested
in our contributions and the corresponding investment earnings after three years
of service. Contributions by the participants or Cysive to the plan, and the
income earned on these contributions, are generally not taxable to the
participants until withdrawn. Contributions by us are generally deductible when
made. Participant and company contributions are held in trust as required by
law. Individual participants may direct the trustee to invest their accounts in
authorized investment alternatives.
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<PAGE> 48
RELATED PARTY TRANSACTIONS
In January 1999 Nelson A. Carbonell, Jr., Chairman, President and Chief
Executive Officer, and Eric J. Magleby, a director, exercised options to
purchase shares of our common stock in the following amounts and exercise
prices:
<TABLE>
<CAPTION>
EXERCISE
PRICE
SHARES PER
PURCHASED SHARE
---------- --------
<S> <C> <C>
Nelson A. Carbonell, Jr................................. 1,237,500 $0.81
Eric J. Magleby......................................... 112,500 $0.81
</TABLE>
Messrs. Carbonell and Magleby funded the exercise prices for these options
through cash distributions from Cysive.
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<PAGE> 49
PRINCIPAL AND SELLING STOCKHOLDER
The following shows the number and percentage of outstanding shares of our
common stock that were owned as of September 24, 1999 and as adjusted to reflect
the sale of common stock in this offering by:
- each person known by us to own beneficially more than 5% of the common
stock
- each director, named executive officer and key employee;
- all directors and executive officers as a group; and
- the selling stockholder.
Unless indicated otherwise below, the address for each listed director and
officer is Cysive, Inc., 11480 Sunset Hills Road, Suite 200E, Reston, VA 20190.
Except as indicated by footnote, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them. The total number of shares of common stock
outstanding used in calculating the percentage for each listed person includes
the shares of common stock underlying options held by that person that are
exercisable within 60 days of September 24, 1999 but excludes shares of common
stock underlying options held by any other person.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- SHARES TO ----------------------
NAME NUMBER PERCENTAGE BE SOLD NUMBER PERCENTAGE
- ----------------------------------------- ---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Nelson A. Carbonell, Jr.(1).............. 6,937,610 74.4% -- 6,937,610 56.3%
Eric J. Magleby(2)....................... 2,362,500 29.1% 350,000 2,012,500 18.1%
John R. Lund(3).......................... 382,500 4.5% -- 382,500 3.3%
Michael E. Price(3)...................... 236,250 2.8% -- 236,250 2.1%
Joseph M. Rymsza(3)...................... 168,750 2.0% -- 168,750 1.5%
John M. Sabin(4)......................... 36,000 * -- 36,000 *
Jon S. Korin(3).......................... 33,750 * -- 33,750 *
---------- ------- ---------
All executive officers, key employees and
directors as a group (9 persons)(5).... 10,157,359 99.8% 350,000 9,807,360 74.4%
========== ======= =========
</TABLE>
* Less than 1% of the outstanding common stock.
(1) Mr. Carbonell's shares include 5,737,500 shares owned in joint tenancy by
Mr. Carbonell and his wife, Michele Carbonell, and 1,200,110 shares issuable
upon the exercise of currently exercisable options.
(2) Mr. Magleby's shares represent 2,362,500 shares owned in joint tenancy by
Mr. Magleby and his wife, Monette Magleby. If the underwriters exercised
their over-allotment option in full, Mr. Magleby would sell an additional
250,000 shares in the offering, reducing his beneficial ownership after the
offering to 1,762,500 shares.
(3) The shares beneficially owned by Messrs. Lund, Price, Rymsza and Korin,
represent shares of issuable upon exercise of currently exercisable options.
(4) The shares beneficially owned by Mr. Sabin include 33,750 shares issuable
upon exercise of currently exercisable options.
(5) The shares beneficially owned by all executive officers and directors as a
group include 1,987,610 shares issuable upon exercise of currently
exercisable options.
46
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
We founded our company in 1993 as a Virginia corporation and reorganized as
a Delaware corporation on September 24, 1999.
GENERAL
Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. We do not have any outstanding shares of preferred stock.
As of September 24, 1999, there were 8,127,000 shares of common stock
outstanding held by five stockholders of record. Based on the number of shares
outstanding on September 24, 1999, following this offering we will have
outstanding 11,127,000 shares of common stock. In addition, as of September 24,
1999, there were outstanding stock options for the purchase of a total of
6,209,888 shares of common stock at a weighted average exercise price of $1.28
per share.
COMMON STOCK
We are authorized to issue 75,000,000 shares of common stock. Each
stockholder of record is entitled to one vote for each outstanding share of our
common stock owned by that stockholder on every matter properly submitted to the
stockholders for their vote. After satisfaction of the dividend rights of
holders of preferred stock, holders of common stock are entitled to any dividend
declared by the board of directors out of funds legally available for this
purpose, and, after the payment of liquidation preferences to holders of
preferred stock, holders of common stock are entitled to receive, on a pro rata
basis, all our remaining assets available for distribution to the stockholders
in the event of our liquidation, dissolution or winding up. Holders of common
stock do not have any preemptive right to become subscribers or purchasers of
additional shares of any class of our capital stock. The outstanding shares of
common stock are, and the shares of common stock offered in this offering will
be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock may be adversely affected
by the rights of the holders of shares of any series of preferred stock that we
may designate and issue in the future.
PREFERRED STOCK
Our certificate of incorporation allows us to issue, without stockholder
approval, preferred stock having rights senior to those of the common stock.
Following completion of this offering, no shares of preferred stock will be
outstanding. Our board of directors will be authorized, without further
stockholder approval, to issue up to 10,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
of any series of preferred stock, including dividend rights, conversion rights,
voting rights, terms of redemption and liquidation preferences and to fix the
number of shares constituting any series and the designations of these series.
Our issuance of preferred stock may have the effect of delaying or
preventing a change in control of Cysive. Our issuance of preferred stock could
decrease the amount of earnings and assets available for distribution to the
holders of common stock or could adversely affect the rights and powers,
including voting rights, of the holders of common stock. The issuance of
preferred stock could also have the effect of decreasing the market price of the
common stock. We currently have no plans to issue any shares of preferred stock.
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<PAGE> 51
LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors are not personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, relating to
unlawful dividends or unlawful stock purchases or redemptions; or
- for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our bylaws provide for the indemnification of our directors and officers to
the fullest extent authorized by the Delaware General Corporation Law, except
that we will indemnify a director or officer in connection with an action
initiated by that person only if the action was authorized by our board of
directors. The indemnification provided under our bylaws includes the right to
be paid expenses in advance of the final disposition of a proceeding for which
indemnification may be had, provided that the payment of these expenses incurred
by a director or officer in advance of the final disposition of a proceeding may
be made only upon delivery to us of an undertaking by or on behalf of the
director or officer to repay all amounts paid in advance if it is ultimately
determined that the director or officer is not entitled to be indemnified. Under
our bylaws, if we do not pay a claim for indemnification within 60 days after we
have received a written claim, the director or officer may bring an action to
recover the unpaid amount of the claim and, if successful, the director or
officer also will be entitled to be paid the expense of prosecuting the action
to recover these unpaid amounts.
Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee,
partner or agent of another corporation or of a partnership, joint venture,
limited liability company, trust or other enterprise, against any liability
asserted against the person or incurred by the person in any of these
capacities, or arising out of the person's fulfilling one of these capacities,
and related expenses, whether or not we would have the power to indemnify the
person against the claim under the provisions of the Delaware General
Corporation Law. We intend to purchase director and officer liability insurance
on behalf of our directors and officers.
ANTI-TAKEOVER PROVISIONS
GENERAL
Our certificate of incorporation and bylaws contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of and the policies formulated by our board of directors. In
addition, provisions of Delaware law may hinder or delay an attempted takeover
of Cysive other than through negotiation with our board of directors. These
provisions could have the effect of reducing the price of our common stock and
discouraging attempts to acquire Cysive or remove incumbent management even if
some or a majority of our stockholders believe this action to be in their best
interest, including attempts that might result in the stockholders' receiving a
premium over the market price for the shares of common stock held by
stockholders.
CLASSIFIED BOARD
Our certificate of incorporation provides for the division of our board of
directors into three classes of directors serving staggered three-year terms.
Our certificate of incorporation further provides that the
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<PAGE> 52
approval of the holders of at least two-thirds of the shares entitled to vote
and the approval of a majority of our entire board of directors are necessary
for the alteration, amendment or repeal of sections of our certificate of
incorporation relating to the election and classification of our board of
directors, limitation of director liability, indemnification and the vote
requirements for these amendments to our certificate of incorporation. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of our company.
REMOVAL OF DIRECTORS; VACANCIES
Our certificate of incorporation provides that directors may be removed
only for cause. In addition, vacancies and newly created directorships resulting
from any increase in the size of the board of directors may be filled only by
the affirmative vote of a majority of the directors then in office, even if they
do not constitute a quorum, or by a sole remaining director. These provisions
would prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
Our bylaws establish an advance notice procedure with regard to the
nomination, other than by the board of directors, of candidates for election to
the board of directors and with regard to matters to be brought before an annual
meeting of our stockholders by a stockholder. For nominations and other business
to be brought properly before an annual meeting by a stockholder, the
stockholder must deliver notice to us not less than 60 days nor more than 90
days prior to the first anniversary of the preceding year's annual meeting.
Separate provisions based on public notice by us specify how this advance notice
requirement operates if the date of the annual meeting is advanced by more than
30 days or delayed by more than 60 days from the anniversary date. The
stockholder's notice must contain specified information regarding the
stockholder and its holdings, as well as background information regarding any
director nominee, together with that person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected, and a
brief description of any business desired to be brought before the meeting, the
reasons for conducting the business at the meeting and any material interest of
the stockholder in the business proposed. In the case of a special meeting of
stockholders called for the purpose of electing directors, nominations by a
stockholder may be made only by delivery to us, no later than 10 days following
the day on which public announcement of the special meeting is made, of a notice
that complies with the above requirements. Although our bylaws do not give our
board of directors any power to approve or disapprove stockholder nominations
for the election of directors or any other business desired by stockholders to
be conducted at an annual meeting, the bylaws:
- may have the effect of precluding a nomination for the election of
directors or precluding the conduct of business at a particular annual
meeting if the proper procedures are not followed; or
- may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control of Cysive, even if the conduct of this solicitation or the
attempt to obtain control might be beneficial to Cysive and our
stockholders.
SPECIAL STOCKHOLDERS' MEETINGS
Under our certificate of incorporation and bylaws, special meetings of
stockholders, unless otherwise prescribed by statute, may be called only:
- by the board of directors, the chairperson, the chief executive officer
or the president; or
- by the holders of at least a majority of the securities of Cysive
outstanding and entitled to vote generally in the election of directors.
LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT
Our certificate of incorporation and bylaws also provide that any action
required or permitted to be taken at a stockholders' meeting may be taken
without a meeting, without prior notice and without a vote,
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<PAGE> 53
if the action is taken by persons who would be entitled to vote at a meeting and
who hold shares having voting power equal to not less than the minimum number of
votes of each class or series that would be necessary to authorize or take the
action at a meeting at which all shares of each class or series entitled to vote
were present and voted.
SECTION 203 OF DELAWARE LAW
In addition to the foregoing provisions of our certificate of incorporation
and bylaws, we will be governed by the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 prohibits publicly held Delaware
corporations from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's outstanding voting stock. These
provisions could have the effect of delaying, deferring or preventing a change
in control of Cysive or reducing the price that investors might be willing to
pay in the future for shares of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
LISTING
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "CYSV."
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<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect our common stock's prevailing market price. Upon completion of
this offering, we will have outstanding 11,127,000 shares of our common stock,
assuming no exercise of the underwriters over-allotment option and no exercise
of outstanding options. Of these shares, all of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, unless the shares are purchased by "affiliates" of Cysive as
that term is defined in Rule 144 under the Securities Act.
The remaining 7,777,000 shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Securities Act Rule 144 or 701. We summarize these two rules below. The
provisions of Rules 144 and 701 provide that the restricted securities will be
available for sale in the public market on the date which is one year from the
date they were issued, so long as the sellers of restricted securities comply
with the volume limitations and other conditions of Rule 144.
RULE 144
Under Rule 144, 6,402,250 shares of common stock will be freely tradable 90
days after this offering closes. Sales of these shares of common stock will be
limited under lock-up agreements with the underwriters. In general, under Rule
144, beginning 90 days after the closing of this offering, a person who has
owned shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 111,127 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.
Sales under Rule 144 are also governed by manner of sale provisions and
notice requirements, and current public information about Cysive must be
available.
Under Rule 144(k), 24,750 shares of common stock will be freely tradable
after this offering closes. None of these shares of common stock will be
restricted from sale under lock-up agreements. Under Rule 144(k), a person who
is not one of our affiliates at any time during the 90 days preceding a sale,
and who has owned the shares proposed to be sold for at least two years, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "Rule 144(k) shares" may be sold immediately upon
the completion of this offering.
RULE 701
As of September 24, 1999, a total of 3,888,656 shares of common stock had
been issued or were issuable upon the exercise of options. All of these shares
will be eligible for sale in reliance on Rule 701 beginning 90 days after the
closing of this offering. Of these shares of common stock, transfers of
3,337,610 will be restricted by lock-up agreements. In general, under Rule 701
as currently in effect, any of our employees who have purchased shares from us
in connection with a compensatory plan or other agreement is eligible to resell
those shares 90 days after the effective date of this offering in reliance on
Rule 144, but without compliance with restrictions, including the holding
period, contained in Rule 144.
STOCK OPTIONS
As soon as practicable after this offering, we intend to file a
registration statement under the Securities Act covering 11,350,000 shares of
common stock reserved for issuance under our stock plans. As of September 24,
1999, options to purchase 6,209,888 shares of common stock were outstanding. The
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<PAGE> 55
registration statement is expected to be filed and become effective as soon as
practicable after the effective date of this offering. Accordingly, shares
registered under this registration statement will, provided options have vested
and Rule 144 volume limitations applicable to our affiliates are complied with,
be available for sale in the open market shortly after this offering closes, and
in the case of our officers, directors and stockholders who have entered into
lock-up agreements, after the 180-day lock-up agreements expire.
LOCK-UP AGREEMENTS
All of Cysive's officers and directors, and several of its stockholders,
who will beneficially own 7,777,000 shares of common stock after this offering
closes, will sign lock-up agreements with the underwriters under which they will
agree, among other things, not to offer, sell or agree to sell, directly or
indirectly, or otherwise dispose of any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, for
a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of Thomas Weisel
Partners LLC. This consent may be given at any time without public notice.
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<PAGE> 56
UNDERWRITING
Under the terms and conditions in an agreement among the underwriters and
us, each of the underwriters named below, through their representatives, Thomas
Weisel Partners LLC, First Union Capital Markets Corp. and Friedman, Billings,
Ramsey & Co., Inc., has severally agreed to purchase from us and the selling
stockholder the number of shares of common stock opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------- ---------
<S> <C>
Thomas Weisel Partners LLC...............................
First Union Capital Markets Corp.........................
Friedman, Billings, Ramsey & Co., Inc....................
---------
Total.......................................... 3,350,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are conditioned upon a number of factors, including approval of
legal matters by counsel. The nature of the underwriters' obligations commits
them to purchase and pay for all of the shares of common stock listed above if
any are purchased.
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act of 1933, or will contribute to payments that the underwriters may be
required to make relating to these liabilities.
OVER-ALLOTMENT OPTION
We and the selling stockholder have granted a 30-day over-allotment option
to the underwriters to purchase up to 502,500 additional shares of common stock
at the public offering price less the underwriting discount and commissions as
shown on the cover page of this prospectus. If the underwriters exercise this
option in whole or in part, then each of the underwriters will be severally
committed, provided the conditions described in the underwriting agreement are
satisfied, to purchase the additional shares of common stock in proportion to
their respective purchase commitments shown in the above table.
COMMISSIONS AND DISCOUNTS
The underwriters propose to offer the shares of common stock directly to
the public at the public offering price shown on the cover page of this
prospectus, and at that price less a concession not in excess of $ per share
of common stock to other dealers specified in a master agreement among
underwriters that are members of the National Association of Securities Dealers,
Inc. The underwriters may allow, and those dealers may reallow, concessions not
in excess of $ per share of common stock to these other dealers. After this
offering, the offering price, concessions and other selling terms may be changed
by the underwriters. The common stock is offered upon receipt and acceptance by
the underwriters and to other conditions, including the right to reject orders
in whole or in part.
This table summarizes the compensation to be paid to the underwriters by us
and the selling stockholder and the expenses payable by us:
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discount and commissions paid by us........
Underwriting discount and commissions paid by the
selling stockholder...................................
Expenses................................................
</TABLE>
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<PAGE> 57
The underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
RESERVED SHARES
The underwriters, at our request, have reserved for sale at the initial
public offering price up to 150,000 shares of common stock to be sold in the
offering for sale to persons designated by us. The number of shares available
for sale to the general public will be reduced to the extent that any reserved
shares are purchased. Any reserved shares not purchased in this manner will be
offered by the underwriters on the same basis as the other shares offered in the
offering.
NO SALES OF SIMILAR SECURITIES
All of our officers and directors, and several of our stockholders and
option holders, have agreed that they will not offer, sell, agree to sell,
directly or indirectly, or otherwise dispose of any shares of common stock
without the prior written consent of Thomas Weisel Partners LLC for a period of
180 days after the date of this prospectus.
In addition, we have agreed that for a period of 180 days after the date of
this prospectus we will not, without the prior written consent of Thomas Weisel
Partners LLC, offer, sell or otherwise dispose of any shares of our capital
stock, except for the shares of common stock being offered and the shares of
common stock issuable upon the exercise of options and warrants outstanding on
the date of this prospectus.
INFORMATION REGARDING THOMAS WEISEL PARTNERS LLC
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead-manager or co-manager
on 68 filed public offerings of equity securities, of which 37 have been
completed, and has acted as a syndicate member in an additional 33 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or controlling
persons, except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
NASDAQ NATIONAL MARKET LISTING
Prior to this offering, there has been no public market of the common
stock. The initial offering price will be determined by negotiations between us
and the representatives of the underwriters. Some of the factors to be
considered in these negotiations will be our results of operations in recent
periods, estimates of our prospects and the industry in which we compete, an
assessment of our management, the general state of the securities markets at the
time of this offering and the prices of similar securities of generally
comparable companies. We have applied for approval for quotation of our common
stock on the Nasdaq National Market under the symbol "CYSV." We cannot assure
you, however, that an active or orderly trading market will develop for the
common stock or that the common stock will trade in the public market subsequent
to this offering at or above the initial offering price.
MARKET STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
To facilitate this offering, persons participating in the offering may
engage in transactions that stabilize, maintain or otherwise affect the price of
the common stock during and after this offering. Specifically, the underwriters
may over-allot or otherwise create a short position in the common stock for
their own account by selling more shares of common stock than we have sold to
them. The underwriters may elect to cover any short position by purchasing
shares of common stock in the open market or by exercising the over-allotment
option granted to the underwriters. In addition, the underwriters may stabilize
or maintain the price of the common stock by bidding for or purchasing shares of
common stock in the open market and may impose penalty bids. Under these penalty
bids, selling concessions that are allowed to syndicate members or other
broker-dealers participating in this offering are reclaimed if shares
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<PAGE> 58
of common stock previously distributed in this offering are repurchased, usually
to stabilize the market. The effect of these transactions may be to stabilize or
maintain the market price at a level above that which might otherwise prevail in
the open market. No representation is made as to the magnitude or effect of any
stabilization or other transactions. These transactions may be affected on the
Nasdaq National Market or otherwise and may be discontinued at any time after
they are commenced.
VALIDITY OF THE SHARES
Hogan & Hartson L.L.P., Washington, D.C., will pass upon the validity of
the issuance of the common stock being offered. Hale and Dorr LLP, Washington,
D.C., will pass upon selected legal matters in connection with this offering for
the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, as set forth in their reports. We
have included our financial statements and schedule in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
common stock being offered. This prospectus contains all information about
Cysive and our common stock that would be material to an investor. The
registration statement includes exhibits and schedules to which you should refer
for additional information about us. You may inspect a copy of the registration
statement and the exhibits and schedules to the registration statement without
charge at the offices of the Securities and Exchange Commission at Judiciary
Plaza, 450 Fifth Street, Washington, D.C. 20549. You may obtain copies of all or
any part of the registration statement from the Public Reference Section of the
SEC, 450 Fifth Street, Washington, D.C. 20549 upon the payment of the prescribed
fees. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at
www.sec.gov that contains reports, proxy and information statements and other
information regarding registrants like us that file electronically with the SEC.
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<PAGE> 59
CYSIVE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 60
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
Board of Directors
Cysive, Inc.
We have audited the accompanying balance sheets of Cysive, Inc. (formerly
Alta Software, Inc.) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 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 Cysive, Inc. at December 31,
1997 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Vienna, Virginia
January 14, 1999, except for
Note 12, as to which
the date is September 24, 1999.
F-2
<PAGE> 61
CYSIVE, INC.
BALANCE SHEETS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- --------------------------
1999
1997 1998 1999 PRO FORMA
---------- ---------- ------------ -----------
(NOTE 11)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............. $ 690,283 $ 611,654 $ 869,244 $ --
Accounts receivable, less allowance of
$150,000, $160,000 and $506,000 at
December 31, 1997 and 1998 and the
six months ended June 30, 1999,
respectively........................ 1,438,082 2,070,196 4,058,091 4,058,091
Prepaid expenses and other assets..... 27,343 112,095 242,742 242,742
Deferred income taxes................. -- -- -- 183,543
---------- ---------- ------------ -----------
Total current assets............. 2,155,708 2,793,945 5,170,077 4,484,376
Furniture, fixtures and equipment, net... 257,433 338,452 426,240 426,240
Other assets............................. 8,022 30,190 196,056 196,056
---------- ---------- ------------ -----------
Total assets..................... $2,421,163 $3,162,587 $ 5,792,373 $ 5,106,672
========== ========== ============ ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable...................... $ 15,044 $ 27,219 $ 150,950 $ 150,950
Accrued liabilities................... 192,485 616,715 1,667,854 2,198,610
---------- ---------- ------------ -----------
Total current liabilities........ 207,529 643,934 1,818,804 2,349,560
Deferred income taxes.................... -- -- -- 255,136
Commitments.............................. -- -- -- --
Stockholders' equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized, no
shares issued or outstanding........ -- -- -- --
Common stock, $0.01 par value,
75,000,000 shares authorized;
6,777,000, 6,777,000 and 8,127,000
issued and outstanding at December
31, 1997 and 1998 and June 30, 1999,
respectively........................ 67,770 67,770 81,270 81,270
Additional paid-in capital............ 179,414 176,485 24,459,465 24,459,465
Deferred stock compensation........... (177,987) (105,829) (10,032,389) (10,032,389)
Retained earnings (deficit)........... 2,144,437 2,380,227 (10,534,777) (12,006,370)
---------- ---------- ------------ -----------
Total stockholders' equity....... 2,213,634 2,518,653 3,973,569 2,501,976
---------- ---------- ------------ -----------
Total liabilities and
stockholders' equity........... $2,421,163 $3,162,587 $ 5,792,373 $ 5,106,672
========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 62
CYSIVE, INC.
STATEMENTS OF OPERATIONS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues......................... $5,556,676 $7,711,138 $9,141,966 $3,193,186 $ 9,423,910
Direct costs................... 2,055,541 2,798,005 3,741,559 1,808,886 3,473,020
---------- ---------- ---------- ---------- ------------
Gross profit..................... 3,501,135 4,913,133 5,400,407 1,384,300 5,950,890
Operating expenses:
General and administrative..... 2,009,553 2,753,812 2,725,290 1,009,122 2,574,201
Sales and marketing............ 232,118 760,572 1,823,983 671,884 1,720,173
Stock compensation............. -- -- 69,229 -- 13,284,250
---------- ---------- ---------- ---------- ------------
Total operating
expenses............. 2,241,671 3,514,384 4,618,502 1,681,006 17,578,624
Operating income (loss).......... 1,259,464 1,398,749 781,905 (296,706) (11,627,734)
Other income, net................ 17,373 23,543 14,080 15,185 24,840
---------- ---------- ---------- ---------- ------------
Net income (loss)................ $1,276,837 $1,422,292 $ 795,985 $ (281,521) $(11,602,894)
========== ========== ========== ========== ============
Pro forma tax expense............ 306,763 1,034,242
Pro forma net income (loss)...... $ 489,422 $(12,637,136)
Earnings (loss) per share:
Basic.......................... $0.19 $0.21 $0.12 $(0.04) $(1.43)
Diluted........................ $0.17 $0.18 $0.10 $(0.04) $(1.43)
Weighted average shares
outstanding.................... 6,777,000 6,777,000 6,777,000 6,777,000 8,127,000
Weighted average shares and
common stock equivalents....... 7,473,800 7,766,211 7,993,659 6,777,000 8,127,000
Pro forma diluted earnings (loss)
per share...................... $0.06 $(1.55)
Pro forma weighted average shares
and common stock equivalents... 7,993,659 8,127,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 63
CYSIVE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED RETAINED
-------------------- PAID-IN STOCK EARNINGS
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) TOTAL
---------- ------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995..................... 6,777,000 $67,770 $ 1,427 $ -- $ 768,005 $ 837,202
Stockholder distribution... -- -- -- -- (636,224) (636,224)
Net income................. -- -- -- -- 1,276,837 1,276,837
---------- ------- ----------- ------------ ------------ ------------
Balance at December 31,
1996..................... 6,777,000 67,770 1,427 -- 1,408,618 1,477,815
Stockholder distribution... -- -- -- -- (686,473) (686,473)
Deferred stock
compensation............. -- -- 177,987 (177,987) -- --
Net income................. -- -- -- -- 1,422,292 1,422,292
---------- ------- ----------- ------------ ------------ ------------
Balance at December 31,
1997..................... 6,777,000 67,770 179,414 (177,987) 2,144,437 2,213,634
Stockholder distribution... -- -- -- -- (560,195) (560,195)
Issuance of compensatory
stock options............ -- -- 41,329 -- -- 41,329
Deferred stock
compensation............. -- -- (44,258) 72,158 -- 27,900
Net income................. -- -- -- -- 795,985 795,985
---------- ------- ----------- ------------ ------------ ------------
Balance at December 31,
1998..................... 6,777,000 67,770 176,485 (105,829) 2,380,227 2,518,653
Stockholder distribution... -- -- -- -- (1,312,110) (1,312,110)
Common stock issued upon
exercise of options...... 1,350,000 13,500 1,084,500 -- -- 1,098,000
Issuance of compensatory
stock options............ -- -- 13,284,250 -- -- 13,284,250
Deferred stock
compensation............. -- -- 9,914,230 (9,926,560) -- (12,330)
Net loss................... -- -- -- -- (11,602,894) (11,602,894)
---------- ------- ----------- ------------ ------------ ------------
Balance at June 30, 1999... 8,127,000 $81,270 $24,459,465 $(10,032,389) $(10,534,777) $ 3,973,569
========== ======= =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 64
CYSIVE, INC.
STATEMENTS OF CASH FLOWS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- --------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ $1,276,837 $1,422,292 $ 795,985 $(281,521) $(11,602,894)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation........................... 87,967 144,763 163,816 79,895 83,461
Amortization........................... 44,444 115,555 3,712 -- 10,839
Stock compensation..................... -- -- 69,229 -- 13,284,250
Loss on sale of furniture, fixtures and
equipment, net....................... -- -- 664 -- 4,782
Provision for doubtful accounts........ -- 150,000 10,000 -- 345,628
Changes in assets and liabilities:
Accounts receivable.................. (305,356) (754,038) (642,114) 304,258 (2,333,523)
Prepaid expenses and other assets.... (9,533) (10,156) (106,920) (29,482) (296,513)
Accounts payable..................... 18,241 (4,026) 12,175 35,638 123,731
Accrued liabilities.................. (35,466) (63,477) 424,230 207,921 1,038,809
---------- ---------- ----------- --------- ------------
Net cash provided by operating
activities............................. 1,077,134 1,000,913 730,777 316,709 658,570
Cash flows from investing activities:
Capital expenditures................... (278,855) (80,011) (249,211) (79,619) (186,870)
---------- ---------- ----------- --------- ------------
Net cash used in investing activities.... (278,855) (80,011) (249,211) (79,619) (186,870)
Cash flows from financing activities:
Stockholder distributions.............. (636,224) (686,473) (560,195) (424,052) (214,110)
Advances under line of credit.......... -- -- 1,523,777 -- --
Repayments of line of credit........... -- -- (1,523,777) -- --
---------- ---------- ----------- --------- ------------
Net cash used in financing activities.... (636,224) (686,473) (560,195) (424,052) (214,110)
Increase (decrease) in cash and cash
equivalents............................ 162,055 234,429 (78,629) (186,962) 257,590
Cash and cash equivalents at beginning of
period................................. 293,799 455,854 690,283 690,283 611,654
---------- ---------- ----------- --------- ------------
Cash and cash equivalents at end of
period................................. $ 455,854 $ 690,283 $ 611,654 $ 503,321 $ 869,244
========== ========== =========== ========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 65
CYSIVE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
IS UNAUDITED)
NOTE 1 -- ORGANIZATION
Cysive, Inc. (formerly Alta Software, Inc.) (the "Company" or "Cysive") is
a leading software engineering firm that architects and builds complex, highly
customized systems supporting large scale e-businesses. Since commencing
operations in 1994, Cysive has used advanced Internet technologies to build its
customers' e-business capabilities. Cysive designs architectures, or the
underlying structure of software systems, which can handle high volumes of
customer interaction, operate reliably on a 24/7 basis and expand to meet the
growth requirements of large scale e-business. The Company operates in one
business segment.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company derives substantially all of its revenues from time and
materials contracts. On these contracts, revenues are computed by multiplying
the number of project personnel hours expended in the performance of the
contract by the contract billing rates plus other directly billable costs.
Reserves for possible losses on contracts, if any, are recognized in full when
determined. Any prepayments by clients are recorded as deferred revenue and are
recognized as services are provided. Reimbursable project costs are excluded
from revenue as the Company incurs these costs on behalf of its customers.
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents.
FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts receivable.
The cash is held by a financial institution. For accounts receivable, the
Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses which, historically, have been within management's
expectations. The carrying amount of the receivables approximates their fair
value.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at historical cost, net of
accumulated depreciation and amortization. Repairs and maintenance are charged
to operations as incurred, while significant
F-7
<PAGE> 66
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
improvements are capitalized. Furniture, fixtures and equipment are depreciated
or amortized over their estimated useful life, on the straight-line basis, using
the following useful lives:
<TABLE>
<S> <C>
Computers and related equipment Three years
Software Three years
Furniture Five years
Leasehold Improvements Shorter of lease term or useful
life
</TABLE>
INCOME TAXES
The Company and its shareholders have elected to be treated as an S
corporation under the Internal Revenue Code. Under the provisions of the tax
code, the Company's shareholders include their pro rata share of the Company's
income in their personal income tax returns. Accordingly, the Company was not
subject to federal and most state income taxes during the historical periods
presented. The Company currently anticipates completing an initial public
offering of its common stock in 1999 (see Note 12), which will result in the
termination of the Company's S corporation status. At that time, the Company
will convert to a C corporation and will begin accounting for income taxes under
the liability method. As of December 31, 1998, the tax bases exceeded the
reported amounts of the Company's assets and liabilities by $1.5 million.
The Company intends to distribute to stockholders of record immediately
prior to the offering, on a pro rata basis, the undistributed balance of
cumulative income taxed or taxable to these stockholders.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") using the intrinsic value method. The Company has made pro
forma disclosures required by Statement of Financial Accounting Standards No.
123 ("SFAS 123") "Accounting for Stock Based Compensation" using the fair value
method.
COMPUTATION OF HISTORICAL EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
calculated using the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using the treasury stock method
for options.
SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, three customers individually
represented 65%, 27% and 4% of the Company's revenues. For the year ended
December 31, 1997, three customers individually represented 50%, 17% and 10% of
the Company's revenues. For the year ended December 31, 1998, three customers
individually represented 20%, 18% and 13% of the Company's revenues. For the six
months ended June 30, 1999, three customers individually represented 35%, 15%
and 13% of the Company's revenues.
ADVERTISING COSTS
All advertising and promotion costs are expensed as incurred. During the
years ended December 31, 1996, 1997 and 1998, the Company expensed $40,000,
$88,000 and $194,000, respectively, as advertising costs.
F-8
<PAGE> 67
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Some amounts in the prior years financial statements have been reclassified
to conform to the current year presentation.
NOTE 3 -- UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information of the Company for the six months ended
June 30, 1998 and 1999 included herein has been prepared by the Company, without
audit, according to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Select information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles for complete financial statements have been condensed or
omitted according to the rules and regulations relating to interim financial
statements. In the opinion of management, the accompanying unaudited interim
financial information reflects all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company at June 30, 1998 and 1999, and the results of its operations and its
cash flows for the six months ended June 30, 1998 and 1999. Results of
operations for the interim period ended June 30, 1999 are not necessarily
indicative of the results expected for the full year.
NOTE 4 -- FURNITURE, FIXTURES AND EQUIPMENT
Major classes of furniture, fixtures and equipment consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Computers and related equipment.................... $ 402,888 $ 547,130 $ 515,723
Software........................................... -- 64,412 66,668
Furniture.......................................... 62,493 99,636 205,143
Leasehold improvements............................. 44,417 44,417 78,008
--------- --------- ---------
509,798 755,595 865,542
Less accumulated depreciation and amortization..... (252,365) (417,143) (439,302)
--------- --------- ---------
$ 257,433 $ 338,452 $ 426,240
========= ========= =========
</TABLE>
NOTE 5 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- ------------
<S> <C> <C> <C>
Payroll and payroll taxes........................... $122,097 $295,816 $ 346,199
Bonuses............................................. -- 141,496 907,694
Vacation............................................ 52,584 96,798 179,858
Deferred revenue.................................... -- 69,477 5,976
Other............................................... 17,804 13,128 228,127
-------- -------- ----------
$192,485 $616,715 $1,667,854
======== ======== ==========
</TABLE>
NOTE 6 -- LINE OF CREDIT
In June 1998, the Company entered into a line of credit with a financial
institution from which the Company may draw up to $1.0 million. In March 1999
and September 1999, the Company increased the amount available for withdrawal to
$1.5 million and $2.5 million, respectively. The line of credit expires in
F-9
<PAGE> 68
NOTE 6 -- LINE OF CREDIT (CONTINUED)
September 2000. Interest accrues on outstanding balances at the 30-day
commercial paper rate as quoted in the Wall Street Journal, plus 2.65% per
annum. The line of credit is secured by all assets of the Company. At December
31, 1997 and 1998 and June 30, 1999, there were no outstanding borrowings.
Commitment fees of 0.5% paid per $500,000 of credit facility during 1998 and
1999 were not material.
NOTE 7 -- EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Savings Plan (the "Plan") in which employees are
eligible to participate beginning on the first day of the quarter subsequent to
their hire date and attaining age 21. The Plan allows employees to contribute up
to 15% of their bi-weekly compensation, subject to the statutory limitations.
The Company matches employee contributions up to the first six percent of each
participant's bi-weekly compensation, subject to statutory limitations. The
Company contributions to the Plan are discretionary as authorized by the Board
of Directors. Expense reflected in the statements of operations relating to the
Plan was $155,000, $210,000 and $257,000 for the years ended December 31, 1996,
1997 and 1998, respectively.
NOTE 8 -- STOCKHOLDERS' EQUITY
EQUITY TRANSACTION
In January 1999, two employees and stockholders of the Company exercised
options for the purchase of 1,350,000 shares for $1.1 million, which was funded
through a distribution in the same amount to the stockholders.
STOCK OPTIONS
In December 1994, the Company established a stock option plan (the "1994
Option Plan") under which 2,250,000 shares of common stock were reserved for
issuance upon exercise of options granted to employees, officers and directors
of the Company. The Board of Directors increased the number of shares available
under the plan to 4,500,000 in November 1995, to 6,750,000 in April 1997 and
subsequently to 11,350,000 in April 1999. The price for the incentive stock
options is to be not less than the fair market value at the date of grant as
determined by the Board of Directors. The 1994 Option Plan provides for
incentive, non-qualified and restricted stock options. Non-employees are not
eligible for incentive stock options.
In July 1997, the Company issued non-qualified options to purchase 322,961
shares to select Company directors and an employee (the "Employee") at an
exercise price of $0.83 per share which was considered to be below fair market
value at the time of the option grants. Accordingly, the Company recorded
deferred stock compensation of $177,987. In March 1998, the Company issued
non-qualified options to purchase 40,154 shares to an officer at an exercise
price of $0.83 per share which was considered to be below fair market value at
the time of the option grant. The Company recorded deferred stock compensation
of $22,129. In June 1998, the Employee left the Company and $66,387 was reversed
from deferred stock compensation since no options had vested. In June 1998, the
Company also amortized $27,900 to expense to reflect the 25% vested portion of
the deferred stock compensation.
In the six months ended June 30, 1999, the Company issued fully vested
incentive stock options to purchase 327,987 shares and fully vested
non-qualified options to purchase 1,280,763 shares at exercise prices of $1.67
and $0.83 per share (each of which was considered to be below fair market
value), respectively. In accordance with APB 25, the Company recorded $13.3
million in compensation expense. In connection with the grant of other certain
options to employees during the six months ended June 30, 1999, the Company
recorded deferred stock compensation of approximately $9.8 million, based on the
difference between the exercise prices of those options at their respective
grant dates and the deemed fair value for accounting purposes of the shares of
common stock subject to such options. Such amounts are included as a reduction
of stockholders' equity and are being amortized on a graded vesting method over
a
F-10
<PAGE> 69
NOTE 8 -- STOCKHOLDERS' EQUITY (CONTINUED)
period of four years. The deemed fair value for accounting purposes was
determined relative to the mid-point ($12.00) of the anticipated initial public
offering price range. See Note 12 -- Subsequent Events. In addition, 46,238
options issued in 1998 at an exercise price of $0.83 per share (which was
considered to be below fair market value) vested and the Company recorded
$18,600 in compensation expense.
Options granted under this plan expire no more than five years from the
date of grant for 10% stockholders and ten years from the date of grant for all
other recipients. Except as otherwise noted above, options granted through April
19, 1999 under this plan vest in accordance with the following schedule: one
year from the date of the grant, 25%, two years from the date of the grant, 25%,
and three years from the date of the grant, the remaining 50%. Options granted
subsequent to July 18, 1999 vest 25% per year for four years.
The Company has reserved 11,350,000 shares of common stock issuable upon
exercise of options granted under the 1994 Option Plan, of which options to
purchase 4,358,800 shares of common stock are available for grant under the 1994
Option Plan as of June 30, 1999.
The Company adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized related to options granted
at fair value during 1996, 1997 and 1998.
Common stock option activity was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding at December 31, 1995........................... 2,064,375 $0.78
Granted.................................................. 631,125 $1.19
Exercised................................................ -- --
Cancelled or expired..................................... (72,000) $1.02
----------
Outstanding at December 31, 1996........................... 2,623,500 $0.87
Granted.................................................. 865,125 $1.17
Exercised................................................ -- --
Cancelled or expired..................................... (275,062) $0.87
----------
Outstanding at December 31, 1997........................... 3,213,563 $0.96
Granted.................................................. 1,543,500 $1.39
Exercised................................................ -- --
Cancelled or expired..................................... (405,563) $1.21
----------
Outstanding at December 31, 1998........................... 4,351,500 $1.08
Granted.................................................. 2,704,950 $1.23
Exercised................................................ (1,350,000) $0.81
Cancelled or expired..................................... (65,250) $1.39
----------
Outstanding at June 30, 1999............................... 5,641,200 $1.22
==========
Exercisable at June 30, 1999 3,218,344 $0.99
</TABLE>
F-11
<PAGE> 70
NOTE 8 -- STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information regarding stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.00 -- $0.85............................ 2,163,920 3.7 $0.80 1,522,805 $0.79
$0.86 -- $1.52............................ 2,187,580 8.8 $1.37 535,230 $1.26
--------- ---------
$0.00 -- $1.52............................ 4,351,500 6.3 $1.08 2,058,035 $0.88
========= =========
</TABLE>
Had compensation expense related to the stock option plans been determined
based on the fair value at the grant date for options granted after 1995
consistent with the provisions of SFAS No. 123, the Company's pro forma net
income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
Net income (loss) -- pro forma..................... $1,208,157 $1,279,562 $552,470
========== ========== ========
Pro forma earnings (loss) per common share......... $0.18 $0.19 $0.08
Pro forma earnings (loss) per common
share -- assuming dilution....................... $0.16 $0.17 $0.07
</TABLE>
The effect of applying SFAS No. 123 on 1996, 1997 and 1998 pro forma net
income as stated above is not necessarily representative of the effects on
reported net income for future years due to, among other things, the vesting
period of the stock options and the fair value of additional stock options in
future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing fair value model with the following
weighted-average assumptions used for grants after 1995: volatility of 0%;
dividend yield of 0%; expected life of the option term of three, four and five
years, respectively; and risk-free interest rate of 6.5%. The weighted average
fair values of the options granted in 1996 with a stock price equal to the
exercise price is $0.21 per share. The weighted average fair values of the
options granted in 1997 with a stock price equal to the exercise price and with
a stock price greater than the exercise price are $0.24 and $0.70 per share,
respectively. The weighted average fair value of the options granted in 1998
with a stock price equal to the exercise price and with a stock price greater
than the exercise price are $0.57 and $1.18 per share, respectively.
F-12
<PAGE> 71
NOTE 9 -- EARNINGS (LOSS) PER SHARE
The following table summarizes the computation of basic and diluted
earnings (loss) per share for the years ended December 31, 1996, 1997 and 1998
and for the six-month periods ended June 30, 1998 and 1999:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ --------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)................ $1,276,837 $1,422,292 $795,985 $ (281,521) $(11,602,894)
========== ========== ========== ========== ============
Denominator:
Weighted average shares........ 6,777,000 6,777,000 6,777,000 6,777,000 8,127,000
Weighted average effect of
common stocks equivalents... 696,800 989,211 1,216,659 --* --**
---------- ---------- ---------- ---------- ------------
7,473,800 7,766,211 7,993,659 6,777,000 8,127,000
========== ========== ========== ========== ============
Earnings (loss) per share:
Basic.......................... $0.19 $0.21 $0.12 $(0.04) $(1.43)
Diluted........................ $0.17 $0.18 $0.10 $(0.04) $(1.43)
</TABLE>
* Excludes 1,247,548 shares, as effect is anti-dilutive.
** Excludes 4,318,555 shares, as effect is anti-dilutive.
Effective September 24, 1999 and as discussed in Note 12, the Company
effected a 2.25-for-1 common stock split. The above share and per share amounts
have been adjusted for the split.
NOTE 10 -- COMMITMENTS
LEASE OBLIGATIONS
The Company is obligated under various non-cancelable leases for office
facilities and select computer equipment. These leases generally provide for
renewal options and escalation increases. In 1998, the Company amended a
non-cancelable operating lease and also entered into a new non-cancelable
operating lease for office space in California.
Future minimum payments under non-cancelable operating leases with initial
terms of one year or more as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 330,939
2000........................................................ 274,232
2001........................................................ 247,842
2002........................................................ 255,510
2003........................................................ 151,028
Thereafter.................................................. --
----------
Total minimum lease payments...................... $1,259,551
==========
</TABLE>
Rental expense on operating leases was $70,000, $108,000 and $237,000 for
the years ended December 31, 1996, 1997 and 1998, respectively.
NOTE 11 -- PRO FORMA ADJUSTMENTS (UNAUDITED)
PRO FORMA BALANCE SHEET
Effective upon consummation of the IPO (See Note 12), the Company intends
to declare an S corporation distribution to its existing shareholders
representing all previous earned and undistributed S corporation taxable
earnings. Through June 30, 1999, such amount is estimated to be approximately
F-13
<PAGE> 72
NOTE 11 -- PRO FORMA ADJUSTMENTS (UNAUDITED) (CONTINUED)
$1.4 million. This distribution will be paid out of Company earnings. The pro
forma balance sheet at June 30, 1999 gives effect to this item.
The pro forma balance sheet at June 30, 1999 also gives effect to a
deferred tax asset resulting from the stock compensation expense recorded in the
six months ended June 30, 1999. This deferred tax asset has been fully reserved
in accordance with Statement of Financial Accounting Standards Board No. 109,
"Accounting for Income Taxes".
PRO FORMA STATEMENTS OF OPERATIONS
The unaudited pro forma adjustments on the statements of operations for the
year ended December 31, 1998 and for the six months ended June 30, 1999 reflect
a provision for income taxes based upon pro forma income as if the Company had
not been an S corporation.
PRO FORMA NET INCOME (LOSS) PER SHARE
Pro forma basic net income (loss) per share for the year ended December 31,
1998 and for the six months ended June 30, 1998 has been computed by dividing
pro forma net income by the weighted average shares outstanding. Pro forma
diluted net income (loss) per share for the year ended December 31, 1998 and the
six months ended June 30, 1998 has been computed by dividing pro forma net
income by the weighted average shares outstanding.
NOTE 12 -- SUBSEQUENT EVENTS
During July 1999, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission for an
initial public offering of shares of its common stock. On September 24, 1999,
the Company effected a 2.25-for-1 common stock split. All references to common
shares and per common shares, except for references to authorized common shares,
in the accompanying financial statements have been restated to give effect to
the common stock split.
F-14
<PAGE> 73
PROSPECTUS , 1999
[CYSIVE LOGO]
3,350,000 Shares
Common Stock
THOMAS WEISEL PARTNERS LLC
FIRST UNION CAPITAL MARKETS CORP.
FRIEDMAN BILLINGS RAMSEY
- --------------------------------------------------------------------------------
You may rely on the information contained in this prospectus. Neither we nor any
of the underwriters or the selling stockholder have authorized anyone to provide
information different from that contained in this prospectus. When you make a
decision about whether to invest in our common stock, you should not rely upon
any information other than the information in this prospectus. Neither the
delivery of this prospectus nor sale of common stock means that information
contained in this prospectus is correct after the date of this prospectus. This
prospectus is not an offer to sell or solicitation of an offer to buy these
shares of the common stock in any circumstances under which the offer or
solicitation is unlawful.
Until , 1999 (25 days after the commencement of this offering), all
dealers that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various fees and expenses, other than
the underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the common stock being registered under this
registration statement. All amounts shown are estimates except for the
Securities and Exchange Commission ("SEC") registration fee, the NASD filing fee
and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
SEC registration fee........................................ $ 16,680
NASD filing fee............................................. 6,500
Nasdaq National Market listing fee.......................... 60,000
Blue sky qualification fees and expenses.................... 11,800
Accounting fees and expenses................................ 70,000
Legal fees and expenses..................................... 200,000
Printing and engraving expenses............................. 250,000
Transfer agent and registrar fees........................... 20,000
Miscellaneous expenses...................................... 115,020
--------
Total............................................. $750,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Upon completion of this offering, the Certificate of Incorporation and
Bylaws of the Registrant will provide for the indemnification of the
Registrant's directors and officers to the fullest extent authorized by, and
subject to the conditions set forth in the Delaware General Corporation Law (the
"DGCL"), except that the Registrant will indemnify a director or officer in
connection with a proceeding (or part thereof) initiated by the person only if
the proceeding (or part thereof) was authorized by the Registrant's Board of
Directors. The indemnification provided under the Certificate of Incorporation
and Bylaws includes the right to be paid by the Registrant the expenses
(including attorneys' fees) in advance of any proceeding for which
indemnification may be had in advance of its final disposition, provided that
the payment of those expenses (including attorneys' fees) incurred by a director
or officer in advance of the final disposition of a proceeding may be made only
upon delivery to the Registrant of an undertaking by or on behalf of the
director or officer to repay all amounts so paid in advance if it is ultimately
determined that the director or officer is not entitled to be indemnified.
According to the Bylaws, if a claim for indemnification is not paid by the
Registrant within 60 days after a written claim has been received by the
Registrant, the claimant may at any time thereafter bring an action against the
Registrant to recover the unpaid amount of the claim and, if successful in whole
or in part, the claimant will be entitled to be paid also the expense of
prosecuting the action.
As permitted by the DGCL, the Registrant's Certificate of Incorporation
will provide that directors of the Registrant shall not be liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, relating to unlawful payment of
dividends or unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit. As a result of
this provision, the Registrant and its stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.
II-1
<PAGE> 75
Under the Bylaws, the Registrant will have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Registrant, or is or was serving at the request of the
Registrant as a director, officer, employee, partner (limited or general) or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust or other enterprise, against any liability asserted
against the person or incurred by the person in that capacity, or arising out of
the person's status, and related expenses, whether or not the Registrant would
have the power to indemnify the person against liability under the provisions of
the DGCL. The Registrant intends to purchase director and officer liability
insurance on behalf of its directors and officers.
The Underwriting Agreement provides that the underwriters are obligated,
under specified circumstances, to indemnify directors, officers and controlling
persons of Cysive against specified liabilities, including liabilities under the
Securities Act of 1933, as amended. Reference is made to the form of
Underwriting Agreement to be filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the exercise of stock options in January 1999, the
Registrant issued 1,237,500 shares of its common stock to Mr. Nelson A.
Carbonell, Jr., Chairman, President and Chief Executive Officer for a total of
$1,002,375 and 112,500 shares of its common stock to Mr. Eric J. Magleby for a
total of $91,125. These issuances were exempt from registration under Section
4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Form of Certificate of Incorporation to be filed upon the
closing of this offering
3.2* Bylaws to be effective upon the closing of this offering
4.1* Form of Common Stock Certificate
5.1** Opinion of Hogan & Hartson L.L.P.
10.1* Amended and Restated 1994 Stock Option Plan
10.2* 1999 Stock Purchase Plan
10.3* 401(k) Plan
10.4** Employment Agreement by and between Cysive, Inc. and Nelson
A. Carbonell, Jr.
10.5** Employment Agreement by and between Cysive, Inc. and John R.
Lund
10.6** Employment Agreement by and between Cysive, Inc. and Michael
E. Price
10.7** Employment Agreement by and between Cysive, Inc. and Robert
C. Rubinstein
10.8** Employment Agreement by and between Cysive, Inc. and Joseph
M. Rymsza
10.9** Employment Agreement by and between Cysive, Inc. and John M.
Saaty
10.10** Employment Agreement by and between Cysive, Inc. and Penny
J. Jobin
10.11+ Basic Ordering Agreement by and between Cysive, Inc. and
Sylvan Prometric
10.12+ Basic Ordering Agreement by and between Cysive, Inc. and
Equifax Secure, Inc.
10.13+ Basic Ordering Agreement by and between Cysive, Inc. and
Classified Ventures, Inc.
10.14+ Independent Contractor Services Agreement by and between
Cysive, Inc. and Cisco Systems, Inc.
10.15+ Consulting Agreement by and between Cysive, Inc. and UOP LLC
10.16* Basic Ordering Agreement by and between Cysive, Inc. and
First Union Corporation
10.17+ Revolving Credit Agreement by and between Cysive, Inc. and
Merrill Lynch Business Financial Services Inc.
23.1* Consent of Ernst & Young LLP
23.2** Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1+ Power of Attorney (included on signature page)
27.1+ Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
** To be filed by amendment
+ Previously filed
II-2
<PAGE> 76
(b) FINANCIAL STATEMENT SCHEDULE
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ITEM 17. UNDERTAKINGS
The undersigned Registrant undertakes to provide to the underwriter at the
closing specified in the Underwriting Agreement, certificates in those
denominations and registered in select names as may be required by the
underwriter 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
Registrant under the provisions described under Item 14 of this Registration
Statement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission this indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against these liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by an director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
the indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of the issue.
The undersigned Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant in accordance with 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 these securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 77
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Reston, Commonwealth of
Virginia, on September 24, 1999.
CYSIVE, INC.
By: *
------------------------------------
Nelson A. Carbonell, Jr.
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed as of September 24, 1999 by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
* Chairman, President and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer)
Nelson A. Carbonell, Jr.
/s/ JOHN R. LUND Chief Financial Officer, Treasurer, Secretary
- --------------------------------------------- and Director (Principal Financial and
John R. Lund Accounting Officer)
* Director
- ---------------------------------------------
Jon Korin
* Director
- ---------------------------------------------
John Sabin
* Director
- ---------------------------------------------
Eric J. Magleby
* /s/ JOHN R. LUND
- ---------------------------------------------
John R. Lund
Attorney-in-fact
</TABLE>
II-4
<PAGE> 78
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
Cysive, Inc.
We have audited the financial statements of Cysive, Inc. (formerly Alta
Software, Inc.) as of December 31, 1997 and 1998 and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
January 14, 1999, except for Note 12, as to which the date is September 24, 1999
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
VIENNA, VIRGINIA
January 14, 1999
S-1
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 * Form of Underwriting Agreement
3.1 * Form of Certificate of Incorporation to be filed upon the
closing of this offering
3.2 * Bylaws to be effective upon the closing of this offering
4.1 * Form of Common Stock Certificate
5.1 ** Opinion of Hogan & Hartson L.L.P.
10.1 * Amended and Restated 1994 Stock Option Plan
10.2 * 1999 Stock Purchase Plan
10.3 * 401(k) Plan
10.4 ** Employment Agreement by and between Cysive, Inc. and Nelson
A. Carbonell, Jr.
10.5 ** Employment Agreement by and between Cysive, Inc. and John R.
Lund
10.6 ** Employment Agreement by and between Cysive, Inc. and Michael
E. Price
10.7 ** Employment Agreement by and between Cysive, Inc. and Robert
C. Rubinstein
10.8 ** Employment Agreement by and between Cysive, Inc. and Joseph
M. Rymsza
10.9 ** Employment Agreement by and between Cysive, Inc. and John M.
Saaty
10.10** Employment Agreement by and between Cysive, Inc. and Penny
J. Jobin
10.11+ Basic Ordering Agreement by and between Cysive, Inc. and
Sylvan Prometric
10.12+ Basic Ordering Agreement by and between Cysive, Inc. and
Equifax Secure, Inc.
10.13+ Basic Ordering Agreement by and between Cysive, Inc. and
Classified Ventures, Inc.
10.14+ Independent Contractor Services Agreement by and between
Cysive, Inc. and Cisco Systems, Inc.
10.15+ Consulting Agreement by and between Cysive, Inc. and UOP LLC
10.16* Basic Ordering Agreement by and between Cysive, Inc. and
First Union Corporation
10.17+ Revolving Credit Agreement by and between Cysive, Inc. and
Merrill Lynch Business Financial Services Inc.
23.1* Consent of Ernst & Young LLP
23.2 ** Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1+ Power of Attorney (included on signature page)
27.1+ Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
** To be filed by amendment
+ Previously filed
<PAGE> 1
Exhibit 1.1
FORM OF
UNDERWRITING AGREEMENT
_______________ SHARES
CYSIVE, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED __________ ___, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Representations and Warranties of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(a) Effective Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Contents of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(c) Due Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(e) Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(f) Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(g) Authorized Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(h) Validly Issued Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(i) No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(j) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(k) Legal Proceedings; Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(l) Compliance with Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(m) Not an Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(n) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(o) No Environmental Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(p) No Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(q) Absence of Material Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(r) Good Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(s) Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(t) No Labor Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(u) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(v) Governmental Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(w) Accounting Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(x) Listing of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(y) Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(z) Directed Share Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Purchase and Sale Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(a) Firm Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(b) Additional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Market Standoff Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) Terms of Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Payment and Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Firm Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Additional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Delivery of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Furnish Copies of Registration Statement and Prospectus . . . . . . . . . . . . . . . . . . . . . . 10
(b) Notification of Amendments or Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Filings of Amendments or Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(d) Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(e) Earnings Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(f) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(g) Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(h) Periodic Reporting Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(i) Directed Share Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(j) Exchange Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Conditions to the Underwriters' Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Effective Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Rule 462 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(c) Prospectus Filed with Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) No Stop Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(e) No NASD Objection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(f) No Debt Downgrading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(g) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(h) Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(i) Opinion of Company Counsel and Sellling Stockholder Counsel . . . . . . . . . . . . . . . . . . . . 12
(j) Opinion of Underwriters Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(k) Accountant's Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(l) Lock-Up Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(m) Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Indemnity and Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Indemnification of the Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Indemnification by the Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(c) Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Indemnification for Directed Share Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(e) Contribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Contribution Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) Survival of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Defaulting Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Headings; Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Partial Unenforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
ii
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Sophisticated Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
iii
<PAGE> 5
_____________, 1999
Thomas Weisel Partners LLC
First Union Capital Markets Corp.
Friedman, Billings, Ramsey & Co., Inc.
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Ladies and Gentlemen:
Introduction. Cysive, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several underwriters named in Schedule A
hereto (the "UNDERWRITERS"), and Eric J. Magleby (the "Selling Stockholder")
proposes to sell to the several Underwriters, an aggregate of ____________
shares of the COMMON STOCK, par value $.01 per share, of the Company (the "FIRM
SHARES"), of which __________ shares are to be issued and sold by the Company
and ________ shares are to be sold by the Selling Stockholder.
The Company and the Selling Stockholder also propose to issue and sell
to the several Underwriters not more than an additional ____________ shares of
COMMON STOCK, par value $.01 per share (the "ADDITIONAL SHARES"), of which
______ shares are to be issued and sold by the Company and _______ shares are
to be sold by the Selling Stockholder, if and to the extent that you shall have
determined to exercise, on behalf of the Underwriters, the right to purchase
such shares of common stock granted to the Underwriters in Section 2 hereof.
The Firm Shares and the Additional Shares are hereinafter collectively referred
to as the "SHARES". The shares of COMMON STOCK, par value $.01 per share, of
the Company to be outstanding after giving effect to the sales contemplated
hereby are hereinafter referred to as the "COMMON STOCK". The Company and the
Selling Stockholder are hereinafter sometimes referred to as the "SELLERS".
Thomas Weisel Partners LLC, First Union Capital Markets Corp. and Friedman,
Billings, Ramsey & Co., Inc. have agreed to act as representatives of the
several Underwriters (in such capacity, the "REPRESENTATIVES") in connection
with the offering and sale of the Shares.
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-1 (file no. 333-85651),
including a prospectus, relating to the Shares. The registration statement as
amended at the time it became effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), is hereinafter referred to as the "REGISTRATION STATEMENT";
the prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "PROSPECTUS". If the Company has filed a registration
statement to register additional shares of Common Stock pursuant to Rule 462(b)
under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any
reference herein to the term "REGISTRATION STATEMENT" shall be deemed to
include such Rule 462 Registration Statement. All
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<PAGE> 6
references in this Agreement to the Registration Statement, the Rule 462
Registration Statement, a preliminary prospectus, the Prospectus, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
As part of the offering contemplated by this Agreement, Thomas
Weisel Partners has agreed to reserve out of the Shares set forth opposite its
name on Schedule A to this Agreement, up to ______________ shares, for sale to
the Company's employees, officers, and directors and other parties associated
with the Company (collectively, "PARTICIPANTS"), as set forth in the Prospectus
under the heading "Underwriting" (the "DIRECTED SHARE PROGRAM"). The Shares to
be sold by Thomas Weisel Partners pursuant to the Directed Share Program (the
"DIRECTED SHARES") will be sold by Thomas Weisel Partners pursuant to this
Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the first business day
after the date on which this Agreement is executed will be offered to the
public by Thomas Weisel Partners as set forth in the Prospectus.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) Effective Registration Statement. The Registration
Statement has become effective; no stop order suspending the effectiveness of
the Registration Statement is in effect, and no proceedings for such purpose are
pending before or, to the knowledge of the Company, threatened by the
Commission.
(b) Contents of Registration Statement. (i) The Registration
Statement, when it became effective, did not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Due Incorporation. The Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company.
(d) Subsidiaries. The Company has no subsidiaries.
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<PAGE> 7
(e) Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
rights to indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(f) Description of Capital Stock. The authorized capital stock
of the Company conforms in all material respects as to legal matters to the
description thereof contained in the Prospectus.
(g) Authorized Stock. The shares of Common Stock outstanding
(including the Shares to be sold by the Selling Stockholder) prior to the
issuance of the Shares to be sold by the Company have been duly authorized and
are validly issued, fully paid and non-assessable.
(h) Validly Issued Shares. The Shares to be sold by the
Company have been duly authorized and, when issued and delivered in accordance
with the terms of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(i) No Conflict. The execution and delivery by the Company of,
and the performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other instrument
binding upon the Company that is material to the Company, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be required
by the securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(j) No Material Adverse Change. There has not occurred any
material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings,
business or operations of the Company from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement).
(k) Legal Proceedings; Exhibits. There are no legal or
governmental proceedings pending or, to the knowledge of the Company, threatened
to which the Company or any of its subsidiaries is a party or to which any of
the properties of the Company is subject that are required to be described in
the Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(l) Compliance with Securities Act. Each preliminary
prospectus filed as part of the registration statement as originally filed or as
part of any amendment thereto, or filed pursuant
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<PAGE> 8
to Rule 424 under the Securities Act, complied when so filed in all material
respects with the Securities Act and the applicable rules and regulations of the
Commission thereunder.
(m) Not an Investment Company. The Company is not and, after
giving effect to the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(n) Compliance with Laws. The Company (i) is in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) has received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, individually or in the
aggregate, have a material adverse effect on the Company.
(o) No Environmental Costs. There are no costs or liabilities
associated with Environmental Laws (including, without limitation, any capital
or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) which would, individually or in the aggregate, have a material
adverse effect on the Company.
(p) No Registration Rights. There are no contracts, agreements
or understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to require the
Company to include such securities with the Shares registered pursuant to the
Registration Statement other than as described in the Registration Statement and
as have been waived in writing in connection with the offering contemplated
hereby.
(q) Absence of Material Charges. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus and except for this Agreement, (1) the Company and its subsidiaries
have not incurred any material liability or obligation, direct or contingent,
nor entered into any material transaction not in the ordinary course of
business; (2) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock, short-term debt or
long-term debt of the Company and its subsidiaries, except in each case as
described in the Prospectus.
(r) Good Title to Properties. The Company does not own any
real property. The Company has good and marketable title to all personal
property owned by it which is material to the business of the Company, in each
case free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the
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<PAGE> 9
Company; and any real property and buildings held under lease by the Company are
held by it under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company.
(s) Intellectual Property Rights. The Company owns or
possesses, or can acquire on reasonable terms, all material patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by it in connection with the business now operated by it, and the
Company has not received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, individually or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse affect on the Company.
(t) No Labor Disputes. No material labor dispute with the
employees of the Company or any of its subsidiaries exists, or, to the knowledge
of the Company, is imminent; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that could have a material
adverse effect on the Company.
(u) Insurance. The Company is insured by the insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which it is engaged;
and the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the Company.
(v) Governmental Permits. The Company possesses all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
business other than those which, singly or in the aggregate, if not so
possessed, would not have a material adverse effect on the Company, and neither
the Company nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, individually or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(w) Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) Listing of Common Stock. The Common Stock (including the
Shares and the Directed Shares) is registered pursuant to Section 12(g) of the
Exchange Act and is listed on the Nasdaq National Market, subject to notice of
issuance, and the Company has taken no action
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<PAGE> 10
designed to, or likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act or delisting the Common Stock from the
Nasdaq National Market, nor has the Company received any notification that the
Commission or the National Association of Securities Dealers, Inc. (the "NASD")
is contemplating terminating such registration or listing.
(y) Year 2000 Compliance. The Company has reviewed its
operations and that of its subsidiaries and any third parties with which the
Company or any of its subsidiaries has a material relationship to evaluate the
extent to which the business or operations of the Company or its subsidiaries
will be affected by the Year 2000 Problem. As a result of such review, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a material adverse effect on the Company, or result in any
material loss or interference with the Company's business or operations. The
"Year 2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data or
in the operation of mechanical or electrical systems of any kind will not, in
the case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000.
(z) Directed Share Program. The Company represents and
warrants to Thomas Weisel Partners that (i) the Registration Statement, the
Prospectus and any preliminary prospectus comply, and any further amendments or
supplements thereto will comply, with any applicable laws or regulations of
foreign jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection with the
Directed Share Program, and that (ii) no authorization, approval, consent,
license, order, registration or qualification of or with any government,
governmental instrumentality or court, other than such as have been obtained, is
necessary under the securities laws and regulations of foreign jurisdictions in
which the Directed Shares are offered outside the United States.
2. Representations and Warranties of the Selling Stockholder.
The Selling Stockholder represents and warrants to and agrees with each of the
Underwriters that:
(a) Due Authorization. This Agreement has been duly
authorized, executed and delivered by or on behalf of the Selling Stockholder
and is a valid and binding agreement of the Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) Selling Stockholder Documents. The Custody Agreement
signed by the Selling Stockholder and ______________, as Custodian, relating to
the deposit of the Shares to be sold by the Selling Stockholder (the "CUSTODY
AGREEMENT") and the Power of Attorney appointing certain individuals as the
Selling Stockholder's attorneys-in-fact to the extent set forth therein,
relating to the transactions contemplated hereby and by the Registration
Statement (the "POWER OF ATTORNEY"), have been duly authorized, executed and
delivered by the Selling Stockholder and are valid and binding agreements of the
Selling Stockholder, enforceable in accordance with their respective terms,
except as rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization,
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<PAGE> 11
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(c) No Conflict. The execution and delivery by the Selling
Stockholder of, and the performance by the Selling Stockholder of its
obligations under, this Agreement, the Custody Agreement and the Power of
Attorney will not contravene any provision of applicable law, or any agreement
or other instrument binding upon the Selling Stockholder or any judgment, order
or decree of any governmental body, agency or court having jurisdiction over the
Selling Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Selling Stockholder of its obligations under this Agreement
or the Custody Agreement or Power of Attorney of the Selling Stockholder, except
such as may be required by the securities or Blue Sky laws of the various states
in connection with the offer and sale of the Shares.
(d) Validly Issued Shares. The Shares to be sold by the
Selling Stockholder pursuant to this Agreement have been duly authorized and are
validly issued, fully paid and non-assessable.
(e) Good Title to Shares. The Selling Stockholder has, and on
each Closing Date will have, valid title to the Shares to be sold by the Selling
Stockholder and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement and the
Power of Attorney and to sell, transfer and deliver the Shares to be sold by the
Selling Stockholder.
(f) Delivery of Common Shares. Delivery of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement will pass title to
such Shares free and clear of any security interests, claims, liens, equities
and other encumbrances.
(g) No Registration Rights. The Selling Stockholder does not
have any registration or other similar rights to have any equity or debt
securities registered for sale by the Company under the Registration Statement
or included in the offering contemplated by this Agreement, other than as
described in the Registration Statement and as have been waived in writing in
connection with the offering contemplated hereby.
(h) No Price Stabilization or Manipulation. The Selling
Stockholder has not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
(i) Confirmation of Company Representations and Warranties.
The Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1 hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and has
no knowledge of any material fact, condition or information not disclosed in the
Registration Statement or the Prospectus which has had or may have a material
adverse effect on the Company, and is not prompted to sell any of the Shares by
any information concerning the Company which is not set forth in the
Registration Statement and the Prospectus.
3. Purchase and Sale Agreements
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<PAGE> 12
(a) Firm Shares. Each Seller, severally and not jointly,
hereby agrees to sell to the several Underwriters, and each Underwriter, upon
the basis of the representations and warranties herein contained, but subject to
the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from the Seller at $______ a share (the "PURCHASE PRICE") the number of
Firm Shares that bears the same proportion to the number of Firm Shares to be
sold by such Seller as the number of Firm Shares set forth in Schedule A hereto
opposite the name of such Underwriter bears to the total number of Firm Shares.
(b) Additional Shares. On the basis of the representations and
warranties contained in this Agreement, and subject to its terms and conditions,
the Company and the Selling Stockholder, severally and not jointly, agree to
sell to the Underwriters the Additional Shares, and the Underwriters shall have
a one-time right to purchase, severally and not jointly, up to _______________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Seller in writing not
later than thirty (30) days after the date of this Agreement, which notice shall
specify the number of Additional Shares to be purchased by the Underwriters and
the date on which such shares are to be purchased. Such date may be the same as
the Closing Date (as defined below) but not earlier than the Closing Date nor
later than ten (10) business days after the date of such notice. Additional
Shares may be purchased as provided in Section 4 hereof solely for the purpose
of covering over-allotments made in connection with the offering of the Firm
Shares. If any Additional Shares are to be purchased, each Underwriter agrees,
severally and not jointly, to purchase the number of Additional Shares (subject
to such adjustments to eliminate fractional shares as you may determine) that
bears the same proportion to the total number of Additional Shares to be
purchased as the number of Firm Shares set forth in Schedule A hereto opposite
the name of such Underwriter bears to the total number of Firm Shares.
(c) Market Standoff Provision. Each Seller hereby agrees that,
without the prior written consent of Thomas Weisel Partners, it will not, during
the period ending 180 days after the date of the Prospectus, (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,
lend, 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
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Shares to be sold hereunder, (B) the grant by the Company of options for the
purchase of shares of Common Stock under the Amended and Restated 1994 Stock
Option Plan and the issuance by the Company of shares of Common Stock upon the
exercise of options or warrants or the conversion of a security outstanding on
the date hereof of which the Underwriters have been advised in writing and which
is described in the Prospectus, (C) transactions by any person other than the
Company relating to shares of Common Stock or other securities acquired in open
market transactions after the completion of the offering of the Shares or (D)
the issuance by the Company of shares of Common Stock in an acquisition or other
strategic transaction, provided that the recipients of such shares execute
"lock-up agreements" substantially in the form of Exhibit B hereto.
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<PAGE> 13
(d) Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Sellers
are further advised by you that the Shares are to be offered to the public
initially at $_____________ a share (the "PUBLIC OFFERING PRICE") and to certain
dealers selected by you at a price that represents a concession not in excess of
$______ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of $_____ a
share, to any Underwriter or to certain other dealers.
4. Payment and Delivery.
(a) Firm Shares. Payment for the Firm Shares to be sold by
each Seller shall be made to such Seller in immediately available funds against
delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ____________, 1999, or at
such other time on the same or such other date, not later than _________, 1999,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE".
(b) Additional Shares. Payment for any Additional Shares shall
be made to each Seller in immediately available funds in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3(b) or at such other time on the same or on such
other date, in any event not later than _______, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "OPTION CLOSING DATE".
(c) Delivery of Certificates. Certificates for the Firm Shares
and Additional Shares shall be in definitive form and registered in such names
and in such denominations as you shall request in writing not later than one (1)
full business day prior to the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and Additional Shares
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with any
transfer taxes payable in connection with the transfer of the Shares to the
Underwriters duly paid, against payment of the Purchase Price therefor.
5. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) Furnish Copies of Registration Statement and Prospectus.
To furnish to you, without charge, four signed copies of the Registration
Statement (including exhibits thereto) and for delivery to each other
Underwriter a conformed copy of the Registration Statement (without exhibits
thereto) and to furnish to you in New York City, without charge, prior to 10:00
a.m. New York City time on the business day next succeeding the date of this
Agreement and during the period mentioned in Section 5(c) below, as many copies
of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Notification of Amendments or Supplements. Before amending
or supplementing the Registration Statement or the Prospectus to furnish to you
a copy of each such
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<PAGE> 14
proposed amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the Commission
within the applicable period specified in Rule 424(b) under the Securities Act
any prospectus required to be filed pursuant to such rule.
(c) Filings of Amendments or Supplements. If, during such
period after the first date of the public offering of the Shares as in the
opinion of counsel for the Underwriters the Prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer (the "PROSPECTUS
DELIVERY PERIOD"), any event shall occur or condition exist as a result of which
it is necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of counsel for
the Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers (whose names
and addresses you will furnish to the Company) to which Shares may have been
sold by you on behalf of the Underwriters and to any other dealers upon request,
either amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) Blue Sky Laws. To endeavor to qualify the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request; provided, however, that the Company shall not be
required to file a general consent to service of process in any foreign
jurisdiction.
(e) Earnings Statement. To make generally available to its
securityholders as soon as practicable, but in any event not later than eighteen
(18) months after the effective date of the Registration Statement (as defined
in Rule 158(c) under the Securities Act), an earnings statement of the Company
(which need not be audited) complying with Section 11(a) of the Securities Act
and the rules and regulations thereunder (including, at the option of the
Company, Rule 158).
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Periodic Reporting Obligations. During the Prospectus
Delivery Period, the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall file with the Commission
such information on Form 10-Q or Form 10-K as may be required by Rule 463 under
the Securities Act.
(i) Directed Share Program. That in connection with the
Directed Share Program, the Company will ensure that the Directed Shares will be
restricted to the extent required by the NASD or the NASD rules from sale,
transfer, assignment, pledge or hypothecation for a
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period of three (3) months following the date of the effectiveness of the
Registration Statement. Thomas Weisel Partners will notify the Company as to
which Participants will need to be so restricted. The Company will direct the
transfer agent to place stop transfer restrictions upon such securities for such
period of time. Furthermore, the Company covenants with Thomas Weisel Partners
that the Company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the Directed
Shares are offered in connection with the Directed Share Program.
(j) Exchange Act Compliance. During the Prospectus Delivery
Period, the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Age in the manner
and within the time periods required by the Exchange Act.
6. Conditions to the Underwriters' Obligations. The obligations of
the Sellers to sell the Shares to the several Underwriters and the several
obligations of the Underwriters to purchase and pay for the Shares on the
Closing Date are subject to the following conditions:
(a) Effective Registration Statement. The Registration
Statement shall have become effective not later than [__________] (New York City
time) on the date hereof.
(b) Rule 462 Registration Statement. If the Company elects to
rely upon Rule 462(b), the Company shall file a Rule 462 Registration Statement
with the Commission in compliance with Rule 462(b) by 10:00 P.M., New York City
time, on the date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462 Registration
Statement or give irrevocable instructions for the payment of such fee pursuant
to Rule 111(b) under the Securities Act.
(c) Prospectus Filed with Commission. The Company shall have
filed the Prospectus with the Commission (including the information required by
Rule 430A under the Securities Act) in the manner and within the time period
required by Rule 424(b) under the Securities Act; or the Company shall have
filed a post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment shall
have become effective.
(d) No Stop Order. No stop order suspending the effectiveness
of the Registration Statement, any Rule 462 Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in effect and
no proceedings for such purpose shall have been instituted or, to the Company's
knowledge, threatened by the Commission.
(e) No NASD Objection. The NASD shall have raised no objection
to the fairness and reasonableness of the underwriting terms and arrangements.
(f) No Debt Downgrading. There shall not have occurred any
downgrading, nor shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the Securities Act.
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<PAGE> 16
(g) No Material Adverse Change. There shall not have occurred
any change, or any development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement) that, in your judgment, is material and adverse and that
makes it, in your judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
(h) Officer's Certificate. The Underwriters shall have
received on the Closing Date a certificate, dated the Closing Date and signed by
the Chief Executive Officer or President of the Company, to the effect set forth
in Sections 6(d) and 6(g) above and to the effect that the representations and
warranties of the Company contained in this Agreement are true and correct as of
the Closing Date and that the Company has complied with all of the agreements
and satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
(i) Opinion of Company and Selling Stockholder Counsel. The
Underwriters shall have received on the Closing Date an opinion of Hogan &
Hartson L.L.P., counsel for the Company and the Selling Stockholder, dated the
Closing Date, the form of which is attached hereto as Exhibit A. The opinion
shall be rendered to the Underwriters at the request of the Company and shall so
state therein.
(j) Opinion of Underwriters Counsel. The Underwriters shall
have received on the Closing Date an opinion of Hale and Dorr LLP, counsel for
the Underwriters, dated the Closing Date, covering the matters referred to in
Exhibit A, the first clause of paragraph (iii) and paragraphs (iv), (vii) (but
only as to the statements in the Prospectus under "Description of Capital Stock"
and "Underwriters") and (x). With respect to paragraph (x) of Exhibit A, such
counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification, except as
specified.
(k) Accountant's Comfort Letter. The Underwriters shall have
received, on each of the date hereof and the Closing Date, a letter dated the
date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Underwriters, from Ernst & Young LLP, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter delivered on
the Closing Date shall use a "cut-off date" not earlier than the date hereof.
(l) Lock-Up Agreements. The "lock-up" agreements, each
substantially in the form of Exhibit B hereto, between you and certain
shareholders, officers and directors of the Company, delivered to you on or
before the date hereof, shall be in full force and effect on the Closing Date.
(m) Selling Stockholder Certificate. The Underwriters shall
have received on the Closing Date a certificate, dated the Closing Date and
signed by the Attorney-in-Fact of the Selling Stockholder, to the effect that
the representations and warranties of the Selling Stockholder
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<PAGE> 17
contained in this Agreement are true and correct as of the Closing Date and that
the Selling Stockholder has complied with all of the agreements and satisfied
all of the conditions on its part to be performed or satisfied hereunder on or
before the Closing Date.
(n) Selling Stockholder Documents. On the date hereof, the
Company and the Selling Stockholder shall have furnished for review by the
Representatives copies of the Powers of Attorney and Custody Agreements executed
by the Selling Stockholder and such further information, certificates and
documents as the Representatives may reasonably request.
(o) Additional Documents. On the Closing Date, the
Representatives and counsel for the Underwriters shall have received such
information, documents and opinions as they may reasonably require for the
purposes of enabling them to pass upon the issuance and sale of the Shares as
contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the conditions or
agreements, herein contained.
7. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Sellers agree to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's and Selling Stockholder's counsel and the Company's
accountants in connection with the registration and delivery of the Shares under
the Securities Act and all other fees or expenses in connection with the
preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or legal investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
contemplated by Section 5(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or legal investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the NASD, (v) all fees and
expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the Nasdaq National Market and other national
securities exchanges and foreign stock exchanges, (vi) the cost of printing
certificates representing the Shares, (vii) the costs and charges of any
transfer agent, registrar or depositary, (viii) the costs and expenses of the
Company relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the
road show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with the road
show, (ix) all expenses in connection with any offer and sale of the Shares
outside of the United States, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with offers and
sales outside of the United States, (x) all reasonable fees and disbursements of
counsel incurred by the Underwriters in connection with the Directed Share
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<PAGE> 18
Program and stamp duties, similar taxes or duties or other taxes, if any,
incurred by the Underwriters in connection with the Directed Share Program and
(xi) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 7 entitled "Indemnity and Contribution", and the last
paragraph of Section 10 below, the Underwriters will pay all of their costs and
expenses, including fees and disbursements of their counsel and any advertising
expenses connected with any offers they may make.
The provisions of this Section shall not supersede or otherwise
affect any agreement that the Sellers may otherwise have for the allocation of
such expenses among themselves.
8. Indemnity and Contribution.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except (i) insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein and (ii) that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage or
liability purchased Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter pursuant to
Section 5 and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense.
(b) Indemnification of Company by the Selling Stockholder. The
Selling Stockholder agrees to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to
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<PAGE> 19
information relating to such Selling Stockholder furnished in writing by or on
behalf of such Selling Stockholder expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(c) Indemnification of Underwriters by Selling Stockholder.
The Selling Stockholder agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but only with
reference to information relating to such Selling Stockholder furnished in
writing by or on behalf of such Selling Stockholder expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) Indemnification by the Underwriters. Each Underwriter
agrees, severally and not jointly, to indemnify and hold harmless the Company,
the Selling Stockholder, the directors of the Company, the officers of the
Company who sign the Registration Statement and each person, if any, who
controls the Company or the Selling Stockholder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with reference
to information relating to such Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(e) Indemnification Procedures. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to this Section 8,
such person (the "INDEMNIFIED PARTY") shall promptly notify the person against
whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing, and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
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<PAGE> 20
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section, and
that all such fees and expenses shall be reimbursed as they are incurred and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Selling Stockholder and all persons, if any, who control
the Selling Stockholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by Thomas Weisel
Partners. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm for
the Selling Stockholder and such control persons of any Selling Stockholder,
such firm shall be designated in writing by the persons named as
attorneys-in-fact for the Selling Stockholder under the Powers of Attorney. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
Notwithstanding anything contained herein to the contrary, if
indemnity may be sought pursuant to Section 8(e) hereof in respect of such
action or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for Thomas Weisel Partners for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control Thomas Weisel Partners within the meaning of either Section 15 of
the Act or Section 20 of the Exchange Act.
(f) Limitation of Selling Stockholder Liability. The liability
of the Selling Stockholder under the indemnity and contribution provisions of
this Section 8 shall be limited to an amount equal to the initial public
offering price of the Shares sold by such Selling Stockholder, less the
underwriting discount, as set forth on the front cover page of the Prospectus.
The Company and the Selling Stockholder may agree, as among themselves and
without limiting the rights of the
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<PAGE> 21
Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
(g) Indemnification for Directed Share Program. The Company
agrees to indemnify and hold harmless Thomas Weisel Partners and each person, if
any, who controls Thomas Weisel Partners within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act ("THOMAS WEISEL PARTNERS
ENTITIES"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) (i)
caused by any untrue statement or alleged untrue statement of a material fact
contained in the prospectus wrapper material prepared by or with the consent of
the Company for distribution in foreign jurisdictions in connection with the
Directed Share Program attached to the Prospectus or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein, when
considered in conjunction with the Prospectus or any applicable preliminary
prospectus, not misleading; (ii) caused by the failure of any Participant to pay
for and accept delivery of the shares which, immediately following the
effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase; or (iii) related to, arising out of, or in
connection with the Directed Share Program, provided that, the Company shall not
be responsible under this subparagraph (iii) for any losses, claim, damages or
liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of Thomas
Weisel Partners Entities.
(h) Contribution Agreement. To the extent the indemnification
provided for in this Section 8 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party or parties on the other hand from the offering of the
Shares or (ii) if the allocation provided by clause 8(h)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(h)(i) above but also the
relative fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Sellers on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Sellers and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 8 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
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(i) Contribution Amounts. The Sellers and the Underwriters
agree that it would not be just or equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 8(h). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 8 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(j) Survival of Provisions. The indemnity and contribution
provisions contained in this Section 8 and the representations, warranties and
other statements of the Company contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter, the
Selling Stockholder or any person controlling any Underwriter or Selling
Stockholder or the Company, its officers or directors or any person controlling
the Company and (iii) acceptance of and payment for any of the Shares.
9. Effectiveness. This Agreement shall become effective upon the
execution and delivery hereof by the parties hereto.
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York or California shall have been declared by either federal
or New York or California state authorities, (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse, or (v) in
the judgment of the Representatives, there shall have occurred any material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company, and (b) in the
case of any of the events specified in clauses 10(a)(i) through 10(a)(v), such
event, individually or together with any other such event, makes it, in your
judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
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11. Defaulting Underwriters. If, on the Closing Date or the Option
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares that it has or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the aggregate number of the Shares to be purchased on such
date, the other Underwriters shall be obligated severally in the proportions
that the number of Firm Shares set forth opposite their respective names in
Schedule A bears to the aggregate number of Firm Shares set forth opposite the
names of all such non-defaulting Underwriters, or in such other proportions as
you may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 11 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Stockholder for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter and the Company. In any such case either you or the
relevant Sellers shall have the right to postpone the Closing Date, but in no
event for longer than seven (7) days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of any Seller to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
13. Headings; Table of Contents. The headings of the sections of
this Agreement and the table of contents have been inserted for convenience of
reference only and shall not be deemed a part of this Agreement.
19
<PAGE> 24
14. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Facsimile: (415) 364-2694
Attention: ___________________
with a copy to:
Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
Facsimile: (415) 364-2694
Attention: David A. Baylor
If to the Company:
Cysive, Inc.
11480 Sunset Hills Road
Suite 200 E
Reston, Virginia 20190
Facsimile: (703) 742-0751
Attention: Nelson A. Carbonell, Jr.
with a copy to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Facsimile: (202) 637-5910
Attention: Steven A. Museles, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
15. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 10 hereof, and to the benefit of the officers and directors and
controlling persons referred to in Section 7, and in each case their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
20
<PAGE> 25
16. Partial Unenforceability. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
17. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
18. Entire Agreement. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof.
19. Amendments. This Agreement may only be amended or modified in
writing, signed by all of the parties hereto, and no condition herein (express
or implied) may be waived unless waived in writing by each party whom the
condition is meant to benefit.
20. Sophisticated Parties. Each of the parties hereto acknowledges
that it is a sophisticated business person who was adequately represented by
counsel during negotiations regarding the provisions hereof, including, without
limitation, the indemnification and contribution provisions of Section 8, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Section 8 hereto fairly allocate the risks
in light of the ability of the parties to investigate the Company, its affairs
and its business in order to assure that adequate disclosure has been made in
the Registration Statement, any preliminary prospectus and the Prospectus (and
any amendments and supplements thereto), as required by the Securities Act and
the Exchange Act.
21
<PAGE> 26
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
CYSIVE, INC.
By:
----------------------------------
Name:
Title:
Accepted as of the date hereof
Thomas Weisel Partners LLC
First Union Capital Markets Corp.
Friedman, Billings, Ramsey & Co., Inc.
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule A hereto.
By: Thomas Weisel Partners LLC
By:
--------------------------------------
Name:
Title:
22
<PAGE> 27
SCHEDULE A
UNDERWRITER NUMBER OF FIRM
SHARES
TO BE PURCHASED
Thomas Weisel Partners LLC,
First Union Capital Markets Corp.
Friedman, Billings, Ramsey & Co., Inc.
[NAMES OF OTHER UNDERWRITERS],
_______________________
Total
_______________________
23
<PAGE> 28
EXHIBIT A
FORM OF LEGAL OPINION OF COMPANY COUNSEL
(i) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction listed in
Schedule 1 hereto.
(ii) The authorized, issued and outstanding capital stock of the Company,
as of June 30, 1999, is set forth under the caption "Capitalization" in the
Prospectus. All shares of common stock of the Company shown as issued and
outstanding under said caption (including the Shares to be sold by the Selling
Stockholders) are duly authorized and, assuming the receipt of consideration
therefor as provided in resolutions of the Company's Board of Directors
authorizing issuance thereof, are validly issued, fully paid and non-assessable.
(iii) The Shares to be sold by the Company have been duly authorized and,
when issued and delivered in accordance with the terms of the Underwriting
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar rights
under the Delaware General Corporation Law Statute, contained in the Company's
Certificate of Incorporation or Bylaws or, to such counsel's knowledge, under
any agreement or other instrument that has been filed as an exhibit to the
Registration Statement.
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(v) The execution and delivery by the Company of, and the performance by
the Company of its obligations under, the Underwriting Agreement will not
contravene any provision of applicable law or the Certificate of Incorporation
or Bylaws of the Company or, to such counsel's knowledge, any agreement or other
instrument binding upon the Company that has been filed as an exhibit to the
Registration Statement, or, to such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company.
(vi) No consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by the
Company of its obligations under the Underwriting Agreement, except such as may
be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares (as to which such counsel
expresses no opinion).
(vii) The information (A) in the Prospectus under the captions "Risk
Factors - Our certificate of incorporation and bylaws and Delaware law contain
provisions that may delay or deter a change of control that may be beneficial to
you," "Description of Capital Stock" and "Underwriting" and (B) in the
Registration Statement in Items 14 and 15, to the extent that such information
constitutes matters of law or legal conclusions, has been reviewed by us, and is
correct in all material respects. The authorized capital stock conforms in all
material respects to the description thereof set forth in the Prospectus under
the caption "Description of Capital Stock."
24
<PAGE> 29
(viii) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(ix) The Registration Statement and the Prospectus (except for the
financial statements and supporting schedules included therein, as to which such
counsel expresses no opinion) comply as to form in all material respects with
the requirements of the Securities Act and the applicable rules and regulations
thereunder.
(x) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Stockholder.
(xi) The execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, the
Underwriting Agreement and the Custody Agreement and Powers of Attorney of the
Selling Stockholder will not contravene any provision of applicable law, or, to
such counsel's knowledge, any agreement or other instrument binding upon such
Selling Stockholder or, to such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over such
Selling Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by such Selling Stockholder of its obligations under the
Underwriting Agreement or the Custody Agreement or Power of Attorney of such
Selling Stockholder, except such as may be required by the securities or Blue
Sky laws of the various states in connection with offer and sale of the Shares.
(xii) The Selling Stockholder has valid title to the Shares to be sold by
such Selling Stockholder and the legal right and power, and all authorization
and approval required by law, to enter into the Underwriting Agreement and the
Custody Agreement and Power of Attorney of such Selling Stockholder and to sell,
transfer and deliver the Shares to be sold by such Selling Stockholder.
(xiii) The Custody Agreement and the Power of Attorney of the Selling
Stockholder have been duly authorized, executed and delivered by the Selling
Stockholder and are valid and binding agreements of the Selling Stockholder.
(xvi) Delivery of the Shares to be sold by the Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear of any
security interests, claims, liens, equities and other encumbrances.
(xv) During the course of the preparation of the Registration Statement
we participated in conferences with officers and other representatives of the
Company, with representatives of the independent public accountants of the
Company and with you and your representatives. While we have not undertaken to
determine independently, and we do not assume any responsibility for, the
accuracy (except as set forth in paragraph vii above), completeness or fairness
of the statements in the Registration Statement or Prospectus, we may state on
the basis of these conferences and our activities as counsel to the Company in
connection with the Registration Statement that no facts have come to our
attention which cause us to believe that (i) the Registration Statement, at the
time it became effective, contained an untrue statement of a material fact or
omitted to state a material
25
<PAGE> 30
fact required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus, as of the date hereof, contains an
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, (ii) there are any legal or governmental
proceedings pending or threatened against the Company that are required to be
disclosed in the Registration Statement or the Prospectus, other than those
disclosed therein, or (iii) there are any contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or
referred to therein or so filed; provided that in making the foregoing
statements (which shall not constitute an opinion), we are not expressing any
views as to the financial statements and supporting schedules and other
financial and statistical information and data included in or omitted from the
Registration Statement or the Prospectus.
Such counsel may rely with respect to factual matters and to the extent
such counsel deems appropriate, upon the representations of the Selling
Stockholder contained in the Underwriting Agreement and in the Custody Agreement
and Power of Attorney of such Selling Stockholder and in other documents and
instruments; provided that copies of such Custody Agreements and Powers of
Attorney and of any such other documents and instruments shall be delivered to
counsel to the Underwriters and shall be in form and substance satisfactory to
counsel to the Underwriters.
26
<PAGE> 31
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
____________, 1999
Thomas Weisel Partners LLC
First Union Capital Markets Corp.
Friedman, Billings, Ramsey & Co., Inc.
As Representatives of the several Underwriters
c/o Thomas Weisel Partners LLC
One Montgomery Street, Suite 3700
San Francisco, California 94104
RE: LOCK-UP AGREEMENT (THE "AGREEMENT")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of
certain shares of Common Stock, par value $.01 per share (the "Common Stock"),
of Cysive, Inc., a [Delaware] corporation (the "Company"), or securities
convertible into or exchangeable or exercisable for Common Stock. The
undersigned understands that you, as representatives (the "Representatives"),
propose to enter into an Underwriting Agreement on behalf of the several
Underwriters named in Schedule A to such agreement (collectively, the
"Underwriters"), with the Company providing for a public offering of the Common
Stock of the Company pursuant to a Registration Statement on form S-1 filed
with the Securities and Exchange Commission (the "Public Offering"). The
undersigned recognizes that the Public Offering will be of benefit to the
undersigned and will benefit the Company by, among other things, raising
additional capital for its operations. The undersigned acknowledges that you
and the other Underwriters are relying on the representations and agreements of
the undersigned contained in this letter in carrying out the Public Offering
and in entering into underwriting arrangements with the Company with respect to
the Public Offering.
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Thomas
Weisel Partners (which consent may be withheld in its sole discretion), it will
not, during the period commencing on the date hereof and ending 180 days after
the date of the final prospectus relating to the Public Offering (the
"Prospectus"), (1) 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, lend, 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 (2) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. In addition, the
undersigned agrees that, without the prior written consent of Thomas Weisel
Partners (which consent may be withheld in its sole discretion), it will not,
during the period commencing on the date hereof and ending 180 days after the
date of the Prospectus, make any demand for or exercise any right with respect
to, the registration of any shares of Common Stock or any security convertible
into or exercisable or
27
<PAGE> 32
exchangeable for Common Stock. With respect to the Public Offering, the
undersigned waives any registration rights relating to registration under the
Securities Act of any Common Stock owned either of record or beneficially by the
undersigned, including any rights to receive notice of the Public Offering.
The foregoing restrictions are expressly agreed to preclude
the undersigned from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a sale or
disposition of the Common Stock even if such Common Stock would be disposed of
by someone other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale or any purchase,
sale or grant of any right (including without limitation any put option or put
equivalent position or call option or call equivalent position) with respect to
any of the Common Stock or with respect to any security that includes, relates
to, or derives any significant part of its value from such Common Stock.
Notwithstanding the foregoing, the undersigned may transfer
shares of Common Stock (i) as a bona fide gift or gifts, provided that the
donee or donees thereof agree to be bound by the restrictions set forth herein,
(ii) to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned, provided that the trustee of the trust
agrees to be bound by the restrictions set forth herein, and provided further
that any such transfer shall not involve a disposition for value, (iii) to the
Underwriters pursuant to the Underwriting Agreement, or (iv) in transactions
relating to shares of Common Stock acquired by the undersigned in open market
transactions after the completion of the Public Offering. For purposes of this
Agreement, "immediate family" shall mean any relationship by blood, marriage or
adoption, not more remote than first cousin. In addition, notwithstanding the
foregoing, if the undersigned is a corporation, the corporation may transfer
the capital stock of the Company to any wholly-owned subsidiary of such
corporation; provided, however, that in any such case, it shall be a condition
to the transfer that the transferee execute an agreement stating that the
transferee is receiving and holding such capital stock subject to the
provisions of this Agreement and there shall be no further transfer of such
capital stock except in accordance with this Agreement, and provided further
that any such transfer shall not involve a disposition for value.
The undersigned understands that whether or not the Public
Offering actually occurs depends on a number of factors, including stock market
conditions. The Public Offering will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiation among the Company and
the Underwriters.
The undersigned agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions.
28
<PAGE> 33
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives, and
assigns of the undersigned.
Very truly yours,
--------------------------------------
(Name)
--------------------------------------
(Address)
29
<PAGE> 1
EXHIBIT 3.1
DELAWARE
CERTIFICATE OF INCORPORATION
OF
CYSIVE, INC.
ARTICLE 1. NAME
The name of this Corporation is Cysive, Inc.
ARTICLE 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation shall be located at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, in the State of Delaware. The registered agent for the
Corporation at such address shall be The Corporation Trust Company.
ARTICLE 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "DELAWARE GENERAL CORPORATION LAW"). The
Corporation shall have all power necessary or convenient to the conduct,
promotion or attainment of such acts and activities.
ARTICLE 4. CAPITAL STOCK
4.1. AUTHORIZED SHARES
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 85,000,000, of which 75,000,000
of such shares shall be Common Stock having a par value of $0.01 per share
("COMMON STOCK"), and 10,000,000 of such shares shall be Preferred Stock, having
a par value of $0.01 per share ("PREFERRED STOCK").
4.2. COMMON STOCK
4.2.1. RELATIVE RIGHTS
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate of designations filed to establish the respective series of
Preferred Stock. Each share of Common Stock shall have the same relative rights
as and be identical in all respects to all the other shares of Common Stock.
<PAGE> 2
4.2.2. DIVIDENDS
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends thereon, but only when and as declared by the Board of
Directors of the Corporation (the "BOARD").
4.2.3. DISSOLUTION, LIQUIDATION, WINDING UP
In the event of any dissolution, liquidation, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Stock,
and holders of any class or series of stock entitled to participate therewith,
in whole or in part, as to the distribution of assets in such event, shall
become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or provided for
payment of, all debts and liabilities of the Corporation and after the
Corporation shall have paid, or set aside for payment, to the holders of any
class of stock having preference over the Common Stock in the event of
dissolution, liquidation or winding up the full preferential amounts (if any) to
which they are entitled.
4.2.4. VOTING RIGHTS
Each holder of shares of Common Stock shall be entitled to attend
all special and annual meetings of the stockholders of the Corporation and,
share for share (except any class or series of stock having special voting
rights), to cast one vote for each outstanding share of Common Stock so held
upon any matter or thing (including, without limitation, the election of one or
more directors) properly considered and acted upon by the stockholders.
4.3. PREFERRED STOCK
The Board is authorized, subject to limitations prescribed by the
Delaware General Corporation Law and the provisions of this Certificate of
Incorporation, to provide, by resolution or resolutions from time to time and by
filing a certificate of designations pursuant to the Delaware General
Corporation Law, for the issuance of the shares of Preferred Stock in series, to
establish from time to time the number of shares to be included in each such
series, to fix the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and to fix the qualifications, limitations or restrictions thereof.
-2-
<PAGE> 3
ARTICLE 5. INCORPORATOR
5.1. INCORPORATOR
The name and mailing address of the incorporator (the
"INCORPORATOR") is Joseph M. Boyle, Esq., c/o Hogan & Hartson, LLP, 555 13th
Street, NW, Washington, DC 20004. The powers and responsibilities of the
Incorporator shall terminate upon the filing of this Certificate of
Incorporation.
ARTICLE 6. BOARD OF DIRECTORS
6.1. NUMBER; ELECTION
The number of directors of the Corporation shall not be fewer than
three nor more than 15, and shall be fixed from time to time by the affirmative
vote of a majority of the total number of directors which the Corporation would
have, prior to any increase or decrease, if there were no vacancies. The
directorships (i.e., the particular seats on the Board) shall be classified into
three classes as nearly equal in number as possible.
The following persons, having the following mailing
address, comprise all of the members of the Board as of the date hereof, each
holding office until the annual meeting indicated opposite his respective name
and until his respective successor is appointed and qualified or until his
earlier resignation or removal:
<TABLE>
<CAPTION>
TERM AS
DIRECTOR
NAME EXPIRES MAILING ADDRESS
---- ------- ---------------
<S> <C> <C>
Nelson A. Carbonell, Jr. 2000 Cysive, Inc.
11480 Sunset Hills Road, Suite 200E
Reston, VA 20190
John R. Lund 2001 Cysive, Inc.
11480 Sunset Hills Road, Suite 200E
Reston, VA 20190
Jon S. Korin 2001 Cysive, Inc.
11480 Sunset Hills Road, Suite 200E
Reston, VA 20190
John M. Sabin 2002 Cysive, Inc.
11480 Sunset Hills Road, Suite 200E
Reston, VA 20190
Eric J. Magleby 2002 Cysive, Inc.
11480 Sunset Hills Road, Suite 200E
Reston, VA 20190
</TABLE>
With respect to newly created or eliminated directorships resulting
from an increase or decrease, respectively, in the number of directors, the
Board shall determine and designate to which class of directorships each
director belongs. The term of any director appointed or elected at an annual
meeting of stockholders shall expire at the
-3-
<PAGE> 4
annual meeting of stockholders held in the third year following the year of the
director's election or appointment. Unless and except to the extent that the
bylaws of the Corporation shall otherwise require, the election of directors of
the Corporation need not be by written ballot.
6.2. MANAGEMENT OF BUSINESS AND AFFAIRS OF THE CORPORATION
The business and affairs of the Corporation shall be managed by or
under the direction of the Board. Except as otherwise provided in this
Certificate of Incorporation, each director of the Corporation shall be entitled
to one vote per director on all matters voted or acted upon by the Board.
6.3. LIMITATION OF LIABILITY
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this provision shall not eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law or (d) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this Section 6.2 shall be prospective only and shall not
adversely affect any right or protection of, or any limitation of the liability
of, a director of the Corporation existing at, or arising out of facts or
incidents occurring prior to, the effective date of such repeal or modification.
ARTICLE 7. COMPROMISE OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said
-4-
<PAGE> 5
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of the
Corporation, as the case may be, and also on the Corporation.
ARTICLE 8. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board of Directors of the Corporation by
majority vote is expressly authorized and empowered to adopt, amend and repeal
the bylaws of the Corporation. The bylaws of the Corporation may be adopted,
amended or repealed by the stockholders of the Corporation only upon the
affirmative vote of at least a majority of the entire voting power of all the
then-outstanding shares of stock of the Corporation entitled to vote generally
in the election of directors, voting together as a single class.
ARTICLE 9. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF
INCORPORATION
The Corporation reserves the right at any time, and from time to
time, to amend, alter, change, or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences, and privileges
of any nature conferred upon stockholders, directors or any other persons by and
pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the rights reserved in this Article 9.
The approval of the holders of at least two-thirds of the shares
entitled to vote thereon and the approval of a majority of the entire board of
directors are required for the alteration, amendment or repeal of sections of
this Certificate of Incorporation relating to the election and classification of
the board of directors, limitation of director liability, indemnification and
the vote requirement for such amendments to this Amended and Restated
Certificate of Incorporation.
* * * * *
-5-
<PAGE> 6
IN WITNESS WHEREOF, the undersigned, being the Incorporator of the
Corporation, hereby certifies that the facts hereinabove stated are truly set
forth, and accordingly executes this Certificate of Incorporation this 20th day
of September 1999.
/s/ JOSEPH M. BOYLE
---------------------------------
Joseph M. Boyle
Incorporator
-6-
<PAGE> 1
EXHIBIT 3.2
CYSIVE, INC.
BYLAWS
ADOPTED
AS OF
SEPTEMBER 23, 1999
----
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. OFFICES.............................................................1
1.1. Registered Office..............................................1
1.2. Other Offices..................................................1
2. MEETINGS OF STOCKHOLDERS...............................................1
2.1. Place of Meetings..............................................1
2.2. Annual Meetings................................................1
2.3. Special Meetings...............................................3
2.4. Notice of Meetings.............................................4
2.5. Waivers of Notice..............................................4
2.6. List of Stockholders...........................................4
2.7. Quorum at Meetings.............................................5
2.8. Voting and Proxies.............................................5
2.9. Required Vote..................................................5
2.10. Action Without a Meeting......................................6
2.11. Inspectors....................................................6
3. DIRECTORS..............................................................7
3.1. Powers.........................................................7
3.2. Number and Election............................................7
3.3. Nomination of Directors........................................8
3.4. Vacancies......................................................8
3.5. Meetings.......................................................9
3.5.1. Regular Meetings....................................9
3.5.2. Special Meetings....................................9
3.5.3. Telephone Meetings..................................9
3.5.4. Action Without Meeting..............................9
3.5.5. Waiver of Notice of Meeting.........................9
3.6. Quorum and Vote at Meetings....................................10
3.7. Committees of Directors........................................10
3.8. Compensation of Directors......................................11
4. OFFICERS...............................................................11
4.1. Positions......................................................11
4.2. Chairperson and Vice Chairperson...............................11
4.3. Chief Executive Officer........................................12
4.4. President......................................................12
4.5. Chief Operating Officer........................................12
4.6. Chief Financial Officer........................................12
4.7. Senior Vice President..........................................12
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4.8. Vice Presidents................................................13
4.9. Secretary......................................................13
4.10. Assistant Secretary...........................................13
4.11. Treasurer.....................................................13
4.12. Assistant Treasurer...........................................14
4.13. Term of Office................................................14
4.14. Compensation..................................................14
4.15. Fidelity Bonds................................................14
5. CAPITAL STOCK..........................................................14
5.1. Certificates of Stock; Uncertificated Shares...................14
5.2. Lost Certificates..............................................15
5.3. Record Date....................................................15
5.3.1. Actions by Stockholders.............................15
5.3.2. Payments............................................16
5.4. Stockholders of Record.........................................16
6. INDEMNIFICATION; INSURANCE.............................................17
6.1. Authorization of Indemnification...............................17
6.2. Right of Claimant to Bring Action Against the Corporation......18
6.3. Non-exclusivity................................................18
6.4. Survival of Indemnification....................................19
6.5. Insurance......................................................19
7. GENERAL PROVISIONS.....................................................19
7.1. Inspection of Books and Records................................19
7.2. Dividends......................................................20
7.3. Reserves.......................................................20
7.4. Execution of Instruments.......................................20
7.5. Fiscal Year....................................................20
7.6. Seal...........................................................20
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AMENDED AND RESTATED BYLAWS
OF
CYSIVE, INC.
1. OFFICES
1.1. REGISTERED OFFICE
The initial registered office of the Corporation shall be in
Wilmington, Delaware, and the initial registered agent in charge thereof shall
be Corporation Services Company.
1.2. OTHER OFFICES
The Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors of the
Corporation (the "Board") may from time to time determine or as may be
necessary or useful in connection with the business of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. PLACE OF MEETINGS
All meetings of the stockholders shall be held at such place as
may be fixed from time to time by the Board, the Chairperson, Chief Executive
Officer or the President.
2.2. ANNUAL MEETINGS
(a) The Corporation shall hold annual meetings of stockholders,
commencing with the year 1999, on such date and at such time as shall be
designated from time to time by the Board, the Chairperson, the Chief Executive
Officer or the President. At each annual meeting, the stockholders shall elect
by a plurality vote (as provided in SECTION 2.9 hereof) directors to succeed
those whose terms expire at the time of the annual meeting. The nomination of
persons for
<PAGE> 5
election to the Board and the proposal of any other business to be transacted
at an annual meeting may be made only (i) by or at the direction of the Board
or (ii) by any stockholder of record who gives notice in accordance with the
procedures set forth in paragraph (b) of this SECTION 2.2 and who is a
stockholder of record both on the date of giving such notice and on the record
date for the determination of stockholders entitled to vote at such annual
meeting; only persons thereby nominated shall be eligible to serve as directors
and only business thereby proposed shall be transacted at an annual meeting.
The presiding officer of the annual meeting shall determine whether a
nomination or any proposal of business complies or complied with this SECTION
2.2.
(b) For nominations and other business to be brought properly
before an annual meeting by a stockholder pursuant to clause (ii) of paragraph
(a) of this SECTION 2.2, the stockholder must deliver notice to the Secretary
of the Corporation at the principal executive offices of the Corporation in
accordance with this SECTION 2.2(b). The notice must be received by the
Secretary not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, the stockholder
must so deliver the notice not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made; provided further,
however, that in the event that the number of directors to be elected to the
Board is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board made by the
Corporation at least 70 days prior to the first anniversary of the preceding
annual meeting, with respect to nominees for any new position created by the
increase, the stockholder must so deliver the notice not later than the close
of business on the tenth day following the day on which such public
announcement is first made. The stockholder's notice must set forth: (i) as to
each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), and the rules and regulations thereunder (together with
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected), whether or not the
Corporation is then subject to Section 14(a) and such rules and regulations;
(ii) as to any other business that the stockholder proposes to transact at the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting the business at the meeting and any
material interest in the business of the stockholder and of the beneficial
owner, if any, on whose behalf the proposal is
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<PAGE> 6
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, the name and
address of the stockholder, as they appear on the Corporation's books, and of
such beneficial owner, the class and number of shares of the Corporation that
are owned beneficially and of record by such stockholder and such beneficial
owner and a representation that the stockholder intends to appear in person or
by proxy at the annual meeting to bring such business before the meeting. For
purposes of this SECTION 2.2 and SECTION 2.3 hereof, a "public announcement"
means disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service, in a document publicly filed with
the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of
the Exchange Act (or their successor provisions), or in a notice of meeting or
proxy statement mailed generally to the Corporation's stockholders. In giving
notice under this SECTION 2.2, a stockholder must also comply with state law
and the Exchange Act (and the rules and regulations thereunder). Nothing in
this SECTION 2.2 shall be deemed to affect the rights of a stockholder to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 (or its successor provision) under the Exchange Act.
2.3. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called only by the Board, the
Chairperson, the Chief Executive Officer, or the President or by the
stockholders as set forth in the Corporation's Second Amended and Restated
Certificate of Incorporation (as amended and restated from time to time, the
"SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION"). Business
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice relating to such meeting (or to the purposes for
which the meeting is called if such notice is waived or is not required as
provided in the General Corporation Law of the State of Delaware (the "DELAWARE
GENERAL CORPORATION LAW") or these Bylaws). In the case of a special meeting of
stockholders called for the purpose of electing directors, nominations may be
made only (i) by or at the direction of the Board or (ii) by any stockholder of
record who delivers to the Secretary, no later than the tenth day following the
day on which public announcement of the special meeting is made, a notice that
complies with and is delivered in accordance with SECTION 2.2(b) above.
2.4. NOTICE OF MEETINGS
Written notice of any meeting of stockholders, stating the place,
date and hour of the meeting, and (if it is a special meeting) the purpose or
purposes for
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<PAGE> 7
which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than 60 days before the date of
the meeting (except to the extent that such notice is waived or is not required
as provided in the Delaware General Corporation Law or these Bylaws). Such
notice shall be given in accordance with, and shall be deemed effective as set
forth in, Section 222 (or any successor section) of the Delaware General
Corporation Law.
2.5. WAIVERS OF NOTICE
Whenever the giving of any notice is required by statute, the
Second Amended and Restated Certificate of Incorporation or these Bylaws, a
waiver thereof, in writing and delivered to the Corporation, signed by the
person or persons entitled to said notice, whether before or after the event as
to which such notice is required, shall be deemed equivalent to notice.
Attendance of a stockholder at a meeting shall constitute a waiver of notice
(1) of such meeting, except when the stockholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting,
and (2) (if it is a special meeting) of consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
notice, unless the stockholder objects to considering the matter at the
beginning of the meeting.
2.6. LIST OF STOCKHOLDERS
After the record date for a meeting of stockholders has been
fixed, at least ten days before such meeting, the officer who has charge of the
stock ledger of the Corporation shall make a list of all stockholders entitled
to vote at the meeting, arranged in alphabetical order and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place in the city
where the meeting is to be held, which place is to be specified in the notice
of the meeting, or at the place where the meeting is to be held. Such list
shall also, for the duration of the meeting, be produced and kept open to the
examination of any stockholder who is present at the time and place of the
meeting.
2.7. QUORUM AT MEETINGS
Stockholders may take action on a matter at a meeting only if a
quorum exists with respect to that matter. Except as otherwise provided by
statute or by the Second Amended and Restated Certificate of Incorporation, the
holders of a majority of the shares entitled to vote at the meeting, and who
are present in
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<PAGE> 8
person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business. Where a separate vote by a
class or classes is required, a majority of the outstanding shares of such
class or classes, present in person or represented by proxy, shall constitute a
quorum entitled to take action with respect to that vote on that matter. Once a
share is represented for any purpose at a meeting (other than solely to object
(1) to holding the meeting or transacting business at the meeting, or (2) (if
it is a special meeting) to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice), it
is deemed present for quorum purposes for the remainder of the meeting and for
any adjournment of that meeting unless a new record date is or must be set for
the adjourned meeting. The holders of a majority of the voting shares
represented at a meeting, whether or not a quorum is present, may adjourn such
meeting from time to time.
2.8. VOTING AND PROXIES
Unless otherwise provided in the Delaware General Corporation Law
or in the Second Amended and Restated Certificate of Incorporation, and subject
to the other provisions of these Bylaws, each stockholder shall be entitled to
one vote on each matter, in person or by proxy, for each share of the
Corporation's capital stock that has voting power and that is held by such
stockholder. No proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed
appointment of proxy shall be irrevocable if the appointment form states that
it is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power.
2.9. REQUIRED VOTE
When a quorum is present at any meeting of stockholders, all
matters shall be determined, adopted and approved by the affirmative vote
(which need not be by ballot) of the holders of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote
with respect to the matter, unless the proposed action is one upon which, by
express provision of statutes or of the Second Amended and Restated Certificate
of Incorporation, a different vote is specified and required, in which case
such express provision shall govern and control with respect to that vote on
that matter. Where a separate vote by a class or classes is required, the
affirmative vote of the holders of a majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class. Notwithstanding the foregoing, directors shall be elected by
a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors.
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<PAGE> 9
2.10. ACTION WITHOUT A MEETING
Any action required or permitted to be taken at a stockholders'
meeting may be taken without a meeting, without prior notice and without a
vote, if the action is taken by persons who would be entitled to vote at a
meeting and who hold shares having voting power equal to not less than the
minimum number of votes of each class or series that would be necessary to
authorize or take the action at a meeting at which all shares of each class or
series entitled to vote were present and voted. The action must be evidenced by
one or more written consents describing the action taken, signed by the
stockholders entitled to take action without a meeting, and delivered to the
Corporation in the manner prescribed by the Delaware General Corporation Law
for inclusion in the minute book. No consent shall be effective to take the
corporate action specified unless the number of consents required to take such
action are delivered to the Corporation within sixty days of the delivery of
the earliest-dated consent. Written notice of the action taken shall be given
in accordance with the Delaware General Corporation Law to all stockholders who
do not participate in taking the action who would have been entitled to notice
if such action had been taken at a meeting having a record date on the date
that written consents signed by a sufficient number of holders to take the
action were delivered to the Corporation.
2.11. INSPECTORS
Prior to any meeting of stockholders, the Board, the Chief
Executive Officer, or the President shall appoint one or more inspectors to act
at such meeting and make a written report thereof and may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at the meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall ascertain the number of shares outstanding and
the voting power of each, determine the shares represented at the meeting and
the validity of proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes
and ballots. The inspectors may appoint or retain other persons to assist them
in the performance of their duties. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced at the meeting. No ballot, proxy or vote, nor any
revocation thereof or change thereto, shall be accepted by the inspectors after
the
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<PAGE> 10
closing of the polls. In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted therewith, any information provided by a stockholder who
submits a proxy by telegram, cablegram or other electronic transmission from
which it can be determined that the proxy was authorized by the stockholder,
ballots and the regular books and records of the Corporation, and they may also
consider other reliable information for the limited purposes of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons that represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for such
purpose, they shall, at the time they make their certification, specify the
precise information considered by them, including the person or persons from
whom they obtained the information, when the information was obtained, the
means by which the information was obtained and the basis for the inspectors'
belief that such information is accurate and reliable.
3. DIRECTORS
3.1. POWERS
The business and affairs of the Corporation shall be managed by or
under the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things, subject to any limitation
set forth in the Second Amended and Restated Certificate of Incorporation or as
otherwise may be provided in the Delaware General Corporation Law.
3.2. NUMBER AND ELECTION
The number of directors constituting the entire Board shall be the
number, within the range set forth in the Second Amended and Restated
Certificate of Incorporation, fixed from time to time by the Board in the
manner set forth in the Second Amended and Restated Certificate of
Incorporation. Unless the Certificate of Incorporation provides otherwise, the
directorships (i.e., the particular seats on the Board) shall be classified
into three classes (designated as Class I, Class II and Class III) as nearly
equal in number as possible.
The directors shall be elected at the annual meeting of the
stockholders, except as provided in SECTION 3.4 hereof, and each director
elected shall hold office until such director's successor is elected and
qualified or until the director's earlier death, resignation or removal.
Directors need not be stockholders.
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3.3. NOMINATION OF DIRECTORS
The Board shall nominate candidates to stand for election as
directors; and other candidates also may be nominated by any Corporation
stockholder, provided such other nomination(s) are submitted in writing to the
Secretary of the Corporation no earlier than 60 days nor later than 90 days
prior to the meeting of stockholders at which such directors are to be elected,
together with the identity of the nominator and the number of shares of the
Corporation's stock owned, directly or indirectly, by the nominator. 3.4
3.4. VACANCIES
Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by the
affirmative vote of a majority of the directors then in office, although fewer
than a quorum, or by a sole remaining director. Whenever the holders of any
class or classes of stock or series thereof are entitled to elect one or more
directors by the provisions of the Second Amended and Restated Certificate of
Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by the affirmative vote of a majority of the
directors elected by such class or classes or series thereof then in office, or
by a sole remaining director so elected. Each director so chosen shall hold
office until the next election of directors of the class to which such director
was appointed, and until such director's successor is elected and qualified, or
until the director's earlier death, resignation or removal. In the event that
one or more directors resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office until the next election of directors, and
until such director's successor is elected and qualified, or until the
director's earlier death, resignation or removal.
3.5. MEETINGS
3.5.1. REGULAR MEETINGS
Regular meetings of the Board may be held without notice at such
time and at such place as shall from time to time be determined by the Board.
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3.5.2. SPECIAL MEETINGS
Special meetings of the Board may be called by the Chairperson,
the Chief Executive Officer or President on one day's notice to each director,
either personally or by telephone, express delivery service (so that the
scheduled delivery date of the notice is at least one day in advance of the
meeting), telegram or facsimile transmission, and on five days' notice by mail
(effective upon deposit of such notice in the mail). The notice need not
describe the purpose of a special meeting.
3.5.3. TELEPHONE MEETINGS
Members of the Board may participate in a meeting of the Board by
any communication by means of which all participating directors can
simultaneously hear each other during the meeting. A director participating in
a meeting by this means is deemed to be present in person at the meeting.
3.5.4. ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting if the action is taken by all members of
the Board. The action must be evidenced by one or more written consents
describing the action taken, signed by each director, and delivered to the
Corporation for inclusion in the minute book.
3.5.5. WAIVER OF NOTICE OF MEETING
A director may waive any notice required by statute, the Second
Amended and Restated Certificate of Incorporation or these Bylaws before or
after the date and time stated in the notice. Except as set forth below, the
waiver must be in writing, signed by the director entitled to the notice, and
delivered to the Corporation for inclusion in the minute book. Notwithstanding
the foregoing, a director's attendance at or participation in a meeting waives
any required notice to the director of the meeting unless the director at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting and does not thereafter vote for or assent to action taken at
the meeting.
3.6. QUORUM AND VOTE AT MEETINGS
At all meetings of the Board, a quorum of the Board consists of
one -third (1/3) of the total number of directors comprising the full Board as
established pursuant to SECTION 3.2 of these Bylaws. The vote of a majority of
the directors present at any meeting at which there is a quorum shall be the
act of the Board,
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except as may be otherwise specifically provided by statute or by the Second
Amended and Restated Certificate of Incorporation or by these Bylaws.
3.7. COMMITTEES OF DIRECTORS
The Board may designate one or more committees, each committee to
consist of one or more directors. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. If a member of a committee
shall be absent from any meeting, or disqualified from voting thereat, the
remaining member or members present and not disqualified from voting, whether
or not such member or members constitute a quorum, may, by unanimous vote,
appoint another member of the Board to act at the meeting in the place of such
absent or disqualified member. Any such committee, to the extent provided in
the resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or adopting,
amending or repealing any Bylaw of the Corporation; and unless the resolution
designating the committee, these Bylaws or the Second Amended and Restated
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section
253 of the Delaware General Corporation Law. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board. Each committee shall keep regular minutes of its meetings
and report the same to the Board, when required. Unless otherwise specified in
the Board resolution appointing the Committee, all provisions of the Delaware
General Corporation Law and these Bylaws relating to meetings, action without
meetings, notice (and waiver thereof), and quorum and voting requirements of
the Board apply, as well, to such committees and their members.
3.8. COMPENSATION OF DIRECTORS
The Board shall have the authority to fix the compensation of
directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
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4. OFFICERS
4.1. POSITIONS
The officers of the Corporation shall be a Chairperson, a Chief
Executive Officer, a President, a Chief Operating Officer, a Chief Financial
Officer, a Treasurer, and a Secretary, and such other officers as the Board (or
an officer authorized by the Board) from time to time may appoint, including
one or more Vice Chairpersons, Senior Vice Presidents, Vice Presidents,
Assistant Secretaries and Assistant Treasurers. Each such officer shall
exercise such powers and perform such duties as shall be set forth below and
such other powers and duties as from time to time may be specified by the Board
or by any officer(s) authorized by the Board to prescribe the duties of such
other officers. Any number of offices may be held by the same person, except
that in no event shall the President and the Secretary be the same person. Each
of the Chairperson, Chief Executive Officer, President, Chief Operating
Officer, Chief Financial Officer and/or any Vice President may execute bonds,
mortgages, contracts, and other instruments and documents under the seal of the
Corporation, if required, except where required or permitted by law to be
otherwise executed and except where the execution thereof shall be expressly
delegated by the Board to some other officer or agent of the Corporation.
4.2. CHAIRPERSON AND VICE CHAIRPERSON
The Chairperson shall (when present and unless otherwise provided
by resolution of the Board or delegated by the Chairperson) preside at all
meetings of the Board and stockholders, and shall ensure that all orders and
resolutions of the Board and stockholders are carried into effect. The Vice
Chairperson (if there be one, and if there be more than one, in the order
designated, or in the absence of any designation, then in the order of their
election) shall, in the absence of the Chairperson (unless otherwise provided
by resolution of the Board), preside at all meetings of the Board and
stockholders.
4.3. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer of the Corporation shall be the Chief
Executive of the Company and shall have full responsibility and authority for
management of the operations of the Corporation, subject, however, to the
control of the Board. The Chief Executive Officer shall perform all duties
incident to the office of the Chief Executive, and shall have and perform such
other duties as may be prescribed by the stockholders, the Board or the
Executive Committee (if any).
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4.4. PRESIDENT
The President shall have shall have full responsibility and
authority for management of the operations of the Corporation, subject,
however, to the control of the Board. The President shall perform all duties
incident to the office of the President, and shall have and perform such other
duties as may be prescribed by the stockholders, the Board or the Executive
Committee (if any).
4.5. CHIEF OPERATING OFFICER
The Board may designate a Chief Operating Officer who shall have
the responsibilities and duties as set forth by the Chief Executive Officer,
the President, the Board or the Executive Committee (if any).
4.6. CHIEF FINANCIAL OFFICER
The Board may designate a Chief Financial Officer who shall have
the responsibilities and duties as set forth by the Chief Executive Officer,
the President, the Board or the Executive Committee (if any). Such
responsibilities may include all responsibilities assumed by the Treasurer, and
may also include the management of any and all Treasurers and Assistant
Treasurers.
4.7. SENIOR VICE PRESIDENT
The Board may designate one or more Senior Vice Presidents who
shall have the responsibilities and duties as set forth by the Chief Executive
Officer, the President, the Board or the Executive Committee (if any). The
responsibilities of any such Senior Vice President may include all
responsibilities assumed by any Vice President, and may also include the
management of any and all Vice Presidents.
4.8. VICE PRESIDENTS
In the absence of the Chief Executive Officer and the President,
or in the event of the inability or refusal to act by the Chief Executive
Officer and the President, the Vice President (or in the event there is more
than one Vice President, the Vice Presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President. Unless the order is
otherwise designated, (i) the Chief Operating Officer shall come in order
before any Senior Vice President and any Vice
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President; and (ii) the Chief Operating Officer and any Senior Vice President
shall come in order before any Vice President.
4.9. SECRETARY
The Secretary shall have responsibility for preparation of minutes
of meetings of the Board and of the stockholders and for authenticating records
of the Corporation. The Secretary shall give, or cause to be given, notice of
all meetings of the stockholders and special meetings of the Board. The
Secretary or an Assistant Secretary may also attest all instruments signed by
any other officer of the Corporation.
4.10. ASSISTANT SECRETARY
The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board (or if there shall
have been no such determination, then in the order of their election), shall,
in the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary.
4.11. TREASURER
The Treasurer, if one is appointed, shall have responsibility for
the custody of the corporate funds and securities and shall see to it that full
and accurate accounts of receipts and disbursements are kept in books belonging
to the Corporation. The Treasurer, if one is appointed, shall render to the
Chairperson, the Chief Executive Officer, the President, the Chief Financial
Officer, and the Board, upon request, an account of all financial transactions
and of the financial condition of the Corporation.
4.12. ASSISTANT TREASURER
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board (or if there shall
have been no such determination, then in the order of their election), shall,
in the absence of the Treasurer or in the event of the Treasurer's inability or
refusal to act, perform the duties and exercise the powers of the Treasurer.
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<PAGE> 17
4.13. TERM OF OFFICE
The officers of the Corporation shall hold office until their
successors are chosen and qualify or until their earlier resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. Any officer elected or appointed by the Board may be removed at
any time, with or without cause, by the affirmative vote of a majority of the
Board.
4.14. COMPENSATION
The compensation of officers of the Corporation shall be fixed by
the Board or by any officer(s) authorized by the Board to prescribe the
compensation of such other officers.
4.15. FIDELITY BONDS
The Corporation may secure the fidelity of any or all of its
officers or agents by bond or otherwise.
5. CAPITAL STOCK
5.1. CERTIFICATES OF STOCK; UNCERTIFICATED SHARES
The shares of the Corporation shall be represented by
certificates, provided that the Board may provide by resolution that some or
all of any or all classes or series of the Corporation's stock shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until the certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the Board,
every holder of stock represented by certificates, and upon request every
holder of uncertificated shares, shall be entitled to have a certificate
(representing the number of shares registered in certificate form) signed in
the name of the Corporation by the Chairperson, the Chief Executive Officer,
the President, the Chief Financial Officer, the Chief Operating Officer, any
Senior Vice President, or any Vice President, and by the Treasurer, Secretary
or any Assistant Treasurer or Assistant Secretary of the Corporation. Any or
all the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar whose signature or facsimile signature appears on a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
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<PAGE> 18
5.2. LOST CERTIFICATES
The Board, Chairperson, Chief Executive Officer, President or
Secretary may direct a new certificate of stock to be issued in place of any
certificate theretofore issued by the Corporation and alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming that the certificate of stock has been lost, stolen or
destroyed. When authorizing such issuance of a new certificate, the Board or
any such officer may, as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or
such owner's legal representative, to advertise the same in such manner as the
Board or such officer shall require and/or to give the Corporation a bond or
indemnity, in such sum or on such terms and conditions as the Board or such
officer may direct, as indemnity against any claim that may be made against the
Corporation on account of the certificate alleged to have been lost, stolen or
destroyed or on account of the issuance of such new certificate or
uncertificated shares.
5.3. RECORD DATE
5.3.1. ACTIONS BY STOCKHOLDERS
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders, the Board may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record
date shall not be more than 60 days nor less than ten days before the date of
such meeting. If no record date is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting, unless the Board
fixes a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which record
date shall not be more than ten days after the date upon which the resolution
fixing the record date is adopted by the Board. If no record date has been
fixed by the Board, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board is required by the Delaware
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<PAGE> 19
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation in the manner prescribed by Section 213(b) of the Delaware
General Corporation Law. If no record date has been fixed by the Board and
prior action by the Board is required by the Delaware General Corporation Law,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
day on which the Board adopts the resolution taking such prior action.
5.3.2. PAYMENTS
In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.
5.4. STOCKHOLDERS OF RECORD
The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive
dividends, to receive notifications, to vote as such owner, and to exercise all
the rights and powers of an owner. The Corporation shall not be bound to
recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise may be provided by the Delaware General
Corporation Law.
6. INDEMNIFICATION; INSURANCE
6.1. AUTHORIZATION OF INDEMNIFICATION
Each person who was or is a party or is threatened to be made a
party to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and
whether by or in the right of the Corporation or otherwise (a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, partner (limited or
-16-
<PAGE> 20
general) or agent of another corporation or of a partnership, joint venture,
limited liability company, trust or other enterprise, including service with
respect to an employee benefit plan, shall be (and shall be deemed to have a
contractual right to be) indemnified and held harmless by the Corporation (and
any successor to the Corporation by merger or otherwise) to the fullest extent
authorized by, and subject to the conditions and (except as provided herein)
procedures set forth in the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but any such amendment shall not be deemed
to limit or prohibit the rights of indemnification hereunder for past acts or
omissions of any such person insofar as such amendment limits or prohibits the
indemnification rights that said law permitted the Corporation to provide prior
to such amendment), against all expenses, liabilities and losses (including
attorneys' fees, judgments, fines, ERISA taxes or penalties and amounts paid or
to be paid in settlement) actually and reasonably incurred or suffered by such
person in connection therewith if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal proceeding, had
no reasonable cause to believe such person's conduct was unlawful; provided,
however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person (except for a suit or action pursuant to SECTION 6.2 hereof) only
if such proceeding (or part thereof) was authorized by the Board. Persons who
are not directors or officers of the Corporation and are not so serving at the
request of the Corporation may be similarly indemnified in respect of such
service to the extent authorized at any time by the Board. The indemnification
conferred in this SECTION 6.1 also shall include the right to be paid by the
Corporation (and such successor) the expenses (including attorneys' fees)
incurred in the defense of or other involvement in any such proceeding in
advance of its final disposition; provided, however, that if and to the extent
the Delaware General Corporation Law requires, the payment of such expenses
(including attorneys' fees) incurred by a director or officer in advance of the
final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking by or on behalf of such director or officer to
repay all amounts so paid in advance if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this SECTION
6.1 or otherwise; and provided further, that, such expenses incurred by other
employees and agents may be so paid in advance upon such terms and conditions,
if any, as the Board deems appropriate.
6.2. RIGHT OF CLAIMANT TO BRING ACTION AGAINST THE CORPORATION
If a claim under SECTION 6.1 is not paid in full by the
Corporation within 60 days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring an action against
the Corporation to
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<PAGE> 21
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
action. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed or is otherwise not entitled to indemnification under SECTION 6.1, but
the burden of proving such defense shall be on the Corporation. The failure of
the Corporation to have made a determination (in the manner provided under the
Delaware General Corporation Law) prior to or after the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law shall not be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Unless otherwise specified in an agreement with the claimant, an actual
determination by the Corporation (in the manner provided under the Delaware
General Corporation Law) after the commencement of such action that the
claimant has not met such applicable standard of conduct shall not be a defense
to the action, but shall create a presumption that the claimant has not met the
applicable standard of conduct.
6.3. NON-EXCLUSIVITY
The rights to indemnification and advance payment of expenses
provided by SECTION 6.1 hereof shall not be deemed exclusive of any other
rights to which those seeking indemnification and advance payment of expenses
may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
6.4. SURVIVAL OF INDEMNIFICATION
The indemnification and advance payment of expenses and rights
thereto provided by, or granted pursuant to, SECTION 6.1 hereof shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee, partner or agent and shall inure to
the benefit of the personal representatives, heirs, executors and
administrators of such person.
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<PAGE> 22
6.5. INSURANCE
The Corporation shall have power to purchase and maintain
insurance on behalf of any person who 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, officer, employee, partner (limited or general) or
agent of another corporation or of a partnership, joint venture, limited
liability company, trust or other enterprise, against any liability asserted
against such person or incurred by such person in any such capacity, or arising
out of such person's status as such, and related expenses, whether or not the
Corporation would have the power to indemnify such person against such
liability under the provisions of the Delaware General Corporation Law.
7. GENERAL PROVISIONS
7.1. INSPECTION OF BOOKS AND RECORDS
Any stockholder, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed to
the Corporation at its registered office or at its principal place of business.
7.2. DIVIDENDS
The Board may declare dividends upon the capital stock of the
Corporation, subject to the provisions of the Second Amended and Restated
Certificate of Incorporation and the laws of the State of Delaware.
7.3. RESERVES
The directors of the Corporation may set apart, out of the funds
of the Corporation available for dividends, a reserve or reserves for any
proper purpose and may abolish any such reserve.
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<PAGE> 23
7.4. EXECUTION OF INSTRUMENTS
All checks, drafts or other orders for the payment of money, and
promissory notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board may from time to time designate.
7.5. FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of
the Board.
7.6. SEAL
The corporate seal shall be in such form as the Board shall
approve. The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
* * * * *
The foregoing Bylaws were adopted by the Board on September 23, 1999.
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<PAGE> 1
EXHIBIT 4.1
[LOGO OF CYSIVE, INC. APPEARS HERE]
NUMBER SHARES
CYSIVE, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
fully paid and non-assessable shares of common stock, par value $0.01 per share,
of
Cysive, Inc.
(hereinafter called the "Corporation"), a Delaware
Corporation, transferable upon the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this certificate
properly endorsed.
This certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
Witness the seal of the Corporation and the signatures of its duly authorized
officers.
Dated:
[SEAL OF CYSIVE, INC. APPEARS HERE]
/s/ John R. Lund /s/ Nelson A. Carbonell, Jr.
SECRETARY AND TREASURER PRESIDENT
<PAGE> 2
COUNTERSIGNED AND REGISTERED
[FIRST UNION NATIONAL BANK]
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties JT
TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF TRANSFER MIN ACT- Custodian
--------------------- ---------------------
(Cust) (Minor)
under Uniform Transfers to Minors
Act
--------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received,______________________________ hereby sell(s), assigns
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------
- ---------------------------------------------
-----------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
<PAGE> 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
of the capital stock represented by this certificate, and do(does) hereby
irrevocably constitute and appoint
, Attorney,
- -----------------------------------------------------------------------
to transfer the said shares on the books of the Corporation, with full power of
substitution.
Dated _________________
----------------------------------
Signature
----------------------------------
Signature
Signature(s) Guaranteed:
- --------------------------------------------------------------------------------
NOTE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 10.1
CYSIVE, INC.
1994 STOCK OPTION PLAN
(Originally Effective November 30, 1994
As Amended and Restated Through September 1, 1999)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. PURPOSE...........................................................................................1
2. DEFINITIONS.......................................................................................1
3. ADMINISTRATION OF THE PLAN........................................................................5
3.1. Board.....................................................................................5
3.2. Committee.................................................................................5
3.3. Awards....................................................................................6
3.4. No Liability..............................................................................6
4. STOCK SUBJECT TO THE PLAN.........................................................................6
5. EFFECTIVE DATE AND TERM OF THE PLAN...............................................................7
5.1. Effective Date............................................................................7
5.2. Term......................................................................................7
6. OPTION GRANTS.....................................................................................7
6.1. Company or Subsidiary Employees; Service Providers; Other Persons.........................7
6.2. Successive Awards.........................................................................7
6.3. Reload Options............................................................................7
7. LIMITATIONS ON GRANTS.............................................................................8
7.1. Limitation on Shares of Stock Subject to Grants and Cash Awards...........................8
7.2. Limitations on Incentive Stock Options....................................................8
8. AWARD AGREEMENT...................................................................................9
9. OPTION PRICE......................................................................................9
10. VESTING, TERM AND EXERCISE OF OPTIONS............................................................9
10.1. Vesting and Option Period................................................................9
10.2. Term.....................................................................................9
10.3. Acceleration.............................................................................10
10.4. Termination of Employment or Other Relationship..........................................10
10.5. Rights in the Event of Death.............................................................10
10.6. Rights in the Event of Disability........................................................10
10.7. Limitations on Exercise of Option........................................................11
10.8. Method of Exercise.......................................................................11
10.9. Delivery of Stock Certificates...........................................................12
11. STOCK APPRECIATION RIGHTS........................................................................12
11.1. Right to Payment.........................................................................12
11.2. Other Terms..............................................................................12
12. TRANSFERABILITY OF OPTIONS.......................................................................13
12.1. Transferability of Options...............................................................13
12.2. Family Transfers.........................................................................13
13. RESTRICTED STOCK.................................................................................13
13.1. Grant of Restricted Stock or Restricted Stock Units......................................13
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
13.2. Restrictions.............................................................................13
13.3. Restricted Stock Certificates............................................................14
13.4. Rights of Holders of Restricted Stock....................................................14
13.5. Rights of Holders of Restricted Stock Units..............................................14
13.6. Termination of Employment or Other Relationship..........................................14
13.7. Rights in the Event of Death.............................................................15
13.8. Rights in the Event of Disability........................................................15
13.9. Delivery of Stock and Payment Therefor...................................................15
14. DEFERRED STOCK AWARDS............................................................................16
14.1. Nature of Deferred Stock Awards..........................................................16
14.2. Election to Receive Deferred Stock Awards in Lieu of Compensation........................16
14.3. Rights as a Stockholder..................................................................16
14.4. Restrictions.............................................................................16
14.5. Termination..............................................................................17
15. UNRESTRICTED STOCK AWARDS........................................................................17
15.1. Grant or Sale of Unrestricted Stock......................................................17
16. PERFORMANCE STOCK AWARDS.........................................................................17
16.1. Nature of Performance Stock Awards.......................................................17
16.2. Rights as a Stockholder..................................................................17
16.3. Termination..............................................................................18
16.4. Acceleration, Waiver, Etc................................................................18
17. DIVIDEND EQUIVALENT RIGHTS.......................................................................18
17.1. Dividend Equivalent Rights...............................................................18
17.2. Interest Equivalents.....................................................................19
17.3. Termination..............................................................................19
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS..........................................................19
18.1. Stand-Alone, Additional, Tandem, and Substitute Awards...................................19
18.2. Term of Awards...........................................................................19
18.3. Form and Timing of Payment Under Awards; Deferrals.......................................20
18.4. Performance and Annual Incentive Awards..................................................20
18.4.1. Performance Conditions........................................................20
18.4.2. Performance Awards Granted to Designated Covered
Employees.....................................................................20
18.4.3. Annual Incentive Awards Granted to Designated Covered
Employees.....................................................................22
18.4.4. Written Determinations........................................................23
18.4.5. Status of Section 18.4.3 and Section 18.4.2 Awards
Under Code Section 162(m).....................................................24
19. REPURCHASE RIGHTS................................................................................24
19.1. Nontransferability of Shares.............................................................24
19.2. Repurchase Rights........................................................................25
19.3. Installment Payments.....................................................................25
19.4. Publicly Traded Stock....................................................................26
19.5. Legend...................................................................................26
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
20. PARACHUTE LIMITATIONS............................................................................26
21. REQUIREMENTS OF LAW..............................................................................27
21.1. General..................................................................................27
21.2. Rule 16b-3...............................................................................28
22. AMENDMENT AND TERMINATION OF THE PLAN............................................................28
23. EFFECT OF CHANGES IN CAPITALIZATION..............................................................29
23.1. Changes in Stock.........................................................................29
23.2. Reorganization in Which the Company Is the Surviving
Entity and in Which No Change of Control Occurs..........................................29
23.3. Reorganization, Sale of Assets or Sale of Stock Which
Involves a Change of Control.............................................................29
23.4. Adjustments..............................................................................30
23.5. No Limitations on Company................................................................30
24. DISCLAIMER OF RIGHTS.............................................................................31
25. NONEXCLUSIVITY OF THE PLAN.......................................................................31
26. WITHHOLDING TAXES................................................................................31
27. POOLING..........................................................................................32
28. CAPTIONS.........................................................................................32
29. OTHER PROVISIONS.................................................................................32
30. NUMBER AND GENDER................................................................................32
31. SEVERABILITY.....................................................................................32
32. BLUE SKY PROVISIONS..............................................................................33
32.1. California Provisions....................................................................33
32.2. Florida, Virginia and Missouri Provisions................................................34
33. GOVERNING LAW....................................................................................35
</TABLE>
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<PAGE> 5
CYSIVE, INC.
1994 STOCK OPTION PLAN
(Originally Effective November 30, 1994
As Amended and Restated Through September 1, 1999)
The Board of Directors of Cysive, Inc., a Virginia corporation, (the
"Company") has determined that it is desirable and in the best interests of the
Company to amend and restate its 1994 Stock Option Plan (the "Plan"),
originally effective November 30, 1994. The amended and restated provisions of
the "Plan" to be effective as of September 1, 1999 are as follows:
1. PURPOSE
The purpose of the Plan is to enhance the Company's ability to attract,
retain, and compensate highly qualified officers, key employees, and other
persons, and to motivate such officers, key employees, and other persons to
serve the Company and its affiliates (as defined herein) and to expend maximum
effort to improve the business results and earnings of the Company, by
providing to such officers, key employees and other persons an opportunity to
acquire or increase a direct proprietary interest in the operations and future
success of the Company and with other financial incentives. To this end, the
Plan provides for the grant of stock options, stock appreciation rights,
restricted stock, restricted stock units, deferred stock awards, unrestricted
stock awards, performance stock awards, dividend equivalent rights, performance
awards and annual incentive awards in accordance with the terms hereof. Stock
options granted under the Plan may be non-qualified stock options or incentive
stock options, as provided herein.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including
Award Agreements), the following definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any
company or other trade or business that controls, is controlled by or is under
common control with such person within the meaning of Rule 405 of Regulation C
under the Securities Act.
2.2 "Annual Incentive Award" means a conditional right granted to a
Grantee under SECTION 18.4.3 hereof to receive a cash payment, Stock or other
Award, unless otherwise determined by the Committee, after the end of a
specified fiscal year.
<PAGE> 6
2.3 "Award" means a grant of an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Deferred Stock, Unrestricted Stock,
Performance Stock, Dividend Equivalent Rights, Performance or Annual Incentive
Award under the Plan.
2.4 "Award Agreement" means the stock option agreement, stock
appreciation rights agreement, restricted stock agreement, restricted stock
unit agreement, deferred stock award agreement, unrestricted stock award
agreement, performance stock award agreement, dividend equivalent rights
agreement, performance award agreement, annual incentive award agreement or
other written agreement between the Company and a Grantee that evidences and
sets out the terms and conditions of an Award.
2.5 "Benefit Arrangement" shall have the meaning set forth in SECTION
20 hereof.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as now in effect
or as hereafter amended.
2.8 "Committee" means a committee of, and designated from time to time
by resolution of, the Board, which shall consist of no fewer than two members
of the Board, none of whom shall be an officer or other salaried employee of
the Company or any affiliate of the Company.
2.9 "Company" means Cysive, Inc.
2.10 "Covered Employee" means a Grantee who is a Covered Employee
within the meaning of Section 162(m)(3) of the Code.
2.11 "Deferred Stock" means a right, granted to a Grantee under SECTION
14 hereof, to receive Stock, cash or a combination thereof at the end of a
specified deferral period.
2.12 "Dividend Equivalent" means a right, granted to a Grantee under
SECTION 17 hereof, to receive cash, Stock, other Awards or other property equal
in value to dividends paid with respect to a specified number of shares of
Stock, or other periodic payments.
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<PAGE> 7
2.13 "Effective Date" means [November 30, 1994], the date on which the
Plan was adopted by the Board.
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as now
in effect or as hereafter amended.
2.15 "Fair Market Value" means the value of a share of Stock,
determined as follows: if on the Grant Date or other determination date the
Stock is listed on an established national or regional stock exchange, is
admitted to quotation on the NASDAQ National Market, or is publicly traded on
an established securities market, the Fair Market Value of a share of Stock
shall be the closing price of the Stock on such exchange or in such market (the
highest such closing price if there is more than one such exchange or market)
on the Grant Date or such other determination date (or if there is no such
reported closing price, the Fair Market Value shall be the mean between the
highest bid and lowest asked prices or between the high and low sale prices on
such trading day) or, if no sale of Stock is reported for such trading day, on
the next preceding day on which any sale shall have been reported. If the
Stock is not listed on such an exchange, quoted on such system or traded on
such a market, Fair Market Value shall be the value of the Stock as determined
by the Board in good faith.
2.16 "Family Member" means a person who is a spouse, child, stepchild,
grandchild, parent, stepparent, grandparent, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, of the Grantee, any person
sharing the Grantee's household (other than a tenant or employee), a trust in
which these persons have more than fifty percent of the beneficial interest, a
foundation in which these persons (or the Grantee) control the management of
assets, and any other entity in which these persons (or the Grantee) own more
than fifty percent of the voting interests.
2.17 "Grant" means an award of an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Deferred Stock, Unrestricted Stock,
Performance Stock, or Dividend Equivalent Rights under the Plan.
2.18 "Grant Date" means, as determined by the Board or authorized
Committee, (i) the date as of which the Board or such Committee approves an
Award, (ii) the date on which the recipient of such Award first became an
employee of or otherwise entered into a relationship with the Company or an
affiliate of the Company or (iii) such other date as may be specified by the
Board or such Committee.
2.19 "Grantee" means a person who receives or holds a grant of an
Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit,
Deferred Stock, Unrestricted Stock, Performance Stock, Performance or Annual
Incentive Awards, or Dividend Equivalent Rights under the Plan.
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2.20 "Incentive Stock Option" means an "incentive stock option" within
the meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
2.21 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.22 "Option Period" means the period during which Options may be
exercised as set forth in SECTION 10 hereof.
2.23 "Option Price" means the purchase price for each share of Stock
subject to an Option.
2.24 "Other Agreement" shall have the meaning set forth in SECTION 20
hereof.
2.25 "Performance Stock Award" means an Award granted pursuant to
SECTION 16.
2.26 "Plan" means this Cysive, Inc. 1994 Stock Option Plan.
2.27 "Reporting Person" means a person who is required to file reports
under Section 16(a) of the Exchange Act.
2.28 "Restricted Period" means the period during which Restricted Stock
or Restricted Stock Units are subject to restrictions or conditions pursuant to
SECTION 13.2 hereof.
2.29 "Restricted Stock" means shares of Stock, awarded to a Grantee
pursuant to SECTION 13 hereof, that are subject to restrictions and to a risk
of forfeiture.
2.30 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant
to SECTION 13 hereof, which represents a conditional right to receive a share
of Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.31 "Securities Act" means the Securities Act of 1933, as now in
effect or as hereafter amended.
2.32 "Service Provider" means a consultant or adviser to the Company, a
manager of the Company's properties or affairs, or other similar service
provider or affiliate of the Company, and employees of any of the foregoing, as
such persons may be designated from time to time by the Board pursuant to
SECTION 6 hereof.
2.33 "Stock" means the common stock, no par value, of the Company.
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2.34 "Stock Appreciation Rights" or "SAR" means a right granted to a
Grantee under SECTION 11 hereof.
2.35 "Subsidiary" means any "subsidiary corporation" of the Company
within the meaning of Section 424(f) of the Code.
2.36 "Termination Date" shall be the date upon which an Option shall
terminate or expire, as set forth in SECTION 10.2 hereof.
2.37 "Unrestricted Stock Award" means any Award granted pursuant to
SECTION 15.
3. ADMINISTRATION OF THE PLAN
3.1. BOARD
The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company's certificate of
incorporation and by-laws and applicable law. The Board shall have full power
and authority to take all actions and to make all determinations required or
provided for under the Plan, any Award or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Award or any Award Agreement. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous consent of the Board executed in
writing in accordance with the Company's articles of incorporation and by-laws
and applicable law. The interpretation and construction by the Board of any
provision of the Plan, any Award or any Award Agreement shall be final and
conclusive. As permitted by law, the Board may delegate its authority under
the Plan to a member of the Board of Directors or an executive officer of the
Company.
3.2. COMMITTEE.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as
set forth in SECTION 3.1 above and in other applicable provisions, as the Board
shall determine, consistent with the certificate of incorporation and by-laws
of the Corporation and applicable law. In the event that the Plan, any Award
or any Award Agreement entered into hereunder provides for any action to be
taken by or determination to be made by the Board, such action may be taken or
such determination may be made by the Committee if the power and authority to
do so has been delegated to the Committee by the Board as provided for in this
Section.
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Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive. As
permitted by law, the Committee may delegate its authority under the Plan to a
member of the Board of Directors or an executive officer of the Company.
3.3. AWARDS
Subject to the other terms and conditions of the Plan, the Board shall
have full and final authority (i) to designate Grantees, (ii) to determine the
type or types of Awards to be made to a Grantee, (iii) to determine the number
of shares of Stock to be subject to an Award,(iv) to establish the terms and
conditions of each Award (including, but not limited to, the exercise price of
any Option, the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting, exercise, transfer, or
forfeiture of an Award or the shares of Stock subject thereto, and any terms or
conditions that may be necessary to qualify Options as Incentive Stock
Options), (v) to prescribe the form of each Award Agreement evidencing an
Award, and (vi) to amend, modify, or supplement the terms of any outstanding
Award. Such authority specifically includes the authority, in order to
effectuate the purposes of the Plan but without amending the Plan, to modify
Awards to eligible individuals who are foreign nationals or are individuals who
are employed outside the United States to recognize differences in local law,
tax policy, or custom. As a condition to any subsequent Award, the Board shall
have the right, at its discretion, to require Grantees to return to the Company
Awards previously made under the Plan. Subject to the terms and conditions of
the Plan, any such new Award shall be upon such terms and conditions as are
specified by the Board at the time the new Award is made.
3.4. NO LIABILITY.
No member of the Board or of the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Award or
Award Agreement.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in SECTION 23 hereof, the number of
shares of Stock available for issuance under the Plan shall be Four Million Six
Hundred Thousand (4,600,000) shares plus 15 percent (15%) of any increase in the
Company's outstanding shares (other than increases resulting from the stock
issuances under the Plan) of which no more than 1,000,000 shares may be issued
pursuant to awards of other than Options and no more than 4,600,000 of which may
be issued pursuant to awards of Incentive Stock Options. Stock issued or to be
issued under the Plan shall be authorized but unissued shares. If any shares
covered by a Grant are not purchased or are forfeited, or if a Grant otherwise
terminates without delivery of any Stock subject thereto, then the number of
shares of Stock counted against the aggregate number of shares available under
the Plan with respect to such Grant
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shall, to the extent of any such forfeiture or termination, again be available
for making Grants under the Plan.
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. EFFECTIVE DATE.
The Plan shall be effective as of the Effective Date, subject to approval
of the Plan within one year of the Effective Date, by a majority of the votes
cast on the proposal at a meeting of shareholders, provided that the total
votes cast represent a majority of all shares entitled to vote. Upon approval
of the Plan by the shareholders of the Company as set forth above, all Awards
made under the Plan on or after the Effective Date shall be fully effective as
if the shareholders of the Company had approved the Plan on the Effective Date.
If the shareholders fail to approve the Plan within one year after the
Effective Date, any Awards made hereunder shall be null and void and of no
effect.
5.2. TERM.
The Plan has no termination date; however, no Incentive Stock Option may
be granted on or after the tenth anniversary of the Effective Date.
6. OPTION GRANTS
6.1. COMPANY OR SUBSIDIARY EMPLOYEES; SERVICE PROVIDERS; OTHER PERSONS
Awards (including Grants of Incentive Stock Options subject to SECTION
7.2) may be made under the Plan to: (i) any employee of, or a Service Provider
to, the Company or of any Subsidiary, including any such employee who is an
officer or director of the Company or of any Subsidiary, as the Board shall
determine and designate from time to time, and (ii) any other individual whose
participation in the Plan is determined to be in the best interests of the
Company by the Board.
6.2. SUCCESSIVE AWARDS.
An eligible person may receive more than one Award, subject to such
restrictions as are provided herein.
6.3. RELOAD OPTIONS.
At the discretion of the Board and subject to such restrictions, terms
and conditions as the Board may establish, Options granted under the Plan may
include a "reload" feature pursuant to which a Grantee exercising an Option by
the delivery of a number of shares of Stock in accordance with SECTION 10.8
hereof would automatically be granted an additional Option (with an exercise
price equal to the
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Fair Market Value of the Stock on the date the additional Option is granted and
with such other terms as the Board may provide) to purchase that number of
shares of Stock equal to the number delivered to exercise the original Option
with an Option term equal to the remainder of the original Option term unless
the Board otherwise determines in the Option Award Agreement for the original
grant.
7. LIMITATIONS ON GRANTS
7.1. LIMITATION ON SHARES OF STOCK SUBJECT TO GRANTS AND CASH AWARDS.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, the maximum number of shares of Stock
subject to Options that can be awarded under the Plan to any person eligible for
a Grant under SECTION 6 hereof is Eight Hundred Thousand (800,000) per year.
During any time when the Company has a class of equity security registered under
Section 12 of the Exchange Act, the maximum number of shares that can be awarded
under the Plan, other than pursuant to an Option to any person eligible for a
Grant under SECTION 6 hereof is One Hundred and Fifty Thousand (150,000) per
year. The maximum amount that may be earned as an Annual Incentive Award or
other cash Award in any fiscal year by any one Grantee shall be $300,000 and the
maximum amount that may be earned as a Performance Award or other cash Award in
respect of a performance period by any one Grantee shall be $900,000.
7.2. LIMITATIONS ON INCENTIVE STOCK OPTIONS.
An Option shall constitute an Incentive Stock Option only (i) if the
Grantee of such Option is an employee of the Company or any Subsidiary of the
Company; (ii) to the extent specifically provided in the related Award
Agreement; and (iii) to the extent that the aggregate Fair Market Value
(determined at the time the Option is granted) of the shares of Stock with
respect to which all Incentive Stock Options held by such Grantee become
exercisable for the first time during any calendar year (under the Plan and all
other plans of the Grantee's employer and its affiliates) does not exceed
$100,000. This limitation shall be applied by taking Options into account in
the order in which they were granted.
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8. AWARD AGREEMENT
Each Award granted pursuant to the Plan shall be evidenced by an Award
Agreement, to be executed by the Company and by the Grantee, in such form or
forms as the Board shall from time to time determine. Award Agreements granted
from time to time or at the same time need not contain similar provisions but
shall be consistent with the terms of the Plan. Each Award Agreement
evidencing a Grant of Options shall specify whether such Options are intended
to be non-qualified stock options or Incentive Stock Options, and in the
absence of such specification such options shall be deemed non-qualified stock
options.
9. OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in
the Award Agreement evidencing such Option. The Option Price for an Incentive
Stock Option shall be the aggregate Fair Market Value on the Grant Date of the
shares of Stock subject to the Option; provided, however, that in the event that
a Grantee would otherwise be ineligible to receive an Incentive Stock Option by
reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating
to ownership of more than ten percent of the Company's outstanding Stock), the
Option Price of an Option granted to such Grantee that is intended to be an
Incentive Stock Option shall be not less than the greater of the par value of a
share of Stock or 110 percent of the Fair Market Value of a share of Stock on
the Grant Date. In no case shall the Option Price of any Option not intended to
be an Incentive Stock Option be less than 85 percent of the Fair Market Value on
the Grant Date of the shares of stock subject to the Option.
10. VESTING, TERM AND EXERCISE OF OPTIONS
10.1. VESTING AND OPTION PERIOD.
Subject to SECTIONS 10.2 AND 23.3 hereof, each Option granted under the
Plan shall become exercisable at such times and under such conditions as shall
be determined by the Board and stated in the Award Agreement. For purposes of
this SECTION 10.1, fractional numbers of shares of Stock subject to an Option
shall be rounded down to the next nearest whole number. The period during
which any Option shall be exercisable shall constitute the "Option Period" with
respect to such Option.
10.2. TERM.
Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Stock thereunder shall cease, upon the expiration of ten
years from the date such Option is granted, or under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Board and stated in the Award Agreement relating to such Option (the
"Termination Date"); provided, however, that in the event that the Grantee
would otherwise be ineligible to receive an Incentive Stock Option by reason of
the provisions of Sections 422(b)(6) and 424(d) of the Code
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(relating to ownership of more than ten percent of the outstanding Stock), an
Option granted to such Grantee that is intended to be an Incentive Stock Option
shall not be exercisable after the expiration of five years from its Grant
Date.
10.3. ACCELERATION.
Any limitation on the exercise of an Option contained in any Award
Agreement may be rescinded, modified or waived by the Board, in its sole
discretion, at any time and from time to time after the Grant Date of such
Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding any other provision of the Plan, no Option shall be exercisable
in whole or in part prior to the date the Plan is approved by the shareholders
of the Company as provided in SECTION 5.1 hereof.
10.4. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
Upon the termination of a Grantee's employment or other relationship with
the Company other than by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Option or portion
thereof held by such Grantee that has not vested in accordance with the
provisions of SECTION 10.1 hereof shall terminate immediately, and any Option
or portion thereof that has vested in accordance with the provisions of SECTION
10.1 hereof but has not been exercised shall terminate at the close of business
on the 90th day following the Grantee's termination of employment or other
relationship, unless the Board, in its discretion, extends the period during
which the Option may be exercised (which period may not be extended beyond the
original term of the Option). Upon termination of an Option or portion
thereof, the Grantee shall have no further right to purchase shares of Stock
pursuant to such Option or portion thereof. Whether a leave of absence or
leave on military or government service shall constitute a termination of
employment or other relationship for purposes of the Plan shall be determined
by the Board, which determination shall be final and conclusive. For purposes
of the Plan, a termination of employment, service or other relationship shall
not be deemed to occur if the Grantee is immediately thereafter a director of
the Company.
10.5. RIGHTS IN THE EVENT OF DEATH.
If a Grantee dies while employed by or providing services to the Company,
all Options granted to such Grantee shall fully vest on the date of death, and
the executors or Boards or legatees or distributees of such Grantee's estate
shall have the right, at any time within one year after the date of such
Grantee's death (or such longer period as the Board, in its discretion, may
determine prior to the expiration of such one-year period) and prior to
termination of the Option pursuant to SECTION 10.2 above, to exercise any
Option held by such Grantee at the date of such Grantee's death.
10.6. RIGHTS IN THE EVENT OF DISABILITY.
If a Grantee terminates employment or other relationship with the Company
by reason of the "permanent and total disability" (within the meaning of
Section 22(e)(3)
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of the Code) of such Grantee, such Grantee's Options shall continue to vest,
and shall be exercisable to the extent that they are vested, for a period of
one year after such termination of employment or service (or such longer period
as the Board, in its discretion, may determine prior to the expiration of such
one-year period), subject to earlier termination of the Option as provided in
SECTION 10.2 above. Whether a termination of employment or service is to be
considered by reason of "permanent and total disability" for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive.
10.7. LIMITATIONS ON EXERCISE OF OPTION.
Notwithstanding any other provision of the Plan, in no event may any
Option be exercised, in whole or in part, prior to the date the Plan is
approved by the shareholders of the Company as provided herein, or after ten
years following the date upon which the Option is granted, or after the
occurrence of an event referred to in SECTION 23 hereof which results in
termination of the Option.
10.8. METHOD OF EXERCISE.
An Option that is exercisable may be exercised by the Grantee's delivery
to the Company of written notice of exercise on any business day, at the
Company's principal office, addressed to the attention of the Board. Such
notice shall specify the number of shares of Stock with respect to which the
Option is being exercised and shall be accompanied by payment in full of the
Option Price of the shares for which the Option is being exercised. The
minimum number of shares of Stock with respect to which an Option may be
exercised, in whole or in part, at any time shall be the lesser of (i) 100
shares or such lesser number set forth in the applicable Award Agreement and
(ii) the maximum number of shares available for purchase under the Option at
the time of exercise. Payment of the Option Price for the shares purchased
pursuant to the exercise of an Option shall be made (i) in cash or in cash
equivalents; (ii) through the tender to the Company of shares of Stock, which
shares, if acquired from the Company, shall have been held for at least six
months and which shall be valued, for purposes of determining the extent to
which the Option Price has been paid thereby, at their Fair Market Value on the
date of exercise; or (iii) by a combination of the methods described in (i) and
(ii). The Board may provide, by inclusion of appropriate language in an Award
Agreement, that payment in full of the Option Price need not accompany the
written notice of exercise provided that the notice of exercise directs that
the certificate or certificates for the shares of Stock for which the Option is
exercised be delivered to a licensed broker acceptable to the Company as the
agent for the individual exercising the Option and, at the time such
certificate or certificates are delivered, the broker tenders to the Company
cash (or cash equivalents acceptable to the Company) equal to the Option Price
for the shares of Stock purchased pursuant to the exercise of the Option plus
the amount (if any) of federal and/or other taxes which the Company may in its
judgment, be required to withhold with respect to the exercise of the Option.
An attempt to exercise any Option granted hereunder other than as set forth
above shall be invalid and of no
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force and effect. Unless otherwise stated in the applicable Award Agreement,
an individual holding or exercising an Option shall have none of the rights of
a shareholder (for example, the right to receive cash or dividend payments or
distributions attributable to the subject shares of Stock or to direct the
voting of the subject shares of Stock ) until the shares of Stock covered
thereby are fully paid and issued to him. Except as provided in SECTION 23
hereof, no adjustment shall be made for dividends, distributions or other
rights for which the record date is prior to the date of such issuance.
10.9. DELIVERY OF STOCK CERTIFICATES.
Promptly after the exercise of an Option by a Grantee and the payment in
full of the Option Price, such Grantee shall be entitled to the issuance of a
stock certificate or certificates evidencing his or her ownership of the shares
of Stock subject to the Option.
11. STOCK APPRECIATION RIGHTS
The Board each is authorized to grant SARs to Grantees on the following
terms and conditions:
11.1. RIGHT TO PAYMENT.
A SAR shall confer on the Grantee to whom it is granted a right to
receive, upon exercise thereof, the excess of (A) the Fair Market Value of one
share of Stock on the date of exercise over (B) the grant price of the SAR as
determined by the Board. The grant price of an SAR shall not be less than the
Fair Market Value of a share of Stock on the date of grant except as provided
in SECTION 18.1.
11.2. OTHER TERMS.
The Board shall determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a SAR may be exercised in
whole or in part (including based on achievement of performance goals and/or
future service requirements), the time or times at which SARs shall cease to be
or become exercisable following termination of employment or upon other
conditions, the method of exercise, method of settlement, form of consideration
payable in settlement, method by or forms in which Stock will be delivered or
deemed to be delivered to Grantees, whether or not a SAR shall be in tandem or
in combination with any other Award, and any other terms and conditions of any
SAR. SARs may be either freestanding or in tandem with other Awards.
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12. TRANSFERABILITY OF OPTIONS
12.1. TRANSFERABILITY OF OPTIONS
Except as provided in SECTION 12.2, during the lifetime of a Grantee,
only the Grantee (or, in the event of legal incapacity or incompetency, the
Grantee's guardian or legal representative) may exercise an Option. Except as
provided in SECTION 12.2, no Option shall be assignable or transferable by the
Grantee to whom it is granted, other than by will or the laws of descent and
distribution.
12.2. FAMILY TRANSFERS.
If authorized in the applicable Award Agreement, a Grantee may transfer,
not for value, all or part of an Option which is not an Incentive Option to any
Family Member. For the purpose of this SECTION 12.2, a "not for value" transfer
is a transfer which is (i) a gift, (ii) a transfer under a domestic relations
order in settlement of marital property rights; or (iii) a transfer to an entity
in which more than fifty percent of the voting interests are owned by Family
Members (or the Grantee) in exchange for an interest in that entity. Following a
transfer under this SECTION 12.2, any such Option shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer. Subsequent transfers of transferred Options are prohibited except to
Family Members of the original Grantee in accordance with this SECTION 12.2 or
by will or the laws of descent and distribution. The events of termination of
the employment or other relationship of SECTION 10.4 hereof shall continue to be
applied with respect to the original Grantee, following which the Option shall
be exercisable by the transferee only to the extent, and for the periods
specified in SECTIONS 10.4, 10.5 or 10.6.
13. RESTRICTED STOCK
13.1. GRANT OF RESTRICTED STOCK OR RESTRICTED STOCK UNITS.
The Board may from time to time grant Restricted Stock or Restricted
Stock Units to persons eligible to receive Awards under SECTION 6 hereof,
subject to such restrictions, conditions and other terms as the Board may
determine.
13.2. RESTRICTIONS.
At the time a Grant of Restricted Stock or Restricted Stock Units is
made, the Board shall establish a period of time (the "Restricted Period")
applicable to such Restricted Stock or Restricted Stock Units. Each Grant of
Restricted Stock or Restricted Stock Units may be subject to a different
Restricted Period. The Board may, in its sole discretion, at the time a Grant
of Restricted Stock or Restricted Stock Units is made, prescribe restrictions
in addition to or other than the expiration of the Restricted Period, including
the satisfaction of corporate or individual performance objectives, which may
be applicable to all or any portion of the Restricted Stock or
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Restricted Stock Units in accordance with SECTION 18.4.1 and 18.4.2. Neither
Restricted Stock nor Restricted Stock Units may be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of during the Restricted Period or
prior to the satisfaction of any other restrictions prescribed by the Board
with respect to such Restricted Stock or Restricted Stock Units.
13.3. RESTRICTED STOCK CERTIFICATES.
The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, stock certificates representing the total number of
shares of Restricted Stock granted to the Grantee, as soon as reasonably
practicable after the Grant Date. The Board may provide in an Award Agreement
that either (i) the Secretary of the Company shall hold such certificates for
the Grantee's benefit until such time as the Restricted Stock is forfeited to
the Company or the restrictions lapse, or (ii) such certificates shall be
delivered to the Grantee, provided, however, that such certificates shall bear
a legend or legends that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions imposed under
the Plan and the Award Agreement.
13.4. RIGHTS OF HOLDERS OF RESTRICTED STOCK.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board
may provide that any dividends paid on Restricted Stock must be reinvested in
shares of Stock, which may or may not be subject to the same vesting conditions
and restrictions applicable to such Restricted Stock. All distributions, if
any, received by a Grantee with respect to Restricted Stock as a result of any
stock split, stock dividend, combination of shares, or other similar
transaction shall be subject to the restrictions applicable to the original
Grant.
13.5. RIGHTS OF HOLDERS OF RESTRICTED STOCK UNITS.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock Units shall have no rights as stockholders of the Company. The
Board may provide in an Award Agreement evidencing a Grant of Restricted Stock
Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding
Stock, a cash payment for each Restricted Stock Unit held equal to the
per-share dividend paid on the Stock. Such Award Agreement may also provide
that such cash payment will be deemed reinvested in additional Restricted Stock
Units at a price per unit equal to the Fair Market Value of a share of Stock on
the date that such dividend is paid.
13.6. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
Upon the termination of a Grantee's employment or other relationship with
the Company other than by reason of death or "permanent and total disability"
(within
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the meaning of Section 22(e)(3) of the Code), any Restricted Stock or
Restricted Stock Units held by such Grantee that has not vested, or with
respect to which all applicable restrictions and conditions have not lapsed,
shall immediately be deemed forfeited, unless the Board, in its discretion,
determines otherwise. Upon forfeiture of Restricted Stock or Restricted Stock
Units, the Grantee shall have no further rights with respect to such Grant,
including but not limited to any right to vote Restricted Stock or any right to
receive dividends with respect to shares of Restricted Stock or Restricted
Stock Units. Whether a leave of absence or leave on military or government
service shall constitute a termination of employment or other relationship for
purposes of the Plan shall be determined by the Board, which determination
shall be final and conclusive. For purposes of the Plan, a termination of
employment, service or other relationship shall not be deemed to occur if the
Grantee is immediately thereafter a director of the Company.
13.7. RIGHTS IN THE EVENT OF DEATH.
Unless otherwise provided in the Award Agreement, if a Grantee dies while
employed by the Company, all Restricted Stock or Restricted Stock Units granted
to such Grantee shall fully vest on the date of death, and the shares of Stock
represented thereby shall be deliverable in accordance with the terms of the
Plan to the executors, administrators, legatees or distributees of the
Grantee's estate.
13.8. RIGHTS IN THE EVENT OF DISABILITY.
Unless otherwise provided in the Award Agreement, if a Grantee terminates
employment or other relationship with the Company by reason of the "permanent
and total disability" (within the meaning of Section 22(e)(3) of the Code) of
such Grantee, such Grantee's Restricted Stock or Restricted Stock Units shall
continue to vest in accordance with the applicable Award Agreement for a period
of one year after such termination of employment or service (or such longer
period as the Board, in its discretion, may determine prior to the expiration
of such one-year period), subject to the earlier forfeiture of such Restricted
Stock or Restricted Stock Units in accordance with the terms of the applicable
Award Agreement. Whether a termination of employment or service is to be
considered by reason of "permanent and total disability" for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive.
13.9. DELIVERY OF STOCK AND PAYMENT THEREFOR.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock or Restricted Stock Units shall lapse,
and, unless otherwise provided in the Award Agreement, upon payment by the
Grantee to the Company, in cash or by check, of the aggregate par value of the
shares of Stock represented by such Restricted Stock or Restricted Stock Units
(or such other higher purchase price determined by the Board), a stock
certificate for such shares shall be delivered, free of
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all such restrictions, to the Grantee or the Grantee's beneficiary or estate,
as the case may be.
14. DEFERRED STOCK AWARDS
14.1. NATURE OF DEFERRED STOCK AWARDS.
A Deferred Stock Award is an Award of phantom Stock units to a Grantee,
subject to restrictions and conditions as the Board may determine at the time
of grant. Conditions may be based on continuing employment (or other business
relationship) and/or achievement of pre-established performance goals and
objectives. The grant of a Deferred Stock Award is contingent on the Grantee
executing the Deferred Stock Award Agreement. The terms and conditions of each
such agreement shall be determined by the Board, and such terms and conditions
may differ among individual Awards and Grantees. At the end of the deferral
period, the Deferred Stock Award, to the extent vested, shall be paid to the
Grantee in the form of shares of Stock.
14.2. ELECTION TO RECEIVE DEFERRED STOCK AWARDS IN LIEU OF COMPENSATION.
The Board may, in its sole discretion, permit a Grantee to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such Grantee in the form of a Deferred Stock Award. Any such election
shall be made in writing and shall be delivered to the Company no later than
the date specified by the Board and in accordance with rules and procedures
established by the Board. The Board shall have the sole right to determine
whether and under what circumstances to permit such elections and to impose
such limitations and other terms and conditions thereon as the Board deems
appropriate.
14.3. RIGHTS AS A STOCKHOLDER.
During the deferral period, a Grantee shall have no rights as a
Stockholder; provided, however, that the Grantee may be credited with Dividend
Equivalent Rights with respect to the phantom Stock units underlying his
Deferred Stock Award, subject to such terms and conditions as the Board may
determine.
14.4. RESTRICTIONS.
A Deferred Stock Award may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of during the deferral period.
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14.5. TERMINATION.
Except as may otherwise be provided by the Board either in the Award
Agreement or, in writing after the Award Agreement is issued, a Grantee's right
in all Deferred Stock Awards that have not vested shall automatically terminate
upon the Grantee's termination of employment or other relationship with the
Company for any reason.
15. UNRESTRICTED STOCK AWARDS
15.1. GRANT OR SALE OF UNRESTRICTED STOCK.
The Board may, in its sole discretion, grant (or sell at par value or
such other higher purchase price determined by the Board) an Unrestricted Stock
Award to any Grantee pursuant to which such Grantee may receive shares of Stock
free of any restrictions ("Unrestricted Stock") under the Plan. Unrestricted
Stock Awards may be granted or sold as described in the preceding sentence in
respect of past services or other valid consideration, or in lieu of any cash
compensation due to such Grantee.
16. PERFORMANCE STOCK AWARDS
16.1. NATURE OF PERFORMANCE STOCK AWARDS.
A Performance Stock Award is an Award entitling the recipient to acquire
shares of Stock upon the attainment of specified performance goals. The Board
may make Performance Stock Awards independent of or in connection with the
granting of any other Award under the Plan. The Board in its sole discretion
shall determine whether and to whom Performance Stock Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Stock; provided, however, that the Board
may rely on the performance goals and other standards applicable to other
performance unit plans of the Company in setting the standards for Performance
Stock Awards under the Plan.
16.2. RIGHTS AS A STOCKHOLDER.
A Grantee receiving a Performance Stock Award shall have the rights of a
Stockholder only as to shares actually received by the Grantee under the Plan
and not with respect to shares subject to the Award but not actually received
by the Grantee. A Grantee shall be entitled to receive a Stock certificate
evidencing the acquisition of Stock under a Performance Stock Award only upon
satisfaction of all
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conditions specified in the written instrument evidencing the Performance Stock
Award (or in a performance plan adopted by the Board).
16.3. TERMINATION.
Except as may otherwise be provided by the Board either in the Award
Agreement in writing after the Award Agreement is issued, a Grantee's rights in
all Performance Stock Awards shall automatically terminate upon the Grantee's
termination of employment or other relationship with the Company and its
Subsidiaries for any reason.
16.4. ACCELERATION, WAIVER, ETC.
At any time prior to the Grantee's termination of employment (or other
business relationship) by the Company and its Subsidiaries, the Board may in
its sole discretion accelerate, waive or amend any or all of the goals,
restrictions or conditions imposed under any Performance Stock Award.
17. DIVIDEND EQUIVALENT RIGHTS
17.1. DIVIDEND EQUIVALENT RIGHTS.
A Dividend Equivalent Right is an Award entitling the recipient to
receive credits based on cash distributions that would have been paid on the
shares of Stock specified in the Dividend Equivalent Right (or other award to
which it relates) if such shares had been issued to and held by the recipient.
A Dividend Equivalent Right may be granted hereunder to any Grantee as a
component of another Award or as a freestanding award. The terms and
conditions of Dividend Equivalent Rights shall be specified in the grant.
Dividend Equivalents credited to the holder of a Dividend Equivalent Right may
be paid currently or may be deemed to be reinvested in additional shares of
Stock, which may thereafter accrue additional equivalents. Any such
reinvestment shall be at Fair Market Value on the date of reinvestment.
Dividend Equivalent Rights may be settled in cash or Stock or a combination
thereof, in a single installment or installments, all determined in the sole
discretion of the Board. A Dividend Equivalent Right granted as a component of
another Award may provide that such Dividend Equivalent Right shall be settled
upon exercise, settlement, or payment of, or lapse of restrictions on, such
other award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other award. A
Dividend Equivalent Right granted as a component of another Award may also
contain terms and conditions different from such other award.
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17.2. INTEREST EQUIVALENTS.
Any Award under this Plan that is settled in whole or in part in cash on
a deferred basis may provide in the grant for interest equivalents to be
credited with respect to such cash payment. Interest equivalents may be
compounded and shall be paid upon such terms and conditions as may be specified
by the grant.
17.3. TERMINATION.
Except as may otherwise be provided by the Board either in the Award
Agreement or in writing after the Award Agreement is issued, a Grantee's rights
in all Dividend Equivalent Rights or interest equivalents shall automatically
terminate upon the Grantee's termination of employment or other relationship
with the Company and its Subsidiaries for any reason.
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS
18.1 STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS
Awards granted under the Plan may, in the discretion of the Board, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Subsidiary, or any business entity to be acquired by the Company
or a Subsidiary, or any other right of a Grantee to receive payment from the
Company or any Subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award, the Board shall require the surrender of such other
Award in consideration for the grant of the new Award. In addition, Awards may
be granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Subsidiary, in which the value
of Stock subject to the Award is equivalent in value to the cash compensation
(for example, Deferred Stock or Restricted Stock), or in which the exercise
price, grant price or purchase price of the Award in the nature of a right that
may be exercised is equal to the Fair Market Value of the underlying Stock
minus the value of the cash compensation surrendered (for example, Options
granted with an exercise price "discounted" by the amount of the cash
compensation surrendered).
18.2. TERM OF AWARDS
The term of each Award shall be for such period as may be determined by
the Board; provided that in no event shall the term of any Option or SAR exceed
a period of ten years (or such shorter term as may be required in respect of an
ISO under Section 422 of the Code).
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18.3. FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS
Subject to the terms of the Plan and any applicable Award Agreement,
payments to be made by the Company or a Subsidiary upon the exercise of an
Option or other Award or settlement of an Award may be made in such forms as
the Board shall determine, including, without limitation, cash, Stock, other
Awards or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such settlement,
in the discretion of the Board or upon occurrence of one or more specified
events. Installment or deferred payments may be required by the Board or
permitted at the election of the Grantee on terms and conditions established by
the Board. Payments may include, without limitation, provisions for the
payment or crediting of a reasonable interest rate on installment or deferred
payments or the grant or crediting of Dividend Equivalents or other amounts in
respect of installment or deferred payments denominated in Stock.
18.4. PERFORMANCE AND ANNUAL INCENTIVE AWARDS
18.4.1. PERFORMANCE CONDITIONS
The right of a Grantee to exercise or receive a grant or
settlement of any Award, and the timing thereof, may be subject to such
performance conditions as may be specified by the Board. The Board may use
such business criteria and other measures of performance as it may deem
appropriate in establishing any performance conditions, and may exercise its
discretion to reduce the amounts payable under any Award subject to performance
conditions, except as limited under SECTIONS 18.4.2 AND 18.4.3 hereof in the
case of a Performance Award or Annual Incentive Award intended to qualify under
Code Section 162(m). If and to the extent required under Code Section 162(m),
any power or authority relating to a Performance Award or Annual Incentive
Award intended to qualify under Code Section 162(m), shall be exercised by the
Committee and not the Board.
18.4.2. PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED
EMPLOYEES
If and to the extent that the Committee determines that a
Performance Award to be granted to a Grantee who is designated by the Committee
as likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise and/or
settlement of such Performance Award shall be contingent upon achievement of
preestablished performance goals and other terms set forth in this SECTION
18.4.2.
(i) Performance Goals Generally. The performance
goals for such Performance Awards shall consist of one or more
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business criteria and a targeted level or levels of performance
with respect to each of such criteria, as specified by the
Committee consistent with this SECTION 18.4.2. Performance goals
shall be objective and shall otherwise meet the requirements of
Code Section 162(m) and regulations thereunder including the
requirement that the level or levels of performance targeted by
the Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such
Performance Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant,
exercise and/or settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to any
one Grantee or to different Grantees.
(ii) Business Criteria. One or more of the
following business criteria for the Company, on a consolidated
basis, and/or specified subsidiaries or business units of the
Company (except with respect to the total stockholder return and
earnings per share criteria), shall be used exclusively by the
Committee in establishing performance goals for such Performance
Awards: (1) total stockholder return; (2) such total stockholder
return as compared to total return (on a comparable basis) of a
publicly available index such as, but not limited to, the Standard
& Poor's 500 Stock Index; (3) net income; (4) pretax earnings; (5)
earnings before interest expense, taxes, depreciation and
amortization; (6) pretax operating earnings after interest expense
and before bonuses, service fees, and extraordinary or special
items; (7) operating margin; (8) earnings per share; (9) return on
equity; (10) return on capital; (11) return on investment; (12)
operating earnings; (13) working capital; and (14) ratio of debt
to stockholders' equity. One or more of the foregoing business
criteria shall also be exclusively used in establishing
performance goals for Annual Incentive Awards granted to a Covered
Employee under SECTION 18.4.3 hereof that are intended to qualify
as "performance-based compensation" under Code Section 162(m).
(iii) Performance Period; Timing For Establishing
Performance Goals. Achievement of performance goals in respect of
such Performance Awards shall be measured over a performance
period of up to ten years, as specified by the Committee.
Performance goals shall be established not later than 90 days
after the beginning of any performance period applicable to such
Performance Awards, or at such other date as may be required or
permitted for "performance-based compensation" under Code Section
162(m).
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(iv) Performance Award Pool. The Committee may
establish a Performance Award pool, which shall be an unfunded
pool, for purposes of measuring Company performance in connection
with Performance Awards. The amount of such Performance Award
pool shall be based upon the achievement of a performance goal or
goals based on one or more of the business criteria set forth in
SECTION 18.4.2(ii) hereof during the given performance period, as
specified by the Committee in accordance with SECTION 18.4.2(iii)
hereof. The Committee may specify the amount of the Performance
Award pool as a percentage of any of such business criteria, a
percentage thereof in excess of a threshold amount, or as another
amount which need not bear a strictly mathematical relationship to
such business criteria.
(v) Settlement of Performance Awards; Other Terms.
Settlement of such Performance Awards shall be in cash, Stock,
other Awards or other property, in the discretion of the
Committee. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with
such Performance Awards. The Committee shall specify the
circumstances in which such Performance Awards shall be paid or
forfeited in the event of termination of employment by the Grantee
prior to the end of a performance period or settlement of
Performance Awards.
18.4.3. ANNUAL INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED
EMPLOYEES.
If and to the extent that the Committee determines that an Annual
Incentive Award to be granted to a Grantee who is designated by the Committee
as likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise and/or
settlement of such Annual Incentive Award shall be contingent upon achievement
of preestablished performance goals and other terms set forth in this SECTION
18.4.3.
(i) Annual Incentive Award Pool. The Committee may
establish an Annual Incentive Award pool, which shall be an
unfunded pool, for purposes of measuring Company performance in
connection with Annual Incentive Awards. The amount of such
Annual Incentive Award pool shall be based upon the achievement of
a performance goal or goals based on one or more of the business
criteria set forth in 18.4.2(ii) hereof during the given
performance period, as specified by the Committee in accordance
with 18.4.2(iii) hereof. The Committee may specify the amount of
the Annual Incentive Award pool as a percentage of any such
business criteria, a percentage thereof in excess
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of a threshold amount, or as another amount which need not
bear a strictly mathematical relationship to such business
criteria.
(ii) Potential Annual Incentive Awards. Not later
than the end of the 90th day of each fiscal year, or at such other
date as may be required or permitted in the case of Awards
intended to be "performance-based compensation" under Code Section
162(m), the Committee shall determine the Eligible Persons who
will potentially receive Annual Incentive Awards, and the amounts
potentially payable thereunder, for that fiscal year, either out
of an Annual Incentive Award pool established by such date under
SECTION 18.4.3(i) hereof or as individual Annual Incentive Awards.
In the case of individual Annual Incentive Awards intended to
qualify under Code Section 162(m), the amount potentially payable
shall be based upon the achievement of a performance goal or goals
based on one or more of the business criteria set forth in SECTION
18.4.2(ii) hereof in the given performance year, as specified by
the Committee; in other cases, such amount shall be based on such
criteria as shall be established by the Committee. In all cases,
the maximum Annual Incentive Award of any Grantee shall be subject
to the limitation set forth in SECTION 7.1 hereof.
(iii) Payout of Annual Incentive Awards. After the
end of each fiscal year, the Committee shall determine the amount,
if any, of (A) the Annual Incentive Award pool, and the maximum
amount of potential Annual Incentive Award payable to each Grantee
in the Annual Incentive Award pool, or (B) the amount of potential
Annual Incentive Award otherwise payable to each Grantee. The
Committee may, in its discretion, determine that the amount
payable to any Grantee as an Annual Incentive Award shall be
reduced from the amount of his or her potential Annual Incentive
Award, including a determination to make no Award whatsoever. The
Committee shall specify the circumstances in which an Annual
Incentive Award shall be paid or forfeited in the event of
termination of employment by the Grantee prior to the end of a
fiscal year or settlement of such Annual Incentive Award.
18.4.4. WRITTEN DETERMINATIONS.
All determinations by the Committee as to the establishment of
performance goals, the amount of any Performance Award pool or potential
individual Performance Awards and as to the achievement of performance goals
relating to Performance Awards under SECTION 18.4.2, and the amount of any
Annual Incentive Award pool or potential individual Annual Incentive Awards and
the amount of final Annual Incentive Awards under SECTION 18.4.3, shall be made
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in writing in the case of any Award intended to qualify under Code Section
162(m). To the extent required to comply with Code Section 162(m), the
Committee may delegate any responsibility relating to such Performance Awards
or Annual Incentive Awards.
18.4.5. STATUS OF SECTION 18.4.3 AND SECTION 18.4.2 AWARDS UNDER
CODE SECTION 162(m)
It is the intent of the Company that Performance Awards and Annual
Incentive Awards under SECTION 18.4.2 and SECTION 18.4.3 hereof granted to
persons who are designated by the Committee as likely to be Covered Employees
within the meaning of Code Section 162(m) and regulations thereunder shall, if
so designated by the Committee, constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
thereunder. Accordingly, the terms of SECTION 18.4.2 and SECTION 18.4.3,
including the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Grantee will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the
term Covered Employee as used herein shall mean only a person designated by the
Committee, at the time of grant of Performance Awards or an Annual Incentive
Award, as likely to be a Covered Employee with respect to that fiscal year. If
any provision of the Plan or any agreement relating to such Performance Awards
or Annual Incentive Awards does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements.
19. REPURCHASE RIGHTS
19.1. NONTRANSFERABILITY OF SHARES
Subject to SECTION 19.4 below, a Grantee (or such other individual
who is entitled to exercise an Option or to hold a Grant under the Plan) shall
not sell, pledge, assign, gift, transfer, or otherwise dispose of any shares of
Stock acquired pursuant to such Grant to any person or entity without first
offering such shares to the Company for purchase on the same terms and
conditions as those offered the proposed transferee. The Company may assign
its right of first refusal under this SECTION 19.1 in whole or in part, to (1)
any holder of stock or other securities of the Company (a "Stockholder"), (2)
any affiliate or (3) any other person or entity that the Board of Directors of
the Company determines has a sufficient relationship with or interest in the
Company. The Company shall give reasonable written notice to the Grantee of
any such assignment of its rights. The restrictions of this SECTION 19.1 apply
to any person to whom Stock that was originally
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acquired pursuant to a Grant is sold, pledged, assigned, bequeathed, gifted,
transferred or otherwise disposed of, without regard to the number of such
subsequent transferees or the manner in which they acquire the Stock, but the
restrictions of this SECTION 19.1 do not apply to a transfer of Stock that
occurs as a result of the death of the Grantee or of any subsequent transferee
(but shall apply to the executor, the administrator or personal representative,
the estate, and the legatees, beneficiaries and assigns thereof).
19.2. REPURCHASE RIGHTS.
(a) Subject to SECTION 19.4 below, upon the termination of a
Grantee's employment or other relationship with the Company or an affiliate
(whether as an employee, a director, an independent contractor providing
services to the Company, a Subsidiary or an affiliate, or otherwise), the
Company shall have the right, for a period of up to twelve months following
such termination, to repurchase any or all of the shares acquired by the
individual pursuant to this Plan under a Grant (including shares that were
previously transferred pursuant to SECTIONS 12.1, 12.2 or 19.1 above, unless
otherwise specified in the Award Agreement), at a price equal to the Fair
Market Value of such shares on the date of termination.
(b) Upon the exercise of an Option (or the Grantee's acquisition
of shares pursuant to a Grant other than an Option) following termination of a
Grantee's employment or other relationship with the Company or an affiliate
(whether as an employee, a director, an independent contractor providing
services to the Company, a Subsidiary or any affiliate, or otherwise), the
Company shall have the right, for a period of up to twelve months following
such exercise or other acquisition of shares, to repurchase any or all such
shares of Stock acquired by the Grantee pursuant to such Option or other Grant
at a price that is equal to the Fair Market Value of such shares (including
shares that were previously transferred pursuant to SECTIONS 12.1, 12.2 or 19.1
above) on the date of exercise or other acquisition (or at such other price or
the Fair Market Value on such other date as shall have been specified by the
Board at the time of grant and set out in the appropriate Award Agreement with
respect to the grant).
(c) In the event that the Company determines that it cannot or will
not exercise its rights to purchase Stock under this SECTION 19.2 and the
applicable Award Agreement, in whole or in part, the Company may assign its
rights, in whole or in part, to (1) any Stockholder (2) any affiliate or (3) any
other person or entity that the Board of Directors of the Company determines has
a sufficient relationship with or interest in the Company. The Company shall
give reasonable written notice to the individual of any assignment of its
rights.
19.3. INSTALLMENT PAYMENTS
In the case of any purchase of Stock or an Option or other Grant
under this Section, the Company or its permitted assignee may pay the Grantee,
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transferee of the Option or other registered owner of the Stock the purchase
price in three or fewer annual installments. Interest shall be credited on the
installments at the applicable federal rate (as determined for purposes of
Section 1274 of the Code) in effect on the date on which the purchase is made.
The Company or its permitted assignee shall pay at least one-third of the total
purchase price each year, plus interest on the unpaid balance, with the first
payment being made on or before the 60th day after the purchase.
19.4. PUBLICLY TRADED STOCK
If the Stock is listed on an established national or regional stock
exchange or is admitted to quotation on the National Association of Securities
Dealers Automated Quotation System, or is publicly traded in an established
securities market, the foregoing transfer restrictions of SECTIONS 19.1 and 19.2
shall terminate as of the first date that the Stock is so listed, quoted or
publicly traded.
19.5. LEGEND
In order to enforce the restrictions imposed upon shares of Stock
under this Plan or as provided in an Award Agreement, the Board may cause a
legend or legends to be placed on any certificate representing shares issued
pursuant to this Plan that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions imposed under
it.
20. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by a
Grantee with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
Grantees or beneficiaries of which the Grantee is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock or Restricted Stock Unit held by that Grantee and any right to receive any
payment or other benefit under this Plan shall not become exercisable or vested
(i) to the extent that such right to exercise, vesting, payment, or benefit,
taking into account all other rights, payments, or benefits to or for the
Grantee under this Plan, all Other Agreements, and all Benefit Arrangements,
would cause any payment or benefit to the Grantee under this Plan to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment") and (ii) if, as a result of
receiving a Parachute Payment, the aggregate after-tax amounts received by the
Grantee from the Company under this Plan, all
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Other Agreements, and all Benefit Arrangements would be less than the maximum
after-tax amount that could be received by the Grantee without causing any such
payment or benefit to be considered a Parachute Payment. In the event that the
receipt of any such right to exercise, vesting, payment, or benefit under this
Plan, in conjunction with all other rights, payments, or benefits to or for the
Grantee under any Other Agreement or any Benefit Arrangement would cause the
Grantee to be considered to have received a Parachute Payment under this Plan
that would have the effect of decreasing the after-tax amount received by the
Grantee as described in clause (ii) of the preceding sentence, then the Grantee
shall have the right, in the Grantee's sole discretion, to designate those
rights, payments, or benefits under this Plan, any Other Agreements, and any
Benefit Arrangements that should be reduced or eliminated so as to avoid having
the payment or benefit to the Grantee under this Plan be deemed to be a
Parachute Payment.
21. REQUIREMENTS OF LAW
21.1. GENERAL.
The Company shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the Grantee, any other individual exercising an Option, or the
Company of any provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its discretion, that
the listing, registration or qualification of any shares subject to an Award
upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of shares hereunder, no shares of Stock may be issued or sold to the
Grantee or any other individual exercising an Option pursuant to such Award
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company,
and any delay caused thereby shall in no way affect the date of termination of
the Award. Specifically, in connection with the Securities Act, upon the
exercise of any Option or the delivery of any shares of Stock underlying an
Award, unless a registration statement under such Act is in effect with respect
to the shares of Stock covered by such Award, the Company shall not be required
to sell or issue such shares unless the Board has received evidence satisfactory
to it that the Grantee or any other individual exercising an Option may acquire
such shares pursuant to an exemption from registration under the Securities Act.
Any determination in this connection by the Board shall be final, binding, and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are
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exempt from registration, the exercise of such Option (under circumstances in
which the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
21.2. RULE 16b-3.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Awards pursuant to the Plan and the exercise of Options granted hereunder will
qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the
extent that any provision of the Plan or action by the Board does not comply
with the requirements of Rule 16b-3, it shall be deemed inoperative to the
extent permitted by law and deemed advisable by the Board, and shall not affect
the validity of the Plan. In the event that Rule 16b-3 is revised or replaced,
the Board may exercise its discretion to modify this Plan in any respect
necessary to satisfy the requirements of, or to take advantage of any features
of, the revised exemption or its replacement.
22. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Awards have not been
made; provided, however, that the Board shall not, without approval of the
Company's shareholders, amend the Plan such that it does not comply with the
Code. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul an Award if the Grantee is an
employee of the Company or an affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this SECTION 22 or
SECTION 23 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Award theretofore awarded under the Plan.
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23. EFFECT OF CHANGES IN CAPITALIZATION
23.1. CHANGES IN STOCK.
If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or kind
of shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares
for which grants of Options and other Awards may be made under the Plan shall be
adjusted proportionately and accordingly by the Company. In addition, the number
and kind of shares for which Awards are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of the
Grantee immediately following such event shall, to the extent practicable, be
the same as immediately before such event. Any such adjustment in outstanding
Options shall not change the aggregate Option Price payable with respect to
shares that are subject to the unexercised portion of an Option outstanding but
shall include a corresponding proportionate adjustment in the Option Price per
share.
23.2. REORGANIZATION IN WHICH THE COMPANY IS THE SURVIVING ENTITY AND IN
WHICH NO CHANGE OF CONTROL OCCURS.
Subject to SECTION 23.3 hereof, if the Company shall be the surviving
entity in any reorganization, merger, or consolidation of the Company with one
or more other entities, any Option theretofore granted pursuant to the Plan
shall pertain to and apply to the securities to which a holder of the number of
shares of Stock subject to such Option would have been entitled immediately
following such reorganization, merger, or consolidation, with a corresponding
proportionate adjustment of the Option Price per share so that the aggregate
Option Price thereafter shall be the same as the aggregate Option Price of the
shares remaining subject to the Option immediately prior to such reorganization,
merger, or consolidation. Subject to any contrary language in an Award Agreement
evidencing an Award, any restrictions applicable to such Grant shall apply as
well to any replacement shares received by the Grantee as a result of the
reorganization, merger or consolidation.
23.3. REORGANIZATION, SALE OF ASSETS OR SALE OF STOCK WHICH INVOLVES A
CHANGE OF CONTROL.
(a) Upon the dissolution or liquidation of the Company or upon a merger,
consolidation, or reorganization of the Company with one or more other entities
in which the Company is not the surviving entity, or upon a sale of
substantially all of the assets of the Company to another entity, or upon any
transaction (including, without limitation, a merger or reorganization in which
the Company is the surviving entity) approved by the Board that results in any
person or entity (or person or
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entities acting as a group or otherwise in concert, owning fifty percent (50%)
or more of the combined voting power of all classes of securities of the
Company) (other than persons who are shareholders or affiliates of the Company
at the time the Plan is approved by the Company's shareholders, (i) all
outstanding shares subject to Grants shall be deemed to have vested, and all
restrictions and conditions applicable to such shares subject to Grants shall be
deemed to have lapsed, immediately prior to the occurrence of such event, and
(ii) all Options outstanding hereunder shall become immediately exercisable for
a period of fifteen days immediately prior to the scheduled consummation of the
event. Any exercise of an Option during such fifteen-day period shall be
conditioned upon the consummation of the event and shall be effective only
immediately before the consummation of the event. Upon consummation of any such
event, the Plan and all outstanding but unexercised Options shall terminate. The
Board shall send written notice of an event that will result in such a
termination to all individuals who hold Options not later than the time at which
the Company gives notice thereof to its shareholders.
(b) Notwithstanding the foregoing, the provisions of SECTION 23.3(a)
shall not apply to the extent that (A) provision is made in writing in
connection with a transaction described in SECTION 23.3(a) for the continuation
of the Plan or the assumption of the Awards theretofore granted, or for the
substitution for such Awards of new awards covering the stock of a successor
entity, or a parent or subsidiary thereof, with appropriate adjustments as to
the number and kinds of shares or units and exercise prices, in which event the
Plan and the Awards theretofore granted shall continue in the manner and under
the terms so provided or (B) a majority of the full Board determines that such
an event shall not trigger application of the provisions of SECTION 23.3(a)
subject to SECTION 27.
23.4. ADJUSTMENTS.
Adjustments under this SECTION 23 related to shares of Stock or securities
of the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share.
23.5. NO LIMITATIONS ON COMPANY.
The making of Awards pursuant to the Plan shall not affect or limit in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
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24. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Award or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any affiliate, or to interfere in any way with any
contractual or other right or authority of the Company either to increase or
decrease the compensation or other payments to any individual at any time, or to
terminate any employment or other relationship between any individual and the
Company. In addition, notwithstanding anything contained in the Plan to the
contrary, unless otherwise stated in the applicable Award Agreement, no Award
granted under the Plan shall be affected by any change of duties or position of
the Grantee, so long as such Grantee continues to be a director, officer,
consultant or employee of the Company. The obligation of the Company to pay any
benefits pursuant to this Plan shall be interpreted as a contractual obligation
to pay only those amounts described herein, in the manner and under the
conditions prescribed herein. The Plan shall in no way be interpreted to require
the Company to transfer any amounts to a third party trustee or otherwise hold
any amounts in trust or escrow for payment to any Grantee or beneficiary under
the terms of the Plan. No Grantee shall have any of the rights of a shareholder
with respect to the shares of Stock subject to an Option except to the extent
the certificates for such shares of Stock shall have been issued upon the
exercise of the Option.
25. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.
26. WITHHOLDING TAXES
The Company or a Subsidiary, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any Federal, state,
or local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to an Award or upon the
issuance of any shares of Stock upon the exercise of an Option or pursuant to an
Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to
the Company or the Subsidiary, as the case may be, any amount that the Company
or the Subsidiary may reasonably determine to be necessary to satisfy such
withholding obligation. Subject to the prior approval of the Company or the
Subsidiary, which may be withheld by the Company or the Subsidiary, as the case
may be, in its sole discretion, the Grantee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company or the
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<PAGE> 36
Subsidiary to withhold shares of Stock otherwise issuable to the Grantee or (ii)
by delivering to the Company or the Subsidiary shares of Stock already owned by
the Grantee. The shares of Stock so delivered or withheld shall have an
aggregate Fair Market Value equal to such withholding obligations. The Fair
Market Value of the shares of Stock used to satisfy such withholding obligation
shall be determined by the Company or the Subsidiary as of the date that the
amount of tax to be withheld is to be determined. A Grantee who has made an
election pursuant to this SECTION 26 may satisfy his or her withholding
obligation only with shares of Stock that are not subject to any repurchase,
forfeiture, unfulfilled vesting, or other similar requirements.
27. POOLING
In the event any provision of the Plan or the Award Agreement would
prevent the use of pooling of interests accounting in a corporate transaction
involving the Company and such transaction is contingent upon pooling of
interests accounting, then that provision shall be deemed amended or revoked to
the extent required to preserve such pooling of interests. The Company may
require in an Award Agreement that a Grantee who receives an Award under the
Plan shall, upon advice from the Company, take (or refrain from taking, as
appropriate) all actions necessary or desirable to ensure that pooling of
interests accounting is available.
28. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.
29. OTHER PROVISIONS
Each Award granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.
30. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include
the plural form, the masculine gender shall include the feminine gender, etc.,
as the context requires.
31. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
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<PAGE> 37
32. BLUE SKY PROVISIONS
32.1. CALIFORNIA PROVISIONS
Notwithstanding the foregoing sections unless and until the Company
completes its initial public offering of its common stock, any Award made under
the Plan to a Grantee who is a resident of the state of California on the Grant
Date shall be subject to the following additional terms and conditions:
A. For the purpose of Awards which are not Incentive Stock Options,
Fair Market Value shall be determined in a manner not inconsistent
with Section 260.140.50 of the California Code of Regulations or any
successor statute.
B. Awards may not be made under the Plan to Grantees ten years after
the earlier of: (i) the date the Plan was adopted by the Board or
(ii) the date the Plan was approved by the shareholders of the
Company.
C. The Option Price shall be no less than 100% of the Fair Market
Value of a share of Stock on the Grant Date; provided, however, an
Option granted under the Plan to a Grantee who is a person who owns
stock possessing more than ten percent of the combined voting power
of all classes of stock of the Company or its parent or its
Subsidiary corporations shall have an Option Price of at least 110%
of the Fair Market Value of a share of Stock on the Grant Date.
D. Any Option granted under the Plan to a Grantee who is not an
officer, director, or consultant of the Company or its affiliates
shall become exercisable at a rate of at least twenty percent (20%)
of the shares of Stock subject to such Award per year for a period
of five years from the Grant Date; provided, that, such Option shall
be subject to such reasonable forfeiture conditions as the Board may
choose to impose and which are not inconsistent with Section
260.140.41 of the California Code of Regulations or any successor
statute.
E. The Company shall deliver to the Grantee financial statements on an
annual basis regarding the Company. The financial statements so
provided shall comply with Section 260.140.46 of the California Code
of Regulations or any successor statute, but need not comply with
Section 260.613 of the California Code of Regulations or any
successor statute.
F. Any transfer of an Option granted under the Plan authorized by the
Board in an Award Agreement must comply with Section
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<PAGE> 38
260.140.41(d) of the California Code of Regulations or any successor
statute.
G. An Award which authorizes a Grantee to purchase Stock under the Plan
(other than a non-incentive stock option) shall not be transferable
other than by will or the laws of descent and distribution.
H. Unless a Grantee's employment is terminated for cause as defined by
applicable law, the Grantee shall have the right to exercise an
Option, prior to the termination of the Option in accordance with
SECTION 10.2 and only to the extent that the Grantee was entitled to
exercise such Option on the date employment terminates, as follows:
(i) at least six (6) months from the date of termination if the
termination was caused by the Grantee's death or "permanent and
total disability" (within the meaning of Section 22(e)(3) of the
Code), and (ii) at least thirty (30) days from the date of
termination if termination was caused by other than death or
"permanent and total disability" (within the meaning of Section
22(e)(3) of the Code) of the Grantee.
I. The purchase price for an Award of Restricted Stock or Restricted
Stock Units shall be at least 85% of the Fair Market Value of the
Stock on the Grant Date and at least 100% of the Fair Market Value
of Stock on the Grant Date in the case of a person who owns stock
possessing more than ten percent of the combined voting power of all
classes of stock of the Company or its parent or its Subsidiary
corporations.
J. At no time shall the total number of shares of Stock issuable upon
exercise of all outstanding Options and the total number of shares
provided for under all stock bonus or similar plans of the Company
exceed the applicable percentage as calculated in accordance with
the conditions and exclusions of Section 260.140.45 of the
California Code of Regulations or any successor statute.
32.2. FLORIDA, VIRGINIA AND MISSOURI PROVISIONS
Notwithstanding SECTION 6.1, a resident of Florida, Virginia, or Missouri
who is not an employee of the Company or an employee of any wholly-owned
subsidiary of the Company shall not be eligible to receive an Award under the
Plan.
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33. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Awards granted hereunder shall be governed by the laws of the State of
Delaware (without giving effect to the choice of law provisions thereof).
* * *
The Plan was duly adopted and approved by the Board of Directors of the
Company as of the 1st day of September, 1999.
/s/ John R. Lund
-------------------------
John R. Lund
Secretary
The Plan was duly approved by the stockholders of the Company on the 1st
day of September, 1999.
/s/ John R. Lund
-------------------------
John R. Lund
Secretary
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<PAGE> 1
EXHIBIT 10.2
CYSIVE, INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. SHARES SUBJECT TO THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. ELIGIBLE EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. PARTICIPATION IN THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. PAYROLL DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
7. RECORD OF PAYROLL DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
8. OFFERING AND PURCHASE PERIODS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. RIGHTS TO PURCHASE COMMON STOCK; PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . 3
10. TIMING OF PURCHASE; PURCHASE LIMITATION. . . . . . . . . . . . . . . . . . . . . . . . . . 3
11. ISSUANCE OF STOCK CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
12. WITHHOLDING OF TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
13. ACCOUNT STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
14. PARTICIPATION ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
15. CHANGES IN ELECTIONS TO PURCHASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
16. TERMINATION OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
17. RETIREMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
18. LAY-OFF, AUTHORIZED LEAVE OR ABSENCE OR DISABILITY. . . . . . . . . . . . . . . . . . . . . 6
19. DEATH. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
20. TERMINATION OF PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
21. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
22. APPLICATION OF FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
23. NO RIGHT TO CONTINUED EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
24. AMENDMENT OF PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
25. EFFECTIVE DATE; TERM AND TERMINATION OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . 8
26. EFFECT OF CHANGES IN CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
26.1. Changes in Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
26.2. Reorganization in Which the Company Is the Surviving Corporation. . . . . . . . . . 9
26.3. Reorganization in Which the Company Is Not the Surviving
Corporation or Sale of Assets or Stock . . . . . . . . . . . . . . . . . . . . . . 10
26.4. Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
26.5. No Limitations on Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
27. GOVERNMENTAL REGULATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
28. STOCKHOLDER RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
29. RULE 16B-3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
30. PAYMENT OF PLAN EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<PAGE> 4
CYSIVE, INC.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors of Cysive, Inc. (the "Company") has adopted
this Employee Stock Purchase Plan (the "Plan") to enable eligible employees of
the Company and its participating Affiliates (as defined below), through
payroll deductions, to purchase shares of the Company's common stock, par value
$0.01 per share (the " Common Stock"). The Plan is for the benefit of the
employees of Cysive, Inc. and any participating Affiliates. The Plan is
intended to benefit the Company by increasing the employees' interest in the
Company's growth and success and encouraging employees to remain in the employ
of the Company or its participating Affiliates. The provisions of the Plan are
set forth below:
1. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 26 below, the aggregate
number of shares of Common Stock that may be made available for purchase by
participating employees under the Plan is 500,000. The shares issuable under
the Plan may, in the discretion of the Board of Directors of the Company (the
"Board"), be authorized but unissued shares, treasury shares or issued and
outstanding shares that are purchased in the open market.
2. ADMINISTRATION.
The Plan shall be administered under the direction of the Compensation
Committee of the Board (the "Committee"). No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan.
3. INTERPRETATION.
It is intended that the Plan will meet the requirements for an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code
of 1986 (the "Code"), and it is to be so applied and interpreted. Subject to
the express provisions of the Plan, the Committee shall have authority to
interpret the Plan, to prescribe, amend and rescind rules relating to it, and
to make all other determinations necessary or advisable in administering the
Plan, all of which determinations will be final and binding upon all persons.
4. ELIGIBLE EMPLOYEES.
Any employee of the Company and its designated Affiliates as
determined by the Board of Directors may participate in the Plan, except the
following, who are ineligible to participate: (a) an employee who has been
employed by the Company or any of its participating Affiliates for less than
three months as of the beginning of
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an Offering Period (as defined in Section 8 below); (b) an employee whose
customary employment is for less than five months in any calendar year; (c) an
employee whose customary employment is 20 hours per week or less; and (d) an
employee who, after exercising his or her rights to purchase shares under the
Plan, would own shares of Common Stock (including shares that may be acquired
under any outstanding options) representing five percent or more of the total
combined voting power of all classes of stock of the Company. The term
"participating Affiliate" means any company or other trade or business that is
a subsidiary of the Company (determined in accordance with the principles of
Sections 424(e) and (f) of the Code and the regulations thereunder). The Board
may at any time in its sole discretion, if it deems it advisable to do so,
terminate the participation of the employees of a particular participating
Affiliate.
5. PARTICIPATION IN THE PLAN.
An eligible employee may become a participating employee in the Plan
by completing an election to participate in the Plan on a form provided by the
Company and submitting that form to the Payroll Department of the Company. The
form will authorize payroll deductions (as provided in Section 6 below) and
authorize the purchase of shares of Common Stock for the employee's account in
accordance with the terms of the Plan. Enrollment will become effective upon
the first day of the first Offering Period. Enrollment in this Plan is limited
to one Offering Period at a time.
6. PAYROLL DEDUCTIONS.
At the time an eligible employee submits his or her election to
participate in the Plan (as provided in Section 5 above), the employee shall
elect to have deductions made from his or her pay, on each pay day following
his or her enrollment in the Plan, and for as long as he or she shall
participate in the Plan. The deductions will be credited to the participating
employee's account under the Plan. An employee may not during any Offering
Period change his or her amount or percentage of payroll deduction for that
Offering Period, nor may an employee withdraw any contributed funds, other than
in accordance with Sections 15 through 20 below.
7. RECORD OF PAYROLL DEDUCTIONS.
The Company and participating Affiliates will cause to be maintained a
record of amounts credited to each participating employee authorizing a payroll
deduction pursuant to Section 6. The Company will not credit interest on the
balance of the employees' accounts during the Offering Period.
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<PAGE> 6
8. OFFERING AND PURCHASE PERIODS.
The Offering Periods and Purchase Periods shall be determined by the
Committee. If at the beginning of any Offering Period, the fair market value
of Common Stock shall be less than the fair market value of Common Stock on the
first day of any prior Offering Period which has not yet terminated, all
individuals who are participating in the Plan for that prior Offering Period
shall be automatically terminated from that prior Offering Period and be deemed
to have elected to participate in the current Offering Period. All payroll
deduction forms for the prior Offering Period will be deemed to apply to the
current Offering Period.
9. RIGHTS TO PURCHASE COMMON STOCK; PURCHASE PRICE.
Rights to purchase shares of Common Stock will be deemed granted to
participating employees as of the first trading day of each Offering Period.
The purchase price of each share of Common Stock (the "Purchase Price") shall
be set by the Committee; provided that in no event shall the Purchase Price be
less than the lesser of 85 percent of the fair market value of the Common Stock
(i) on the first trading day of the Offering Period or (ii) on the last trading
day of such Offering Period; provided, further, that in no event shall the
Purchase Price be less than the par value of the Common Stock. For purposes of
the Plan, "fair market value" means the value of each share of Common Stock
subject to the Plan determined as follows: if on the determination date the
shares of Common Stock are listed on an established national or regional stock
exchange, are admitted to quotation on the National Association of Securities
Dealers Automated Quotation System, or are publicly traded on an established
securities market, the fair market value of the shares of Common Stock shall be
the closing price of the shares of Common Stock on such exchange or in such
market (the highest such closing price if there is more than one such exchange
or market) on the trading day immediately preceding the determination date (or
if there is no such reported closing price, the fair market value shall be the
mean between the highest bid and lowest asked prices or between the high and
low sale prices on such trading day) or, if no sale of the shares of Common
Stock is reported for such trading day, on the next preceding day on which any
sale shall have been reported. If the shares of Common Stock are not listed on
such an exchange, quoted on such System or traded on such a market, fair market
value shall be determined by the Board in good faith.
10. TIMING OF PURCHASE; PURCHASE LIMITATION.
Unless a participating employee has given prior written notice
terminating such employee's participation in the Plan, or the employee's
participation in the Plan has otherwise been terminated as provided in Sections
15 through 20 below, such employee will be deemed to have exercised
automatically his or her right to purchase Common Stock on the last trading day
of the Purchase Period (except as provided in 15 below) for the number of
shares of Common Stock which the
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<PAGE> 7
accumulated funds in the employee's account at that time will purchase at the
Purchase Price, subject to the participation adjustment provided for in Section
14 below and subject to adjustment under Section 26 below. Notwithstanding any
other provision of the Plan, no employee may purchase in any one calendar year
under the Plan and all other "employee stock purchase plans" of the Company and
its participating Affiliates shares of Common Stock having an aggregate fair
market value in excess of $25,000, determined as of the first trading date of
the Offering Period as to shares purchased during such period. Effective upon
the last trading day of the Purchase Period, a participating employee will
become a stockholder with respect to the shares purchased during such period,
and will thereupon have all dividend, voting and other ownership rights
incident thereto. Notwithstanding the foregoing, no shares shall be sold
pursuant to the Plan unless the Plan is approved by the Company's stockholders
in accordance with Section 25 below.
11. ISSUANCE OF STOCK CERTIFICATES.
As of the last trading day of the Purchase Period, a participating
employee will be credited with the number of shares of Common Stock purchased
for his or her account under the Plan during such Offering Period. Shares
purchased under the Plan will be held in the custody of an agent (the "Agent")
appointed by the Committee. The Agent may hold the shares purchased under the
Plan in stock certificates in nominee names and may commingle shares held in
its custody in a single account or stock certificate without identification as
to individual participating employees. A participating employee may, at any
time following his or her purchase of shares under the Plan, by written notice
instruct the Agent to have all or part of such shares reissued in the
participating employee's own name and have the stock certificate delivered to
the employee.
12. WITHHOLDING OF TAXES.
To the extent that a participating employee realizes ordinary income
in connection with a sale or other transfer of any shares of Common Stock
purchased under the Plan, the Company may withhold amounts needed to cover such
taxes from any payments otherwise due and owing to the participating employee
or from shares that would otherwise be issued to the participating employee
hereunder. Any participating employee who sells or otherwise transfers shares
purchased under the Plan within two years after the beginning of the Offering
Period in which the shares were purchased must within 30 days of such transfer
notify the Payroll Department of the Company in writing of such transfer.
13. ACCOUNT STATEMENTS.
The Company will cause the Agent to deliver to each participating
employee a statement for each Purchase Period during which the employee
purchases Common Stock under the Plan, but no more frequently than every six
months, reflecting the amount of payroll deductions during the Purchase Period,
the number
- 4 -
<PAGE> 8
of shares purchased for the employee's account, the price per share of the
shares purchased for the employee's account and the number of shares held for
the employee's account at the end of the Purchase Period.
14. PARTICIPATION ADJUSTMENT.
If in any Purchase Period the number of unsold shares that may be made
available for purchase under the Plan pursuant to Section 1 above is
insufficient to permit exercise of all rights deemed exercised by all
participating employees pursuant to Section 10 above, a participation
adjustment will be made, and the number of shares purchasable by all
participating employees will be reduced proportionately. Any funds then
remaining in a participating employee's account after such exercise will be
refunded to the employee.
15. CHANGES IN ELECTIONS TO PURCHASE.
(a) A participating employee may, at any time prior to the last day
of the Purchase Period, by written notice to the Company, direct the Company to
cease payroll deductions (or, if the payment for shares is being made through
periodic cash payments, notify the Company that such payments will be
terminated), in accordance with the following alternatives:
(i) The employee's option to purchase shall be reduced to the
number of shares which may be purchased, as of the last day of the Purchase
Period, with the amount then credited to the employee's account; or
(ii) Withdraw the amount in such employee's account and
terminate such employee's option to purchase.
(b) Any participating employee may decrease his or her payroll
deduction or periodic cash payments, to take effect on the first day of the
next following payroll period by delivering to the Company a new form regarding
election to participate in the Plan under Section 5 above.
(c) Any participating employee may increase his or her payroll
deduction or periodic cash payments, to take effect on the first day of the
next following Offering Period by delivering to the Company a new form
regarding election to participate in the Plan under Section 5 above.
16. TERMINATION OF EMPLOYMENT.
In the event a participating employee voluntarily leaves the employ of
the Company or a participating Affiliate, otherwise than by retirement under a
plan of the Company or a participating Affiliate, or is terminated by the
Company prior to
- 5 -
<PAGE> 9
the last day of the Purchase Period, the amount in the employee's account will
be distributed and the employee's option to purchase will terminate.
17. RETIREMENT.
In the event a participating employee who has an option to purchase
shares leaves the employ of the Company or a participating Affiliate because of
retirement under a plan of the Company or a participating Affiliate the
participating employee may elect, within 60 days after the date of such
retirement or termination, but, in no event, later than the end of the current
Purchase Period, one of the following alternatives:
(a) The employee's option to purchase shall be reduced to the
number of shares which may be purchased, as of the last day of the Purchase
Period, with the amount then credited to the employee's account; or
(b) Withdraw the amount in such employee's account and terminate such
employee's option to purchase.
In the event the participating employee does not make an election
within the aforesaid 60-day period, he or she will be deemed to have elected
subsection 17(b) above.
18. LAY-OFF, AUTHORIZED LEAVE OR ABSENCE OR DISABILITY.
Payroll deductions for shares for which a participating employee has
an option to purchase may be suspended during any period of absence of the
employee from work due to lay-off, authorized leave of absence or disability
or, if the employee so elects, periodic payments for such shares may continue
to be made in cash.
If such employee returns to active service prior to the last day of
the Purchase Period, the employee's payroll deductions will be resumed and if
said employee did not make periodic cash payments during the employee's period
of absence, the employee shall, by written notice to the Company's Payroll
Department within 10 days after the employee's return to active service, but
not later than the last day of the Purchase Period, elect one of the following
alternatives:
(a) The employee's option to purchase shall be reduced to the
number of shares that can be purchased with the amount, if any, then credited
to the employee's account plus the aggregate amount, if any, of all payroll
deductions to be made thereafter; or
(b) Withdraw the amount in the employee's account and terminate
the employee's option to purchase.
- 6 -
<PAGE> 10
A participating employee on lay-off, authorized leave of absence or
disability on the last day of the Purchase Period shall deliver written notice
to his or her employer on or before the last day of the Purchase Period,
electing one of the alternatives provided in the foregoing clauses (a) or (b)
of this Section 18. If any employee fails to deliver such written notice
within 10 days after the employee's return to active service or by the last day
of the Purchase Period, whichever is earlier, the employee shall be deemed to
have elected subsection 18(b) above.
If the period of a participating employee's lay-off, authorized leave
of absence or disability shall terminate on or before the last day of the
Purchase Period, and the employee shall not resume active employment with the
Company or a participating Affiliate, the employee shall receive a distribution
in accordance with the provisions of Section 17 of this Plan.
19. DEATH.
In the event of the death of a participating employee while the
employee's option to purchase shares is in effect, the legal representatives of
such employee may, within 60 days after the employee's death (but no later than
the last day of the Purchase Period) by written notice to the Company or
participating Affiliate, elect one of the following alternatives:
(a) The employee's option to purchase shall be reduced to the
number of shares which may be purchased, as of the last day of the Purchase
Period, with the amount then credited to the employee's account; or
(b) Withdraw the amount in such employee's account and terminate
such employee's option to purchase.
In the event the legal representatives of such employee fail to
deliver such written notice to the Company or participating Affiliate within
the prescribed period, the election to purchase shares shall terminate and the
amount, then credited to the employee's account shall be paid to such legal
representatives.
20. TERMINATION OF PARTICIPATION.
A participating employee will be refunded all moneys in his or her
account, and his or her participation in the Plan will be terminated if either
(a) the Board elects to terminate the Plan as provided in Section 25 below, or
(b) the employee ceases to be eligible to participate in the Plan under Section
4 above. As soon as practicable following termination of an employee's
participation in the Plan, the Company will deliver to the employee a check
representing the amount in the employee's account and a stock certificate
representing the number of whole shares held in the employee's account. Once
terminated, participation may not be
- 7 -
<PAGE> 11
reinstated for the then current Offering Period, but, if otherwise eligible,
the employee may elect to participate in any subsequent Offering Period.
21. ASSIGNMENT.
No participating employee may assign his or her rights to purchase
shares of Common Stock under the Plan, whether voluntarily, by operation of
law or otherwise. Any payment of cash or issuance of shares of Common Stock
under the Plan may be made only to the participating employee (or, in the event
of the employee's death, to the employee's estate). Once a stock certificate
has been issued to the employee or for his or her account, such certificate may
be assigned the same as any other stock certificate.
22. APPLICATION OF FUNDS.
All funds received or held by the Company under the Plan shall be
deposited with the Agent for the account of the participating employees.
Participating employees' accounts will not be segregated.
23. NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the Plan nor any right to purchase Common Stock under the Plan
confers upon any employee any right to continued employment with the Company or
any of its participating Affiliates, nor will an employee's participation in
the Plan restrict or interfere in any way with the right of the Company or any
of its participating Affiliates to terminate the employee's employment at any
time.
24. AMENDMENT OF PLAN.
The Board may, at any time, amend the Plan in any respect (including
an increase in the percentage specified in Section 9 above used in calculating
the Purchase Price); provided, however, that without approval of the
stockholders of the Company no amendment shall be made (a) increasing the
number of shares specified in Section 1 above that may be made available for
purchase under the Plan (except as provided in Section 26 below), (b) changing
the eligibility requirements for participating in the Plan, or (c) impairing
the vested rights of participating employees.
25. EFFECTIVE DATE; TERM AND TERMINATION OF THE PLAN.
The Plan shall be effective as of the date of adoption by the Board,
which date is set forth below, subject to approval of the Plan by a majority of
the votes present and entitled to vote at a duly held meeting of the
shareholders of the Company at which a quorum representing a majority of all
outstanding voting stock is present, either in person or by proxy; provided,
however, that upon approval of the Plan by the shareholders of the Company as
set forth above, all rights to purchase shares
- 8 -
<PAGE> 12
granted under the Plan on or after the effective date shall be fully effective
as if the shareholders of the Company had approved the Plan on the effective
date. If the shareholders fail to approve the Plan on or before one year after
the effective date, the Plan shall terminate, any rights to purchase shares
granted hereunder shall be null and void and of no effect and all contributed
funds shall be refunded to participating employees. The Board may terminate
the Plan at any time and for any reason or for no reason, provided that such
termination shall not impair any rights of participating employees that have
vested at the time of termination. In any event, the Plan shall, without
further action of the Board, terminate ten (10) years after the date of
adoption of the Plan by the Board or, if earlier, at such time as all shares of
Common Stock that may be made available for purchase under the Plan pursuant to
Section 1 above have been issued.
26. EFFECT OF CHANGES IN CAPITALIZATION.
26.1. CHANGES IN STOCK.
If the number of outstanding shares of Common Stock is increased or
decreased or the shares of Common Stock are changed into or exchanged for a
different number or kind of shares or other securities of the Company by reason
of any recapitalization, reclassification, stock split, reverse split,
combination of shares, exchange of shares, stock dividend, or other
distribution payable in capital stock, or other increase or decrease in such
shares effected without receipt of consideration by the Company occurring after
the effective date of the Plan, the number and kinds of shares that may be
purchased under the Plan shall be adjusted proportionately and accordingly by
the Company. In addition, the number and kind of shares for which rights are
outstanding shall be similarly adjusted so that the proportionate interest of a
participating employee immediately following such event shall, to the extent
practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding rights shall not change the aggregate Purchase Price
payable by a participating employee with respect to shares subject to such
rights, but shall include a corresponding proportionate adjustment in the
Purchase Price per share.
26.2. REORGANIZATION IN WHICH THE COMPANY IS THE SURVIVING
CORPORATION.
Subject to Section 26.3, if the Company shall be the surviving
corporation in any reorganization, merger or consolidation of the Company with
one or more other corporations, all outstanding rights under the Plan shall
pertain to and apply to the securities to which a holder of the number of
shares of Common Stock subject to such rights would have been entitled
immediately following such reorganization, merger or consolidation, with a
corresponding proportionate adjustment of the Purchase Price per share so that
the aggregate Purchase Price thereafter shall be
- 9 -
<PAGE> 13
the same as the aggregate Purchase Price of the shares subject to such rights
immediately prior to such reorganization, merger or consolidation.
26.3. REORGANIZATION IN WHICH THE COMPANY IS NOT THE SURVIVING
CORPORATION OR SALE OF ASSETS OR STOCK.
Upon any dissolution or liquidation of the Company, or upon a merger,
consolidation or reorganization of the Company with one or more other
corporations in which the Company is not the surviving corporation, or upon a
sale of all or substantially all of the assets of the Company to another
corporation, or upon any transaction (including, without limitation, a merger
or reorganization in which the Company is the surviving corporation) approved
by the Board that results in any person or entity owning more than 80 percent
of the combined voting power of all classes of stock of the Company, the Plan
and all rights outstanding hereunder shall terminate, except to the extent
provision is made in writing in connection with such transaction for the
continuation of the Plan and/or the assumption of the rights theretofore
granted, or for the substitution for such rights of new rights covering the
stock of a successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kinds of shares and exercise
prices, in which event the Plan and rights theretofore granted shall continue
in the manner and under the terms so provided. In the event of any such
termination of the Plan, all current Purchase Periods and Offering Periods
shall be deemed to have ended on the last trading day prior to such
termination, and in accordance with Section 10 above the rights of each
participating employee then outstanding shall be deemed to be automatically
exercised on such last trading day. The Board shall send written notice of an
event that will result in such a termination to all participating employees not
later than the time at which the Company gives notice thereof to its
stockholders.
26.4. ADJUSTMENTS.
Adjustments under this Section 26 related to stock or securities of
the Company shall be made by the Committee, whose determination in that respect
shall be final, binding, and conclusive.
26.5. NO LIMITATIONS ON COMPANY.
The grant of a right pursuant to the Plan shall not affect or limit in
any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
27. GOVERNMENTAL REGULATION.
- 10 -
<PAGE> 14
The Company's obligation to issue, sell and deliver shares of Common
Stock pursuant to the Plan is subject to such approval of any governmental
authority and any national securities exchange or other market quotation system
as may be required in connection with the authorization, issuance or sale of
such shares.
28. STOCKHOLDER RIGHTS.
Any dividends paid on shares held by the Company for a participating
employee's account will be transmitted to the employee. The Company will
deliver to each participating employee who purchases shares of Common Stock
under the Plan, as promptly as practicable by mail or otherwise, all notices of
meetings, proxy statements, proxies and other materials distributed by the
Company to its stockholders. Any shares of Common Stock held by the Agent for
an employee's account will be voted in accordance with the employee's duly
delivered and signed proxy instructions. There will be no charge to
participating employees in connection with such notices, proxies and other
materials.
29. RULE 16B-3.
Transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or any successor provision under the
Securities Exchange Act of 1934, as amended. If any provision of the Plan or
action by the Board fails to so comply, it shall be deemed null and void to the
extent permitted by law and deemed advisable by the Board. Moreover, in the
event the Plan does not include a provision required by Rule 16b-3 to be stated
herein, such provision (other than one relating to eligibility requirements, or
the price and amount of awards) shall be deemed automatically to be
incorporated by reference into the Plan.
30. PAYMENT OF PLAN EXPENSES.
The Company will bear all costs of administering and carrying out the
Plan; provided however, participating employees shall bear all costs incurred
subsequent to the issuance of stock certificates pursuant to Section 11.
* * *
- 11 -
<PAGE> 15
This Plan was duly adopted and approved by the Board of Directors of
the Company by unanimous written consent on the 1st of September, 1999.
/s/ John R. Lund
-------------------------------------------
Secretary of the Company
This Plan was duly approved by the stockholders of the Company by
unanimous written consent on the 1st of September, 1999.
/s/ John R. Lund
-------------------------------------------
Secretary of the Company
- 12 -
<PAGE> 1
---------------------------------------
MERRILL LYNCH
--------------
SPECIAL
--------------
PROTOTYPE
DEFINED CONTRIBUTION PLAN
---------------------------------------
Base Plan Document #03 used in conjunction with:
Non-standardized Profit Sharing Plan with CODA
Letter Serial Number: D359287b
National Office Letter Date: 6/29/93
Non-standardized Money Purchase Pension Plan
Letter Serial Number: D359288b
National Office Letter Date: 6/29/93
Non-standardized Profit Sharing Plan
Letter Serial Number: D359289b
National Office Letter Date: 6/29/93
Non-standardized Target Benefit Plan
Letter Serial Number: D361009a
National Office Letter Date: 6/29/93
THIS PROTOTYPE PLAN AND ADOPTION AGREEMENT ARE IMPORTANT LEGAL INSTRUMENTS
WITH LEGAL AND TAX IMPLICATIONS FOR WHICH THE SPONSOR, MERRILL LYNCH, PIERCE,
FENNER & SMITH, INCORPORATED, DOES NOT ASSUME RESPONSIBILITY. THE EMPLOYER IS
URGED TO CONSULT WITH ITS OWN ATTORNEY WITH REGARD TO THE ADOPTION OF
THIS PLAN AND ITS SUITABILITY TO ITS CIRCUMSTANCES.
<PAGE> 2
61
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Non-standardized
Profit Sharing Plan with CODA
FFN: 50339816103-004 Case: 9201920
EIN: 13-5674085 Washington, DC: 20224
BPD: 03 Plan: 004 Letter Serial No: D359287b
Person to Contact: Mr. Wolf
MERRILL LYNCH PIERCE FENNER &
SMITH INC
Telephone Number: (202) 622-8380
P O BOX 9038 Refer Reply to: E:EP:Q:1
PRINCETON, NJ 08543
Date: 06/29/93
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan:
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application with
the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to the
initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
[OBJECT OMITTED]
<PAGE> 3
61
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Non-standardized
Money Purchase Pension Plan
FFN: 50339816103-003 Case: 9201919
EIN: 13-5674085 Washington, DC: 20224
BPD: 03 Plan: 003 Letter Serial No: D359288b
Person to Contact: Mr. Wolf
MERRILL LYNCH PIERCE FENNER &
SMITH INC
Telephone Number: (202) 622-8380
P O BOX 9038
Refer Reply to: E:EP:Q:1
PRINCETON, NJ 08543
Date: 06/29/93
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan:
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application with
the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to the
initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
[OBJECT OMITTED]
<PAGE> 4
61
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Non-standardized
Profit Sharing Plan Washington, DC: 20224
FFN: 50339816103-002 Case: 9201918
EIN: 13-5674085
BPD: 03 Plan: 002 Letter Serial No: D359289b Person to Contact: Mr. Wolf
MERRILL LYNCH PIERCE FENNER &
SMITH INC Telephone Number: (202) 622-8380
P O BOX 9038 Refer Reply to: E:EP:Q:1
PRINCETON, NJ 08543 Date: 06/29/93
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application with
the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1 C.B.
780. The applicability of such provisions may be determined by reference to the
initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
[OBJECT OMITTED]
<PAGE> 5
61
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Non-standardized
Target Benefit Plan
FFN: 50339816103-001 Case: 8904027
EIN: 13-5674085 Washington, DC: 20224
BPD: 03 Plan: 001 Letter Serial No: D361009a
Person to Contact: Mr. Wolf
MERRILL LYNCH PIERCE FENNER
L SMITH INC
Telephone Number: (202) 622-8380
P O BOX 9038
Refer Reply to: E:EP:Q:1
PRINCETON, NJ 08543
Date: 06/29/93
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit of
their employees. This opinion relates only to the acceptability of the form of
the plan under the Internal Revenue Code. It is not an opinion of the effect of
other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). Therefore, an employer adopting the form of the plan should apply for a
determination letter by filing an application with the Key District Director of
Internal Revenue Service on Form 5307, Short Form Application for Determination
for Employee Benefit Plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial Number
and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
[OBJECT OMITTED]
<PAGE> 6
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
<TABLE>
<S> <C> <C>
1.1 "Account" 1
1.2 "Account Balance" 1
1.3 "ACP Test" 1
1.4 "Actual Deferral Percentage" 1
1.5 "Adjustment Factor" 1
1.6 "Administrator" 1
1.7 "Adoption Agreement" 1
1.8 "ADP Test 1
1.9 "Affiliate" 1
1.10 "Annuity Contract" 1
1.11 "Average Actual Deferral Percentage" 1
1.12 "Average Contribution Percentage" 1
1.13 "Beneficiary" 1
1.14 "Benefit Commencement Date" 2
1.15 "CODA" 2
1.16 "CODA Compensation" 2
1.17 "Code" 2
1.18 "Compensation" 2
1.19 "Contribution Percentage" 3
1.20 "Contribution Percentage Amounts" 3
1.21 "Defined Benefit Plan" 3
1.22 "Defined Contribution Plan" 3
1.23 "Disability" 3
1.24 "Early Retirement" 3
1.25 "Early Retirement Date" 3
1.26 "Earned Income" 3
1.27 "Elective Deferrals" 3
1.28 "Elective Deferrals Account" 4
1.29 "Eligible Employee" 4
1.30 "Eligible Participant" 4
1.31 "Employee" 4
1.32 "Employee Thrift Contributions" 4
1.33 "Employee Thrift Contributions Account" 4
1.34 "Employer" 4
1.35 "Employer Account" 4
1.36 "Employer Contributions" 4
1.37 "Employer Contributions Account" 4
1.38 "Employment" 4
1.39 "Entry Date" 4
1.40 "ERISA" 4
1.41 "Excess Aggregate Contributions" 5
1.42 "Excess Contributions" 5
1.43 "Excess Elective Deferrals" 5
1.44 "Family Member" 5
1.45 "401(k) Contributions Accounts" 5
1.46 "401(k) Election" 5
1.47 "Fully Vested Separation" 5
1.48 "Group Trust" 5
1.49 "Highly Compensated Employee" 5
1.50 "Hour of Service" 6
1.51 "Immediately Distributable" 6
1.52 "Investment Manager" 6
1.53 "Key Employee" 6
</TABLE>
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1.54 "Leased Employee" 7
1.55 "Limitation Year" 7
1.56 "Master or Prototype Plan" 7
1.57 "Matching 401(k) Contribution" 7
1.58 "Matching 401(k) Contributions Account" 7
1.59 "Matching Thrift Contributions" 7
1.60 "Matching Thrift Contributions Account" 7
1.61 "Net Profits" 7
1.62 "Nonhighly Compensated Employee" 7
1.63 "Nonvested Separation" 7
1.64 "Normal Retirement Age" 7
1.65 "Owner-Employee" 7
1.66 "Partially Vested Separation" 8
1.67 "Participant" 8
1.68 "Participant Contributions Account" 8
1.69 "Participant-Directed Assets" 8
1.70 "Participant Voluntary Nondeductible Contributions" 8
1.71 "Participant Voluntary Nondeductible Contributions Account" 8
1.72 "Participating Affiliate" 8
1.73 "Period of Severance 8
1.74 "Plan" 8
1.75 "Plan Year" 8
1.76 "Prototype Plan" 9
1.77 "Qualified Joint and Survivor Annuity" 9
1.78 "Qualified Matching Contributions" 9
1.79 "Qualified Matching Contributions Account" 9
1.80 "Qualified Nonelective Contributions" 9
1.81 "Qualified Nonelective Contributions Account" 9
1.82 "Qualified Plan" 9
1.83 "Qualifying Employer Securities" 9
1.84 "Rollover Contribution" 9
1.85 "Rollover Contributions Account" 9
1.86 "Self-Employed Individual" 9
l.87 "Social Security Retirement Age" 9
1.88 "Sponsor" 9
1.89 "Spouse" 9
1.90 "Surviving Spouse" 10
1.91 "Taxable Wage Base" 10
1.92 "Transferred Account" 10
1.93 "Trust" 10
1.94 "Trust Fund" 10
1.95 "Trustee" 10
1.96 "Valuation Date" 10
1.97 "Vesting Service" 10
1.98 "Years of Service" 10
</TABLE>
ARTICLE II PARTICIPATION
<TABLE>
<S> <C> <C>
2.1 Admission as a Participant 10
2.2 Rollover Membership and Trust to Trust Transfer 11
2.3 Crediting of Service for Eligibility Purposes 11
2.4 Termination of Participation 11
2.5 Limitation for Owner-Employee 11
2.6 Corrections with Regard to Participation 12
2.7 Provision of Information 12
</TABLE>
<PAGE> 8
TABLE OF CONTENTS
ARTICLE III CONTRIBUTIONS AND ACCOUNT ALLOCATIONS
<TABLE>
<S> <C> <C>
3.1 Employer Contributions and Allocations 12
3.2 Participant Voluntary Nondeductible Contributions 13
3.3 Rollover Contributions and Trust to Trust Transfers 13
3.4 ss. 401(k) - Contributions and Account Allocations 13
3.5 Matching 401(k) Contributions 16
3.6 Thrift Contributions 18
3.7 Treatment of Forfeitures 19
3.8 Establishing of Accounts 19
3.9 Limitation on Amount of Allocations 19
3.10 Return of Employer Contributions Under Special Circumstances 24
</TABLE>
ARTICLE IV VESTING
<TABLE>
<S> <C> <C>
4.1 Determination of Vesting 24
4.2 Rules for Crediting Vesting Service 24
4.3 Employer Accounts Forfeitures 24
4.4 Top-Heavy Provisions 25
</TABLE>
ARTICLE V AMOUNT AND DISTRIBUTION OF
BENEFITS, WITHDRAWALS AND LOANS
<TABLE>
<S> <C> <C>
5.1 Distribution Upon Termination of Employment 27
5.2 Amount of Benefits Upon a Fully Vested Separation 27
5.3 Amount of Benefits Upon a Partially Vested Separation 27
5.4 Amount of Benefits Upon a Nonvested Separation 27
5.5 Amount of Benefits Upon a Separation Due to Disability 27
5.6 Distribution and Restoration 27
5.7 Withdrawals During Employment 28
5.8 Loans 28
5.9 Hardship Distributions 30
5.10 Limitation on Commencement of Benefits 30
5.11 Distribution Requirements 30
</TABLE>
ARTICLE VI FORMS OF PAYMENT OF RETIREMENT BENEFITS
<TABLE>
<S> <C> <C>
6.1 Methods of Distribution 34
6.2 Election of Optional Forms 35
6.3 Change in Form of Benefit Payments 36
6.4 Direct Rollovers 36
</TABLE>
ARTICLE VII DEATH BENEFITS
<TABLE>
<S> <C> <C>
7.1 Payment of Account Balances 37
7.2 Beneficiaries 37
7.3 Life Insurance 39
</TABLE>
ARTICLE VIII FIDUCIARIES
<TABLE>
<S> <C> <C>
8.1 Named Fiduciaries 40
8.2 Employment of Advisers 41
8.3 Multiple Fiduciary Capacities 41
8.4 Indemnification 41
8.5 Payment of Expenses 41
</TABLE>
<PAGE> 9
TABLE OF CONTENTS
ARTICLE IX PLAN ADMINISTRATION
<TABLE>
<S> <C> <C>
9.1 The Administrator 41
9.2 Powers and Duties of the Administrator 41
9.3 Delegation of Responsibility 42
</TABLE>
ARTICLE X TRUSTEE AND INVESTMENT COMMITTEE
<TABLE>
<S> <C> <C>
10.1 Appointment of Trustee and Investment Committee 42
10.2 The Trust Fund 42
10.3 Relationship with Administrator 42
10.4 Investment of Assets 43
10.5 Investment Direction, Participant-Directed Assets and
Qualifying Employer Investments 44
10.6 Valuation of Accounts 45
10.7 Insurance Contracts 46
10.8 The Investment Manager 46
10.9 Powers of Trustee 47
10.10 Accounting and Records 48
10.11 Judicial Settlement of Accounts 48
10.12 Resignation and Removal of Trustee 48
10.13 Group Trust 48
</TABLE>
ARTICLE XI PLAN AMENDMENT OR TERMINATION
<TABLE>
<S> <C> <C>
11.1 Prototype Plan Amendment 48
11.2 Plan Amendment 49
11.3 Right of the Employer to Terminate Plan 49
11.4 Effect of Partial or Complete Termination or Complete
Discontinuance of Contributions 50
11.5 Bankruptcy 50
</TABLE>
ARTICLE XII MISCELLANEOUS PROVISIONS
<TABLE>
<S> <C> <C>
12.1 Exclusive Benefit of Participants 50
12.2 Plan Not a Contract of Employment 51
12.3 Action by Employer 51
12.4 Source of Benefits 51
12.5 Benefits Not Assignable 51
12.6 Domestic Relations Orders 51
12.7 Claims Procedure 51
12.8 Records and Documents; Errors 51
12.9 Benefits Payable to Minors, Incompetents and Others 52
12.10 Plan Merger or Transfer of Assets 52
12.11 Participating Affiliates 52
12.12 Controlling Law 52
12.13 Singular and Plural and Article and Section References 52
</TABLE>
<PAGE> 10
ARTICLE I
DEFINITIONS
As used in this Prototype Plan and in each Adoption Agreement, each of the
following terms shall have the meaning for that term set forth in this Article
I:
1.1 ACCOUNT: A separate Elective Deferrals Account, Employee Thrift
Contributions Account, Employer Contributions Account, Matching 401(k)
Contributions Account, Matching Thrift Contributions Account, Participant
Voluntary Nondeductible Contributions Account, Qualified Matching Contributions
Account, Qualified Nonelective Contributions Account, Rollover Contribution
Account, and Transferred Account, as the case may be.
1.2 ACCOUNT BALANCE: The value of an Account determined as of the applicable
Valuation Date.
1.3 ACP TEST: The Contribution Percentage test that is set forth in Section
3.5.2 of the Plan.
1.4 ACTUAL DEFERRAL PERCENTAGE: The ratio (expressed as a percentage), of (A)
Elective Deferrals made on behalf of an Eligible Participant for the Plan Year
(including Excess Elective Deferrals of Highly Compensated Employees and, at the
election of the Employer, Qualified Nonelective Contributions and/or Qualified
Matching Contributions), but excluding (1) Excess Elective Deferrals of
Nonhighly Compensated Employees that arise solely from Elective Deferrals made
under the Plan or plans of the Employer or an Affiliate and (2) Elective
Deferrals that are taken into account in the ACP Test (provided the ADP Test is
satisfied with or without the exclusion of such Elective Deferrals) to (B) the
Participant's CODA Compensation for the Plan Year (whether or not the Eligible
Employee was a Participant for the entire Plan Year). The Actual Deferral
Percentage of an Eligible Participant who would be a Participant but for the
failure to make an Elective Deferral is zero.
1.5 ADJUSTMENT FACTOR: The cost of living adjustment factor prescribed by the
Secretary of the Treasury under Code Section 415(d) for years beginning after
December 31, 1987, as applied to such items and in such manner as the Secretary
shall provide.
1.6 ADMINISTRATOR: The Employer, unless otherwise specified by duly authorized
action by the Employer.
1.7 ADOPTION AGREEMENT: The document so designated with respect to this
Prototype Plan that is executed by the Employer, as amended from time to time.
1.8 ADP TEST: The Average Actual Deferral Percentage test set forth in Section
3.4.2(B) of the Plan.
1.9 AFFILIATE: Any corporation or unincorporated trade or business (other than
the Employer) while it is:
(A) a member of a "controlled group of corporations" (within the meaning of Code
Section 414(b)) of which the Employer is a member;
(B) a member of any trade or business under "common control" (within the meaning
of Code Section 414(c)) with the Employer;
(C) a member of an "affiliated service group" (as that term is defined in Code
Section 414(m)) which includes the Employer; or
(D) any other entity required to be aggregated with the Employer pursuant to
Code Section 414(o). With respect to Section 3.9, "Affiliate" status shall be
determined in accordance with Code Section 415(h).
1.10 ANNUITY CONTRACT: An individual or group annuity contract issued by an
insurance company providing periodic benefits, whether fixed, variable or both,
the benefits or value of which a Participant or Beneficiary cannot transfer,
sell, assign, discount, or pledge as collateral for a loan or as security for
the performance of an obligation, or for any other purpose, to any person other
than the issuer thereof. The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse shall comply with the
requirements of this Plan.
1.11 AVERAGE ACTUAL DEFERRAL PERCENTAGE: For any group of Eligible Participants,
the average (expressed as a percentage) of the Actual Deferral Percentages for
each of the Eligible Participants in that group, including those not making
Elective Deferrals.
1.12 AVERAGE CONTRIBUTION PERCENTAGE: For any group of Eligible Participants,
the average (expressed as a percentage) of the Contribution Percentages for each
of the Participants in that group, including those on whose behalf Matching
401(k) Contributions and/or Matching Thrift Contributions, if applicable, are
not being made.
1.13 BENEFICIARY: A person or persons entitled to receive any payment of
benefits pursuant to Article VII.
1.14 BENEFIT COMMENCEMENT DATE: The first day, determined pursuant to Article V,
for which a Participant or Beneficiary receives or begins to receive payment in
any form of distribution as a result of death, Disability, termination of
Employment, Early
<PAGE> 11
Retirement, Plan termination or upon or after Normal Retirement Age or
age 70-1/2.
1.15 CODA: A cash or deferred arrangement pursuant to Code Section 401(k) which
is part of a profit sharing plan and under which an Eligible Participant may
elect to make Elective Deferrals in accordance with Section 3.4.1.
1.16 CODA COMPENSATION: Solely for purposes of determining the Actual Deferral
Percentage and the Contribution Percentage, CODA Compensation shall be
Compensation excluding or including "elective contributions" as specified in the
Adoption Agreement. The preceding sentence shall be effective for Plan Years
beginning on or after January 1, 1989.
1.17 CODE: The Internal Revenue Code of 1986, as now in effect or as amended
from time to time. A reference to a specific provision of the Code shall include
such provision and any applicable regulation pertaining thereto.
1.18 COMPENSATION: For purposes of contributions, Compensation shall be defined
in the Adoption Agreement and Section 3.9.1(H), subject to any exclusions
elected under Section IAA(d) of the Adoption Agreement, Section 3.1.4 and the
following modifications:
(A) For a Self-Employed Individual, Compensation means his or her Earned Income,
provided that if the Self-Employed Individual is not a Participant for an entire
Plan Year, his or her Compensation for that Plan Year shall be his or her Earned
Income for that Plan Year multiplied by a fraction the numerator of which is the
number of days he or she is a Participant during the Plan Year and the
denominator of which is the number of days in the Plan Year.
(B) Compensation of each Participant taken into account under this Plan for any
Plan Year beginning after December 21, 1988 shall be limited to the first
$200,000 as adjusted by the Adjustment Factor. In determining the Compensation
of a Participant for purposes of this limitation, the rule of Code Section
414(q)(6) shall apply, except in applying such rules, the term "family" shall
include only the Spouse of the Participant and any lineal descendants of the
Participant who have not attained the age of 19 before the close of the year.
If, as a result of the application of such rules, the adjusted $200,000
limitation is exceeded, (except for purposes of determining the portion of
Compensation up to the Integration Level if this Plan is integrated with Social
Security), the limitation shall be prorated among the affected Participants in
proportion to each such Participant's Compensation as determined under this
Section 1.18 prior to the application of this limitation. In a manner applied
uniformly to all Eligible Employees, only Compensation during the period in
which the Employee is an Eligible Employee may be taken into account for
purposes of the nondiscrimination tests described in Code Section 401(k) and
401(m).
(C) If Compensation for any prior Plan Year is taken into account in determining
an Employee's contributions or benefits for the current year, the Compensation
for such prior year is subject to the applicable annual compensation limit in
effect for that prior year. For this purpose, for years beginning before January
1, l990, the applicable annual compensation limit is $200,000.
(D) In addition to other applicable limitations set forth in the Plan, and not
withstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1,, 1994, the annual compensation of each employee
taken into account under the Plan shall not exceed the OBRA'93 annual
compensation limit. The OBRA'93 annual compensation limit is $150,000 as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code.
The cost of living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA'93 annual compensation limit
will be multiplied by a fraction the numerator of which is the number of months
in the determination period, and the denominator of which is 12.
For Plan years beginning on or after January 1, 1994, any reference in this Plan
to the limitations under Section 401(a)(17) of the Code shall mean the OBRA'93
annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing, in the current Plan year, the
Compensation for that prior determination period is subject to the OBRA'93
annual compensation limit in effect for that prior determination period. For
this purpose, for prior determination periods beginning before the first day of
the first Plan year beginning on or after January 1, 1994, the OBRA'93
Compensation limit is $150,000.
1.19 CONTRIBUTION PERCENTAGE: The ratio (expressed as a percentage) of the
Participant's Contribution Percentage Amounts to the Participant's CODA
Compensation for the Plan Year, whether or not the Eligible Employee was a
Participant for the entire Plan Year.
1.20 CONTRIBUTION PERCENTAGE AMOUNTS shall mean the sum of the: (A) Matching
401(k) Contributions; (B) Matching Thrift Contributions; (C) Qualified Matching
Contributions (to the extent not taken into
<PAGE> 12
account for purposes of the ADP Test); (D) Employee Thrift Contributions; and
(E) Participant Voluntary Nondeductible Contributions, as applicable, made on
behalf of the Participant for the Plan Year. Such Contribution Percentage
Amounts shall not include Matching 401(k) Contributions that are forfeited
either to correct Excess Aggregate Contributions or because the contributions to
which they relate are Excess Elective Deferrals, Excess Contributions or Excess
Aggregate Contributions. The Employer may include Qualified Nonelective
Contributions in the Contribution Percentage Amounts, as specified in the
Adoption Agreement. Elective Deferrals may also be used in the Contribution
Percentage Amounts 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, as specified in the
Adoption Agreement. An Eligible Participant who does not direct an Elective
Deferral or an Employee Thrift Contribution shall be treated as an Eligible
Participant on behalf of whom no such contributions are made.
1.21 DEFINED BENEFIT PLAN: A plan of the type defined in Code Section 414(j)
maintained by the Employer or Affiliate, as applicable.
1.22 DEFINED CONTRIBUTION PLAN: A plan of the type defined in Code Section
414(i) maintained by the Employer or Affiliate, as applicable.
1.23 DISABILITY: Disability as defined in the Adoption Agreement. The permanence
and degree of such impairment shall be supported by medical evidence.
1.24 EARLY RETIREMENT: An actively employed Participant is eligible for Early
Retirement upon satisfying the requirements set forth in the Adoption Agreement.
1.25 EARLY RETIREMENT DATE: The Participant's Benefit Commencement Date
following his or her termination of Employment on or after satisfying the
requirements for Early Retirement and prior to Normal Retirement Age.
1.26 EARNED INCOME: The "net earnings from self-employment" within the meaning
of Code Section 401(c)(2) of a Self-Employed Individual from the trade or
business with respect to which the Plan is established, but only if the personal
services of the Self-Employed Individual are a material income-producing factor
in that trade or business. Net earnings will be determined without regard to
items not included in gross income and the deductions properly allocable to or
chargeable against such items and are to be reduced by contributions by the
Employer or Affiliate to a Qualified Plan to the extent deductible under Code
Section 404. Where this Plan refers to Earned Income in the context of a trade
or business other than that with respect to which the Plan is adopted, the term
Earned Income means such net earnings as would be Earned Income as defined above
if that trade or business was the trade or business with respect to which the
Plan is adopted.
Net earnings shall be determined with regard to the deduction allowed to the
Employer by Code Section 164(f) for taxable years beginning after December 31,
1989.
1.27 ELECTIVE DEFERRALS: Contributions made to the Plan during the Plan Year by
the Employer, at the election of the Participant, in lieu of cash compensation
and shall include contributions that are made pursuant to a 401(k) Election. A
Participant's Elective Deferral in any taxable year is the sum of all Employer
and Affiliate contributions pursuant to an election to defer under any qualified
cash or deferred arrangement, any simplified employee pension plan or deferred
arrangement as described in Code Section 402(h)(1)(B), any eligible deferred
compensation plan under Code Section 457, any plan as described under Code
Section 501(c)(18), and any Employer contributions made on behalf of a
Participant for the purchase of an annuity under Code Section 403(b) pursuant to
a salary reduction agreement. Such contributions are nonforfeitable when made
and are not distributable under the terms of the Plan to Participants or their
Beneficiaries earlier than the earlier of:
(A) termination from Employment, death or Disability of the Participant;
(B) termination of the Plan without establishment of another Defined
Contribution Plan by the Employer or an Affiliate;
(C) disposition by the Employer or Affiliate to an unrelated corporation of
substantially all of its assets used in a trade or business if such unrelated
corporation continues to maintain this Plan after the disposition but only with
respect to Employees who continue employment with the acquiring unrelated
entity. The sale of 85% of the assets used in a trade or business will be deemed
a sale of "substantially all" the assets used in a trade or business;
(D) sale by the Employer or Affiliate to an unrelated entity of its interest in
an Affiliate if such unrelated entity continues to maintain the Plan but only
with respect to Employees who continue employment with such unrelated entity; or
(E) the events specified in Part B, Article VIII of the Adoption Agreement.
<PAGE> 13
Elective Deferrals shall not include any deferrals properly distributed as an
"Excess Amount" pursuant to Section 3.9.2.
1.28 ELECTIVE DEFERRALS ACCOUNT: The Account established for a Participant
pursuant to Section 3.8.1.
1.29 ELIGIBLE EMPLOYEE: Those Employees specified in the Adoption Agreement.
1.30 ELIGIBLE PARTICIPANT: An Eligible Employee who has met the eligibility
requirements set forth in the Adoption Agreement whether or not he or she makes
Elective Deferrals and/or Employee Thrift Contributions.
1.31 EMPLOYEE: A Self-Employed Individual, or any individual who is employed by
the Employer in the trade or business with respect to which the Plan is adopted
and any individual who is employed by an Affiliate. Each Leased Employee shall
also be treated as an Employee of the recipient Employer. The preceding sentence
shall not apply, however, to any Leased Employee who is (A) covered by a money
purchase pension plan maintained by the "leasing organization" referred to in
Section 1.54 which provides, with respect to such Leased Employee, a
nonintegrated Employer contribution rate of at least 10% of Limitation
Compensation, but including amounts contributed pursuant to a salary reduction
agreement which are excluded from the Employee's gross income under Code Section
402(a)(8), Code Section 402(h) or Code Section 403(b), immediate participation,
and full and immediate vesting and (B) such Leased Employees do not constitute
more than 20% of the Employer's and Affiliates' nonhighly compensated workforce.
For purposes of the Plan, all Employees will be treated as employed by a single
employer.
1.32 EMPLOYEE THRIFT CONTRIBUTIONS: Employee nondeductible contributions which
are required to be eligible for a Matching Thrift Contribution. Employee Thrift
Contributions do not include Participant Voluntary Nondeductible Contributions.
1.33 EMPLOYEE THRIFT CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.3.
1.34 EMPLOYER: The sole proprietorship, partnership or corporation that adopts
the Plan by executing the Adoption Agreement. For all purposes relating to
eligibility, participation, contributions, vesting and allocations, Employer
includes all Participating Affiliates.
1.35 EMPLOYER ACCOUNT: The Participant's Matching 401(k) Contributions Account,
Matching Thrift Contributions Account, Employer Contributions Account, Qualified
Matching Contributions Account and Qualified Nonelective Contributions Account,
as the case may be.
1.36 EMPLOYER CONTRIBUTIONS: Any contributions made by the Employer for the Plan
Year on behalf of a Participant in accordance with Section 3.1 of the Plan.
1.37 EMPLOYER CONTRIBUTIONS ACCOUNT: The Account established for a Participant
pursuant to Section 3.8.2.
1.38 EMPLOYMENT: An Employee's employment or self-employment with the Employer,
Affiliate or a "leasing organization" referred to in Section 1.54 or, to the
extent required under Code Section 414(a)(2) or as otherwise specified by the
Administrator on a uniform and nondiscriminatory basis, any predecessor of any
of them. If any of them maintains a plan of a "predecessor employer" (within the
meaning of Code Section 414(a)(1)) employment or self-employment with the
"predecessor employer" will be treated as Employment. Additionally, if the trade
or business conducted by a Self-Employed Individual becomes incorporated, all
employment with that trade or business or with any Affiliate shall be treated as
Employment with the Employer.
1.39 ENTRY DATE: The date on which an Eligible Employee becomes a Participant,
as specified in the Adoption Agreement.
1.40 ERISA: The Employee Retirement Income Security Act of 1974, as amended from
time to time. Reference to a specific provision of ERISA shall include such
provision and any applicable regulation pertaining thereto.
1.41 EXCESS AGGREGATE CONTRIBUTIONS: With respect to any Plan Year, the excess
of:
(A) The aggregate Contribution Percentage Amounts, taken into account in
computing the numerator of the Contribution Percentage actually made on behalf
of Highly Compensated Employees for such Plan Year, over
(B) The maximum Contribution Percentage Amounts permitted by the ACP Test
(determined by reducing contributions made on behalf of Highly Compensated
Employees in the order of their Contribution Percentages beginning with the
highest of such percentages) Such determination shall be made after first
determining Excess Elective Deferrals and then determining Excess Contributions.
1.42 EXCESS CONTRIBUTIONS: With respect to any Plan Year, the aggregate amount
of Elective Deferrals, Qualified Nonelective Contributions and Qualified
Matching Contributions, if applicable, actually paid over to the Trust Fund on
behalf of Highly Compensated Employees for such Plan Year, over the
<PAGE> 14
maximum amount of such contributions permitted by the ADP Test (determined by
reducing contributions made on behalf of Highly Compensated Employees in order
of the Actual Deferral Percentages, beginning with the highest of such
percentages).
1.43 EXCESS ELECTIVE DEFERRALS: The amount of Elective Deferrals for a
Participant's taxable year that are includible in the gross income of the
Participant to the extent that such Elective Deferrals exceed the Code Section
402(g) dollar limitation and which the Participant allocates to this Plan
pursuant to the procedure set forth in Section 3.4.2. Excess Elective Deferrals
shall be treated as an Annual Addition pursuant to Section 3.9, unless such
amounts are distributed no later than the first April 15th following the close
of the Participant's taxable year.
1.44 FAMILY MEMBER: An individual described in Code Section 414(q)(6)(B).
1.45 401(K) CONTRIBUTIONS ACCOUNTS: The Participant's Elective Deferral Account,
Qualified Nonelective Contributions Account, and/or Qualified Matching
Contributions Account, as the case may be.
1.46 401(K) ELECTION: The election by a Participant to make Elective Deferrals
in accordance with Section 3.4.1.
1.47 FULLY VESTED SEPARATION: Termination of Employment, by reason other than
death, of a Participant whose vested percentage in each Employer Account is
100%.
1.48 GROUP TRUST: A Trust Fund consisting of assets of any Plan maintained and
established by the Employer or an Affiliate pursuant to Section 10.14.
1.49 HIGHLY COMPENSATED EMPLOYEE: The term Highly Compensated Employee includes
highly compensated active Employees and highly compensated former employees.
(A) A highly compensated active Employee includes any Employee who performs
service for the Employer or Affiliate during the Plan Year and who, during the
look-back year (the twelve-month period immediately preceding the Plan Year):
(i) received Compensation from the Employer or Affiliate in excess of $75,000
(as adjusted by the Adjustment Factor);
(ii) received Compensation from the Employer or Affiliate in excess of $50,000
(as adjusted by the Adjustment Factor) and was a member of the top-paid group
for such year; or
(iii) was an officer of the Employer or Affiliate and received Compensation
during such year that is greater than 50% of the Defined Benefit Dollar
Limitation.
(B) The term Highly Compensated Employee also includes:
(i) Employees who are both described in the preceding sentence if the term "Plan
Year" is substituted for the term "look-back year" and the Employee is one of
the 100 Employees who received the most Compensation from the Employer or
Affiliate during the Plan Year; and
(ii) Employees who are 5% owners at any time during the look-back year or Plan
Year.
(C) If no officer has received Compensation that is greater than 50% of the
Defined Benefit Dollar Limitation in effect during either the Plan Year or
look-back year, the highest paid officer of such year shall be treated as a
Highly Compensated Employee.
(D) A highly compensated former employee includes any Employee who terminated
Employment (or was deemed to have terminated) prior to the Plan Year, performs
no service for the Employer or Affiliate during the Plan Year, and was a highly
compensated active employee for either the separation year or any Plan Year
ending on or after the Employee's 55th birthday.
(E) If an Employee is, during a Plan Year or look-back year, a Family Member of
either (i) a 5% owner who is an active or former Employee or (ii) a Highly
Compensated Employee who is one of the ten most highly compensated employees
ranked on the basis of Compensation paid by the Employer or Affiliate during
such year, then the Family Member and the 5% owner or top-ten Highly Compensated
Employee shall be aggregated. In such case, the Family Member and 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
such Compensation and contributions or benefits of the Family Member and 5%
owner or top-ten Highly Compensated Employee. For purposes of this section,
Family Member includes the Spouse, lineal ascendants and descendants of the
Employee or former employee and the spouses of such lineal ascendants and
descendants.
(F) 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 Code Section
414(q).
<PAGE> 15
1.50 HOUR OF SERVICE: If the Employer elects in the Adoption Agreement the
hourly record method, an Hour of Service shall include:
(A) Each hour for which an Employee is paid, or entitled to payment, by the
Employer or an Affiliate for the performance of duties for the Employer or an
Affiliate. These hours will be credited to the Employee for each Plan Year in
which the duties are performed, or with respect to eligibility under Article II,
the applicable computation period under the definition of Year of Service in
which the duties are performed;
(B) Each hour for which an Employee is paid, or entitled to payment, by the
Employer or an Affiliate due to a period of time during which no duties are
performed (irrespective of whether Employment 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 will be credited
under this paragraph for any single continuous period (whether or not such
period occurs in a single computation period). Hours under this paragraph will
be calculated and credited pursuant to section 2530.200b-2 of the Department of
Labor Regulations which are incorporated herein by this reference; and
(C) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer or an Affiliate. The same Hours of
Service will not be credited both under subparagraph (A) or subparagraph (B), as
the case may be, and under this subparagraph (C). These hours will be credited
to the Employee for the Year of Service or other computation period to which the
award or agreement pertains rather than the Year of Service or other computation
period in which the award, agreement or payment is made.
If the Employer elects in the Adoption Agreement the elapsed time method, an
Hour of Service is an hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer or an Affiliate.
With respect to both the hourly record method and the elapsed time method, in
addition to service with an Affiliate, Hours of Service will also be credited
for any individual considered an Employee for purposes of this Plan under Code
Section 414(n).
1.51 IMMEDIATELY DISTRIBUTABLE: A Participant's Account is Immediately
Distributable if any part of such Account could be distributed to the
Participant or Participant's Surviving Spouse before the Participant attains (or
would have attained if not deceased) the later of Normal Retirement Age or age
62.
1.52 INVESTMENT MANAGER: Any person appointed by the Trustee or, with respect to
Participant-Directed Assets, by the Participant or Beneficiary having the power
to direct the investment of such assets, to serve as such in accordance with
Section 10.8.
1.53 KEY EMPLOYEE: Any Employee or former Employee (and the beneficiaries of
such Employee) who at any time during the "determination period" was (A) an
officer of the Employer or Affiliate, having an annual Compensation greater than
50% of the Defined Benefit Dollar Limitation for any Plan Year within the
"determination period"; (B) an owner (or considered an owner under Code Section
318) of one of the ten largest interests in the Employer or Affiliate if such
individual's Compensation exceeds 100% of the dollar limitation under Code
Section 415(c)(1)(A); (C) a "5% owner" (as defined in Code Section 416(i)) of
the Employer or Affiliate; or (D) a "1% owner" (as defined in Code Section
416(i)) of the Employer or Affiliate who has an annual Compensation of more than
$150,000. Annual Compensation means compensation as defined in Code Section
415(c)(3), but including amounts contributed by the Employer pursuant to a
salary reduction agreement which are excludible from the Employee's gross income
under Code Section 125, Code Section 402(a)(8), Code Section 402(h) or Code
Section 403(b). The "determination period" is the Plan Year containing the
"determination date" and the four preceding Plan Years. The "determination date"
for the first Plan Year is the last day of that Plan Year, and for any
subsequent Plan Year is the last day of the preceding Plan Year. The
determination of who is a Key Employee will be made in accordance with Code
Section 416(i).
1.54 LEASED EMPLOYEE: Any individual (other than an Employee of the recipient
Employer or Affiliate) who, pursuant to an agreement between the Employer or
Affiliate and any other person (the "leasing organization") has performed
services for the Employer (or for the Employer or Affiliate and "related
persons" determined in accordance with Code Section 414(n)(6)) on a
substantially full-time basis for a period of at least one year, which services
are of a type historically performed, in the business field of the recipient
Employer or Affiliate, by employees. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to services
performed for the recipient Employer or Affiliate shall be treated as provided
by the recipient Employer.
1.55 LIMITATION YEAR: The Limitation Year as specified in the Adoption
Agreement. All Qualified Plans maintained by the Employer must use the same
Limitation Year. If the Limitation Year is amended to a different 12-consecutive
month period, the new Limitation Year must begin on a date within the Limitation
Year in which the amendment is made.
<PAGE> 16
1.56 MASTER OR PROTOTYPE PLAN: A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.57 MATCHING 401(K) CONTRIBUTION: Any contribution made by the Employer to this
and/or any other Defined Contribution Plan for the Plan Year, by reason of the
Participant's 401(k) Election, and allocated to a Participant's Matching 401(k)
Contributions Account or to a comparable account in another Defined Contribution
Plan. Matching 401(k) Contributions are subject to the distribution provisions
applicable to Employer Accounts in the Plan.
1.58 MATCHING 401(K) CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.4.
1.59 MATCHING THRIFT CONTRIBUTIONS: Any contribution made by the Employer for
the Plan Year by reason of Employee Thrift Contributions. Matching Thrift
Contributions shall be subject to the distribution provisions applicable to
Employer Accounts in the Plan.
1.60 MATCHING THRIFT CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.5.
1.61 NET PROFITS: The current and accumulated profits of the Employer from the
trade or business of the Employer with respect to which the Plan is established,
as determined by the Employer before deductions for federal, state and local
taxes on income and before contributions under the Plan or any other Qualified
Plan.
1.62 NONHIGHLY COMPENSATED EMPLOYEE: An Employee of the Employer who is neither
a Highly Compensated Employee nor a Family Member.
1.63 NONVESTED SEPARATION: Termination of Employment of a Participant whose
vested percentage in each Employer Account is 0%.
1.64 NORMAL RETIREMENT AGE: The age specified in the Adoption Agreement.
Notwithstanding the Employer's election in the Adoption Agreement, if, for Plan
Years beginning before January 1, 1988, Normal Retirement Age was determined
with reference to the anniversary of the participation commencement date (more
than 5 but not to exceed 10 years), the anniversary date for Participants who
first commenced participation under the Plan before the first Plan Year
beginning on or after January 1, 1988, shall be the earlier of (A) the tenth
anniversary of the date the Participant commenced participation in the Plan (or
such anniversary as had been elected by the Employer, if less than 10) or (B)
the fifth anniversary of the first day of the first Plan Year beginning on or
after January 1, 1988.
1.65 OWNER-EMPLOYEE: An individual who is a sole proprietor, if the Employer is
a sole proprietorship, or if the Employer is a partnership, a partner owning
more than 10% of either the capital interest or the profits interest in the
Employer; provided that where this Plan refers to an Owner-Employee in the
context of a trade or business other than the trade or business with respect to
which the Plan is adopted, the term Owner-Employee means a person who would be
an Owner-Employer as defined above if that other trade or business was the
Employer.
1.66 PARTIALLY VESTED SEPARATION: Termination of Employment of a Participant
whose vested percentage in any Employer Account is less than 100% but greater
than 0%.
1.67 PARTICIPANT: An Employee who has commenced, but not terminated,
participation in the Plan as provided in Article II.
1.68 PARTICIPANT CONTRIBUTIONS ACCOUNT: The Participant's Participant Voluntary
Nondeductible Contributions Account and/or Employee Thrift Contributions
Account, as the case may be.
1.69 PARTICIPANT-DIRECTED ASSETS: The assets of an Account which are invested,
as described in Section 10.5.1, according to the direction of the Participant or
the Participant's Beneficiary, as the case may be, in either individually
selected investments or in commingled funds or in shares of regulated investment
companies.
1.70 PARTICIPANT VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS: Any voluntary
nondeductible contributions made in cash by a Participant to this Plan other
than Employee Thrift Contributions.
1.71 PARTICIPANT VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS ACCOUNT: The Account
established for a Participant pursuant to Section 3.8.6.
1.72 PARTICIPATING AFFILIATE: Any Affiliate or any other employer designated as
such by the Employer, and, by duly authorized action, that has adopted the Plan
with the consent of the Employer and has not withdrawn therefrom.
1.73 PERIOD OF SEVERANCE: For purposes of the hourly records method, a Period of
Severance is a period equal to the number of consecutive Plan Years or, with
respect to eligibility, the applicable computation period under the definition
of Year of Service, in which an Employee has 500 Hours of Service or less. The
Period of Severance shall be determined on the basis of Hours of Service and
shall commence with the first Plan Year in which the Employee has 500
<PAGE> 17
Hours of Service or less. With respect to any period of absence during which a
Period of Severance does not commence, the Participant shall be credited with
the Hours of Service (up to a maximum of 501 Hours of Service in a Plan Year)
which would otherwise have been credited to him or her but for such absence, or
if such Hours of Service cannot be determined, 8 Hours of Service for each day
of absence.
For purposes of the elapsed time method, a Period of Severance is a continuous
period of at least 12-consecutive months during which an individual's Employment
is not continuing, beginning on the date an Employee retires, quits or is
discharged or, if earlier, the first 12-month anniversary of the date that the
individual is otherwise first absent from service (with or without pay) for any
other reason, and ending on the date the individual again performs an Hour of
Service.
Anything in the definition thereof to the contrary notwithstanding, a Period of
Severance shall not commence if the Participant is:
(A) On an authorized leave of absence in accordance with standard personnel
policies applied in a nondiscriminatory manner to all Employees similarly
situated and returns to active Employment by the Employer
or Affiliate immediately upon the expiration of such leave of absence;
(B) On a military leave while such Employee's re-employment rights are protected
by law and returns to active Employment within ninety days after his or her
discharge or release (or such longer period as may be prescribed by law); or
(C) Absent from work by reason of (i) the pregnancy of the Employee, (ii) the
birth of a child of the Employee, or (iii) the placement of a child with the
Employment in connection with the adoption of such child by such Employee, or
(iv) the care of such child for a period beginning immediately following such
birth or placement. In determining when such a Participant's Period of Severance
begins, the Participant will be credited with (i) for purposes of the elapsed
time method, the 12-consecutive month period beginning on the first anniversary
of the first date of such absence; or (ii) for purposes of the hourly records
method, the Hours of Service he or she would normally have had but for such
absence, or if such Hours cannot be determined, eight Hours of Service for each
day of such absence; provided, however, that such Hours of Service shall not
exceed 501 and shall be credited only in the year in which such absence began if
such crediting would prevent the Participant from incurring a Period of
Severance in that year, or in any other case, shall be credited in the
immediately following year.
1.74 PLAN: The plan established by the Employer in the form of this Prototype
Plan and the applicable Adoption Agreement executed by the Employer. The Plan
shall have the name specified in the Adoption Agreement.
1.75 PLAN YEAR: Each 12-consecutive month period ending on the date specified in
the Adoption Agreement, during any part of which the Plan is in effect.
1.76 PROTOTYPE PLAN: The Merrill Lynch Special Prototype Defined Contribution
Plan set forth in this document, as amended or restated from time to time.
1.77 QUALIFIED JOINT AND SURVIVOR ANNUITY: An immediate annuity for the life of
Participant with a survivor annuity continuing after the Participant's death to
the Participant's Surviving Spouse for the Surviving Spouse's life in an amount
equal to 50% of the amount of the annuity payable during the joint lives of the
Participant and such Surviving Spouse and which is the actuarial equivalent of a
single life annuity which could be provided for the Participant under an Annuity
Contract purchased with the aggregate vested Account Balances of the
Participant's Accounts at the Benefit Commencement Date.
1.78 QUALIFIED MATCHING CONTRIBUTIONS: Matching Contributions which, pursuant to
the election made by the Employer, and in accordance with Code Section 401(m),
are nonforfeitable when made and subject to the limitation on distribution set
forth in the definition of Qualified Nonelective Contributions.
1.79 QUALIFIED MATCHING CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.7.
1.80 QUALIFIED NONELECTIVE CONTRIBUTIONS: Contributions (other than Matching
401(k) Contributions, Qualified Matching 401(k) Contributions or Elective
Deferrals), if any, made by the Employer which the Participant may not elect to
receive in cash until distributed from the Plan, which are nonforfeitable when
made, and which are not distributable under the terms of the Plan to
Participants or their Beneficiaries earlier than the earlier of:
(A) termination of Employment, death, or Disability of the Participant;
(B) attainment of the age 59-1/2 by the Participant;
(C) termination of the Plan without establishment of another Defined
Contribution Plan by the Employer or an Affiliate;
<PAGE> 18
(D) disposition by the Employer or Participating Affiliate to an unrelated
corporation of substantially all of its assets used in a trade or business if
such unrelated corporation continues to maintain this Plan after the disposition
but only with respect to Employees who continue employment with the acquiring
unrelated entity. The sale of 85% of the assets used in a trade or business will
be deemed a sale of "substantially all" the assets used in a trade or business;
(E) sale by the Employer to an unrelated entity of its interest in an Affiliate
if such unrelated entity continues to maintain the Plan but only with respect to
Employees who continue employment with such unrelated entity; and
(F) effective for Plan Years beginning before January 1, 1989, upon the hardship
of the Participant.
1.81 QUALIFIED NONELECTIVE CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.7.
1.82 QUALIFIED PLAN: A Defined Benefit Plan or Defined Contribution Plan.
1.83 QUALIFYING EMPLOYER SECURITIES: Employer securities, as that term is
defined in ERISA Section 407(d)(5).
1.84 ROLLOVER CONTRIBUTION: A contribution described in Section 3.4.
1.85 ROLLOVER CONTRIBUTIONS ACCOUNT: The Account established for a Participant
pursuant to Section 3.8.9.
1.86 SELF-EMPLOYED INDIVIDUAL: An individual who has Earned Income for the Plan
Year involved from the trade or business for which the Plan is established, or
who would have had such Earned Income but for the fact that the trade or
business with respect to which the Plan is established had no Net Profits for
that Plan Year.
1.87 SOCIAL SECURITY RETIREMENT AGE: Age 65 in the case of a Participant
attaining age 62 before January 1, 2000 (i.e., born before January 1, 1938), age
66 for a Participant attaining age 62 after December 31, 1999, and before
January 1, 2017 (i.e., born after December 31, 1937, but before January 1,
1955), and age 67 for a Participant attaining age 62 after December 31, 2016
(i.e., born after December 31, 1954).
1.88 SPONSOR: The mass submitter, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and any successor thereto, and any other qualifying sponsoring
organization who sponsors with the consent of the mass submitter, the Prototype
Plan and makes the Prototype Plan available for adoption by Employers.
1.89 SPOUSE: The person married to a Participant, provided that a former spouse
will be treated as the Spouse to the extent provided under a "qualified domestic
relations order" (or a "domestic relations order" treated as such) as referred
to in Section 12.6.
1.90 SURVIVING SPOUSE: The person married to a Participant on the earliest of:
(A) the date of the Participant's death; (B) the Participant's Benefit
Commencement Date; or (C) the date on which an Annuity Contract is purchased for
the Participant providing benefits under the Plan;
Anything contained herein to the contrary notwithstanding, a former spouse will
be treated as the Surviving Spouse to the extent provided under a "qualified
domestic relations order" (or a "domestic relations order" treated as such) as
referred to in Section 12.6.
1.91 TAXABLE WAGE BASE: The maximum amount of earnings which may be considered
"wages" for the Plan Year involved under Code Section 3121(a)(1).
1.92 TRANSFERRED ACCOUNT: The Account established for a Participant pursuant to
Section 3.8.10.
1.93 TRUST: The trust established under the Plan to which Plan contributions are
made and in which Plan assets are held.
1.94 TRUST FUND: The assets of the Trust held by or in the name of the Trustee.
1.95 TRUSTEE: The person appointed as Trustee pursuant to Article X and any
successor Trustee.
1.96 VALUATION DATE: The last business day of each Plan Year, the date specified
in the Adoption Agreement or determined pursuant to Section 10.6, if applicable,
and each other date as may be determined by the Administrator.
1.97 VESTING SERVICE: The Years of Service credited to a Participant under
Article IV for purposes of determining the Participant's vested percentage in
any Employer Account established for the Participant.
1.98 YEARS OF SERVICE: If the Employer elects the hourly records method in the
Adoption Agreement, an Employee shall be credited with one Year of Service for
each Plan Year in which he or she has 1,000 Hours of Service. Solely for
purposes of eligibility to participate, an Employee shall be credited with a
Year of Service on the last day of the 12-consecutive month period which begins
on the
<PAGE> 19
first day on which he or she has an Hour of Service, if he or she has at least
1,000 Hours of Service in that period. If an Employee fails to be credited with
a Year of Service on such date, he or she shall be credited with a Year of
Service on the last day of each succeeding 12-consecutive month period.
If the Employer elects the elapsed time method in the Adoption Agreement, the
Employee's Years of Service shall be a span of service equal to the sum of:
(A) the period commencing on the date the Employee first performs an Hour of
Service and ending on the date he or she quits, retires, is discharged, dies, or
if earlier, the 12-month anniversary of the date on which the Employee was
otherwise first absent from service (with or without pay) for any other reason;
and
(B) (i) if the Employee quits, retires, or is discharged, the period commencing
on the date the Employee terminated his or her Employment and ending on the
first date on which he or she again performs an Hour of Service, if such date is
within 12 months of the date on which he or she last performed an Hour of
Service; or
(ii) if the Employee is absent from work for any other reason and, within 12
months of the first day of such absence, the Employee quits, retires or is
discharged, the period commencing on the first day of such absence and ending on
the first day he or she again performs an Hour of Service if such day is within
12 months of the date his or her absence began.
With respect to both the elapsed time method and the hourly record method,
service with a predecessor employer, determined in the manner in which the rules
of this Plan would have credited such service had the Participant earned such
service under the terms of this Plan, may be included in Years of Service, as
specified in the Adoption Agreement.
ARTICLE II PARTICIPATION
2.1 ADMISSION AS A PARTICIPANT
2.1.1 An Eligible Employee shall become a Participant on the Entry Date
coincident with or next following the date on which he or she meets the
eligibility requirements specified in the Adoption Agreement; provided, however
that
(A) an Eligible Employee who has met the eligibility requirements as of the
first day of the Plan Year in which the Plan is adopted as a new Plan shall
become a Participant as of such date;
(B) an Eligible Employee who had met the eligibility requirements of a plan that
is restated and/or amended to become this Plan shall become a Participant as of
the date this Plan is adopted; and
(C) if selected in the Adoption Agreement, an Eligible Employee shall become a
Participant on the effective date of the Plan providing he or she is an Eligible
Employee on such date.
2.1.2 An Employee who did not become a Participant on the Entry Date coincident
with or next following the day on which he or she met the eligibility
requirements because he or she was not then an Eligible Employee shall become a
Participant on the first day on which he or she again becomes an Eligible
Employee unless determined otherwise in accordance with Section 2.3.1 of the
Plan.
2.1.3 If the Plan includes a CODA or thrift feature, in addition to the
participation requirements set forth in Section 2.1.1, an Eligible Employee
shall become a Participant upon filing his or her 401(k) Election or election to
make Employee Thrift Contributions with the Administrator. An election shall not
be required if the Employer has elected to make contributions to an Employer
Account and/or Qualified Nonelective Contributions with respect to all Eligible
Participants.
2.1.4 An individual who has ceased to be a Participant and who again becomes an
Eligible Employee shall become a Participant immediately upon reemployment as an
Eligible Employee unless determined otherwise in accordance with Section 2.3.1
of the Plan.
2.2 ROLLOVER MEMBERSHIP AND TRUST TO TRUST TRANSFER
An Eligible Employee who makes a Rollover Contribution or a trust to trust
transfer shall become a Participant as of the date of such contribution or
transfer even if he or she had not previously become a Participant. Such an
Eligible Employee shall be a Participant only for the purposes of such Rollover
Contribution or transfer and shall not be eligible to share in contributions
made by the Employer until he or she has become a Participant in accordance with
Section 2.1.
2.3 CREDITING OF SERVICE FOR ELIGIBILITY PURPOSES
2.3.1 For purposes of eligibility to participate, an Eligible Employee or
Participant without any vested interest in any Employer Account and without an
Elective Deferrals Account who terminates Employment shall lose credit for his
or her Years of Service prior to such termination of Employment if his or her
Period of Severance equals or exceeds five years or, if greater, the aggregate
number of Years of Service.
<PAGE> 20
2.3.2. For purposes of eligibility to participate, a Participant who has a
vested interest in any Employer Account and who terminates Employment shall
retain credit for his or her Years of Service prior to such termination of
Employment without regard to the length of his or her Period of Severance. In
the event such Participant returns to Employment, he or she shall participate
immediately.
2.3.3 A former Eligible Employee who was not a Participant who again becomes an
Eligible Employee with no Years of Service to his or her credit shall be treated
as a new Employee.
2.4 TERMINATION OF PARTICIPATION
A Participant shall cease to be a Participant:
(A) upon his or her death;
(B) upon the payment to him or her of all nonforfeitable benefits due to him or
her under the Plan, whether directly or by the purchase of an Annuity Contract;
or
(C) upon his or her Nonvested Separation.
2.5 LIMITATION FOR OWNER-EMPLOYEE
2.5.1 If the Plan provides contributions or benefits for one or more
Owner-Employees who control the trade or business for which this Plan is
established and who also control as an Owner-Employee or as Owner-Employees one
or more other trades or businesses, this Plan and the plan established for each
such other trade or business must, when looked at as a single plan, satisfy the
requirements of Code Sections 401(a) and (d) with respect to the employees of
this and all of such other trades or businesses.
2.5.2 If the Plan provides contributions or benefits for one or more
Owner-Employees who control as an Owner-Employee or as Owner-Employees one or
more other trades or businesses, the employees of the other trades or businesses
must be included in a plan which satisfies the requirements of Code Sections
401(a) and (d) and which provides contributions and benefits for the employees
of such other trades or businesses not less favorable than the contributions and
benefits provided for Owner-Employees under this Plan.
2.5.3 If an individual is covered as an Owner-Employee under the plans of two or
more trades or businesses which are not controlled and the individual controls a
trade or business, then the contributions or benefits of the employees under the
plan of the trades or businesses which are controlled must be as favorable as
those provided for such individual under the most favorable plan of the trade or
business which is not controlled.
2.5.4 For purposes of the preceding three subsections, an Owner-Employee, or two
or more Owner-Employees, will be considered to control a trade or business if
the Owner-Employee, or 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 the 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, 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.
2.6 CORRECTIONS WITH REGARD TO PARTICIPATION
2.6.1 If in any Plan Year an Eligible Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by the Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Eligible Employee in the amount which would have contributed with respect to
such Eligible Employee had he or she not been omitted. Such contribution shall
be made whether or not it is deductible in whole or in part in any taxable year
under applicable provisions of the Code. It shall be the responsibility of the
Employer and Administrator to take any and all actions as required by this
Section 2.6.1.
2.6.2 If in any Plan Year any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
amount contributed on behalf of such ineligible person shall constitute a
forfeiture for the Plan Year in which the discovery is made. It shall be the
responsibility of the Employer and Administrator to take any and all actions as
required by this Section 2.6.2.
2.7 PROVISION OF INFORMATION
Each Employee shall execute such forms as may reasonably be required by the
Administrator, and shall make available to the Administrator any information the
Administrator may reasonably request in this regard. By virtue of his or her
participation in this Plan, an Employee agrees, on his or her own behalf and on
behalf of all persons who may have or claim any right by reason of the
<PAGE> 21
Employee's participation in the Plan, to be bound by all provisions of the Plan.
ARTICLE III
CONTRIBUTIONS AND ACCOUNT ALLOCATIONS
3.1 EMPLOYER CONTRIBUTIONS AND ALLOCATIONS
3.1.1 If the Plan is a profit-sharing plan, the Employer will contribute cash
and/or Qualifying Employer Securities to the Trust Fund, in such amount, if any,
as specified in the Adoption Agreement and with respect to Qualifying Employer
Securities as is consistent with Sections 10.4.2 and 10.4.3. If the Plan is a
profit-sharing plan, Net Profits may be necessary for an Employer to make
contributions, as specified in the Adoption Agreement. Employer Contributions
for a Plan Year will be allocated no later than the last day of the Plan Year to
the Employer Contributions Account of Participants eligible for an allocation in
the manner specified in the Adoption Agreement. A not-for-profit corporation may
adopt a profit-sharing plan as an incentive plan; provided, however, that such a
plan may not contain a CODA feature unless otherwise permitted by law.
3.1.2 If the Plan is a money purchase pension plan, the Employer will contribute
cash to the Trust Fund in an amount equal to that percentage of the Compensation
of each Participant eligible for an allocation of Employer contributions for
that Plan Year as specified in the Adoption Agreement. Employer Contributions
for the Plan Year will be allocated as of the last day of the Plan Year to the
Employer Contributions Accounts of Participants eligible for an allocation and
entitled to share in such contributions in the manner specified in the Adoption
Agreement.
3.1.3 If the Plan is a target benefit plan, the Employer will contribute cash to
the Trust Fund in an amount specified in the Adoption Agreement. The amount
contributed with respect to the targeted benefit of each Participant eligible
for an allocation for that Plan Year will be allocated as of the last day of the
Plan Year to the Participant's Employer Contributions Account in the manner
specified in the Adoption Agreement.
3.1.4 If the Employer elects in the Adoption Agreement to make contributions on
behalf of a Participant whose Employment terminated due to Disability,
"Compensation" shall mean, with respect to such Participant, the Compensation he
or she would have received for the entire calendar year in which the Disability
occurred if he or she had been paid for such year at the rate at which he or she
was being paid immediately prior to such Disability. Employer Contributions may
be taken into account only if the Participant is a Nonhighly Compensated
Employee and contributions made on his or her behalf are nonforfeitable.
3.1.5 If an Employer has adopted more than one Adoption Agreement, or has
adopted a plan pursuant to the Merrill Lynch Special Prototype Defined Benefit
Plan and Trust, only one Adoption Agreement may be integrated with Social
Security.
3.1.6 For purposes of the Plan, contributions provided by the "leasing
organization" referred to in Section 1.37 of a Leased Employee which are
attributable to services performed for the Employer shall be treated as provided
by the Employer.
3.2 PARTICIPANT VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS
3.2.1 If elected by the Employer in the Adoption Agreement, each Participant
while actively employed may make Participant Voluntary Nondeductible
Contributions in cash in a dollar amount or a percentage of Compensation which
does not, when included in the Contribution Percentage Amount, exceed the
limitations set forth in Code Section 401(m).
3.2.2 Participant Voluntary Nondeductible Contributions shall be made in
accordance with rules and procedures adopted by the Administrator.
3.3 ROLLOVER CONTRIBUTIONS AND TRUST TO TRUST TRANSFERS
3.3.1 Any Eligible Employee or Participant may make a Rollover Contribution
under the Plan. A Rollover Contribution shall be in cash or in other property
acceptable to the Trustee and shall be a contribution attributable to (a) a
"qualified total distribution" (as defined in Code Section 402(a)(5)),
distributed to the contributing Employee under Code Section 402(a)(5) from a
Qualified Plan or distributed to the Employee under Code Section 403(a)(4) from
an "employee annuity" or referred to in that section, or (b) a payout or
distribution to the Employee referred to in Code Section 408(d)(3) from an
"individual retirement account" or an "individual retirement annuity" described,
respectively, in Code Section 408(a) or Section 408(b) consisting exclusively of
amounts attributable to "qualified total distributions" (as defined in Code
Section 402(a)(5)) from a Qualified Plan. The Plan shall not accept a Rollover
Contribution attributable to any accumulated deductible employee contributions
as defined by Code Section 72(o)(5)(B). The Trustee may condition acceptance of
a Rollover Contribution upon receipt of such documents as it may require. In the
event that an Employee makes a contribution pursuant to this Section 3.3
intended to be a Rollover Contribution but which did not qualify as a Rollover
Contribution, the Trustee shall distribute to the Employee as soon as
<PAGE> 22
practicable after that conclusion is reached the entire Account balance in his
or her Rollover Contributions Account deriving from such contributions
determined as of the valuation date coincident with or immediately preceding
such discovery.
3.3.2 Any Eligible Employee or Participant may direct the Administrator to
direct the Trustee to accept a transfer to the Trust Fund from another trust
established pursuant to another Qualified Plan of all or any part of the assets
held in such other trust. The Plan shall not accept a direct transfer
attributable to accumulated deductible employee contributions as defined by Code
Section 72(o)(5)(B). The Trustee may condition acceptance of such a trust to
trust transfer upon receipt of such documents as it may require.
3.4 SECTION 401(K) CONTRIBUTIONS AND ACCOUNT ALLOCATIONS
3.4.1 ELECTIVE DEFERRALS
(A) Amount of Elective Deferrals
Subject to the limitations contained in Section 3.4.2, the Employer will
contribute cash to the Trust Fund in an amount equal to:
(i) as specified on the Participant's 401(k) Election form, the specific dollar
amount, or the deferral percentage multiplied by each such Participant's
Compensation; or
(ii) a bonus contribution made pursuant to Section 3.4.1(C).
(B) The amount elected by a Participant pursuant to a 401(k) Election shall be
determined within the limits specified in the Adoption Agreement. The 401(k)
Election shall be made on a form provided by the Administrator but no election
shall be effective prior to approval by the Administrator. The Administrator may
reduce the amount of any 401(k) Election, or make such other modifications as
necessary, so that the Plan complies with the provisions of the Code. A
Participant's 401(k) Election shall remain in effect until modified or
terminated. Modification or termination of a 401(k) Election shall be made at
such time as specified in the Adoption Agreement.
(C) If elected by the Employer in the Adoption Agreement, an Eligible Employee
may make a 401(k) Election to have an amount withheld up to the amount of any
bonus payable for such Plan Year and direct the Employer to contribute the
amount so withheld to his or her Elective Deferrals Account.
3.4.2 LIMITATION ON ELECTIVE DEFERRALS
(A) Maximum Amount of Elective Deferrals and Distribution of Excess Elective
Deferrals
(i) No Participant shall be permitted to have Elective Deferrals made under this
Plan, or any other Qualified Plan maintained by the Employer, during any Plan
Year in excess of the dollar limitation contained in Code Section 402(g) in
effect at the beginning of the Participant's taxable year. (ii) Notwithstanding
any other provision of the Plan, Excess Elective Deferrals made to this Plan or
assigned to this Plan, plus any income and minus any loss allocable thereto,
shall be distributed no later than April 15, 1988, and each April 15 thereafter,
to Participants to whose accounts Excess Elective Deferrals were designated for
the preceding Plan Year and who claim Excess Elective Deferrals for such taxable
year. Excess Elective Deferrals shall be treated as Annual Additions.
(iii) Claims. A Participant may designate to this Plan any amount of his or her
Elective Deferrals as Excess Elective Deferrals during his or her taxable year.
A Participant's claim shall be in writing, shall be submitted to the
Administrator no later than March 1, shall specify the Participant's Excess
Elective Deferral for the preceding Plan Year, and shall be accompanied by the
Participant's written statement that if such amounts are not distributed, such
Excess Elective Deferral, when added to amounts deferred under other plans or
arrangements described in Code Section 401(k), Code Section 408(k), Code Section
403(b) or Code Section 457, exceeds the limit imposed on the Participant by Code
Section 402(g) for the year in which the deferral occurred. A Participant is
deemed to notify the Administrator of any Excess Elective Deferrals that arise
by taking into account only those Elective Deferrals made to this Plan and any
other plans of the Employer or an Affiliate.
(iv) Determination of Income or Loss. Excess Elective Deferrals shall be
adjusted for income or loss up to the date of distribution. The income or loss
allocable to Participant's Excess Elective Deferrals is the sum of: (1) the
income or loss allocable to the Participant's Elective Deferrals Account for the
Participant's taxable year multiplied by a fraction, the numerator of which is
the Participant's Excess Elective Deferrals for the Participant's taxable year
and the denominator of which is the Account Balance of the Participant's
Elective Deferrals Account without regard to any income or loss occurring during
such taxable year; and (2) ten percent of the amount determined under (1)
multiplied by the number of whole calendar months between the end of the
Participant's taxable year and the date of distribution, counting the month of
distribution if distribution occurs after the 15th of such month.
Anything in the preceding paragraph of this Section 3.4.2(A)(iv) to the contrary
notwithstanding, any reasonable method for computing the income or loss
allocable to Excess Elective Deferrals may be used,
<PAGE> 23
provided that such method is used consistently for all Participants and for all
corrective distributions under the Plan, and is used by the Plan for allocating
income or loss to Participants' Accounts. Income or loss allocable to the period
between the end of the taxable year and the date of distribution may be
disregarded in determining income or loss.
(B) ADP Test
The Average Actual Deferral Percentage for Highly Compensated Employees for each
Plan Year and the Average Actual Deferral Percentage for Nonhighly Compensated
Employees for the same Plan Year must satisfy one of the following tests:
(i) The Average Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Actual Deferral Percentage for Eligible Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by 1.25; or
(ii) The Average Actual Deferral Percentage for Eligible Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
Average Actual Deferral Percentage for Eligible Participants who are
Nonhighly Compensated Employees for the Plan Year multiplied by 2.0;
provided that the Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees does not exceed the
Average Actual Deferral Percentage for Participants who are Nonhighly
Compensated Employees by more than two percentage points.
(C) Special Actual Deferral Percentage Rules
(i) The Actual Deferral Percentage for any Eligible Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to have Elective
Deferrals and Qualified Matching Contributions or Qualified Nonelective
Contributions, or both, if treated as Elective Deferrals for purposes of the ADP
Test, allocated to his or her accounts under two or more plans or arrangements
described in Code Section 401(k) that are maintained by the Employer shall be
determined as if all such Elective Deferrals, Qualified Matching Contributions
and Qualified Nonelective Contributions were made under a single arrangement. If
a Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a single
arrangement.
(ii) In the event that this Plan satisfies the requirements of Code Section
401(k), Code Section 401(a)(4) or Code Section 410(b) only if aggregated with
one or more other qualified plans, or if one or more other qualified plans
satisfy the requirements of such Code Sections only if aggregated with this
Plan, then this Section shall be applied by determining the Actual Deferral
Percentage of Employees as if all such qualified plans were a single qualified
plan. For Plan Years beginning after December 31, 1989, plans may be aggregated
in order to satisfy Code Section 401(k) only if they have the same plan year.
(iii) For purposes of determining the Actual Deferral Percentage of an Eligible
Participant who is a 5% owner or one of the ten most highly paid Highly
Compensated Employees, the Elective Deferrals (and Qualified Matching
Contributions or Qualified Nonelective Contributions, or both, if treated as
Elective Deferrals for purposes of one of the tests referred to in Section
3.4.2(B)) and CODA Compensation of such Participant shall include the Elective
Deferrals (and, if applicable, Qualified Matching Contributions, Qualified
Nonelective Contributions) and CODA Compensation for the Plan Year of Family
Members. Family Members with respect to such Highly Compensated Employees shall
be disregarded as separate employees in determining the Actual Deferral
Percentage both for Eligible Participants who are Nonhighly Compensated
Employees and for Eligible Participants who are Highly Compensated Employees.
(iv) For purposes of determining the ADP Test, Elective Deferrals, Qualified
Matching Contributions, and Qualified Nonelective must be made before the last
day of the 12-month period immediately following the Plan Year to which such
contributions relate.
(v) The Employer shall maintain records sufficient to demonstrate satisfaction
of the ADP Test and the amount of Qualified Nonelective Contributions and/or
Qualified Matching Contribution used in such test.
(vi) The determination and treatment of the Elective Deferrals, Qualified
Matching Contributions, and Qualified Nonelective Contributions, used in the ADP
Test shall satisfy such other requirements as may be prescribed by the Secretary
of the Treasury.
(D) Distribution of Excess Contributions
(i) In General. Notwithstanding any other provision of the Plan except Section
3.4.2(E), Excess Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of each Plan Year
beginning after December 31, 1987, to Participants to whose Accounts Elective
Deferrals, Qualified Matching Contributions, and Qualified Nonelective
Contributions were allocated for the preceding Plan Year.1 Excess Contributions
of
<PAGE> 24
Participants who are subject to the Family Member aggregation rules shall be
allocated among the Family Members in proportion to the Elective Deferrals (and
amounts treated as Elective Deferrals) of each Family Member that is combined to
determine the combined Actual Deferral Percentage. Excess Contributions shall be
treated as Annual Additions.
(ii) Determination of Income or Loss. Excess Contributions shall be adjusted for
any income or loss up to the date of distribution. The income or loss allocable
to Excess Contributions is the sum of: (1) the income or loss allocable to the
Participant's Elective Deferrals Account (and, if applicable, the Qualified
Nonelective Contributions Account or the Qualified Matching Contributions
Account or both) for the Plan Year multiplied by a fraction, the numerator of
which is such Participant's Excess Contributions for the year and the
denominator of which is the Account Balances of Participant's Elective Deferrals
Account, Qualified Nonelective Contributions Account and Qualified Matching
Contributions Account if any of such contributions are included in the ADP Test,
without regard to any income or loss occurring during such Plan Year; and
___________
1 Distribution of Excess Contributions on or before the last day of the Plan
Year after the Plan Year in which such excess amounts arose is required under
Code Section 401(k)(8) if the Plan is to maintain its tax-qualified status.
However, if such excess amounts, plus any income and minus any loss allocable
thereto, are distributed more than 2-1/2 months after the last day of the Plan
Year in which such excess amounts arose, then Code Section 4979 imposes a 10%
excise tax on the employer maintaining the plan with respect to such amounts.
(2) 10% of the amount determined under (1) multiplied by the number of whole
calendar months between the end of the Plan Year and the date of distribution,
counting the month of distribution if distribution occurs after the 15th of such
month.
Anything in the preceding paragraph of this Section 3.4.2(D)(ii) to the contrary
notwithstanding, any reasonable method for computing the income or loss
allocable to Excess Contributions may be used, provided that such method is used
consistently for all Participants and for all corrective distributions under the
Plan for the Plan Year, and is used by the Plan for allocating income or loss to
Participant's Accounts. Income or loss allocable to the period between the end
of the Plan Year and the date of distribution may be disregarded in determining
income or loss.
(iii) Accounting for Excess Contributions. Amounts distributed under this
Section 3.4.2(D) shall first be distributed from the Participant's Elective
Deferrals Account and Qualified Matching Contributions Account 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 Contributions
Account only to the extent that such Excess Contributions exceed the balance in
the Participant's Elective Deferrals Account and Qualified Matching
Contributions Account.
(E) In lieu of distributing Excess Contributions pursuant to the preceding
Section 3.4.2(D), and as specified in the Adoption Agreement, the Employer may
make special Qualified Nonelective Contributions on behalf of Nonhighly
Compensated Employees that are sufficient to satisfy the ADP Test.
(F) In lieu of distributing Excess Contributions, the Participant may treat his
or her Excess Contributions as an amount distributed and then re-contributed by
such Participant. Recharacterized amounts are 100% 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 such amount
in combination with other amounts made to the Participant's Participant
Contributions Account would exceed any stated limit on such contributions, as
specified in the Adoption Agreement. If Excess Contributions are
recharacterized, they must be so no later than two and one half months after the
last day of the Plan Year in which such Excess Contributions arose and they are
deemed to occur no earlier than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the consequences thereof.
Recharacterized amounts are taxable to the Participant for the tax year in which
he or she would have received such contributions in cash.
(G) Under no circumstances may Elective Deferrals, Qualified Matching
Contributions and Qualified Nonelective Contributions be contributed and
allocated to the Trust later than the last day of the 12-month period
immediately following the Plan Year to which such contributions relate.
3.5 MATCHING 401(K) CONTRIBUTIONS
3.5.1 AMOUNT OF MATCHING CONTRIBUTIONS Subject to the limitations contained in
Sections 3.9 and 3.5.2, for each Plan Year the Employer will contribute in cash
and/or Qualifying Employer Securities, Matching 401(k) Contributions to the
Trust Fund in an amount, if any, calculated by reference to the Participants'
Elective Deferrals as specified in the Adoption Agreement.
3.5.2 LIMITATION ON CONTRIBUTION PERCENTAGE
(A) ACP Test
<PAGE> 25
The Average Contribution Percentage for Eligible Participants who are Highly
Compensated Employees for the Plan Year and the Average Contributions Percentage
for Eligible Participants who are Nonhighly Compensated Employees for the same
Plan Year must satisfy one of the following tests:
(i) the Average Contribution Percentage for Eligible Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Eligible Participants who are Nonhighly Compensated
Employees for the same Plan Year multiplied by 1.25; or
(ii) the Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees shall not exceed the Average Contribution
Percentage for Eligible Participants who are Nonhighly Compensated Employees by
more than two percentage points or such lesser amount as the Secretary of the
Treasury shall prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
(B) Special Average Contribution Percentage Rules
(i) For purposes of this Section 3.5.2, the Contribution Percentage for any
Eligible Participant who is a Highly Compensated Employee for the Plan Year and
who is eligible to have Matching 401(k) Contributions or Matching Thrift
Contributions, as the case may be (other than Qualified Matching Contributions),
allocated to his or her account under two or more qualified plans described in
Code Section 401(a), or arrangements described in Code Section 401(k) shall be
determined as if the total of such Contribution Percentage Amounts was made
under each plan. If a Highly Compensated Employee participates in 2 or more cash
or deferred arrangements that have different plan years, all cash or deferred
arrangements ending with or within the same calendar year shall be treated as a
single arrangement.
(ii) In the event that this Plan satisfies the requirements of Code Section
410(b) only if aggregated with one or more other plans, or if one or more other
plans satisfy the requirements of Code Section 410(b) only if aggregated with
this Plan, then this Section 3.5.2 shall be applied by determining the
Contribution Percentages 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 Code Section 401(m) only if they have the same plan year.
(iii) For purposes of determining the Contribution Percentage of an Eligible
Participant who is a 5% owner or one of the 10 most highly-paid Highly
Compensated Employees, the Contribution Percentage Amounts and the CODA
Compensation of such Participant shall include the Contribution Percentage
Amounts and CODA Compensation for the Plan Year of Family Members. Family
Members with respect to Highly Compensated Employees shall be disregarded as
separate employees in determining the Contribution Percentage both for
Participants who are Nonhighly Compensated Employees and for Participants who
are Highly Compensated Employees.
(iv) For purposes of determining the ACP Test, Matching 401(k) Contributions,
Matching Thrift 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.
(v) 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 such test.
(C) Multiple Use
If one or more Highly Compensated Employees participate in both a cash or
deferred arrangement and a plan subject to the ACP Test and the sum of the
Actual Deferral Percentage and the Actual Contribution Percentage of those
Highly Compensated Employees exceeds the "aggregate limit", then the Actual
Contribution Percentage of those Highly Compensated Employees will be reduced,
beginning with such Highly Compensated Employee whose Actual Contribution
Percentage is the highest, so that the limit is not exceeded. The amount by
which each Highly Compensated Employee's Contribution Percentage is reduced
shall be treated as an Excess Aggregate Contribution. The Actual Deferral
Percentage and Actual Contribution Percentage of the Highly Compensated
Employees are determined after any corrections required to meet the ADP Test and
the ACP Test. Multiple use does not occur if either the Average Deferral
Percentage or Actual Contribution Percentage of the Highly Compensated Employees
does not exceed 1.25 multiplied by the Actual Deferral Percentage and the Actual
Contribution Percentage of the Nonhighly Compensated Employees.
(i) The "aggregate limit" is the sum of (1) 125% of the greater of the Actual
Deferral Percentage for Participants who are Nonhighly Compensated Employees for
the Plan Year or the Actual Deferral Percentage for Participants who are
Nonhighly Compensated Employees for the Plan Year beginning with or within the
Plan Year and (2) the lesser of 200% or two plus the lesser of such Actual
Deferral Percentage or Actual Contribution Percentage. "Lesser" is substituted
for "greater" in "(1)," above, and
<PAGE> 26
"greater" is substituted for "lesser" after "two plus the" in "(2)" if it would
result in a larger aggregate limit.
(D)Forfeiture of Excess Aggregate Contributions
(i) In General. Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss allocable thereto,
shall be forfeited and applied to reduce subsequent Matching 401(k)
Contributions or Matching Thrift Contributions, as the case may be. No
forfeitures arising under this Section 3.6.2(D) shall be allocated to the
account of any Highly Compensated Employee. If not forfeitable, Excess Aggregate
Contributions shall be distributed no later than the last day of each Plan Year
beginning after December 31, 1987, to Participants to whose Accounts such Excess
Aggregate Contributions were allocated for the preceding Plan Year. Excess
Aggregate Contributions of Participants who are subject to the Family Member
aggregation rules shall be allocated among the Family Members in proportion to
the amounts constituting Contribution Percentage Amounts of each Family Member
that is combined to determine the combined Actual Contribution Percentage.
Excess Aggregate Contributions shall be treated as Annual Additions. Anything
above to the contrary notwithstanding, any forfeiture or distribution under this
Section 3.5.2(D)(i) shall occur only if sufficient Employee Thrift Contributions
and/or Participant Voluntary Nondeductible Contributions, as the case may be,
are not distributed from the qualified plan holding such Employee Thrift
Contributions and/or Participant Voluntary Nondeductible Contributions, as the
case may be.2
(ii) Determination of Income or Loss. Excess Aggregate Contributions shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Aggregate Contributions is the sum of: (1) the income
or loss allocable to the Participant's Matching 401(k) Contribution Account or
Matching Thrift Contribution Account (if any, and if all amounts therein are not
used in the ADP Test) and, if applicable, Qualified Nonelective Contribution
Account and Elective Deferrals Account for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's Excess Aggregate
Contributions for the year and the denominator of which is the Participant's
Account Balance(s) attributable to Contribution Percentage Amounts without
regard to any income or loss occurring during such Plan Year; and (2) 10% of the
amount determined under (1) multiplied by the number of whole calendar months
between the end of the Plan Year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of such month.
Anything in the preceding paragraph of this Section 3.5.2(D)(ii) to the contrary
notwithstanding, any reasonable method for computing the income or loss
allocable to Excess Aggregate Contributions may be used, provided that such
method is used consistently for all Participants and for all corrective
distributions under the Plan for the Plan Year, and is used by the Plan for
allocating income or loss to Participants' Accounts. Income or loss allocable to
the period between the end of the Plan Year and the date of distribution may be
disregarded in determining income or loss.
(iii) The determination of the Excess Aggregate Contributions shall be made
after first determining the Excess Elective Deferrals, and then determining the
Excess Contributions.
3.5.3 For purposes of determining the ACP Test, Qualified Nonelective
Contributions, Matching 401(k) Contributions and Matching Thrift Contributions
will be considered made for a Plan Year if paid to the Trustee no later than the
end of the 12-month period beginning on the day after the close of the Plan
Year.
<PAGE> 27
3.6 THRIFT CONTRIBUTIONS
3.6.1 EMPLOYEE THRIFT CONTRIBUTIONS. If elected by the Employer in the Adoption
Agreement to provide for Employee Thrift Contributions, the Employer will
contribute cash to the Trust Fund in an amount equal to (A) the Employee Thrift
Contribution percentage of each Participant on his or her Employee Thrift
Contribution election form multiplied by each such Participant's Compensation or
(B) the specific dollar amount set forth on the Participant's election form.
The amount elected by a Participant pursuant to a Participant's Employee Thrift
Contribution election shall be determined within the limits specified in the
Adoption Agreement. Such election shall be made on a form provided by the
Administrator but no election shall be effective prior to approval by the
Administrator. The Administrator may reduce the amount of any Employee Thrift
Contribution, or make such other modifications as necessary, so that the Plan
complies with the provisions of the Code. A Participant's election shall remain
in effect until modified or terminated at such times as specified in the
Adoption Agreement.
3.6.2 MATCHING THRIFT CONTRIBUTIONS. Subject to the limitations contained in
Sections 3.9 and 3.5.2, for each Plan Year the Employer will contribute in cash
and/or Qualifying Employer Securities, Matching Thrift Contributions to the
Trust Fund in an amount, if any, calculated by reference to the Participants'
Employee Thrift Contributions, as specified in the Adoption Agreement.
Matching Thrift Contributions made by the Employer will be allocated to the
Matching Thrift Contributions Account of those Participants who have contributed
Employee Thrift Contributions to the Plan, as specified in the Adoption
Agreement. (1)
3.7 TREATMENT OF FORFEITURES
3.7.1 If the Employer has elected in the Adoption Agreement to reallocate
forfeitures for a Plan Year among Participants, then such forfeitures, if any,
shall be allocated as of the last day of the Plan Year to the Employer Accounts
of those Participants who are eligible to share in the allocation of
contributions to that particular Employer Account (whether or not a contribution
was made for that Plan Year) for that Plan Year in that particular Employer
Account category with respect to which such forfeitures are attributable. If the
Plan is a Target Benefit Plan, forfeitures may only be used to reduce Employer
Contributions, in accordance with Section 3.7.2.
3.7.2 If the Employer has elected in the Adoption Agreement to use forfeiture to
reduce contributions, then forfeitures shall be applied in the succeeding Plan
Year to reduce Employer Contributions in that particular Employer Account
category to which such forfeitures were attributable.
3.8 ESTABLISHING OF ACCOUNTS
3.8.1 An Elective Deferrals Account shall be established for each Eligible
Participant who makes a 401(k) Election to which the Administrator shall credit,
or cause to be credited, Elective Deferrals allocable to each such Participant,
plus earnings or losses thereon.
3.8.2 An Employer Contributions Account shall be established for each
Participant to which the Administrator shall credit or cause to be credited
Employer contributions pursuant to Section 3.1, and forfeitures attributable to
such contributions, if any, plus earnings or losses thereon.
3.8.3 An Employee Thrift Contributions Account shall be established for each
Participant who makes Employee Thrift Contributions to the Plan, to which the
Administrator shall credit, or cause to be credited, all amounts allocable to
each such Participant, plus earnings or losses thereon.
3.8.4 A Matching 401(k) Contributions Account shall be established for each
Participant for whom Matching 401(k) Contributions are made, to which the
Administrator shall credit, or cause to be credited, all such amounts allocable
to each such Participant, plus earnings or losses thereon.
3.8.5 A Matching Thrift Contributions Account shall be established for each
Participant for whom Matching Thrift Contributions are made, to which the
Administrator shall credit, or cause to be credited, all amounts allocable to
each such Participant, plus earnings or losses thereon.
3.8.6 A Participant Voluntary Nondeductible Contributions Account shall be
established for each Participant who makes Participant Voluntary Nondeductible
Contributions to the Plan, plus earnings or losses thereon.
3.8.7 A Qualified Matching Contributions Account shall be established for each
Eligible Participant for whom Qualified Matching Contributions are made, to
- --------
(1) 2 Distribution or forfeiture of Excess Aggregate Contributions on or before
the last day of the Plan Year after the Plan Year in which such excess amounts
arose is required under Code Section 401(m)(6) if the Plan is to maintain its
tax-qualified status. However, if such excess amounts, plus any income and minus
any loss allocable thereto, are distributed more than 2-1/2 months after the
last day of the Plan Year in which such excess amounts arose, then Code Section
4979 imposes a 10% excise tax on the employer maintaining the plan with respect
to such amounts.
<PAGE> 28
which the Administrator shall credit, or cause to be credited, all amounts
allocable to each such Participant, plus earnings or losses thereon.
3.8.8 A Qualified Nonelective Contributions Account shall be established for
each Participant for whom Qualified Nonelective Contributions are made, to which
the Administrator shall credit, or cause to be credited, all amounts allocable
to each such Participant, plus earnings or losses thereon.
3.8.9 A Rollover Contributions Account shall be established for each Participant
who contributes to the Plan pursuant to Section 3.3 to which the Administrator
shall credit, or cause to be credited, Rollover Contributions made by the
Participant, plus earnings or losses thereon.
3.8.10 A Transferred Contributions Account shall be established for each
Participant for whom assets are transferred from another Qualified Plan, to
which the Administrator shall credit, or cause to be credited, transferred
assets, plus earnings or losses thereon.
3.9 LIMITATION ON AMOUNT OF ALLOCATIONS
3.9.1 As used in this Section 3.9, each of the following terms shall have the
meaning for that term set forth in this Section 3.9.1:
(A) Annual Additions means, for each Participant, the sum of the following
amounts credited to the Participant's Accounts for the Limitation Year:
(I) Employer Contributions within the meaning of IRS regulation 1.415-6(b);
(ii) Employee Contributions;
(iii) forfeitures;
(iv) allocation under a simplified employee pension; and
(v) any Excess Amount applied under a Defined Contribution Plan in the
Limitation Year to reduce Employer Contributions will also be considered as part
of the Annual Additions for such Limitation Year.
Amounts allocated after March 31, 1984, to an "individual medical benefit
account" as defined in Code Section 415(1)(2) ("Individual Medical Benefit
Account") which is part of a pension or annuity plan maintained by the Employer
or Affiliate are treated as Annual Additions to a Defined Contribution Plan.
Also, amounts derived from contributions paid or accrued after December 31,
1985, in taxable years ending after that date, which are attributable to
post-retirement medical benefits allocated to the separate account of a "key
employee" as defined in Code Section 419A(d)(3) under a "welfare benefit fund"
as defined in Code Section 419(e) ("Welfare Benefit Fund") maintained by the
Employer or Affiliate, are treated as Annual Additions to a Defined Contribution
Plan.
(B) Defined Benefit Dollar Limitation means $90,000 multiplied by the Adjustment
Factor or such other limitation set forth in Code Section 415(b)(1) as in effect
for the Limitation Year.
(C) Defined Benefit Fraction means a fraction, the numerator of which is the sum
of the Projected Annual Benefits of the Participant involved under all Defined
Benefit Plans (whether or not terminated) maintained by the Employer or
Affiliate, and the denominator of which is the lesser of 125% of the Defined
Benefit Dollar Limitation determined for the Limitation Year or 140% of the
Participant's Highest Average Limitation Compensation, including any adjustments
under Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of the first
day of the first Limitation Year beginning after December 31, 1986, in one or
more Defined Benefit Plans maintained by the Employer or Affiliate which were in
existence on May 5, 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 changes in the terms and conditions of the plans after
May 5, 1986. The preceding sentence applies only if the Defined Benefit Plans
individually and in the aggregate satisfied the requirements of Code Section 415
for all Limitation Years beginning before January 1, 1987.
(D) Defined Contribution Dollar Limitation means $30,000 or if greater,
one-fourth of the Defined Benefit Dollar Limitation 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 Account or Accounts under
all the Defined Contribution Plans (whether or not terminated) maintained by the
Employer or Affiliate for the current and all prior Limitation Years (including
the Annual Additions attributable to the Participant's nondeductible
contributions to all Defined Benefit Plans, whether or not terminated,
maintained by the Employer or Affiliate and the Annual Additions attributable to
all Welfare Benefit Funds, Individual Medical Benefit Accounts, and simplified
employee pensions maintained by the Employer or Affiliate), and the denominator
of which is the sum of the "maximum aggregate amounts" (as defined in the
following sentence) for the current and all prior Limitation Years of service
with the Employer or Affiliate (regardless of whether a
<PAGE> 29
Defined Contribution Plan was maintained by the Employer or Affiliate). The
"maximum aggregate amount" in any Limitation Year is the lesser of (i) 125% of
the Defined Benefit Dollar Limitation in effect under Code Section 415(c)(1)(A)
or (ii) 35% of the Participant's Compensation for such year.
If the Employee was a Participant as of the first day of the first Limitation
Year beginning after December 31, 1986, in one or more Defined Contribution
Plans maintained by the Employer or Affiliate in existence on May 5, 1986, the
numerator of this fraction will be adjusted if the sum of this fraction and the
Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of (A) the excess of
the sum of the fractions over 1.0 times (B) 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
later of the end of the last Limitation Year beginning before January 1, 1987,
and disregarding any changes in the terms and conditions of the Plans made after
May 6, 1986, but using the Code Section 415 limitation applicable to the first
Limitation Year beginning on or after January 1, 1987. The Annual Addition for
any Limitation Year beginning before January 1, 1987, shall not be recomputed to
treat all Participant contributions as Annual Additions.
(F) Excess Amounts means the excess of the Participant's Annual Additions for
the Limitation Year involved over the Maximum Permissible Amount for that
Limitation Year.
(G) Highest Average Limitation Compensation means the average Compensation as
defined in Code Section 415(c)(3) of the Participant involved for that period of
three consecutive Years of Service with the Employer or Affiliate (or if the
Participant has less than three such Years of Service, the actual number
thereof) that produces the highest average.
(H) Limitation Compensation means Compensation, as defined in either (i), (ii)
or (iii) below, as specified in the Adoption Agreement:
(i) Code Section 415 Safe-Harbor Compensation
For an Employee other than a Self-Employed Individual, the Employee's earned
income, wages, salaries, and fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of Employment (including, but
not limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, and reimbursements or other expense allowances under a
nonaccountable plan (as described in Reg. 1.62-2(c)) and excluding the
following:
(1) Employer contributions to a plan of deferred compensation which are not
includible in the Employee's gross income for the taxable year in which
contributed, or contributions under a "simplified employee pension" plan (within
the meaning of Code Section 408(k)) to the extent such contributions are
deductible by the Employee, or any distributions from a plan of deferred
compensation;
(2) amounts realized from the exercise of a non-qualified stock option, or when
restricted stock (or other property) held by the Employee either becomes freely
"transferable" or is no longer subject to a "substantial risk of forfeiture"
(both quoted terms within the meaning of Code Section 83(a));
(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
(whether or not under a salary reduction agreement) towards the purchase of an
annuity described in Code Section 403(b) (whether or not the amounts are
actually excludable from the gross income of the Employee); or For Limitation
Years beginning after December 31, 1991, Limitation Compensation shall include
only that compensation which is actually paid or made available during the
Limitation Year.
(ii) Information required to be reported under Sections 6041 and 6051. ("Wages,
Tips and other Compensation Box" Form W-2) Limitation Compensation is defined as
wages as defined in Code Section 3401(a) and all other payments of compensation
to an Employee by the Employer (in the course of the Employer's trade or
business) for which the Employer is required to furnish the Employee a written
statement under Sections 6041(d) and 6051(a)(3) of the Code. Compensation must
be determined without regard to any rules under Section 3401(a) that limit the
remuneration included in wages based on the nature or location of the employment
or the services performed (such as the exception for agricultural labor in
Section 3401(a)(2)).
(iii) Code Section 3401(a) wages
Limitation Compensation is defined as wages within the meaning of Code Section
3401(a) for the purposes of income tax withholding at the source but determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Code Section 3401(a)(2)).
<PAGE> 30
Without regard to the definition of Limitation Compensation elected by the
Employer, for a Self-Employed Individual, Limitation Compensation means his or
her Earned Income, provided that if the Self-Employed Individual is not a
Participant for an entire Plan Year, his or her Limitation Compensation for that
Plan Year shall be his or her Earned Income for that Plan Year multiplied by a
fraction the numerator of which is the number of days he or she is a Participant
during the Plan Year and the denominator of which is the number of days in the
Plan Year. Additionally, Limitation Compensation for a Participant in a Defined
Contribution Plan who is permanently and totally disabled (as defined in Code
Section 22(e)) is the compensation such Participant would have received for the
Limitation Year if the Participant had been paid at the rate of compensation
paid immediately before becoming disabled; such imputed compensation may be
taken into account only if the Participant is not a Highly Compensated Employee
and contributions made on behalf of such Participant are nonforfeitable when
made.
(I) Maximum Permissible Amount means the maximum Annual Addition which may be
contributed or allocated to a Participant's Account under the Plan for any
Limitation Year. The maximum Annual Addition shall not exceed the lesser of: (a)
the Defined Contribution Dollar Limitation, or (b) 25% of the Participant's
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 Code Sections 401(h) or 419A(f)(2)) which is otherwise treated as an Annual
Addition under Code Section 415(l)(1) or 419A(d)(2). If a short Limitation Year
is created because of an amendment changing the Limitation Year to a different
12-consecutive month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(J) 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 a Defined Benefit
Plan assuming:
(i) the Participant continues in employment with the Employer or Affiliate until
the Participant's "normal retirement age" under the Plan within the meaning of
Code Section 411(a)(8) (or the Participant's current age, if later); and
(ii) the Participant's Limitation 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.
3.9.2 The provisions of this subsection 3.9.2 apply with respect to a
Participant who does not participate in, and has never participated in, another
Qualified Plan, a Welfare Benefit Fund or an Individual Medical Benefit Account
or a simplified employee pension, as defined in Code Section 401(k), maintained
by the Employer or an Affiliate, which provides an Annual Addition as defined in
Section 3.9.1(A) of the Plan, other than this Plan:
(A) The amount of Annual Additions which may be credited to the Participant's
Account for any Limitation Year will not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in this Plan. If the
Employer Contribution that would otherwise be contributed or allocated to the
Participant's Account would cause the Annual Additions on behalf of the
Participant for the Limitation Year to exceed the Maximum Permissible Amount
with respect to that Participant for the Limitation Year, the amount contributed
or allocated will be reduced so that the Annual Additions on behalf of the
Participant for the Limitation Year will equal such Maximum Permissible Amount.
(B) Prior to determining the Participant's actual Limitation Compensation for a
Limitation Year, the Employer may determine the Maximum Permissible Amount for
the Participant for the Limitation Year on the basis of a reasonable estimation
of the Participant's Compensation for that Limitation Year. Such estimated
Compensation shall be uniformly determined for all Participants similarly
situated.
(C) As soon as is administratively feasible after the end of a Limitation Year,
the Maximum Permissible Amount for the Limitation Year will be determined on the
basis of the Participant's actual compensation for the Limitation Year.
(D) If pursuant to Section 3.9.2(C) or as a result of the allocation of
forfeitures, there is an Excess Amount with respect to the Participant for a
Limitation Year, the Excess Amount shall be disposed of as follows:
(i) First, any contribution to the Participant's Elective Deferrals Account,
Participant Voluntary Nondeductible Contributions Account or Employee Thrift
Contributions Account, if applicable, and any earnings allocable thereto will be
distributed to the Participant to the extent that the return thereof would
reduce the Excess Amount in such Participant's Accounts;
(ii) If after the application of Section 3.9.2(D)(i) an Excess Amount still
exists, and the Participant is
<PAGE> 31
covered by the Plan at the end of the Limitation Year, the remaining Excess
Amount in the Participant's Account will be used to reduce Employer
contributions (including allocation of any forfeitures) under this Plan for such
Participant in the next Limitation Year, and in each succeeding Limitation Year,
if necessary.
(iii) If after the application of Section 3.9.2(D)(i) an Excess Amount still
exists, and the Participant is not covered by the Plan at the end of the
Limitation Year, the Excess Amount will be held unallocated in a suspense
account. The suspense account will be applied to reduce future Employer
contributions under this Plan for all remaining Participants in the next
Limitation Year, and in each succeeding Limitation Year, if necessary; provided,
however, that if all or any part of the Excess Amount held in a suspense account
is attributable to a Participant's Elective Deferrals, such Excess Amount shall
be held unallocated in a suspense account to be used for such Participant in the
next Limitation Year and each succeeding Limitation Year as an Elective Deferral
if such Participant is covered by the Plan in the next and each succeeding
Limitation Year, if necessary.
(iv) If a suspense account is in existence at any time during a Limitation Year
pursuant to Section 3.9.2(D)(iii), the suspense account will not participate in
the allocation of the Trust Fund's investment gains or losses to or from any
other Account. 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
Participant contributions may be made to the Plan for the Limitation Year.
Excess Amounts, other than those Excess Amounts referred to in Section
3.9.2(D)(i), may not be distributed to Participants or Former Participants.
3.9.3 The provisions of this subsection 3.9.3 apply with respect to a
Participant who, in addition to this Plan, is covered or has been covered under
one or more Defined Contribution Plans which are Master or Prototype Plans,
Welfare Benefit Funds an Individual Medical Benefit Account or a simplified
employee pension maintained by the Employer or an Affiliate, which provides an
Annual Addition as described in Section 3.9.1(A) of the Plan 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 Permissible
Amount reduced by the Annual Additions credited to the Participant's account or
accounts under any other plans and Welfare Benefit Fund, Individual Medical
Benefit Account or simplified employee pension for the same Limitation Year. If
the Annual Additions with respect to the Participant under any one or more other
such Defined Contribution Plans or Welfare Benefit Funds, Individual Medical
Benefit Account or simplified employee pension maintained by the Employer are
less than the Maximum Permissible Amount and the Employer Contribution that
would otherwise be contributed or allocated to a Participant's Account under
this Plan would cause the Annual Additions for the Limitation Year to exceed
this limitation, the amount contributed or allocated shall be reduced so that
the Annual Additions under all such plans and funds for the Limitation Year will
equal the Maximum Permissible Amount.
If the Annual Additions with respect to the Participant under such other Defined
Contribution Plans and Welfare Benefit Funds, Individual Medical Benefit Account
or simplified employee pension in the aggregate are equal to or greater than the
Maximum Permissible Amount, no amount will be contributed or allocated to any of
the Participant's Account under this Plan for the Limitation Year.
(B) Prior to determining the Participant's actual compensation for a Limitation
Year, the Maximum Permissible Amount for a Participant may be determined in the
manner described in Section 3.9.2(B).
(C) As soon as is administratively feasible after the end of a Limitation Year,
the Maximum Permissible Amount for the Limitation Year will be determined on the
basis of the Participant's actual Limitation Compensation for the Limitation
Year.
(D) If, pursuant to subsection 3.9.3(C) above, or as a result of the allocation
of forfeitures, a Participant's Annual Additions under this Plan and the
Participant's Annual Additions under 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, except that Annual Additions attributable to
simplified employee pension will be deemed to have been allocated first,
followed by Annual Additions to a Welfare Benefit Fund or Individual Medical
Benefit 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 such plan, the
Excess Amount attributed to this Plan will be the product of:
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (A) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under this Plan to (B) the total Annual
Additions allocated to the Participant for the Limitation Year as
<PAGE> 32
of such date under this Plan and all of the other plans referred to in the first
sentence of this Section 3.9.3.
(F) Any Excess Amount attributed to this Plan will be disposed in the manner
described in Section 3.9.2(D).
3.9.4 If a Participant is covered under one or more Defined Contribution Plans,
other than this Plan, maintained by the Employer or an Affiliate which are not
Master or Prototype Plans, or Welfare Benefit Funds or an Individual Medical
Benefit Account maintained by the Employer, Annual Additions which may be
credited to the Participant's Account under this Plan for any Limitation Year
shall be limited in accordance with the provisions of subsections 3.9.3(A) - (F)
above as though each such other plan was a Master or Prototype Plan.
3.9.5 If the Employer maintains, or at any time maintained, a Defined Benefit
Plan covering any Participant in this Plan, the sum of the Participant's Defined
Benefit Fraction and Defined Contribution Fraction will not exceed 1.0 in any
Limitation Year. If such sum would otherwise exceed 1.0 and if such Defined
Benefit Plan does not provide for a reduction in benefits thereunder, Annual
Additions which may be credited to a Participant's Account under this Plan for
any Limitation Year shall be limited in accordance with the provisions of
Section 3.9.2.
3.9.6 If required pursuant to Section 4.4.4, "100%" shall be substituted for
"125%" wherever the latter percentage appears in this Section 3.9.
3.10 RETURN OF EMPLOYER CONTRIBUTIONS UNDER SPECIAL CIRCUMSTANCES
Notwithstanding any provision of this Plan to the contrary, upon timely written
demand by the Employer or the Administrator to the Trustee:
(A) Any contribution by the Employer to the Plan under a mistake of fact shall
be returned to the Employer by the Trustee within one year after the payment of
the contribution.
(B) Any contribution made by the Employer incident to the determination by the
Commissioner of Internal Revenue that the Plan is initially a Qualified Plan
shall be returned to the Employer by the Trustee within one year after
notification from the Internal Revenue Service that the Plan is not initially a
Qualified Plan but only if the application for the qualification is made by the
time prescribed by law for filing the Employer's return for the taxable year in
which the Plan is adopted, or such later date as the Secretary of the Treasury
may prescribe.
(C) In the event the deduction of a contribution made by the Employer is
disallowed under Code Section 404, such contribution (to the extent disallowed)
must be returned to the Employer within one year of the disallowance of the
deduction.
ARTICLE IV VESTING
4.1 DETERMINATION OF VESTING
4.1.1 A Participant shall at all times have a vested percentage of 100% in the
Account Balance of each of his or her Participant Contributions Accounts, 401(k)
Contributions Accounts, Rollover Contributions Account and Transferred Account.
4.1.2 A Participant shall have a vested percentage of 100% in his or her Account
Balance of each of his or her Employer Accounts if he or she terminates
Employment due to the attainment of Normal Retirement Age, Early Retirement
specified in the Adoption Agreement, if elected by the Employer in the Adoption
Agreement, or upon Disability or death.
4.1.3 The vested percentage of a Participant in the Account Balance of each of
his or her Employer Accounts not vested pursuant to Section 4.1.1 or 4.1.2 shall
be determined in accordance with the vesting rule or schedule specified in the
Adoption Agreement.
4.2 RULES FOR CREDITING VESTING SERVICE
4.2.1 Subject to Section 4.2.2, Years of Service shall be credited for purposes
of determining a Participant's Vesting Service as specified in the Adoption
Agreement. If the Employer maintains the plan of a predecessor employer, service
with such predecessor employer shall be treated as service with the Employer for
purposes of Vesting Service.
4.2.2 An Employee who terminates Employment with no vested percentage in an
Employer Account shall, if he or she returns to Employment, have no credit for
Vesting Service prior to such termination of Employment if his or her Period of
Severance equals or exceeds five years.
4.2.3 Vesting Service of an Employee following a Period of Severance of five
years or more shall not be counted for the purpose of computing his or her
vested percentage in his or her Employer Accounts derived from contributions
accrued prior to the Period of Severance. If applicable, separate records shall
be maintained reflecting the Participant's vested rights in his or her Account
Balance attributable to service prior to the Period of Severance and reflecting
the Participant's vested percentage in his or her Account Balance attributable
to service after the Period of Severance. Vesting Service prior to and following
an Employee's Period of Severance shall be counted for purposes of computing his
or her vested percentage in an Employer Account derived from contributions made
after the Period of Severance.
<PAGE> 33
4.3 EMPLOYER ACCOUNTS FORFEITURES
4.3.1 Subject to Section 5.6, upon the Nonvested Separation of a Participant,
the nonvested portion of each Employer Account of such Participant will be
forfeited as of the date of termination of Employment. Upon the Partially Vested
Separation of a Participant, the nonvested portion of each Employer Account of
such Participant will be forfeited as of the date of termination of Employment;
provided, however, that such Participant receives a distribution in accordance
with Section 5.6. If a Participant does not receive a distribution following his
or her termination of Employment, the nonvested portion of each Employer Account
of the Participant shall be forfeited following a Period of Severance of five
years.
4.3.2 If the Employer elects in the Adoption Agreement to reallocate
forfeitures, forfeitures for a Plan Year shall be allocated in accordance with
Section 3.7.1. If the Employer elects in the Adoption Agreement to use
forfeitures to reduce Employer contributions, forfeitures shall be applied in
accordance with Section 3.7.2.
4.4 TOP-HEAVY PROVISIONS
4.4.1 As used in this Section 4.4, each of the following terms shall have the
meanings for that term set forth in this Section 4.4.1:
(A) 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 last day of that year.
(B) Permissive Aggregation Group means the Required Aggregation Group of plans
plus any other plan or plans of the Employer or Affiliate which, when considered
as a group with the Required Aggregation Group, would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410.
(C) Required Aggregation Group means (i) each Qualified Plan of the Employer or
Affiliate 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 or Affiliate
which enables a plan described in (i) to meet the requirements of Code Sections
401(a)(4) or 410.
(D) Super Top-Heavy means, for any Plan Year beginning after December 31, 1983,
the Plan if any Top-Heavy Ratio as determined under the definition of Top-Heavy
Plan exceeds 90%.
(E) Top-Heavy Plan means, for any Plan Year beginning after December 31, 1983,
the Plan if any of the following conditions exists:
(i) If the Top-Heavy Ratio for the Plan exceeds 60% and the Plan is not part of
any Required Aggregation Group or Permissive Aggregation Group of Plans.
(ii) If the 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%.
(iii) If the Plan is a 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%.
(F) Top-Heavy Ratio means
(i) If the Employer or Affiliate maintains one or more Defined Contribution
Plans (including any Simplified Employee Pension Plan) and the Employer or
Affiliate has never maintained any Defined Benefit Plan which during the
five-year period ending on the Determination Date 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 (including any part of any Account Balance distributed in the
five-year period ending on the Determination Date), and the denominator of which
is the sum of all Account Balances (including any part of any Account Balance
distributed in the five-year period ending on the Determination Date), both
computed in accordance with Code Section 416. 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 Code Section 416. (ii) If the Employer or an
Affiliate maintains one or more Defined Contribution Plans (including any
Simplified Employee Pension Plan) and the Employer or an Affiliate maintains or
has maintained one or more Defined Benefit Plans which during the five-year
period ending on the Determination Date has or has had any accrued benefits, the
Top-Heavy Ratio for any Required or Permissive Aggregation Group as appropriate
is a fraction, the numerator of which is the sum of Account Balances under the
aggregated Defined Contribution Plans for all Key Employees, determined in
accordance with (i) above, and the present value of accrued benefits under the
aggregated Defined Benefit Plans for all Key Employees as of the Determination
Date, and the denominator of which is the sum of the Account Balances under the
aggregated Defined Contribution Plans for all Participants, determined in
accordance with (i) above, and the present value of accrued benefits under the
Defined Benefit Plans for all Participants as of the Determination Date, all
determined in accordance with Code Section 416. The
<PAGE> 34
accrued benefit under a Defined Benefit Plan in both the numerator and
denominator of the Top-Heavy Ratio are increased for any distribution of an
accrued benefit made in the five-year period ending on the Determination Date.
(iii) For purposes of (i) and (ii) 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 Code Section 416 for the first and
second Plan Years of a Defined Benefit Plan. The Account Balances and accrued
benefits of a Participant (1) who is not a Key Employee but who was a Key
Employee in a prior year, or (2) who has not been credited with at least one
Hour of Service with the Employer or an Affiliate at any time during the
five-year period ending on the Determination Date, will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in accordance with
Code Section 416.
Elective Deferrals 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 who is not a Key Employee shall be
determined under (A) the method, if any, that uniformly applies for accrual
purposes under all Defined Benefit Plans 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 Code Section 411(b)(1)(C).
4.4.2 If the Plan is determined to be a Top-Heavy Plan or a Super Top-Heavy Plan
as of any Determination Date after December 31, 1983, then the Top-Heavy vesting
schedule specified in the Adoption Agreement, beginning with the first Plan Year
commencing after such Determination Date, shall apply only for those Plan Years
in which the Plan continues to be a Top-Heavy Plan or Super Top-Heavy Plan, as
the case may be
4.4.3 (A) Except as provided in Sections 4.4.3(C) and (D), for any Plan Year in
which the Plan is a Top-Heavy Plan, contributions and forfeitures allocated to
the Employer Contributions Account of any Participant who is not a Key Employee
in respect of that Plan Year shall not be less than the lesser of:
(i) 3% of such Participant's Limitation Compensation, or
(ii) if the Employer has no Defined Benefit Plan which designates this Plan to
satisfy Code Section 401, the largest percentage of contributions and
forfeitures, as a percentage of the Key Employee's Limitation Compensation,
allocated to the Employer Contributions Account 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 for the Plan Year because
of (a) the Participant's failure to complete a Year of Service, (b) the
Participant's failure to make mandatory Participant contributions to the Plan or
(c) compensation less than a stated amount.
(B) For purposes of computing the minimum allocation, a Participant's Limitation
Compensation will be applied.
(C) The provision in (A) above shall not apply to any Participant who was not
employed by the Employer or an Affiliate on the last day of the Plan Year.
(D) If the Employer or an Affiliate has executed Adoption Agreements covering
Participants by a plan which is a profit-sharing plan and by another plan which
is a money purchase pension plan or a target benefit plan, the minimum
allocation specified in the preceding Section 4.4.3(A) shall be provided by the
money purchase pension plan or by the target benefit plan, as the case may be.
If a Participant is covered under this Plan and a Defined Benefit Plan
maintained pursuant to Adoption Agreements offered by the Sponsor, the minimum
allocation specified in the preceding Section 4.4.3(A) shall not be applicable
and the Participant shall receive the minimum benefit specified in the Defined
Benefit Plan.
(E) With respect to any profit-sharing or money purchase pension plan which
becomes Top-Heavy and is integrated with Social Security, prior to making the
allocations specified in the Adoption Agreement, anything contained therein to
the contrary notwithstanding, there shall be an allocation of the Employer
Contribution to each eligible Participant's Employer Contribution Account in the
ratio that each such Participant's Limitation Compensation for the Plan Year
bears to the Limitation Compensation of all such Participants for the Plan Year,
but not in excess of 3% of such Limitation Compensation.
4.4.4 If the Plan becomes a Top-Heavy Plan, then the maximum benefit which can
be provided under Section 3.9 shall continue to be determined by applying "125%"
wherever it appears in that Section and by substituting "4%" for "3%" wherever
that appears in Section 4.4.3. However, if the Plan becomes a Super Top-Heavy
Plan, the maximum benefit which can be provided under Section 3.9 shall be
determined by substituting "100%" for "125%" wherever the latter percentage
appears and the 3%
<PAGE> 35
minimum contribution provided for in Section 4.4.4 shall remain unchanged.
4.4.5 Beginning with the Plan Year in which this Plan is Top-Heavy, one of the
minimum Top-Heavy vesting schedules as specified in the Adoption Agreement will
apply. The minimum vesting schedule applies to all benefits within the meaning
of Code Section 411(a)(7) except those attributable to Employee contributions,
including benefits accrued before the effective date of Code Section 416 and
benefits accrued before the Plan became Top-Heavy. However, this Section 4.4
does not apply to the Account Balances of any Employee who does not have an Hour
of Service after the Plan has initially become Top-Heavy and such Employee's
vesting in his or her Employer Contributions Account will be determined without
regard to this Section 4.4. The minimum allocation pursuant to Section 4.4.3 (to
the extent required to be nonforfeitable under Code Section 416(b)) may not be
forfeited under Code Section 411(a)(3)(B) or Code Section 411(a)(3)(D).
ARTICLE V
AMOUNT AND DISTRIBUTION OF BENEFITS,
WITHDRAWALS AND LOANS
5.1 DISTRIBUTION UPON TERMINATION OF EMPLOYMENT
5.1.1 Subject to Section 5.1.2, a Participant's Benefit Commencement Date shall
be as soon as practicable following his or her Fully Vested Separation,
Partially Vested Separation or Nonvested Separation, if applicable, and in
accordance with Section 5.6. If the Plan includes a CODA feature, each 401(k)
Contributions Account of a Participant shall be payable in accordance with the
events specified in Section 1.27 of the Plan.
5.1.2 If specified in the Adoption Agreement, a Participant's Benefit
Commencement Date shall be deferred until the earliest of his or her Normal
Retirement Age, Disability, or if elected by the Employer in the Adoption
Agreement, Early Retirement. If a Participant terminates Employment after
satisfying any service requirement for Early Retirement specified in the
Adoption Agreement, he or she shall be entitled to elect to receive a
distribution of his or her vested Employer Accounts upon satisfaction of any age
requirement for Early Retirement.
5.2 AMOUNT OF BENEFITS UPON A FULLY VESTED SEPARATION
A Participant's benefits upon his or her Fully Vested Separation for any reason
other than Disability shall be the Account Balance of all of his or her Accounts
determined in accordance with Section 10.6.2.
5.3 AMOUNT OF BENEFITS UPON A PARTIALLY VESTED SEPARATION
A Participant's benefits upon his or her Partially Vested Separation for any
reason other than Disability shall be: (A) the Account Balance of his or her
Employer Accounts determined in accordance with Section 10.6.2 multiplied by his
or her vested percentage determined pursuant to Section 4.1.3, or, if
applicable, Section 4.4.2, plus (B) the Account Balance of his or her other
Accounts determined in accordance with Section 10.6.2.
5.4 Amount of Benefits Upon a Nonvested Separation
A Participant's benefits upon his or her Nonvested Separation shall be the
Account Balance of his or her Accounts other than Employer Accounts, if any,
determined in accordance with Section 10.6.2.
5.5 AMOUNT OF BENEFITS UPON A SEPARATION DUE TO DISABILITY
If a Participant terminates Employment due to a Disability, his or her benefit
shall be the Account Balance of all of his or her Accounts determined as a Fully
Vested Separation in accordance with Section 5.2 and Section 10.6.2. The Benefit
Commencement Date of any such Participant on whose behalf contributions are
being made pursuant to Section 3.1.4 shall be as soon as practicable after the
date such contributions cease.
5.6 DISTRIBUTION AND RESTORATION
5.6.1 If, upon a Participant's termination of Employment, the vested Account
Balance of his or her Accounts as of the applicable Valuation Date is equal to
or less than $3,500, such Participant will receive a distribution of his or her
entire vested benefit and the nonvested portion will be treated as forfeiture.
If the value of a Participant's vested Account is zero, the Participant shall be
deemed to have received a distribution of such vested Account.
5.6.2 If, upon a Participant's termination of Employment, the vested Account
Balance of his or her Accounts as of the applicable Valuation Date exceeds
$3,500, the Participant may elect, in accordance with Article VI, to receive a
distribution of the entire vested portion of such Accounts and the nonvested
portion, if any, will be treated as a forfeiture.
5.6.3 If the vested Account Balance of a Participant's Accounts as of the
applicable Valuation Date has an aggregate value exceeding (or at the time of
any prior distribution exceeded) $3,500, and the Participant's benefit is
Immediately Distributable, the Participant and the Participant's Spouse (or
where either the Participant or the Spouse has died, the survivor) must consent
to any distribution of such benefit. The consent of the Participant and the
Participant's Spouse shall be obtained in writing within the 90-day period
ending on the Participant's Benefit
<PAGE> 36
Commencement Date; provided, however, that if the Plan is a profit-sharing plan
and Section 6.1.2 applies, the consent of the Participant's Spouse will not be
required. The Administrator shall notify the Participant and the Participant's
Spouse of the right to defer any distribution until the Participant's benefit is
no longer Immediately Distributable. Such notification shall include a general
description of the material features, and an explanation of the relative values
of, the optional forms of benefit available under the Plan in a manner that
would satisfy the notice requirements of Code Section 417(a)(3), and shall be
provided no less than 30 days and no more than 90 days prior to the Benefit
Commencement Date.
5.6.4 Notwithstanding the foregoing, only the Participant need consent to the
commencement of a distribution in the form of a Qualified Joint and Survivor
Annuity while the Participant's benefit is Immediately Distributable. Neither
the consent of the Participant nor the Participant's Spouse shall be required to
the extent that a distribution is required to satisfy Code Section 401(a)(9) or
Code Section 415.
5.6.5 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 benefit shall not
include amounts attributable to accumulated deductible Participant contributions
within the meaning of Code Section 72(o)(5)(B).
5.6.6 If a Participant, who after termination of Employment received a
distribution and forfeited any portion of an Employer Account or is deemed to
have received a distribution in accordance with Section 5.6.1, resumes
Employment, he or she shall have the right, while an Employee, to repay the full
amount previously distributed from such Employer Account. Such repayment must
occur before the earlier of (i) the date on which he or she would have incurred
a Period of Severance of five years commencing after the distribution or (ii)
five years after the first date on which the Participant is subsequently
reemployed. If the Participant makes a repayment, the Account Balance of his or
her relevant Employer Account shall be restored to its value as of the date of
distribution. The restored amount shall be derived from forfeitures during the
Plan Year and, if such forfeitures are not sufficient, from a contribution by
the Employer made as of that date (determined without reference to Net Profits).
If an Employee who had a Nonvested Separation and was deemed to receive a
distribution resumes Employment before a Period of Severance of five years, his
or her Employer Account will be restored, upon reemployment, to the amount on
the date of such deemed distribution.
5.7 WITHDRAWALS DURING EMPLOYMENT
5.7.1 If the Plan is a profit-sharing plan, and if the Employer has elected in
the Adoption Agreement to permit withdrawals during Employment, prior to
termination of Employment, each Participant upon attainment of age 59-1/2 may
elect to withdraw, as of the Valuation Date next following the receipt of an
election by the Administrator, and upon such notice as the Administrator may
require, all or any part of the vested Account Balance of all of his or her
Accounts, as of such Valuation Date.
5.7.2 Notwithstanding Section 5.7.1, prior to termination of Employment, each
Participant with a Rollover Contributions Account and/or a Participant Voluntary
Nondeductible Contributions Account may elect to withdraw, as of the Valuation
Date next following the receipt of an election by the Administrator, and upon
such notice as the Administrator may require, all or any of such Account, as of
such Valuation Date.
5.7.3 The Administrator may establish from time to time rules and procedures
with respect to any withdrawals including the order of Accounts from which such
withdrawals shall be made.
5.7.4 No forfeitures shall occur as a result of a withdrawal pursuant to this
Section 5.7.
5.7.5 If a Participant is married at the time of such election, the
Participant's Spouse must consent to such a withdrawal in the same manner as
provided in Section 6.2.4; provided, however, that if the Plan is a
profit-sharing plan and Section 6.1.2 applies, the consent of the Participant's
Spouse will not be required.
5.8 LOANS
5.8.1 If the Employer has elected in the Adoption Agreement to make loans
available, a Participant may submit an application to the Administrator to
borrow from any Account maintained for the Participant (on such terms and
conditions as the Administrator shall prescribe) an amount which when added to
the outstanding balance of all other loans to the Participant would not 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) 50% of the vested portion of his or her Account
from which the borrowing is to be made as of the Valuation Date next following
the receipt of his or her loan application by the Administrator and the
expiration of such notice period as the Administrator may require. For this
purpose, all loans from Qualified Plans of the Employer or an Affiliate shall be
aggregated, and an assignment or pledge of any portion of the Participant's
interest in the Plan, and a loan, pledge or
<PAGE> 37
assignment with respect to any insurance contract purchased under the Plan, will
be treated as a loan under this Section 5.8.1.
5.8.2 If approved, each such loan shall comply with the following conditions:
(A) it shall be evidenced by a negotiable promissory note;
(B) the rate of interest payable on the unpaid balance of such loan shall be a
reasonable rate determined by the Administrator;
(C) the Participant must obtain the consent of his or her Spouse, if any, within
the 90-day period before the time an Account is used as security for the loan;
provided, however, that if the Plan is a profit-sharing plan that meets the
requirements in Section 6.1.2 of the Plan, the consent of the Participant's
Spouse will not be required. A new consent is required if an Account is used for
any increase in the amount of security. The consent shall comply with the
requirements of Section 6.2.4, but shall be deemed to meet any requirements
contained in section 6.2.4 relating to the consent of any subsequent Spouse. A
new consent shall be required if an Account is used for renegotiation,
extension, renewal, or other revision of the loan;
(D) the loan, by its terms, must require repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond five years from the date of the loan; provided, however,
that if the proceeds of the loan are used to acquire a dwelling unit which
within a reasonable time (determined at the time the loan is made) will be used
as the principal residence of the Participant, the repayment schedule may be for
a term in excess of five years; and
(E) the loan shall be adequately secured and may be secured by no more than 50%
of the Participant's vested interest in the Account Balance of his or her
Accounts.
5.8.3 If a Participant or Beneficiary requests and is granted a loan, and the
loan is made from Participant-Directed Assets, principal and interest payments
with respect to the loan shall be credited solely to the Account of the
borrowing Participant from which the loan was made. Any loss caused by
nonpayment or other default on a Participant's loan obligations shall be charged
solely to that Account. Any other loan shall be treated as an investment of the
Trust Fund and interest and principal payments on account thereof shall be
credited to the Trust Fund. The Administrator shall determine the order of
Accounts from which a loan may be made.
5.8.4 Anything herein to the contrary notwithstanding:
(A) in the event of a default, foreclosure on the promissory note will not occur
until a distributable event occurs under this Article V;
(B) no loan will be made to any Owner-Employee or to any "shareholder-employee"
of the Employer or a Participating Affiliate or with respect to any amounts
attributable to a Rollover Contribution or a trust to trust transfer and
relating to prior participation by such an individual in a Qualified Plan. For
this purpose, a "shareholder-employee" means an employee or officer of an
electing small business, i.e., an "S corporation" as defined in Code Section
1361, who owns (or is considered as owning within the meaning of Code Section
318(a)(1)) on any day during the taxable year of such corporation, more than 5%
of the outstanding stock of the corporation; and
(C) loans shall not be made available to Highly Compensated Employees in an
amount greater than the amount made available to other Employees.
5.8.5 If a valid spousal consent has been obtained in accordance with Section
5.8.2(C), then, notwithstanding any other provision of this Plan, the portion of
the Participant's vested Account used as a security interest held by the Plan by
reason of a loan outstanding to the Participant shall be taken into account for
purposes of determining the amount of the Participant's benefit 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 benefit (determined
without regard to the preceding sentence) is payable to the Surviving Spouse,
then the Participant's benefit shall be adjusted by first reducing the
Participant's vested benefit by the amount of the security used as repayment of
the loan, and then determining the benefit payable to the Surviving Spouse.
5.9 HARDSHIP DISTRIBUTIONS
5.9.1 Effective January 1, 1989, if available and elected by the Employer in the
Adoption Agreement, a Participant may request a distribution due to hardship
from the vested portion of his or her Accounts, (other than from his or her
Qualified Nonelective Contributions Account, Qualified Matching Contributions
Account or earnings accrued after December 31, 1988, on the Participant's
Elective Deferrals) only if the distribution is made both due to an immediate
and heavy financial need of the Participant and is necessary to satisfy such
financial need.
5.9.2 A hardship distribution shall be permitted only if the distribution is due
to:
<PAGE> 38
(A) expenses incurred or necessary for medical care described in Code Section
213(d) incurred by the Participant, the Participant's Spouse, or any dependents
of the Participant (as defined in Code Section 152);
(B) purchase (excluding mortgage payments) of a principal residence for the
Participant;
(C) payment of tuition and related educational fees for the next 12 months of
post-secondary education for the Participant, his or her Spouse, children or
dependents;
(D) the need to prevent the eviction of the Participant from his or her
principal residence or foreclosure on the mortgage of the Participant's
principal residence; or
(E) any other condition or event which the Commissioner of the Internal Revenue
Service determines is a deemed immediate and financial need.
5.9.3 A distribution will be considered necessary to satisfy an immediate and
heavy financial need of a Participant if all of the following requirements are
satisfied:
(A) the distribution will not be in excess of the amount of the immediate and
heavy financial need of the Participant (including amounts necessary to pay any
Federal, state or local income taxes or penalties reasonably anticipated to
result from the distribution);
(B) the Participant obtains all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by the Employer or an Affiliate;
(C) the Participant's Elective Deferrals, Employee Thrift Contributions and
Participant Voluntary Nondeductible Contributions will be suspended for at least
12 months after receipt of the hardship distribution in this Plan and in all
other plans maintained by the Employer or an Affiliate; and
(D) the Participant may not make Elective Deferrals for the Participant's
taxable year immediately following the taxable year of the hardship distribution
in excess of the applicable limit under Code Section 402(g) for such next
taxable year less the amount of such Participant's Elective Deferrals for the
taxable year of the distribution in this Plan and in all other plans maintained
by the Employer or an Affiliate.
5.9.4 If the distribution is made from any Account other than a 401(k)
Contributions Account, a distribution due to hardship may be made without
application of Section 5.9.3(B), 5.9.3(C), or 5.9.3(D).
5.10 LIMITATION ON COMMENCEMENT OF BENEFITS
5.10.1 Anything in this Article V to the contrary notwithstanding, a
Participant's Benefit Commencement Date shall in no event be later than the 60th
day after the close of the Plan Year in which the latest of the following events
occur:
(A) the attainment by the Participant of his or her Normal Retirement Age;
(B) the tenth anniversary of the year in which the Participant commenced
participation in the Plan; or
(C) the Participant's termination of Employment. Notwithstanding the foregoing,
the failure of a Participant and Spouse to consent to a distribution while a
benefit is Immediately Distributable, shall be deemed to be an election to defer
commencement of payment of any benefit sufficient to satisfy this Section.
5.10.2 If it is not possible to distribute a Participant's Accounts because the
Administrator has been unable to locate the Participant after making reasonable
efforts to do so, then a distribution of the Participant's Accounts shall be
made when the Participant can be located.
5.11 DISTRIBUTION REQUIREMENTS
5.11.1 Subject to the Joint and Survivor Annuity rules set forth in Article VI,
the requirements of this Article shall apply to any distribution of a
Participant's interest and will take precedence over any inconsistent provisions
of this Plan. Unless otherwise specified, the provisions of this article apply
to calendar years beginning after December 31, 1984. As used in this Section
5.11, each of the following terms shall have the meaning for that term set forth
in this Section 5.11.1:
(A) Applicable Life Expectancy. The life expectancy (or joint and last survivor
expectancy) calculated using the attained age of the Participant (or designated
Beneficiary) as of the Participant's (or designated Beneficiary's) birthday in
the applicable calendar year reduced by one for each calendar year which has
elapsed since the date Life Expectancy was first calculated. If Life Expectancy
is being recalculated, the Applicable Life Expectancy shall be the Life
Expectancy as so recalculated. The applicable calendar year shall be the first
distribution calendar year, and if Life Expectancy is being recalculated such
succeeding calendar year.
(B) Designated Beneficiary. The individual who is designated as the Beneficiary
under the Plan in
<PAGE> 39
accordance with Code Section 401(a)(9). In the event that a Participant names a
trust to be a designated Beneficiary, such designation shall provide that, as of
the later of the date on which the trust is named as a Beneficiary or the
Participant's Required Beginning Date, and as of all subsequent periods during
which the trust is named as a Beneficiary, the following requirements are met:
(i) the trust is a valid trust under state law, or would be but for the fact
that there is no corpus; (ii) the trust is irrevocable; (iii) the Beneficiaries
of the trust who are Beneficiaries with respect to the trust's interest in the
Participant's benefits are identifiable from the trust instrument within the
meaning of Code Section 401(a)(9); and (iv) a copy of the trust is provided to
the Plan.
(C) Distribution Calendar Year. A calendar year for which a minimum distribution
is required. For distributions beginning before the Participant's death, the
first Distribution Calendar Year is the calendar year immediately preceding the
calendar year which contains the Participant's Required Beginning Date. For
distributions beginning after the Participant's death, the first Distribution
Calendar Year is the calendar year in which distributions are required to begin
pursuant to Section 7.2.
(D) Life Expectancy. Life Expectancy and joint and last survivor expectancy are
computed by use of the expected return multiples in Tables V and VI of section
1.72-9 of the regulations issued under the Code.
Unless otherwise elected by the Participant (or Spouse, in the case of
distributions described in Section 7.2) by the time distributions are required
to begin, Life Expectancies shall not be recalculated annually. Such election
shall be irrevocable as to the Participant or Spouse and shall apply to all
subsequent years. The Life Expectancy of a nonspouse Beneficiary may not be
recalculated.
(E) Required Beginning Date.
(I) General rule. The Required Beginning Date of a Participant is the first day
of April of the calendar year following the calendar year in which the
Participant attains age 70-1/2.
(Ii) Transitional rule. 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" as defined in (iii) below is the first day of April of the calendar year
following the calendar year in which the later of retirement or attainment of
age 70-1/2 occurs.
(2) 5% 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.
(iii) 5% owner. A Participant is treated as a 5% owner for purposes of this
Section 5.11 if such Participant is a 5% owner as defined in Code Section 416(i)
(determined in accordance with section 416 but without regard to whether the
plan is top-heavy) at any time during the Plan Year ending with or within the
calendar year in which such owner attains age 66-1/2 or any subsequent Plan
Year.
(iv) Once distributions have begun to a 5% owner under this Section 5.11, they
must continue to be distributed, even if the Participant ceases to be a 5% owner
in a subsequent year.
5.11.2 All distributions required under this Section 5.11 shall be determined
and made in accordance with the Income Tax Regulations under Code Section
401(a)(9), including the minimum distribution incidental benefit requirement of
section 1.401(a)(9)-2 of the regulations issued under the Code. The entire
interest of a Participant must be distributed or begin to be distributed no
later than the Participant's Required Beginning Date. 5.11.3 LIMITS ON
DISTRIBUTION PERIODS. As of the first Distribution Calendar Year, distributions,
if not made in a lump sum, may only be made over one of the following periods
(or a combination thereof):
(A) the life of the Participant;
(B) the life of the Participant and a 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 a Designated Beneficiary.
For calendar years beginning before January 1, 1989, if the Participant's Spouse
is not the Designated Beneficiary, the method of distribution selected must
<PAGE> 40
assure that at least 50% of the present value of the amount available for
distribution is paid within the Life Expectancy of the Participant.
5.11.4 DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR. (A) If the
Participant's interest is to be paid in the form of annuity distributions under
the Plan (whether directly or in the form of an annuity purchased from an
insurance company), payments under the annuity shall satisfy the following
requirements:
(I) the annuity distributions must be paid in periodic payments made at
intervals not longer than one year;
(ii) the distribution period must be over a life (or lives) or over a period
certain not longer than a Life Expectancy (or joint life and last survivor
expectancy) described in Code Section 401(a)(9)(A)(ii) or Code Section
401(a)(9)(B)(iii), whichever is applicable;
(iii) the Life Expectancy (or joint life and last survivor expectancy) for
purposes of determining the period certain shall be determined without
recalculation of Life Expectancy;
(iv) once payments have begun over a period certain, the period certain may not
be lengthened even if the period certain is shorter than the maximum permitted;
(v) payments must either be nonincreasing or increase only as follows:
(1) with any percentage increase in a specified and generally recognized
cost-of-living index;
(2) to the extent of the reduction to the amount of the Participant's payments
to provide for a survivor benefit upon death, but only if the Beneficiary whose
life was being used to determine the distribution period described in Section
5.11.4(A)(iii) dies and the payments continue otherwise in accordance with that
section over the life of the Participant;
(3) to provide cash refunds of Employee contributions upon the Participant's
death; or
(4) because of an increase in benefits under the Plan.
(vi) If the annuity is a life annuity (or a life annuity with a period certain
not exceeding 20 years), the amount which must be distributed on or before the
Participant's Required Beginning Date (or, in the case of distributions after
the death of the Participant, the date distributions are required to begin
pursuant to Section 7.2) shall be the payment which is required for one payment
interval. The second payment need not be made until the end of the next payment
interval even if that payment interval ends in the next calendar year. Payment
intervals are the periods for which payments are received, e.g., bimonthly,
monthly, semi-annually, or annually.
If the annuity is a period certain annuity without a life contingency (or is a
life annuity with a period certain exceeding 20 years) periodic payments for
each distribution calendar year shall be combined and treated as an annual
amount. The amount which must be distributed by the Participant's Required
Beginning Date (or, in the case of distributions after the death of the
Participant, the date distributions are required to begin pursuant to Section
7.2) is the annual amount for the first Distribution Calendar Year. The annual
amount for other Distribution Calendar Years, including the annual amount for
the calendar year in which the Participant's Required Beginning Date (or the
date distributions are required to begin pursuant to Section 7.2) occurs, must
be distributed on or before December 31 of the calendar year for which the
distribution is required.
(B) Annuities purchased after December 31, 1988, are subject to the following
additional conditions:
(i) Unless the Participant's Spouse is the Designated Beneficiary, if the
Participant's interest is being distributed in the form of a period certain
annuity without a life contingency, the period certain as of the beginning of
the first Distribution Calendar Year may not exceed the applicable period
determined using the table set forth in Q&A A-5 of section 1.401(a)(9)-2 of the
regulations issued under the Code.
(ii) If the Participant's interest is being distributed in the form of a joint
and survivor annuity for the joint lives of the Participant and a nonspouse
Beneficiary, annuity payments to be made on or after the Participant's Required
Beginning Date to the Designated Beneficiary after the Participant's death must
not at any time exceed the applicable percentage of the annuity payment for such
period that would have been payable to the Participant using the table set forth
in Q&A A-6 of section 1.401(a)(9)-2 of the regulations under the Code.
(C) Transitional Rule. If payments under an annuity which complies with Section
5.11.4(A) begin prior to January 1, 1989, the minimum distribution requirements
in effect as of July 27, 1987, shall apply to distributions from this Plan,
regardless of whether the annuity form of payment is irrevocable. This
transitional rule also applies to deferred annuity contracts distributed to or
owned by the Participant prior to January 1, 1989, unless additional
contributions are made under the Plan by the Employer or Affiliate with respect
to such contract.
(D) If the form of distribution is an annuity made in accordance with Section
5.11.4, any additional benefits accruing to the Participant after his or her
Required Beginning Date shall be distributed as a
<PAGE> 41
separate and identifiable component of the annuity beginning with the first
payment interval ending in the calendar year immediately following the calendar
year in which such amount accrues.
(E) Any part of the Participant's interest which is in the form of an individual
account shall be distributed in a manner satisfying the requirements of Code
Section 401(a)(9).
5.11.5 TRANSITIONAL RULE: SECTION 242 ELECTION. Notwithstanding the other
requirements of this Article and subject to the Joint and Survivor Annuity rules
set forth in Article VI, distribution on behalf of any Employee, including a 5%
owner, may be made in accordance with all of the following requirements
(regardless of when such distribution commences):
(A) the distribution by the trust is one which would not have disqualified such
trust under Code Section 401(a)(9) as in effect prior to 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 such Employee;
(C) such designation 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;
and
(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
subsections 5.11.5(A) and (E).
If a designation is revoked any subsequent distribution must satisfy the
requirements of Code Section 401(a)(9). If a designation is revoked subsequent
to the date distributions are required to begin, the trust must distribute by
the end of the calendar year following the calendar year in which the revocation
occurs the total amount not yet distributed to satisfy Code Section 401(a)(9)
but for the Section 242(b)(2) election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum distribution
incidental benefit requirements in section 1.401(a)(9)-2 of the regulations
issued under the Code. Any changes in the designation will be considered to be a
revocation of the designation. However, the mere substitution or addition of
another Beneficiary (one not named in the designation) under the designation
will not be considered to be a revocation of the designation, so long as such
substitution or addition does not alter the period over which distributions are
to be made under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which an amount is
transferred or rolled over from one plan to another plan, the rules in Q&A J-2
and Q&A J-3 of section 1.401(a)(9)-1 of the regulations issued under the Code.
<PAGE> 42
ARTICLE VI
FORMS OF PAYMENT OF RETIREMENT BENEFITS
6.1 METHODS OF DISTRIBUTION
6.1.1 If the Plan is a money purchase pension plan or a target benefit plan, a
Participant's benefit shall be payable in the normal form of a Qualified Joint
and Survivor Annuity if the Participant is married on his or her Benefit
Commencement Date and in the normal form of an immediate annuity for the life of
the Participant if the Participant is not married on that date. A Participant
who terminated Employment on or after satisfying the requirements for Early
Retirement may elect to have his or her Qualified Joint and Survivor Annuity
distributed upon attainment of such Early Retirement. If the Plan is a
profit-sharing plan that satisfies the requirements set forth in Section 6.1.2,
a Participant's Accounts shall only be payable in the normal form of a lump-sum
distribution in accordance with Section 6.1.1(B) below. A Participant in a money
purchase pension plan, a target benefit plan, or a profit-sharing plan that does
not satisfy the requirements set forth in Section 6.1.2, may at any time after
attaining age 35 and prior to his or her Benefit Commencement Date elect, in
accordance with Section 6.2, any of the following optional forms of payment
instead of the normal form:
(A) An Annuity Contract payable as:
(i) a single life annuity;
(ii) a joint and 50% survivor annuity with a contingent annuitant;
(iii) a joint and 100% survivor annuity with a contingent annuitant;
(iv) an annuity for the life of the Participant with 120 monthly payments
certain;
(B) A lump-sum distribution in cash or in kind, or part in cash and part in
kind; or
(C) In installments payable in cash or in kind, or part in cash and part in kind
over a period not in excess of that required to comply with Section 5.11.4.
Anything in this Section 6.1.1 to the contrary notwithstanding, if the value of
a Participant's vested Account as of the applicable Valuation Date is $3,500 or
less, his or her benefit shall be paid in the form of a lump-sum distribution
and no optional form of benefit payment shall be available.
6.1.2 If the Plan is a profit-sharing plan then:(A) the Participant cannot elect
payments in the form of a Life annuity (this Section 6.1.2 shall not apply if a
life annuity form is an optional form preserved under Code Section 411(d)(6));
(B) on the death of the Participant, the Participant's benefits will be paid to
his or her Surviving Spouse, if any, or, if his or her Surviving Spouse has
already consented in a manner conforming to an election under Section 6.2.4,
then to the Participant's Beneficiary; and(C) the normal form of benefit shall
be a lump-sum and Sections 6.2.1, 6.2.2 and 6.2.4 shall not be applied by the
Administrator. A Participant in such a profit-sharing plan may also elect to
receive his or her benefit in the form of installments in accordance with
Section 6.1.1(C) of the Plan. This Section 6.1.2 shall not apply, however, with
respect to the Participant if it is determined that the Plan is a direct or
indirect transferee of a defined benefit plan, a money purchase pension plan
(including a target benefit plan) or a stock bonus or profit-sharing plan which
is subject to the survivor annuity requirements of Code Sections 401(a)(11) and
417. In addition, this Section 6.1.2 shall not apply unless the Participant's
Surviving Spouse, if any, is the Beneficiary of (i) the proceeds of any
insurance on the Participant's life purchased by Employer contributions or (ii)
forfeitures allocated to the Participant's Employer Account or unless the
Participant's Surviving Spouse has consented to the Participant's designation of
another Beneficiary as referred to in subsection (C) of this Section 6.1.2.
6.1.3 The following transitional rules shall apply for those Participants
entitled to but not receiving benefits as of August 23, 1984:
(A) Any living Participant not receiving benefits on August 23, 1984, who would
otherwise not receive the benefits prescribed by Section 6.1 must be given the
opportunity to elect to have Section 6.1 apply if such Participant is credited
with at least one Hour of Service under this Plan or a predecessor plan in a
Plan Year beginning on or after January 1, 1976, and such Participant had at
least 10 Years of Service when he or she terminated from Employment.
(B) Any living Participant not receiving benefits on August 23, 1984, who was
credited with at least one Hour of Service under this Plan or a predecessor plan
on or after September 2, l974, and who is not otherwise credited with an Hour of
Service in a Plan Year beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance with this Section
6.1.3(D).
(C) The respective opportunities to elect (as described in these Sections
6.1.3(A) and (B)) must be afforded to the appropriate Participants during the
period commencing on August 23, 1984, and ending on such Participant's Benefit
Commencement Date.
(D) Any Participant who has elected pursuant to this Section 6.1.3(B) and any
Participant who does not elect under this Section 6.1.3(A) or who meets the
<PAGE> 43
requirements of this Section 6.1.3(A) except that such Participant does not have
at least ten Years of Service when he or she terminates from Employment, shall
have his or her benefits distributed in accordance with all of the following
requirements if benefits would have been payable in the form of a single life
annuity:
(1) Automatic Qualified Joint and Survivor Annuity
If benefits in the form of a single life annuity become payable to a married
Participant who:
(a) begins to receive payments on or after Normal Retirement Age; or
(b) dies on or after Normal Retirement Age while in active Employment; or
(c) begins to receive payments on or after the "Qualified Early Retirement Age",
as that term is defined in Section 6.1.3(D)(3)(a); or
(d) terminates from Employment on or after attaining Normal Retirement Age (or
Qualified Early Retirement Age) and after satisfying the eligibility requirement
for the payment of benefits under the Plan and thereafter dies before his or her
Benefit Commencement Date; then such benefits will be received in the form of a
Qualified Joint and Survivor Annuity, unless the Participant has elected
otherwise during the election period which begins at least six months before the
Participant attains Qualified Early Retirement Age and ends no earlier than 90
days before his or her Benefit Commencement Date. 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, beginning on the later of (1) the 90th
day before he or she attains his or her Qualified Early Retirement Age, or (2)
the date on which participation begins, and ending on the date he or she
terminates Employment, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under such annuity must not be
less than the payments which would have been made to the Spouse under the
Qualified Joint and Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision will be in writing
and may be changed by the Participant at any time.
(3) Qualified Early Retirement Age
(a) For purposes of this section 6.1.3, Qualified Early Retirement Age is the
latest of:
(i) the earliest date, under the Plan, on which the Participant may elect to
receive retirement benefits,
(ii) the first day of the 120th month beginning before the Participant
reaches Normal Retirement Age, or
(iii) the date the Participant begins participation.
(b) Qualified Joint and Survivor Annuity is an annuity for the life of the
Participant with a survivor annuity for the life of the Spouse as described in
Section 1.77.
6.2 ELECTION OF OPTIONAL FORMS
6.2.1 By notice to the Administrator at any time prior to a Participant's date
of death and beginning on the first day of the Plan Year in which the
Participant attains age 35, the Participant may elect, in writing, not to
receive the normal form of benefit payment otherwise applicable and to receive
instead an optional form of benefit payment provided for in Section 6.1.1. If
the Participant separates from Employment prior to the first day of the Plan
Year in which the Participant attains age 35, the Participant may make such
election beginning on the date he or she separates from Employment. This Section
6.2.1 shall not be applicable if Section 6.1.2 applies to a Participant.
6.2.2 Within a reasonable period, but in any event no less than 30 and no more
than 90 days prior to each Participant's Benefit Commencement Date, the
Administrator shall provide to each Participant a written explanation of the
terms and conditions of a Qualified Joint and Survivor Annuity. Such written
explanation shall consist of:
(A) the terms and conditions of the Qualified Joint and Survivor Annuity;
(B) the Participant's right to make, and the effect of, an election to waive the
Qualified Joint and Survivor Annuity;
(C) the rights of the Participant's Spouse under Section 6.2.4;
(D) the right to make, and the effect of, a revocation of a previous election to
waive the Qualified Joint and Survivor Annuity; and
(E) the relative values of the various optional forms of benefit under the Plan.
The Administrator may, on a uniform and nondiscriminatory basis, provide for
such other notices, information or election periods or take such other action as
the Administrator considers necessary or appropriate to implement the provisions
of this Section 6.2.2.
<PAGE> 44
6.2.3 A Participant may revoke his or her election to take an optional form of
benefit, and elect a different form of benefit, at any time prior to the
Participant's Benefit Commencement Date.
6.2.4 The election of an optional benefit by a Participant after December 31,
1984, must also be a waiver of a Qualified Joint and Survivor Annuity by the
Participant. Any waiver of a Qualified Joint and Survivor Annuity shall not be
effective unless (A) the Participant's Spouse consents in writing; (B) the
election designates a specific alternate Beneficiary, including any class of
Beneficiaries or any contingent Beneficiaries which may not be changed without
spousal consent (or the Spouse expressly permits designations by the Participant
without any further spousal consent); (C) the Spouse's consent to the waiver is
witnessed by a Plan representative or notary public; and (D) the Spouse's
consent acknowledges the effect of the election. Additionally, a Participant's
waiver of the Qualified Joint and Survivor Annuity will not be effective unless
the election designates a form of benefit payment which may not be changed
without spousal consent or the Spouse expressly permits designations without any
further spousal consent. Notwithstanding this consent requirement, if the
Participant establishes to the satisfaction of a Plan representative that such
written consent may not be obtained because there is no Spouse or the Spouse
cannot be located, the election will be deemed effective. Any consent necessary
under this provision will not be valid with respect to any other Spouse. A
consent that permits designations by the Participant without any requirement of
further consent by such Spouse must acknowledge that the Spouse has the right to
limit consent to a specific Beneficiary, and a specific form of benefit, where
applicable, and that the Spouse voluntarily elects to relinquish either or both
of such rights. Additionally, a revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time before his or her
Benefit Commencement Date. The number of revocations shall not be limited. Any
new waiver will require a new consent by the electing Participant's Spouse. No
consent obtained under this provision shall be valid unless the Participant has
received notice as provided in this Section.
6.2.5 The election of an optional form of benefit which contemplates the payment
of an annuity shall not be given effect if any person who would receive benefits
under the annuity dies before the Benefit Commencement Date.
6.3 CHANGE IN FORM OF BENEFIT PAYMENTS
Any former Employee whose payments are being deferred or who is receiving
installment payments may request acceleration or other modification of the form
of benefit distribution, subject to Code Section 401(a)(9), provided that any
necessary consent to such change required pursuant to Section 6.2.4 is obtained
from the Employee's Spouse. This Section 6.3 shall not apply to any Employee who
becomes a Participant on or after January 1, 1989 or to Plans adopted after that
date.
6.4 DIRECT ROLLOVERS
6.4.1 The provisions of this Section 6.4 apply only to distributions made on or
after January 1, 1993.
6.4.2 Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 6.4, a Distributee
may elect, at the time and in the manner prescribed by the Administrator, to
have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Distributee in a Direct Rollover.
6.4.3 Definitions - All terms used in this Section 6.4 shall have the meaning
set forth below:
(A) Eligible Rollover Distribution: An Eligible Rollover Distribution is any
distribution of all or any portion of the balance to the credit of the
Distributee, except, that an Eligible Rollover Distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9); 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 Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in Code Section 401(a) 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, as defined in Code Section
414(p), are Distributees with regard to the interest of the Spouse or former
Spouse.
<PAGE> 45
(D) Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
ARTICLE VII
DEATH BENEFITS
7.1 PAYMENT OF ACCOUNT BALANCES
7.1.1 The benefits payable to the Beneficiary of a Participant who dies while an
Employee shall be the Account Balance of all of his or her Accounts including,
if applicable, the proceeds of any life insurance contract in effect on the
Participant's life in accordance with Section 7.3. The benefits payable to the
Beneficiary of a Participant who dies after terminating Employment shall be the
vested Account Balance of all of his or her Accounts. Except as otherwise
provided in this Article VII, a Beneficiary may request that he or she be paid
his or her benefits as soon as practicable after the Participant's death.
7.1.2 If a Participant dies before distribution of his or her entire interest in
the Plan has been completed, the remaining interest shall, subject to Section
7.2.5, be distributed to the Participant's Beneficiary in the form, at the time
and from among the methods specified in Section 6.1.1 as elected by the
Beneficiary in writing filed with the Administrator. If an election is not
received by the Administrator within 90 days following the date the
Administrator is notified of the Participant's death, the distribution shall be
made, if to a Surviving Spouse, in accordance with Section 7.2.5(B), and, if to
some other Beneficiary, to the Beneficiary in a lump-sum.
7.1.3 The value of the benefits payable to a Beneficiary shall be determined in
accordance with Section 10.6.2. If the value of such death benefit is $3,500 or
less, distribution of such benefit shall be made in a lump-sum as soon as
practicable following the death of the Participant.
7.2 BENEFICIARIES
7.2.1 The Administrator shall provide each Participant, within the period
described in Section 7.2.1(A) for such Participant, a written explanation of the
death benefit in such terms and in such a manner as would be comparable to the
explanation provided for meeting the requirements applicable to a Qualified
Joint and Survivor Annuity. This Section 7.2.1 shall not be applicable if
Section 6.1.2 applies to a Participant.
(A) The period for providing a written explanation of the death benefit for a
Participant ends on the latest of the following to occur:
(i) the period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year preceding
the Plan Year in which the Participant attains age 35;
(ii) a reasonable period ending after the Employee becomes a Participant; or
(iii) a reasonable period ending after Code Section 417 first applies to the
Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after termination of Employment in case of a Participant who
terminates Employment before attaining age 35 and who has a vested interest in
his or her Account.
(B) For purposes of 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 prior to the date the applicable event occurs and
ending one year after that date. A Participant who has a vested interest in his
or her Account and who terminates Employment before the Plan in which age 35 is
attained, shall be provided such notice within the two-year period beginning one
year prior to and ending one year after termination. If such a Participant
returns to Employment, the applicable period for such Participant shall be
redetermined.
7.2.2 A Participant shall designate one or more Beneficiaries to whom amounts
due after his or her death, other than under the Qualified Joint and Survivor
Annuity, shall be paid. In the event a Participant fails to make a proper
designation or in the event that no designated Beneficiary survives the
Participant, the Participant's Beneficiary shall be the Participant's Surviving
Spouse, or if the Participant has no Surviving Spouse, the legal representative
of the Participant's estate, as an asset of that estate. A Participant's
Beneficiary shall not have any right to benefits under the Plan unless he or she
shall survive the Participant.
7.2.3 Any designation of a Beneficiary incorporated into an Annuity Contract or
insurance contract shall be governed by the terms of such Annuity Contract or
insurance contract. Any other designation of a Beneficiary must be filed with
the Administrator, in a time and manner designated by such Administrator, in
order to be effective. Any such designation of a Beneficiary may be revoked by
filing a later designation or an instrument of revocation with the
Administrator, in a time and manner designated by the Administrator.
7.2.4 Effective after December 31, 1984, a married Participant whose designation
of a Beneficiary is someone other than his or her Spouse, including a
Beneficiary referred to in the first sentence of Section 7.2.3, or the change of
any such Beneficiary to a new
<PAGE> 46
Beneficiary other than the Participant's Spouse, shall not be valid unless made
in writing and consented to by the Participant's Spouse in such terms and in
such a manner as would be comparable to the consent provided for a waiver of the
Qualified Joint and Survivor Annuity. The Spouse's consent to such designation
must be made in the manner described in Section 6.2.4.
7.2.5 Notwithstanding any other provision of the Plan to the contrary:
(A) If the Participant dies after his or her Benefit Commencement Date, but
before distribution of his or her benefit has been completed, the remaining
portion of such benefit may continue in the form and over the period in which
the distributions were being made, but in any event must continue to be made at
least as rapidly as under the method of distribution being used prior to the
Participant's death.
(B) If the Participant dies leaving a Surviving Spouse before his or her Benefit
Commencement Date, the Participant's benefit shall be payable to the
Participant's Surviving Spouse in the form of an annuity for the life of the
Surviving Spouse. The preceding sentence shall not apply if, within 90 days
following the date the Administrator is notified of the Participant's death, his
or her Surviving Spouse elects, by written notice to the Administrator, any
other form of benefit payment specified in Section 6.1.1, or the such Surviving
Spouse has already consented in a manner described in Section 6.2.4 to a
distribution to an alternate Beneficiary designated by the Participant. If the
Plan is a profit-sharing plan which meets the requirements of Section 6.1.2.,
the Surviving Spouse shall receive his or her distribution in the form of a
lump-sum unless she or he elects within 90 days following the date the
Administrator is notified of the Participant's death, any other form of benefit
payment specified in Section 6.1.1, or the Participant's Surviving Spouse has
already consented in a manner described in Section 6.2.4 to a distribution to an
alternate Beneficiary designated by the Participant. If the Participant's
benefit is $3,500 or less, distribution shall be made in the form of a lump-sum
comprised of the assets in the Account immediately prior to the distribution if
the Account consists of Participant-Directed Assets. If the Account does not
consist of Participant-Directed Assets, the distribution shall be in cash. If
the Participant's benefit is distributable in the form of an annuity for the
life of the Surviving Spouse, the Surviving Spouse may elect to have such
annuity distributed immediately.
(C) If the Participant dies before his or her Benefit Commencement Date, the
distribution of the Participant's entire interest shall be completed by December
31 of the calendar year containing the fifth anniversary of the Participant's
death except to the extent that an election is made by the designated
Beneficiary involved to receive distributions in accordance with (i) or (ii) of
this subsection (C) below:
(i) if any portion of the Participant's interest is payable to a designated
Beneficiary who is an individual, distributions may be made in substantially
equal installments over the life or Life Expectancy, as defined in Section
5.11.1(D), of the designated Beneficiary commencing on or before December 31 of
the calendar year immediately following the calendar year of the Participant's
death;
(ii) if the designated Beneficiary is the Participant's Surviving Spouse, the
date distributions are required to begin in accordance with (i) of this
subsection (C) shall not be earlier than the later of December 31 of the
calendar year in which the Participant died and December 31 of the calendar year
in which the Participant would have attained age 65; and
(iii) if the Surviving Spouse dies before payments begin subsequent
distributions shall be made as if the Surviving Spouse had been the Participant.
(D) For purposes of this Section 7.2.5, distribution of a Participant's interest
is considered to begin on the Participant's Required Beginning Date, as defined
in Section 5.11.1(E). If distribution in the form of an annuity irrevocably
commences to the Participant before such Required Beginning Date, the date
distribution is considered to begin is the date distribution actually commences.
(E) For purposes of this Section 7.2.5, any amount paid to a child of the
Participant will be treated as if it had been paid to the Participant's
Surviving Spouse if the amount becomes payable to such Surviving Spouse when the
child reaches the age of majority.
(F) If the Participant has not made an election pursuant to this Section 7.2.5
by the time of his or her death, the Participant's designated Beneficiary must
elect the method of distribution no later than the earlier of (i) December 31 of
the calendar year in which distributions would be required to begin under this
Section 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.
7.3 LIFE INSURANCE
7.3.1 With the consent of the Administrator and upon such notice as the
Administrator may require, a Participant may direct that a portion of his or her
Account be used to pay premiums on life insurance
<PAGE> 47
on the Participant's life; provided, however, that (a) the aggregate premiums
paid on ordinary life insurance must be less than 50% of the aggregate
contributions allocated to the Participant's Employer Accounts, (b) the
aggregate premiums paid on term life insurance contracts, universal life
insurance contracts and all other life insurance contracts which are not
ordinary life insurance may not exceed 25% of the aggregate contributions
allocated to the Participant's Employer Account, and (c) the sum of one-half of
the premiums paid on ordinary life insurance and the total of all other life
insurance premiums may not exceed 25% of the aggregate contributions allocated
to the Employer Account of the Participant. For purposes of these limitations,
ordinary life insurance contracts are contracts with both non-decreasing death
benefits and non-increasing premiums.
7.3.2 The Trustee shall be the owner of each life insurance contract purchased
under this Section 7.3 and the proceeds of each such contract shall be payable
to the Trustee, provided that all benefits, rights and privileges under each
contract on the life of a Participant which are available while the Participant
is living shall be exercised by the Trustee only upon and in accordance with the
written instructions of the Participant. The proceeds of all such insurance on
the life of a Participant shall be paid over by the Trustee to the Participant's
Beneficiary in accordance with this Article VII. Under no circumstances shall
the Trustee retain any part of the proceeds.
7.3.3 Any dividends or credits earned on a life insurance contract shall be
applied when received in reduction of any premiums thereon, or, if no premiums
are due, applied to increase the proceeds of the insurance contract.
7.3.4 If a Participant is found by the Administrator to be insurable only at a
substandard premium rate, the policy shall provide a reduced death benefit using
the same premium as would be required if the Participant were a standard risk,
the amount of the death benefit being determined in accordance with the amount
of the rating.
7.3.5 The cash surrender value of an insurance contract to the extent deriving
from Employer or Participant contributions, if any, shall be included,
respectively, in the Account Balance of the Account from which the premiums were
paid. Any death benefits under an insurance contract payable before the
Participant's termination of Employment will be paid to the Trustee for addition
to the relevant Account of the Participant for distribution in accordance with
Section 7.1.
7.3.6 Any other provisions herein to the contrary notwithstanding, the purchase
of life insurance for any Participant shall be subject to such minimum premium
requirements as the Trustee may determine from time to time.
7.3.7 Premiums on life insurance contracts on a Participant's life shall be paid
by the Trustee, unless directed otherwise by the Participant, first from cash in
the Participant's Employer Accounts to the extent thereof, and then from cash in
the Participant's Participant Contributions Accounts, if any, to the extent
thereof. If there is insufficient cash in either Account to pay premiums due,
the Trustee shall notify the Participant of this fact. If the Participant does
not thereafter instruct the Trustee to sell sufficient assets in an Account of
the Participant to pay premiums due on a timely basis, the Trustee shall not be
obligated to take any further action with respect to any life insurance contract
on the Participant's life, whether as regards continuing insurance on a paid-up
basis, effecting a reduction of the insurance in force, or otherwise, except at
the direction of the Participant.
7.3.8 Prior to such time as a Participant becomes entitled to receive a
distribution of any benefits under this Plan for any reason other than the
Participant's death, the Trustee shall, pursuant to the written direction of the
Participant delivered to the Administrator within such period of time as is
acceptable to the Administrator, either convert all life insurance contracts on
the Participant's life into cash or an annuity to provide current or future
retirement income to the Participant or distribute the contracts to the
Participant as a part of a benefit distribution; provided, however, that:
(A) the contracts shall not be distributed unless, if the Participant is married
at the time the distribution of the contracts is to be made, and the Plan is a
money purchase pension plan, a target benefit plan or a profit-sharing plan to
which Section 6.1.2 does not apply, the Participant's Spouse at that time
consents to a distribution in the manner prescribed by Section 6.2.4; and
(B) if the cash value of any contracts at the time they become distributable to
a Participant exceeds a Participant's vested interest in his or her Employer
Accounts at that time, the Participant shall be entitled to receive a
distribution of such contracts only if the Participant promptly pays such excess
in cash to the Trust Fund.
Life insurance contracts on a Participant's life shall not continue to be
maintained under the Plan following the Participant's termination of Employment
or after Employer contributions have ceased.
If a Participant on whose life an insurance contract is held does not make a
timely and proper direction regarding the contract under this Section 7.3.8, the
<PAGE> 48
Participant shall be deemed to have directed that the contract be converted into
cash to be distributed in the manner in which the Participant's benefit is to be
distributed.
7.3.9 Anything contained herein to the contrary notwithstanding, in the event of
any conflict between the terms of the Plan and the terms of any insurance
contract purchased under this Section 7.3, the provisions of the Plan shall
control.
ARTICLE VIII
FIDUCIARIES
8.1 NAMED FIDUCIARIES
8.1.1 The Administrator shall be a "named fiduciary" of the Plan, as that term
is defined in ERISA Section 402(a)(2), with authority to control and manage the
operation and administration of the Plan, other than authority to manage and
control Plan assets. The Administrator shall also be the "administrator" and
"plan administrator" with respect to the Plan, as those terms are defined in
ERISA Section 3(16)(A) and in Code Section 414(g), respectively.
8.1.2 The Trustee, or Investment Committee if appointed by the Employer, shall
be a "named fiduciary" of the Plan, as that term is defined in ERISA Section
402(a)(2), with authority to manage and control all Trust Fund assets and to
select an Investment Manager or Investment Managers. If Merrill Lynch Trust
Company is the Trustee, it shall be a nondiscretionary trustee; an Investment
Committee shall be appointed and shall be the Employer, who may also remove such
Investment Committee; and the Investment Committee shall be the "named
fiduciary" with respect to Trust Fund assets. Anything in this Section 8.1.2. to
the contrary notwithstanding, with respect to Participant-Directed Assets, the
Participant or Beneficiary having the power to direct the investment of such
assets shall be the "named fiduciary" with respect thereto.
8.1.3 The Trustee, or Investment Committee if appointed by the Employer, shall
have the power to make and deal with any investment of the Trust Fund permitted
in Section 10.4, except Participant-Directed Assets or assets for which an
Investment Manager has such power, in any manner which it deems advisable and
shall also:
(A) establish and carry out a funding policy and method consistent with the
objectives of the Plan and the requirements of ERISA;
(B) have the power to select Annuity Contracts, if applicable;
(C) have the power to determine, if applicable, what investments specified in
Section 10.4, including, without limitation, Qualified Employer Securities and
regulated investment company shares, are available as Participant-Directed
Assets; and
(D) have all the rights, powers, duties and obligations granted or imposed upon
it elsewhere in the Plan.
8.2 EMPLOYMENT OF ADVISERS
A "named fiduciary", with respect to the Plan (as defined in ERISA Section
402(a)(2)) and any "fiduciary" (as defined in ERISA Section 3(4)) appointed by
such a "named fiduciary", may employ one or more persons to render advice with
regard to any responsibility of such "named fiduciary" or "fiduciary" under the
Plan.
8.3 MULTIPLE FIDUCIARY CAPACITIES
Any "named fiduciary" with respect to the Plan (as defined in ERISA Section
402(a)(2)) and any other "fiduciary" (as defined in ERISA Section 3(4)) with
respect to the Plan may serve in more than one fiduciary capacity.
8.4 INDEMNIFICATION
To the extent not prohibited by state or federal law, the Employer agrees to,
and shall indemnify and save harmless, as the case may be, each Administrator
(if a person other than the Employer), Trustee, Investment Committee and/or any
Employee, officer or director of the Employer, or an Affiliate, from all claims
for liability, loss, damage or expense (including payment of reasonable expenses
in connection with the defense against any such claim) which result from any
exercise or failure to exercise any of the indemnified person's responsibilities
with respect to the Plan, other than by reason of gross negligence.
8.5 PAYMENT OF EXPENSES
8.5.1 All Plan expenses, including without limitation, expenses and fees
(including fees for legal services rendered and fees to the Trustee) of the
Sponsor, Administrator, Investment Manager, Trustee, and any insurance company,
shall be charged against and withdrawn from the Trust Fund; provided, however,
the Employer may pay any of such expenses or reimburse the Trust Fund for any
payment.
8.5.2 All transactional costs or charges imposed or incurred (if any) for
Participant-Directed Assets shall be charged to the Account of the directing
Participant or Beneficiary. Transactional costs and charges shall include, but
shall not be limited to, charges for the acquisition or sale or exchange of
Participant-Directed Assets, brokerage commissions, service charges and
professional fees.
<PAGE> 49
8.5.3 Any taxes which may be imposed upon the Trust Fund or the income therefrom
shall be deducted from and charged against the Trust Fund.
ARTICLE IX
PLAN ADMINISTRATION
9.1 THE ADMINISTRATOR
9.1.1 The Employer may appoint one or more persons as Administrator, who may
also be removed by the Employer. If any individual is appointed as
Administrator, and the individual is an Employee, the individual will be
considered to have resigned as Administrator if he or she terminates Employment
and at least one other person continues to serve as Administrator. Employees
shall receive no compensation for their services rendered to or as
Administrator.
9.1.2 If more than one person is designated as Administrator, the Administrator
shall act by a majority of its members at the time in office and such action may
be taken either by a vote at a meeting or in writing without a meeting. However,
if less than three members are appointed, the Administrators shall act only upon
the unanimous consent of its members. An Administrator who is also a Participant
shall not vote or act upon any matter relating to himself or herself, unless
such person is the sole Administrator.
9.1.3 The Administrator may authorize in writing any person to execute any
document or documents on the Administrator's behalf, and any interested person,
upon receipt of notice of such authorization directed to it, may thereafter
accept and rely upon any document executed by such authorized person until the
Administrator shall deliver to such interested person a written revocation of
such authorization.
9.2 POWERS AND DUTIES OF THE ADMINISTRATOR
9.2.1 The Administrator shall have the power to construe the Plan and to
determine all questions of fact or interpretation that may arise thereunder, and
any such construction or determination shall be conclusively binding upon all
persons interested in the Plan.
9.2.2 The Administrator shall have the power to promulgate such rules and
procedures, to maintain or cause to be maintained such records and to issue such
forms as it shall deem necessary and proper for the administration of the Plan.
9.2.3 Subject to the terms of the Plan, the Administrator shall determine the
time and manner in which all elections authorized by the Plan shall be made or
revoked.
9.2.4 The Administrator shall have all the rights, powers, duties and
obligations granted to or imposed upon it elsewhere in the Plan.
9.2.5 The Administrator shall exercise all of its responsibilities in a uniform
and nondiscriminatory manner.
9.3 DELEGATION OF RESPONSIBILITY
The Administrator may designate persons, including persons other than "named
fiduciaries" (as defined in ERISA Section 402(a)(2)) to carry out the specified
responsibilities of the Administrator and shall not be liable for any act or
omission of a person so designated.
ARTICLE X
TRUSTEE AND INVESTMENT COMMITTEE
10.1 APPOINTMENT OF TRUSTEE AND INVESTMENT COMMITTEE
10.1.1 The Employer shall appoint one or more persons as a Trustee who shall
serve as such for all or a portion of the Trust Fund. By executing the Adoption
Agreement: (i) the Employer represents that all necessary action has been taken
for the appointment of the Trustee; (ii) the Trustee acknowledges that it
accepts such appointment; and (iii) both the Employer and the Trustee agree to
act in accordance with the Trust provisions contained in this Article X.
10.1.2 An Employee appointed as Trustee or to the Investment Committee shall
receive no compensation for services rendered in such capacity and will be
considered to have resigned if he or she terminates Employment and at least one
other person continues to act as Trustee or as the Investment Committee, as the
case may be. If Merrill Lynch Trust Company is the Trustee, the Employer shall
appoint an Investment Committee and Merrill Lynch Trust Company shall be a
nondiscretionary trustee.
10.1.3 If more than one person is acting as the Trustee, or as an Investment
Committee, such Trustee, or Investment Committee, shall act by a majority of the
persons at the time so acting and such action may be taken either by a vote at a
meeting or in writing without a meeting. If less than three members are serving,
the Trustee, or Investment Committee, shall act only upon the unanimous consent
of those serving. The Trustee, or Investment Committee, may authorize in writing
any person to execute any document or documents on its behalf, and any
interested person, upon receipt of notice of such authorization directed to it,
may thereafter accept and rely upon any document executed by such authorized
person until the Trustee, or Investment Committee, shall deliver to such
interested person a written revocation of such authorization.
<PAGE> 50
10.2 THE TRUST FUND
The Trustee shall receive such sums of money or other property acceptable to the
Trustee which shall from time to time be paid or delivered to the Trustee under
the Plan. The Trustee shall hold in the Trust Fund all such assets, without
distinction between principal and income, together with all property purchased
therewith and the proceeds thereof and the earnings and income thereon. The
Trustee shall not be responsible for, or have any duty to enforce, the
collection of any contributions or assets to be paid or transferred to it, or
for verifying whether contributions or transfers to it are allowable under the
Plan, nor shall the Trustee be responsible for the adequacy of the Trust Fund to
meet or discharge liabilities under the Plan.
10.2.1 The Trustee shall receive in cash or other assets acceptable to the
Trustee, so long as such assets received do not constitute a prohibited
transaction, all contributions paid or delivered to it which are allocable under
the Plan and to the Trust Fund and all transfers paid or delivered under the
Plan to the Trust Fund from a predecessor trustee or another trust (including a
trust forming part of another plan qualified under Code Section 401(a);
provided, however, that the Trustee shall not be obligated to receive any such
contribution or transfer unless prior thereto or coincident therewith, as the
Trustee may specify, the Trustee has received such reconciliation, allocation,
investment or other information concerning, or such direction, contribution or
representation with respect to, the contribution or transfer or the source
thereof as the Trustee may require. The Trustee shall have no duty or authority
to (a) require any contributions or transfers to be made under the Plan or to
the Trustee, (b) compute any amount to be contributed or transferred under the
Plan to the Trustee, or (c) determine whether amounts received by the Trustee
comply with the Plan.
10.2.2 The Trust Fund shall consist of all money and other property received by
the Trustee pursuant to Section 10.2, increased by any income or gains on or
increment in such assets and decreased by any investment loss or expense,
benefit or disbursement paid pursuant to the Plan.
10.3 RELATIONSHIP WITH ADMINISTRATOR
10.3.1 Neither the Trustee, nor the Investment Committee, if any, shall be
responsible in any respect for the administration of the Plan. Payments of money
or property from the Trust Fund shall be made by the Trustee upon direction from
the Administrator or its designee. Payments by the Trustee shall be transmitted
to the Administrator or its designee for delivery to the proper payees or to
payee addresses supplied by the Administrator or its designee, and the Trustee's
obligation to make such payments shall be satisfied upon such transmittal. The
Trustee shall have no obligation to determine the identity of persons entitled
to payments under the Plan or their addresses.
10.3.2 Directions from or on behalf of the Administrator or its designee shall
be communicated to the Trustee or the Trustee's designee for that purpose only
in a manner and in accordance with procedures acceptable to the Trustee. The
Trustee's designee shall not, however, be empowered to implement any such
directions except in accordance with procedures acceptable to the Trustee. The
Trustee shall have no liability for following any such directions or failing to
act in the absence of any such directions. The Trustee shall have no liability
for the acts or omissions of any person making or failing to make any direction
under the Plan or the provisions of this Article X nor any duty or obligation to
review any such direction, act or omission.
10.3.3 If a dispute arises over the propriety of the Trustee making any payment
from the Trust Fund, the Trustee may withhold the payment until the dispute has
been resolved by a court of competent jurisdiction or settled by the parties to
the dispute. The Trustee may consult legal counsel and shall be fully protected
in acting upon the advice of counsel.
10.4 INVESTMENT OF ASSETS
10.4.1 Except as provided in Section 10.4.2, investments of the Trust Fund shall
be made in the following, but only if compatible with the Sponsor's
administrative and operational requirement and framework:
(A) shares of any regulated investment company managed in whole or in part by
the Sponsor or any affiliate of the Sponsor;
(B) any property purchased through the Sponsor or any affiliate of the Sponsor,
whether or not productive of income or consisting of wasting assets, including,
without limitation by specification, governmental, corporate or personal
obligations, trust and participation certificates, leaseholds, fee titles,
mortgages and other interests in realty, preferred and common stocks,
convertible stocks and securities, shares of regulated investment companies,
certificates of deposit, put and call options and other option contracts of any
type, foreign or domestic, whether or not traded on any exchange, futures
contracts and options on futures contracts traded on or subject to the rules of
an exchange which has been designated as a contract market by the Commodity
Futures Trading Commission, an independent U.S. government agency, contracts
relating to the lending of property, evidences of indebtedness or ownership
<PAGE> 51
in foreign corporations or other enterprises, or indebtedness of foreign
governments, group trust participations, limited or general partnership
interests, insurance contracts, annuity contracts, any other evidences of
indebtedness or ownership including oil, mineral or gas properties, royalty
interests or rights (including equipment pertaining thereto); and
(C) Qualifying Employer Securities or "qualifying employer real properties" (as
that term is defined in ERISA Section 407(d) to the extent permitted in Section
10.4.3).
10.4.2 (A) Up to 25% or with the written consent of the Sponsor or its
representative, an additional percentage of each Plan Year's contributions may
be invested in property as specified in Section 10.4.1(B) acquired through a
person other than the Sponsor or an affiliate of the Sponsor.
(B) Except as permitted by Section 10.4.2 and except as may result from a
Rollover Contribution or a trust to trust transfer, without the written consent
of the Sponsor or its representative, property may not be acquired through a
person other than the Sponsor or an affiliate of the Sponsor if following such
acquisitions the value of the property so acquired would exceed 25% of the value
of the Trust Fund.
10.4.3 In its sole discretion, the Investment Committee, or Trustee if there is
no Investment Committee:
(A) may permit the investment of up to 10% of the Trust Fund in Qualifying
Employer Securities or "qualifying employer real property" (as that term is
defined in ERISA Section 407(d)), to the extent such investment is compatible
with the Sponsor's administrative and operational requirements and framework;
and
(B) may determine, subject to Section 10.4.2, that a percentage of assets in
excess of 10% of the Trust Fund may be invested in Qualifying Employer
Securities or "qualifying employer real property" by a profit-sharing plan.
10.4.4 This Plan will be recognized as a Prototype Plan by the Sponsor only by
complying with the provisions of this Section 10.4.
10.5 INVESTMENT DIRECTION, PARTICIPANT-DIRECTED ASSETS AND QUALIFYING EMPLOYER
INVESTMENTS
10.5.1 The Trustee, or Investment Committee if appointed, shall manage the
investment of the Trust Fund except insofar as (a) an Investment Manager has
authority to manage Trust assets, or (b) Participant-Directed Assets are
permitted as specified in the Adoption Agreement. Except as required by ERISA,
if an Investment Committee is acting, the Trustee shall invest the Trust Fund as
directed by the Investment Committee, an Investment Manager or a Participant or
Beneficiary, as the case may be, and the Trustee shall have no discretionary
control over, nor any other discretion regarding, the investment or reinvestment
of any asset of the Trust. Participant-Directed Assets shall be invested in
accordance with the direction of the Participant or, in the event of the
Participant's death before an Account is fully paid out, the Participant's
Beneficiary with respect to the assets involved; provided, however, that
Participant-Directed Assets may not be invested in "collectibles" (as defined in
Code Section 408(m)(2)). If there are Participant-Directed Assets, the
investment of these assets shall be made in accordance with such rules and
procedures established by the Administrator which must be consistent with the
rules and procedures of the Sponsor or its affiliate, as the case may be.
10.5.2 With respect to Participant-Directed Assets, neither the Administrator,
the Investment Committee nor the Trustee shall:
(A) make any investments or dispose of any investments without the direction of
the Participant or Beneficiary for whom the Participant-Directed Assets are
maintained, except as provided in Section 8.5 so as to pay fees or expenses of
the Plan;
(B) be responsible for reviewing any investment direction with respect to
Participant-Directed Assets or for making recommendations on acquiring,
retaining or disposing of any assets or otherwise regarding any assets;
(C) have any duty to determine whether any investment is an authorized or proper
one; or
(D) be liable for following any investment direction or for any losses, taxes or
other consequences incurred as a consequence of investments selected by any
Participant or Beneficiary or for holding assets uninvested until it receives
proper instructions.
10.5.3 If Participant-Directed Assets are permitted, a list of the Participants
and Beneficiaries and such information concerning them as the Trustee may
specify shall be provided by the Employer or the Administrator to the Trustee
and/or such person as are necessary for the implementation of the directions in
accordance with the procedure acceptable to the Trustee.
10.5.4 It is understood that the Trustee may, from time to time, have on hand
funds which are received as contributions or transfers to the Trust Fund which
are awaiting investment or funds from the sale of Trust Fund assets which are
awaiting reinvestment. Absent receipt by the Trustee of a direction from the
<PAGE> 52
proper person for the investment or reinvestment of such funds or otherwise
prior to the application of funds in implementation of such a direction, the
Trustee shall cause such funds to be invested in shares of such money market
fund or other short term investment vehicle as the Trustee, or Investment
Committee if appointed, may specify for this purpose from time to time. Any such
investment fund may be sponsored, managed or distributed by the Sponsor or an
affiliate of the Sponsor.
10.5.5 Directions for the investment or reinvestment of Trust assets of a type
referred to in Section 10.4 from the Investment Committee, an Investment Manager
or a Participant or Beneficiary, as the case may be, shall, in a manner and in
accordance with procedures acceptable to the Trustee, be communicated to and
implemented by, as the case may be, the Trustee, the Trustee's designee or, with
the Trustee's consent and if an Investment Committee is operating, a
broker/dealer designated for the purpose by the Investment Committee.
Communication of any such direction to such a designee or broker/dealer shall
conclusively be deemed an authorization to the designee or broker/dealer to
implement the direction even though coming from a person other than the Trustee.
The Trustee shall have no liability for its or any other person's following such
directions or failing to act in the absence of any such directions. The Trustee
shall have no liability for the acts or omissions of any person directing the
investment or reinvestment of Trust Fund assets or making or failing to make any
direction referred to in Section 10.5.6.
10.5.6 The voting and other rights in securities or other assets held in the
Trust shall be exercised by the Trustee provided, however, that if an Investment
Committee is appointed, the Trustee shall act as directed by such person who at
the time has the right to direct the investment or reinvestment of the security
or other asset involved.
10.5.7 With respect to any Qualifying Employer Securities allocated to an
Account, each Participant shall be entitled to direct the Trustee in writing as
to the manner in which Qualifying Employer Securities are to be voted.
10.5.8 With respect to any Qualifying Employer Securities allocated to an
Account, each Participant shall be entitled to direct the Trustee in writing as
to the manner in which to respond to a tender or exchange offer or other
decisions with respect to the Qualifying Employer Securities. The Administrator
shall utilize its best efforts to timely distribute or cause to be distributed
to each Participant such information received from the Trustee as will be
distributed to shareholders of the Employer in connection with any such tender
or exchange offer or other similar matter or any vote referred to in Section
10.5.7.
10.5.9 If an Investment Committee is appointed, notwithstanding any provision
hereof to the contrary, in the event the person with the right to direct a
voting or other decision with respect to any security, Qualifying Employer
Securities, or other asset held in the Trust does not communicate any decision
on the matter to the Trustee or the Trustee's designee by the time prescribed by
the Trustee or the Trustee's designee for that purpose or if the Trustee
notifies the Investment Committee, if applicable, either that it does not have
precise information as to the securities, Qualifying Employer Securities, or
other assets involved allocated on the applicable record date to the accounts of
all Participants and Beneficiaries or that time constraints make it unlikely
that Participant, Beneficiary or Investment Manager direction, as the case may
be, can be received on a timely basis, the decision shall be the responsibility
of the Investment Committee and shall be communicated to the Trustee on a timely
basis. In the event an Investment Committee with any right under the Plan to
direct a voting or other decision with respect to any security, Qualifying
Employer Securities, or other asset held in the Trust, does not communicate any
decision on the matter to the Trustee or the Trustee's designee by the time
prescribed by the Trustee for that purpose, the Trustee may, at the cost of the
Employer, retain an Investment Manager with full discretion to make the
decision. Except as required by ERISA, the Trustee shall (a) follow all
directions above referred to in this Section and (b) shall have no duty to
exercise voting or other rights relating to any such security, Qualifying
Employer Security or other asset.
10.5.10 The Administrator shall establish, or cause to be established, a
procedure acceptable to the Trustee for the timely dissemination to each person
entitled to direct the Trustee or its designee as to a voting or other decision
called for thereby or referred to therein of all proxy and other materials
bearing on the decision.
10.5.11 Any person authorized to direct the investment of Trust assets may, if
the Trustee and the Investment Committee, if applicable, so permit, direct the
Trustee to invest such assets in a common or collective trust maintained by the
Trustee for the investment of assets of qualified trusts under section 401(a) of
the Code, individual retirement accounts under section 408(a) of the Code and
plans or governmental units described in section 818(a)(6) of the Code. The
documents governing any such common or collective trust fund maintained by the
Trustee, and in which Trust assets have been invested, are hereby incorporated
into this Article X by reference.
10.6 VALUATION OF ACCOUNTS
<PAGE> 53
10.6.1 A Participant's Accounts shall be valued at fair market value on each
Valuation Date. Subject to Section 10.6.2(A), as of each Valuation Date, the
earnings and losses and expenses of the Trust Fund shall be allocated to each
Participant Account in the ratio that such Account Balance in that category of
Accounts bears to all Account Balances in that category. With respect to
Participant-Directed Assets, the earnings and losses and expenses (including
transactional expenses pursuant to Section 8.5.2) of such Participant-Directed
Assets shall be allocated to the Account of the Participant or Beneficiary
having authority to direct the investment of the assets in his or her Account.
10.6.2 The Valuation Date with respect to any distributions (including, without
limitation, loan distributions and purchase of annuities) from any Account upon
the occurrence of a Benefit Commencement Date or otherwise, shall be:
(A) with respect to Participant-Directed Asset, the date as of which the Account
distribution is made; and
(B) with respect to other assets, the Valuation Date immediately preceding the
Benefit Commencement Date, if applicable, or immediately preceding the proposed
date of any other distribution from an Account.
With respect to any contribution allocable to an Account which has not been made
as of a Valuation Date determined pursuant to this Section 10.6.2, the principal
amount of such contribution distributable because of the occurrence of a Benefit
Commencement Date shall be distributed as soon as practicable after the date
paid to the Trust Fund.
10.6.3 The assets of the Trust shall be valued at fair market value as
determined by the Trustee based upon such sources of information as it may deem
reliable, including, but not limited to, stock market quotations, statistical
evaluation services, newspapers of general circulation, financial publications,
advice from investment counselors or brokerage firms, or any combination of
sources. The reasonable costs incurred in establishing values of the Trust Fund
shall be a charge against the Trust Fund, unless paid by the Employer.
When the Trustee is unable to arrive at a value based upon information from
independent sources, it may rely upon information from the Employer,
Administrator, Investment Committee, appraisers or other sources, and shall not
incur any liability for inaccurate valuation based in good faith upon such
information.
10.7 INSURANCE CONTRACTS
The Trustee, if an Investment Committee is not appointed, Investment Committee,
or Participant or Beneficiary with respect to Participant-Directed Assets, may
appoint one or more insurance companies to hold assets of the Plan, and may
direct, subject to Section 7.3, the purchase of insurance contracts or policies
from one or more insurance companies with assets of the Plan. Neither the
Investment Committee, Trustee nor the Administrator shall be liable for the
validity of any such contract or policy, the failure of any insurance company to
make any payments or for any act or omission of an insurance company with
respect to any duties delegated to any insurance company.
10.8 THE INVESTMENT MANAGER
10.8.1 The Trustee, if an Investment Committee is not appointed, Investment
Committee, or the Participant or Beneficiary with respect to
Participant-Directed Assets, may, by an instrument in writing, appoint one or
more Investment Managers, who may be an affiliate of the Merrill Lynch Trust
Company, to direct the Trustee in the investment of all or a specified portion
of the assets of the Trust in property specified in Section 10.4. Any such
Investment Manager shall be directed by the Trustee, if an Investment Committee
is not appointed, Investment Committee, Participant or Beneficiary, as the case
may be, to act in accordance with the procedures referred to in Section 10.5.5.
If appointed, the Investment Committee shall notify the Trustee in writing
before the effectiveness of the appointment or removal of any Investment
Manager. If there is more than one Investment Manager whose appointment is
effective under the Plan at any one time, the Trustee shall, upon written
instructions from the Investment Committee, Participant or Beneficiary,
establish separate funds for control by each such Investment Manager. The funds
shall consist of those Trust Fund assets designated by the Investment Committee,
Participant or Beneficiary.
10.8.2 Each person appointed as an Investment Manager shall be:
(A) an investment adviser registered under the Investment Advisers Act of 1940,
(B) a bank as defined in that Act, or
(C) an insurance company qualified to manage, acquire or dispose of any asset of
the Plan under the laws of more than one state.
10.8.3 Each Investment Manager shall acknowledge in writing that it is a
"fiduciary" (as defined in ERISA Section 3(21)) with respect to the Plan. The
Trustee, or the Investment Committee if appointed, shall enter into an agreement
with each Investment Manager specifying the duties and compensation of such
<PAGE> 54
Investment Manager and the other terms and conditions under which such
Investment Manager shall be retained. Neither the Trustee nor the Investment
Committee, if appointed, shall be liable for any act or omission of any
Investment Manager and shall not be liable for following the advice of any
Investment Manager with respect to any duties delegated to any Investment
Manager.
10.8.4 The Trustee, or Investment Committee if appointed, or the Participant or
Beneficiary, if applicable with respect to Participant-Directed Assets, shall
have the power to determine the amount of Trust Fund assets to be invested
pursuant to the direction of a designated Investment Manager and to set
investment objectives and guidelines for the Investment Manager.
10.8.5 Second Trust Fund. The Employer may appoint a second trustee under the
Plan with respect to assets which the Employer desires to contribute or have
transferred to the Trust Fund, but which the other Trustee does not choose to
accept: provided, however, that if a Merrill Lynch Trust Company is a Trustee,
its consent (which consent may be evidenced by its acceptance of its appointment
as Trustee) shall be required. In the event and upon the effectiveness of the
acceptance of the second Trustee's appointment, the Employer shall be deemed to
have created two trust funds under the Plan, each with its own Trustee, each
governed separately by this Article X. Each Trustee under such an arrangement
shall, however, discharge its duties and responsibilities solely with respect to
those assets of the Trust delivered into its possession and except pursuant to
ERISA, shall have no duties, responsibilities or obligations with respect to
property of the other Trust nor any liability for the acts or omissions of the
other Trustee. As a condition to its consent to the appointment of a second
trustee, the Merrill Lynch Trust Company shall assure that recordkeeping,
distribution and reporting procedures are established on a coordinated basis
between it and the second trustee as considered necessary or appropriate with
respect to the Trusts.
10.9 POWERS OF TRUSTEE
10.9.1 At the direction of the person authorized to direct such action as
referred to in Section 10.5.1, but limited to those assets or categories of
assets acceptable to the Trustee as referred to in Section 10.4, or at its own
discretion if no such person is so authorized, the Trustee, or the Trustee's
designee or a broker/dealer as referred to in Section 10.5.5, is authorized and
empowered:
(A) To invest and reinvest the Trust Fund, together with the income therefrom,
in assets specified in Section 10.4;
(B)To deposit or invest all or any part of the assets of the Trust in savings
accounts or certificates of deposit or other deposits in a bank or savings and
loan association or other depository institution, including the Trustee or any
of its affiliates, provided with respect to such deposits with the Trustee or an
affiliate the deposits bear a reasonable interest rate;
(C) To hold, manage, improve, repair and control all property, real or personal,
forming part of the Trust Fund; to sell, convey, transfer, exchange, partition,
lease for any term, even extending beyond the duration of this Trust, and
otherwise dispose of the same from time to time;
(D) To have, respecting securities, all the rights, powers and privileges of an
owner, including the power to give proxies, pay assessments and other sums
deemed by the Trustee necessary for the protection of the Trust Fund; to vote
any corporate stock either in person or by proxy, with or without power of
substitution, for any purpose; to participate in voting trusts, pooling
agreements, foreclosures, reorganizations, consolidations, mergers and
liquidations, and in connection therewith to deposit securities with or transfer
title to any protective or other committee; to exercise or sell stock
subscriptions or conversion rights; and, regardless of any limitation elsewhere
in this instrument relative to investments by the Trustee, to accept and retain
as an investment any securities or other property received through the exercise
of any of the foregoing powers;
(E) Subject to Section 10.5.4 hereof, to hold in cash, without liability for
interest, such portion of the Trust Fund which it is directed to so hold pending
investments, or payment of expenses, or the distribution of benefits;
(F) To take such actions as may be necessary or desirable to protect the Trust
from loss due to the default on mortgages held in the Trust including the
appointment of agents or trustees in such other jurisdictions as may seem
desirable, to transfer property to such agents or trustees, to grant to such
agents such powers as are necessary or desirable to protect the Trust Fund, to
direct such agent or trustee, or to delegate such power to direct, and to remove
such agent or trustee;
(G) To settle, compromise or abandon all claims and demands in favor of or
against the Trust Fund;
(H) To invest in any common or collective trust fund of the type referred to in
Section 10.5.8 hereof maintained by the Trustee;
(I) To exercise all of the further rights, powers, options and privileges
granted, provided for, or vested in trustees generally under the laws of the
State of New Jersey, so that the powers conferred
<PAGE> 55
upon the Trustee herein shall not be in limitation of any authority conferred by
law, but shall be in addition thereto;
(J) To borrow money from any source and to execute promissory notes, mortgages
or other obligations and to pledge or mortgage any trust assets as security,
subject to applicable requirements of the Code and ERISA; and
(K) To maintain accounts at, execute transactions through, and lend on an
adequately secured basis stocks, bonds or other securities to, any brokerage or
other firm, including any firm which is an affiliate of the Trustee.
10.9.2 To the extent necessary or which it deems appropriate to implement its
powers under Section 10.9.1 or otherwise to fulfill any of its duties and
responsibilities as trustee of the Trust Fund, the Trustee shall have the
following additional powers and authority:
(A) to register securities, or any other property, in its name or in the name of
any nominee, including the name of any affiliate or the nominee name designated
by any affiliate, with or without indication of the capacity in which property
shall be held, or to hold securities in bearer form and to deposit any
securities or other property in a depository or clearing corporation;
(B) to designate and engage the services of, and to delegate powers and
responsibilities to, such agents, representatives, advisers, counsel and
accountants as the Trustee considers necessary or appropriate, any of whom may
be an affiliate of the Trustee or a person who renders services to such an
affiliate, and, as a part of its expenses under this Trust Agreement, to pay
their reasonable expenses and compensation;
(C) to make, execute and deliver, as Trustee, any and all deeds, leases,
mortgages, conveyances, waivers, releases or other instruments in writing
necessary or appropriate for the accomplishment of any of the powers listed in
this Trust Agreement; and
(D) generally to do all other acts which the Trustee deems necessary or
appropriate for the protection of the Trust Fund.
10.9.3 The Trustee shall have no duties or responsibilities other than those
specified in the Plan.
10.10 ACCOUNTING AND RECORDS
10.10.1 The Trustee shall maintain or cause to be maintained accurate records
and accounts of all Trust transactions and assets. The records and accounts
shall be available at reasonable times during normal business hours for
inspection or audit by the Administrator, Investment Committee, if appointed, or
any person designated for the purpose by either of them.
10.10.2 Within 90 days following the close of each fiscal year of the Plan or
the effective date of the removal or resignation of the Trustee, the Trustee
shall file with the Administrator a written accounting setting forth all
transactions since the end of the period covered by the last previous
accounting. The accounting shall include a listing of the assets of the Trust
showing the value of such assets at the close of the period covered by the
accounting. On direction of the Administrator, and if previously agreed to by
the Trustee, the Trustee shall submit to the Administrator interim valuations,
reports or other information pertaining to the Trust.
The Administrator may approve the accounting by written approval delivered to
the Trustee or by failure to deliver written objections to the Trustee within 60
days after receipt of the accounting. Any such approval shall be binding on the
Employer, the Administrator, the Investment Committee and, to the extent
permitted by ERISA, all other persons.
10.11 JUDICIAL SETTLEMENT OF ACCOUNTS
The Trustee can apply to a court of competent jurisdiction at any time for
judicial settlement of any matter involving the Plan including judicial
settlement of the Group Trustee's account. If it does so, the Trustee must give
the Administrator the opportunity to participate in the court proceedings, but
the Trustee can also involve other persons. Any expenses the Trustee incurs in
legal proceedings involving the Plan, including attorney's fees, are chargeable
to the Trust Fund as an administrative expense. Any judgment or decree which may
be entered in such a proceeding, shall, subject to the provision of ERISA, be
conclusive upon all persons having or claiming to have any interest in the Trust
Fund or under any Plan.
10.12 RESIGNATION AND REMOVAL OF TRUSTEE
10.12.1 The Trustee may resign at any time upon at least 30 days' written notice
to the Employer.
10.12.2 The Employer may remove the Trustee upon at least 30 days' written
notice to the Trustee.
10.12.3 Upon resignation or removal of the Trustee, the Employer shall appoint a
successor trustee. Upon failure of the Employer to appoint, or the failure of
the effectiveness of the appointment by the Employer of, a successor trustee by
the effective date of the resignation or removal, the Trustee may apply to any
court of competent jurisdiction for the appointment of a successor.
<PAGE> 56
Promptly after receipt by the Trustee of notice of the effectiveness of the
appointment of the successor trustee: (a) the Trustee shall deliver to the
successor trustee such records as may be reasonably requested to enable the
successor trustee to properly administer the Trust Fund and all property of the
Trust after deducting therefrom such amounts as the Trustee deems necessary to
provide for expenses, taxes, compensation or other amounts due to or by the
Trustee not paid by the Employer prior to the delivery; and (b) except if the
second Trustee is removed or resigns, the Plan will no longer be considered a
prototype plan.
10.12.4 Upon resignation or removal of the Trustee, the Trustee shall have the
right to a settlement of its account, which settlement shall be made, at the
Trustee's option, either by an agreement of settlement between the Trustee and
the Employer or by a judicial settlement in an action instituted by the Trustee.
The Employer shall bear the cost of any such judicial settlement, including
reasonable attorneys fees.
10.12.5 The Trustee shall not be obligated to transfer Trust assets until the
Trustee is provided assurance by the Employer satisfactory to the Trustee that
all fees and expenses reasonably anticipated will be paid.
10.12.6 Upon settlement of the account and transfer of the Trust Fund to the
successor trustee, all rights and privileges under the Trust Agreement shall
vest in the successor trustee and all responsibility and liability of the
Trustee with respect to the Trust and assets thereof shall, except as otherwise
required by ERISA, terminate subject only to the requirement that the Trustee
execute all necessary documents to transfer the Trust assets to the successor
trustee.
10.13 GROUP TRUST
10.13.1 If elected by the Employer in the Adoption Agreement, the Trustee shall
be the Trustee for this Plan and for each other qualified plan specified in the
Adoption Agreement; provided, however, that such other qualified plan is in
effect pursuant to an Adoption Agreement under this Prototype Plan. Any
reference to Trustee and to the Trust Fund in this Plan shall mean the Trustee
as the trustee of a Group Trust consisting of the assets of each such plan. The
Plan and each other qualified plan specified in the Adoption Agreement shall be
deemed to join in and adopt the Trust as the trust for each such plan. By
executing the Adoption Agreement, the Trustee accepts designation as Trustee of
this Group Trust.
10.13.2 The Trustee shall establish and maintain such accounting records for
each of the Plans as shall be necessary to reflect the interest in the Group
Trust applicable at any time or from time to time to each Plan. No part of the
corpus or income of the Group Trust allocable to an individual Plan may be used
for or diverted to any purposes other than for the exclusive benefit of
Participants and their Beneficiaries entitled to benefits under that Plan. The
allocable interest of a Plan in the Group Trust may not be assigned.
ARTICLE XI
PLAN AMENDMENT OR TERMINATION
11.1 PROTOTYPE PLAN AMENDMENT
11.1.1 The mass submitter, Merrill Lynch, Pierce, Fenner & Smith Incorporated
and any successor thereto, may amend any part of the Prototype Plan. For
purposes of sponsoring organization amendments, the mass submitter shall be
recognized as the agent of the sponsoring organization. If the sponsoring
organization does not adopt the amendments made by the mass submitter, it will
no longer be identical to or a minor modifier of the mass submitter plan.
11.1.2 An Employer shall have the right at any time, by an instrument in
writing, effective retroactively or otherwise, to (A) change the choice of
options in the Adoption Agreement, in whole or in part; (B) add overriding
language in the Adoption Agreement when such language is needed to satisfy Code
Section 415 or Code Section 416 because of the required aggregation of multiple
plans; and (C) add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as individually designed. No such amendment, however, shall have
any of the effects specified in Section 11.2.1. If the adopting Employer amends
the Plan or nonelective portions of the Adoption Agreement except as previously
provided, it will no longer participate in the Prototype Plan, but will be
considered to have an individually designed plan for purposes of qualification
under Code Section 401(a). In the event the Employer is switching from an
individually designed plan or from one prototype plan to another, a list of the
Section "411(d)(6) protected benefits" that must be preserved may be attached,
and such a list would not be considered an amendment to the plan.
11.1.3 This Plan will be recognized as a Prototype Plan by the Sponsor only by
complying with the registration requirements as specified in the Adoption
Agreement.
11.2 PLAN AMENDMENT
11.2.1 Except as provided in Section 11.2.2, no amendment pursuant to Section
11.1 shall:
(A) authorize any part of the Trust Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of Participants or their
Beneficiaries;
<PAGE> 57
(B) decrease the accrued benefits of any Participant or his or her Beneficiary
under the Plan; An amendment which has the effect of (1) eliminating or reducing
an Early Retirement benefit or a retirement-type subsidy, or (2) eliminating an
optional form of benefit payment, with respect to benefits attributable to
service before the amendment shall be treated as reducing accrued benefits. In
the case of a retirement-type subsidy, the preceding sentence shall apply only
with respect to a Participant who satisfies (either before or after the
amendment) the preamendment conditions for the subsidy. In general, a
retirement-type subsidy is a subsidy that continues after retirement, but does
not include a qualified disability benefit, a medical benefit, a social security
supplement, a death benefit (including life insurance), or a plant shutdown
benefit (that does not continue after retirement age). (C) reduce the vested
percentage of any Participant determined without regard to such amendment as of
the later of the date such amendment is adopted or the date it becomes
effective;
(D) eliminate an optional form of benefit distribution with respect to benefits
attributable to service before the amendment; or
(E) change the vesting schedule, or in any way amend the Plan to either directly
or indirectly affect the computation of a Participant's vested percentage,
unless each Participant having not less than 3 years of Vesting Service is
permitted to elect, within a reasonable period specified by the Administrator
after the adoption of such amendment, to have his or her vested percentage
computed without regard to such amendment.
For Participants who do not have at least one Hour of Service in any Plan Year
beginning after December 31, 1988, the preceding sentence shall be applied by
substituting "5 Years of Vesting Service" for "3 Years of Vesting Service" where
such language appears. The period during which the election may be made shall
commence with the date the amendment is adopted and shall end on the later of:
(i) 60 days after the amendment is adopted;
(ii) 60 days after the amendment becomes effective; or
(iii) 60 days after the Participant is issued written notice by the
Administrator.
11.2.2 Anything contained in this Section 11.2 to the contrary notwithstanding,
a Participant's benefit may be reduced to the extent permitted under Code
Section 412(c)(8).
11.3 RIGHT OF THE EMPLOYER TO TERMINATE PLAN
11.3.1 The Employer intends and expects that from year to year it will be able
to and will deem it advisable to continue this Plan in effect and to make
contributions as herein provided. The Employer reserves the right, however, to
terminate the Plan with respect to its Employees at any time by an instrument in
writing delivered to the Administrator and the Trustee, or to completely
discontinue its contributions thereto at any time.
11.3.2 The Plan will also terminate: (A) if the Employer is a sole
proprietorship, upon the death of the sole proprietor; (B) if the Employer is a
partnership, upon termination of the partnership; (C) if the Employer is
judicially declared bankrupt or insolvent; (D) upon the sale or other
disposition of all or substantially all of the assets of the business; or (E)
upon any other termination of the business. Any successor to or purchaser of the
Employer's trade or business, after any event specified in the prior sentence,
may continue the Plan, in which case the successor or purchaser will thereafter
be considered the Employer for purposes of the Plan. Such a successor or
purchaser shall execute an appropriate Adoption Agreement if and when requested
by the Administrator.
11.3.3 Anything contained herein to the contrary notwithstanding, if the
Employer fails to attain or retain qualification of the Plan under Code Section
401(a), the Plan will not participate in this Prototype Plan and will, instead,
be considered an individually designed plan for purposes of such qualification.
11.4 EFFECT OF PARTIAL OR COMPLETE TERMINATION OR COMPLETE DISCONTINUANCE
OF CONTRIBUTIONS
11.4.1 Determination of Date of Complete or Partial Termination. The date of
complete or partial termination shall be established by the Administrator in
accordance with the directions of the Employer (if then in existence) in
accordance with applicable law.
11.4.2 Effect of Termination.
(A) As of the date of a partial termination of the Plan:
(i) the accrued benefit of each affected Participant, to the extent funded,
shall become nonforfeitable;
(ii) no affected Participant shall be granted credit based on Hours of Service
after such date;
(iii) Compensation paid to affected Participants after such date shall not be
taken into account; and
(iv) no contributions by affected Participants shall be required or permitted.
(B) As of the date of the complete termination of the Plan or of a complete
discontinuance of contributions:
<PAGE> 58
(i) the accrued benefit of each affected Participant to the extent funded, shall
become nonforfeitable;
(ii) no affected Participant shall be granted credit based on Hours of Service
after such date;
(iii) Compensation paid after such date shall not be taken into account;
(iv) no contributions by affected Participants shall be required or permitted;
(v) no Eligible Employee shall become a Participant after such date; and
(vi) except as may otherwise be required by applicable law, all obligations of
the Employer and Participating Affiliates to fund the Plan shall terminate.
(C) All other provisions of the Plan shall remain in effect unless otherwise
amended.
11.4.3 Upon the complete discontinuance of profit-sharing contributions under
the Plan, at the Employer's election, either the Trust Fund shall continue to be
held and distributed as if the Plan had not been terminated (in which case such
Plan shall continue to be subject to all requirements under Title I of ERISA,
and qualification requirements under the Code) or any and all assets remaining
in the Trust Fund as of the date of such termination or discontinuance, together
with any earnings subsequently accruing thereon, shall be distributed by the
Trustee to the Participants at the Administrator's direction. Upon the complete
termination of the Plan, the Trust Fund shall be distributed to Participants
within one year after the date of termination. If the Plan does not offer an
annuity option (purchased from a commercial provider) and if the Employer or any
Affiliate does not maintain another Defined Contribution Plan (other than an
employee stock ownership plan as defined in Code Section 4975(e)(7)), the
Participant's benefit may, without the Participant's consent, be distributed to
the Participant. However, if any Affiliate maintains another Defined
Contribution Plan (other than an employee stock ownership plan as defined in
Code Section 4975(e)(7)), then the Participant's Account(s) will be transferred,
without the Participant's consent, to the other plan if the Participant does not
consent to an immediate distribution. Distributions shall be made in compliance
with the applicable provisions, including restrictions, of Articles VI and VII.
The Trust Fund shall continue in effect until all distributions therefrom are
complete. Upon the completion of such distributions, the Trustee shall be
relieved from all further liability with respect to all amounts so paid or
distributed.
11.5 BANKRUPTCY
In the event that the Employer shall at any time be judicially declared bankrupt
or insolvent without any provisions being made for the continuation of this
Plan, the Plan shall be completely terminated in accordance with this Article
XI.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 EXCLUSIVE BENEFIT OF PARTICIPANTS
Notwithstanding anything in the Plan to the contrary, the Trust Fund shall be
held for the benefit of all persons who shall be entitled to receive payments
under the Plan. Subject to Section 3.10, it shall be prohibited at any time for
any part of the Trust Fund (other than such part as is required to pay expenses)
to be used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
12.2 PLAN NOT A CONTRACT OF EMPLOYMENT
The Plan is not a contract of Employment, and the terms of Employment of any
Employee shall not be affected in any way by the Plan or related instruments
except as specifically provided therein.
12.3 ACTION BY EMPLOYER
Any action by an Employer which is a corporation shall be taken by the board of
directors of the corporation or any person or persons duly empowered to exercise
the powers of the corporation with respect to the Plan. In the case of an
Employer which is a partnership, action shall be taken by any general partner of
the partnership, and in the case of an Employer which is a sole proprietorship,
action shall be taken by the sole proprietor.
12.4 SOURCE OF BENEFITS
Benefits under the Plan shall be paid or provided for solely from the Trust
Fund, and neither the Employer, any Participating Affiliate, the Trustee, the
Administrator, nor any Investment Manager or insurance company shall assume any
liability under the Plan therefor.
12.5 BENEFITS NOT ASSIGNABLE
Benefits provided under the Plan may not be assigned or alienated, either
voluntarily or involuntarily. In the event that a Participant or Beneficiary
becomes individually liable with respect to any expenses listed in Section 8.5,
the provision of Section 401(a)(13) of the Code shall be applicable with respect
to any claim the Plan may have against the Participant or Beneficiary
individually with respect to such expenses. The preceding sentence shall also
apply to the creation, assignment or recognition of a right to
<PAGE> 59
any benefit payable with respect to a Participant pursuant to a "domestic
relations order" (as defined in Code Section 414(p)) unless such order is
determined by the Administrator to be a "qualified domestic relations order" (as
defined in Code Section 414(p)) or, in the case of a "domestic relations order"
entered before January 1, 1985, if either payment of benefits pursuant to the
order has commenced as of that date or the Administrator decides to treat such
order as a "qualified domestic relations order" within the meaning of Code
Section 414(p) even if it does not otherwise qualify as such.
12.6 DOMESTIC RELATIONS ORDERS
Any other provision of the Plan to the contrary notwithstanding, the
Administrator shall have all powers necessary with respect to the Plan for the
proper operation of Code Section 414(p) with respect to "qualified domestic
relations orders" (or "domestic relations orders" treated as such) referred to
in Section 12.5, including, but not limited to, the power to establish all
necessary or appropriate procedures, to authorize the establishment of new
accounts with such assets and subject to such investment control by the
Administrator as the Administrator may deem appropriate, and the Administrator
may decide upon and direct appropriate distributions therefrom.
12.7 CLAIMS PROCEDURE
In the event that a claim by a Participant, Beneficiary, or other person for
benefits under the Plan is denied, the Administrator will so notify the
claimant, giving the reasons for the denial. This notice will also refer to the
specific provisions of the Plan on which the denial was based, will specify
whether any additional information is needed from the Participant or Beneficiary
and will explain the review procedure.
Within 60 days after receiving the denial, the claimant may submit, directly or
through a duly authorized representative, a written request for reconsideration
of the application to the Administrator. Documents or records relied on by the
claimant should be filed with the request. The person making the request may
review relevant documents and submit issues and additional comments in writing.
The Administrator will review the claim within 60 days (or 120 days if a hearing
is held because special circumstances exist) and provide a written response to
the appeal. The response will explain the reasons for the decision and will
refer to the Plan provisions on which the decision is based. The decision of the
Administrator is the final one under this claims procedure.
12.8 RECORDS AND DOCUMENTS; ERRORS
Participants and Beneficiaries must supply the Administrator with such personal
history data as may be required by the Administrator in the operation of the
Plan. Proof of age, when required, must be established by evidence satisfactory
to the Administrator, and the records of the Employer and Participating
Affiliates concerning length of service and compensation may be accepted by the
Administrator as conclusive for the purposes of the Plan. Should any error in
the records maintained under the Plan result in any Participant or Beneficiary
receiving from the Plan more or less than he or she would have been entitled to
receive had the records been correct, the Administrator, in its discretion, may
correct such error and, as far as practicable, may adjust benefits in such
manner that the aggregate value of the benefit under the Plan shall be the
amount to which such Participant or Beneficiary was properly entitled.
12.9 BENEFITS PAYABLE TO MINORS, INCOMPETENTS AND OTHERS
In the event any benefit is payable to a minor or to a Participant or
Beneficiary declared incompetent by a court having jurisdiction over such
matters and a guardian, committee, conservator or other legal representative of
the estate of such a person is appointed, benefits to which he or she is
entitled shall be paid to the legally appointed person. The receipt by any such
person to whom any such payment on behalf of any Participant or Beneficiary is
made shall be a sufficient discharge therefor.
12.10 PLAN MERGER OR TRANSFER OF ASSETS
12.10.1 The merger or consolidation of the Employer with any other person, or
the transfer of the assets of the Employer to any other person, or the merger of
the Plan with any other plan shall not constitute a termination of the Plan if
provision is made for the continuation of the Plan.
12.10.2 The Plan may not merge or consolidate with, or transfer any assets or
liabilities to, any other plan, unless each Participant would (if the Plan had
then terminated) receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit he or she would have
been entitled to receive immediately before the merger, consolidation or
transfer (if the Plan had then terminated). Any merger or consolidation shall
not constitute a termination of a Plan or require the acceleration of vesting of
Participants' Account Balances.
12.11 PARTICIPATING AFFILIATES
12.11.1 With the consent of the Employer and by duly authorized action, any
Affiliate may adopt the Plan. Such Affiliate shall determine the classes of its
<PAGE> 60
Employees who shall be Eligible Employees and the amount of its contribution to
the Plan on behalf of such Employees.
12.11.2 With the consent of the Employer and by duly authorized action, a
Participating Affiliate may terminate its participation in the Plan or withdraw
from the Plan. Any such withdrawal shall be deemed an adoption by such
Participating Affiliate of a plan and trust identical to the Plan and the Trust,
except that all references to the Employer shall be deemed to refer to such
Participating Affiliate. At such time and in such manner as the Employer
directs, the assets of the Trust allocable to Employees of such Participating
Affiliate shall be transferred to the trust deemed adopted by such Participating
Affiliate.
12.11.4 A Participating Affiliate shall have no power with respect to the Plan
except as specifically provided herein.
12.12 CONTROLLING LAW
The Plan is intended to qualify under Code Section 401(a) and to comply with
ERISA, and its terms shall be interpreted accordingly. Otherwise, to the extent
not preempted by ERISA, the laws of the State of New York shall control the
interpretation and performance of the terms of the Plan.
12.13 SINGULAR AND PLURAL AND ARTICLE AND SECTION REFERENCES
As used in the Plan, the singular includes the plural, and the plural includes
the singular, unless qualified by the context. Titles of Articles and Sections
of the Plan are for convenience of reference only and are to be disregarded in
applying the provisions of the Plan. Any reference in this Prototype Plan to an
Article or Section is to the Article or Section so specified of the Prototype
Plan, unless otherwise indicated.
<PAGE> 1
August 12, 1999
Mr. Jesse Fearrington
First Union National Bank
NC 1093
201 South College Street
Charlotte Plaza Suite 1600
Charlotte, NC 28288-1093
Re: Engagement Letter
Dear Jesse,
This letter outlines the terms between Cysive, Inc. and First Union National
Bank for the performance of certain consulting services in connection with
planning and developing an On-Line Home Equity Banking application project (the
"Project"). At this time, the following provisions represent our entire and
exclusive agreement regarding our work on the Project. While this temporary
arrangement proceeds, both parties may negotiate a more detailed agreement to
supersede this letter, which shall become effective when signed by both parties.
Under this engagement, Cysive will provide consulting resources, as mutually
agreed, on site at First Union facility in Charlotte, NC. The Project will begin
during the week of August 16, 1999, and continue through the end of October,
1999, or as otherwise mutually agreed. It is expected that Cysive will begin The
Project with three engineers and will staff the Project according to the plan
that will be created as part of the Project, or as mutually agreed. Early
activities will be analyzing requirements, defining an appropriate architecture,
building a project plan, and preparing documentation to be used during
development. Tasks will include:
o Document a Use Case inventory
o Define and document a system architecture which will support
phase one of the Project
o Develop and document a project plan during the week of August 16.
The project plan will:
1. Be consistent with certain First Union practices, such
as use of Java, use of WebSphere, and the like
2. Determine the level of effort required and document a
staffing and resource plan
3. Document deliverables
4. Document a development and implementation schedule.
<PAGE> 2
First Union National Bank Page 2
Subsequent activities will be developing, testing, and implementing the defined
system. The system can be described as a flow module with interfaces to system
log files, databases, credit bureaus, and decision engines.
Tasks will include:
o Perform software development
o Prepare system documentation
o Plan and perform unit, integration, and system test
Through the course of the Project, the architectural plan or "blueprint" will be
analyzed and refined as more is learned about the requirements, the environment,
and the behavior of the system. Such refinements will define a scaleable
infrastructure capable of supporting enhancements over the long-term future of
the system.
Services shall be provided on a time and materials basis at the rate of $215 per
hour per engineer, plus out-of-pocket costs of travel and living expenses, which
will adhere to the attached First Union "Supplier Travel & Entertainment Expense
Policy," dated 7/30/98. Fees are due thirty (30) days from the date of invoice.
Cysive will exercise best efforts to perform services competently and in a
workmanlike manner and will not knowingly infringe any third party rights. ALL
OTHER WARRANTIES, INCLUDING MERCHANTABILITY, TITLE, ACCURACY, INTEGRATION AND
FITNESS ARE DISCLAIMED. Cysive's direct damages are limited to the price paid,
and neither party shall be liable for indirect, incidental or consequential
damages. Remedies are solely and exclusively limited to repair, replacement or
refund.
Subject to payment, First Union will own all right, title and interest in any
custom work product we develop hereunder. Cysive will continue to safeguard and
protect First Union's confidential and proprietary information during the term
of this engagement and at all times thereafter. Any amendment to these terms
will be in a writing signed by both parties.
If the foregoing is reasonably acceptable, please sign and return to Cysive. We
look forward to working with you on this Project.
Sincerely, Accepted: First Union National Bank
By: /s/ Nelson A. Carbonell, Jr. By: /s/ Jesse Fearrington
_______________________________ _______________________________
Nelson Carbonell, Jr. President
Date: 5/13/1999
_______________________________
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our reports dated January 14, 1999, except
for Note 12, as to which the date is September 24, 1999, in Amendment No. 1 to
the Registration Statement (Form S-1, No. 333-85651) and related Prospectus of
Cysive, Inc. (formerly Alta Software, Inc.) for the Registration of
3,000,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Vienna, Virginia Ernst & Young LLP
September 24, 1999
