<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
--- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the year ended December 31, 1996
OR
---
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File number 1-2661
CSS INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-1920657
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1845 Walnut Street, Philadelphia, PA 19103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 569-9900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
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Common Stock, $.10 par value New York Stock Exchange
(Page 1 of Cover Page)
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant is approximately $171,497,000. Such aggregate
market value was computed by reference to the closing price of the Common Stock
of the Registrant on the New York Stock Exchange on February 28, 1997 ($27.75
per share). Such calculation excludes the shares of Common Stock beneficially
owned at such date by certain directors and officers of the Registrant, by the
Farber Foundation and by the Farber Family Foundation, as described under the
section entitled "CSS SECURITY OWNERSHIP" in the Proxy Statement to be filed by
the Registrant for its 1997 Annual Meeting of Stockholders. In making such
calculation, Registrant does not determine the affiliate or non-affiliate status
of any holders of the shares of Common Stock for any other purpose.
At February 28, 1997, there were outstanding 10,804,722 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its 1997 Annual
Meeting of Stockholders are incorporated by reference in Part III (under Items
10, 11, 12 and 13).
(Page 2 of Cover Page)
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Part I
Item 1. Business
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General
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CSS Industries, Inc. ("CSS" or the "Company") is a diversified company
with two groups of businesses -- the Consumer Products Group and the Direct Mail
Business Products Group. The Consumer Products Group is primarily engaged in the
manufacture and sale to mass market retailers of seasonal gift wrap, gift bags,
boxed greeting cards, gift tags, tissue paper, paper and vinyl decorations,
calendars, classroom exchange Valentines, decorative ribbons and bows, Halloween
masks, costumes, make-ups and novelties and Easter egg dyes and novelties. The
Consumer Products Group is comprised of The Paper Magic Group, Inc. ("Paper
Magic"), acquired by the Company in August 1988, Berwick Industries, Inc.
("Berwick"), acquired in May 1993, and Cleo Inc. ("Cleo"), acquired in November
1995. The Direct Mail Business Products Group, composed of Rapidforms, Inc. and
its subsidiaries ("Rapidforms"), develops and sells business forms, business
supplies, in-store retail merchandising products, holiday greeting cards and
advertising specialties to small and medium sized businesses in the United
States, primarily through the direct mailing of catalogs and brochures.
Rapidforms was acquired by CSS in January 1985.
The Company has experienced significant growth through a combination of
acquisitions and the expansion of existing operations. The Company's goal is to
continue to expand by developing new or complementary products, by entering new
markets, by acquiring companies that are complementary with its existing groups
of operating businesses and by acquiring other businesses with leading market
positions.
Consumer Products Group
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General
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The Consumer Products Group was formed in November 1995 with the
acquisition of Cleo and with the objective of providing superior customer
satisfaction through the blending, where appropriate, of the marketing, sales,
operations and administrative functions of Paper Magic, Berwick and Cleo.
Paper Magic
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Principal Products Paper Magic designs, manufactures and distributes a
broad range of seasonal and decorative products to the consumer primarily
through the mass market distribution channel. Paper Magic Winter products
include Christmas boxed greeting cards, gift tags, classroom exchange Valentine
cards, and seasonal decorations for both inside and outside the home. Paper
Magic Spring products include the Dudley's(R) brand of Easter egg dyes and
related Easter seasonal products. Paper Magic Fall products include a full line
of Halloween merchandise ranging from make-up to costumes to masks, including
the Illusive Concepts' brand of highly crafted masks and collectibles. In
addition, Paper Magic also designs and markets everyday decorative products and
teachers aids to the education market through school supply distributors and
direct to retail teachers' stores. On January 17, 1997 Paper Magic acquired all
of the outstanding stock of Color Clings, Inc. ("Color Clings") for
approximately $8,000,000. Color Clings, headquartered in Bloomington, Minnesota,
is a designer and marketer of seasonal and everyday vinyl home decorations sold
primarily to mass market retailers in the United States and Canada.
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The wide range of products within each season permits Paper Magic
customers the opportunity to use a single vendor for major retail seasons with
key categories shipped and invoiced together, simplifying the ordering,
receiving and accounts payable processes for the customer. Paper Magic's
products are produced and warehoused in four facilities in central and
northeastern Pennsylvania, a facility in Bloomington, Minnesota and a facility
in Reynosa, Mexico. Manufacturing processes include a wide range of finishing
and assembly operations leading into high volume, high speed packaging. As a
result of the Cleo acquisition, incremental volumes of boxed Christmas cards,
gift tags and classroom exchange Valentine cards were processed through existing
Paper Magic facilities in 1996. Paper Magic Halloween make-up and Easter egg dye
products are manufactured to specific proprietary formulae by contract
manufacturers who meet regulatory requirements for the formularization and
packaging of such products.
Paper Magic has maximized market share by structuring its organization
around key selling seasons. Separate product marketing groups representing
Spring, Fall, Winter and Everyday receive product development input from
consumer focus groups, key retail customers, and the Paper Magic creative staff.
Each group is dedicated to increasing market share profitably and in developing
both strategic and tactical plans to meet that objective. Paper Magic is product
driven, and creative design is critical to the success of Paper Magic products.
Paper Magic maintains creative offices in Scranton, Pennsylvania; Minneapolis
and Bloomington, Minnesota; and Concord, California. As seasonal opportunities
continue to increase, Paper Magic continues to increase its use of computerized
graphic hardware and software systems to assist the creative personnel in
maintaining volume and schedule needs.
Sales and Marketing Paper Magic products are sold in the United States
and Canada by national and regional account sales managers and by a network of
independent manufacturers' representatives. Products are displayed and presented
in showrooms maintained by these representatives in major cities in the United
States and Canada. Relationships are developed with key retail customers by
Paper Magic sales management personnel and the independent manufacturers
representatives. Customers are generally mass merchandise retailers, warehouse
clubs, drug and food chains, independent card shops and retail teacher stores.
Paper Magic's revenues are seasonal with approximately 60% being Winter season
related and the remainder spread over Spring, Fall, and Everyday products.
Seasonal products are generally designed and sold beginning well over a year
before the event and manufactured during a 8-10 month production cycle. With
such long lead time requirements, timely communication with outsourcing
factories, retail customers and independent manufacturers' representatives is
critical to the timely production of seasonal inventory. Because the products
themselves are seasonal, sales terms do not generally require payment until
after the holiday in accordance with industry practices. In general, Paper Magic
products are not sold under guaranteed or return privilege terms.
Each of the major seasonal product groups is sold in a cycle of annual
introduction programs, and Paper Magic together with Berwick and Cleo, maintain
permanent showrooms for this purpose in New York City and Memphis, Tennessee.
Toy Fair in February is a major trade show for the introduction of the new
Christmas lines. The March Halloween Show in Chicago serves a similar purpose
for Halloween. Major retail buyers will typically visit Paper Magic's or the
manufacturers' representatives' showroom for a presentation and review of the
new lines.
Due to the seasonal nature of the majority of Paper Magic products, the
development and communication of accurate sales projections of specific products
by season are critical to the operation of Paper Magic's business. This
translation of internal sales projections to specific material requirements is a
continuous process. Because of the many seasonal designs offered on both a
domestic and import basis, the increased demand by retailers for special
designs, configurations and packaging, and the relatively short seasonal
shipping period, flexible short-term production scheduling is critical to the
operational success of Paper Magic.
Competition Paper Magic competes with a wide range of companies in its
various product lines. In Christmas boxed cards and gift trims sold to mass
merchandisers and both drug and food retail chain stores, Paper Magic competes
with the Plus Mark(R) line of American Greetings Corporation and the Kristen(R)
line
2
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of Burgoyne, Inc., among many others. Paper Magic Spring's Dudley's(R) brand
Easter egg dye products compete with several brands including the PAAS(R) brand
of Schering-Plough HealthCare Products. Paper Magic Fall has many competitors in
all categories, notably Fun World, Inc. and Rubie's. Certain of these
competitors are larger and have greater resources than the Company.
Historically, Paper Magic has not competed directly, except to a limited extent,
with Hallmark Cards, Inc. and other product offerings of American Greetings
Corporation. More recently, however, certain of these companies have penetrated
mass market retail outlets to which Paper Magic sells with similar brand
offerings.
Paper Magic believes its brands are well positioned for continued growth
in their primary markets. Since competition is based primarily on price, timely
delivery, creative design and increasingly, the ability to serve major retail
customers with single, combined products for each holiday event, Paper Magic's
product driven focus combined with consistent service levels allows it to
compete effectively in its core markets.
Berwick
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Principal Products Berwick designs, manufactures and distributes an array
of decorative ribbons, bows and related products to various markets under the
following registered trademarks: Berwick(R), Flora Satin(R), Grand Prix(R),
Brilliance(R), The Perfect Bow(R), Splendorette(R), Ribbon Magic(R), and
Veltex(R). Approximately 90% of its products are manufactured by Berwick using
extruded polypropylene resins. These products, together with fabric ribbon and
accessories, which are either manufactured or purchased for resale, are sold to
a diverse base of customers in the United States and in forty-one countries
around the world. On October 29, 1996 Berwick acquired the assets and business
of Ribbon Magic, Inc. ("Ribbon Magic"). In consideration for the purchase of
this business, Berwick assumed and paid off $1,581,000 of outstanding debt.
Ribbon Magic, headquartered in Minneapolis, Minnesota, manufactures and
distributes a line of upscale ribbon and bow products to mass market retailers
in the United States and Canada.
Berwick manufactures and warehouses its products in five facilities
located in northeast Pennsylvania. The manufacturing process is vertically
integrated. Most ribbon and bow products are made from polypropylene resin, a
petroleum-based product, which is mixed with color pigment, melted and pressed
through an extruder. Large rolls of extruded film go through various
combinations of processes such as slitting, crimping, embossing, printing,
laminating and hot-stamping before being made into bows or packaged on ribbon
spools or reels as required by various markets and customers. Iridescent and
metallic ribbon products are also made from polypropylene produced ribbon that
is coated or laminated with a special film to produce an iridescent or metallic
sheen.
Berwick imports several products for resale and also ships certain
unfinished material, primarily large rolls of ribbon, to subcontractors for
conversion into finished bows used, for example, to decorate Christmas trees and
wreaths. Such items are more labor intensive than items produced at Berwick's
manufacturing facilities and are manufactured to Berwick's specifications by
subcontractors based in The People's Republic of China.
Sales and Marketing Berwick sells its products to customers primarily
through three distribution channels. Seasonal and everyday products are sold to
mass merchandise retailers, warehouse clubs, drug store chains, supermarket
chains and variety stores. These customers are served by national account sales
managers and a network of independent manufacturers' representatives. Products
are also sold through independent sales representatives to wholesale
distributors who serve the floral, craft and retail packaging trades. And,
lastly, the company sells custom products to private label customers, to other
social expression companies, and to converters of the company's bulk ribbon
products. Custom products are sold and marketed by both independent
manufacturers' representatives and by Berwick sales managers. Berwick's sales
are highly seasonal with approximately 76% shipped for the Christmas selling
season.
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Competition Berwick competes primarily with a variety of large and small
domestic companies, including the Plus Mark(R) line of American Greetings Corp.,
Hollywood Ribbon, Inc., CPS Corporation, Delaware Ribbon Manufacturers, Inc., C.
M. Offray and Son, Inc. and Variety Accessories. Certain of these competitors
are larger and have greater financial resources than the Company.
Berwick believes that its products are established in its various markets
and are positioned for continued growth. Berwick's new product development,
product quality, breadth of product line, cost effective manufacturing
techniques, extensive sales network and product pricing allow it to compete
effectively in its various markets.
Cleo
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Principal Products Prior to the acquisition by CSS in November 1995, Cleo
designed, manufactured and distributed a wide array of social expression
products, including Christmas gift wrap, gift bags, tissue, boxed greeting
cards, gift boxes, gift tags and ribbons and bows. In addition, "contra
seasonal" offerings included classroom exchange Valentine cards, calendars and
all-occasion gift wrap and gift bags.
Subsequent to the acquisition, the Cleo line of gift tags and ribbons and
bows were blended with those of Paper Magic and Berwick, respectively, while the
gift box line was sold. In 1996, Cleo product offerings included Christmas and
all-occasion gift wrap and gift wrap alternative products, such as gift bags and
tissue, as well as calendars, boxed greeting cards and classroom exchange
Valentines sold under the Cleo(R) brand name.
Cleo's 1995 products were manufactured in six facilities and warehoused
in and distributed from five other permanent and temporary facilities.
Subsequent to the acquisition by CSS, five of the manufacturing facilities were
closed and four of the warehouse and distribution facilities were vacated.
Manufacturing of gift wrap, including web printing, finishing, rewinding and
packaging, as well as the assembly of calendars, are performed in one facility
in Memphis, Tennessee. Finished goods are distributed from a separate Memphis
facility. Although designed to the specifications of Cleo, gift bags and tissue,
as well as the manufacturing of calendar components, are all purchased from
outside vendors. Cleo(R) brand boxed greeting cards and classroom exchange
Valentine cards sold in 1996 were manufactured and packaged by Paper Magic in
existing Paper Magic facilities in central and northeastern Pennsylvania. The
blending of gift tags and ribbons and bows into the Paper Magic and Berwick
lines, the elimination of redundant facilities, the consolidation of Cleo's
boxed card and Valentine manufacturing and packaging requirements with those of
Paper Magic, and the refocus on gift wrap as Cleo's core product category served
to improve Cleo's operational and financial performance in 1996.
During the past two years, the quality and caliber of the design of the
product lines were significantly enhanced through a refocused effort toward
trend and color marketing. The revitalized positioning of the lines has been
further enhanced in 1997 by the use of state-of-the-art computerized graphic
hardware and software systems.
Sales and Marketing Cleo products are sold in the United States
(including Puerto Rico), Canada and Mexico through a combination of an in-house
dedicated sales organization as well as independent manufacturers'
representatives. Customers represent various classes of trade, including mass
merchandise retailers, drug and food chains and warehouse clubs. In addition to
the above markets, through sales and licensing agreements, Cleo also sells
products to Hong Kong/China and Australia.
Sales efforts are conducted through a combination of travel to retailers'
offices, use of regional showrooms maintained by manufacturers' representatives,
and an annual trade show in New York. Furthermore, because Cleo enjoys a strong
working relationship with its key customers, many of them travel to Memphis
annually to conduct their business in on-site showrooms.
4
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Cleo's revenues are highly seasonal with approximately 90% being
Christmas related. Industry practices require production based on commitments or
bookings early in the selling cycle with actual purchase orders received within
a short period of time prior to shipment. Because the products are seasonal,
sales terms do not require payment until after the Christmas season in
accordance with industry practices.
Due to the ever increasing competitive retail environment, Cleo plays a
crucial role in helping the customer to develop retail programs to meet product
performance objectives while appealing to consumers' tastes. These objectives
are met through the development and manufacture of custom configured and
designed products. Cleo's years of experience in program development and product
quality are key competitive advantages in helping the retailers meet their
objectives.
Competition In its core product line of Christmas gift wrap, Cleo
competes primarily with Plus Mark(R), a division of American Greetings
Corporation, and CPS Corporation. Historically, Cleo has not competed directly,
except to a limited extent, with Hallmark Cards, Inc. and other product
offerings of American Greetings Corporation. More recently, however, these
companies have begun to penetrate the mass market retail outlets in which Cleo
sells its products.
Direct Mail Business Products Group
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General
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The Direct Mail Business Products Group, composed of Rapidforms and its
subsidiaries, designs and sells business forms, business supplies, in-store
retail merchandising products, holiday greeting cards and advertising
specialties to small and medium size businesses primarily through the direct
mailing of catalogs and brochures.
On January 8, 1997 Rapidforms sold its Standard Forms, Ltd. subsidiary
("Standard Forms") for $4,300,000 resulting in an immaterial financial gain.
Standard Forms, a British company headquartered in Romsey, England, sold
business forms and related products by direct mail to automotive dealers and
repair shops in the United Kingdom and France.
Principal Products Rapidforms has developed and sells a wide range of
standard business forms, including snap-apart, register, continuous and laser
forms. Rapidforms also sells a variety of other products for small businesses
and other organizations, including office supplies (such as labels, envelopes
and stationery), promotional products (such as printed pens, postcards and
appointment reminders), retail merchandising products (such as price cards and
tags, bags, sales kits, baskets and hangers), products for the healthcare
industry (such as prescription pads, patient record forms and superbills), human
resources products (such as motivational posters, awards and products for
employee administration) and greeting cards. Rapidforms maintains an active new
product development program and holds several trademarks covering a small number
of items sold by it. Rapidforms(R) and Rapidforms Design(R) are registered
trademarks of Rapidforms.
Snap-apart forms produce multiple copies of information manually written
or typed on the first sheet of the form and are available in carbon and
carbonless designs. Register forms are used with countertop registers, and
continuous and laser forms are used for printing information generated by
personal computers. The continuous and laser forms product lines consist
principally of forms compatible with various business software applications
developed by software companies. Many of such companies have endorsed
Rapidforms' continuous and laser forms for use with their computer software
packages.
Rapidforms offers imprinting (of customer names, addresses and logos) and
numbering on most of its standard business forms and supplies. Approximately 69%
of the products sold by Rapidforms in 1996 were imprinted and/or numbered. In
addition to standard forms, Rapidforms offers a full range of custom products
including continuous, laser, snap-apart and register forms, labels, tags,
envelopes and stationery.
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Although many of the forms sold by Rapidforms are produced by outside
vendors, Rapidforms also manufactures a portion of its continuous forms for its
base stock. Rapidforms believes that alternate sources are available for most
merchandise appearing in its catalogs, and has generally not had any problems
obtaining necessary items. Inventory is maintained at a high level in order to
fill customer orders promptly. Non-imprinted products are generally shipped by
the day after receipt of an order and standard imprinted products are shipped
within three to five working days. Custom products are generally shipped within
ten working days of approval of proofs.
In November 1994, Rapidforms acquired the assets and business of
Histacount Corporation ("Histacount"), located in Melville, New York. Histacount
sells, by direct mail, personalized printed products such as stationery,
envelopes, labels and business forms, as well as other supply items to
physicians, dentists, veterinarians, accountants, lawyers and other
professionals under the names Histacount, Expressions, ASH Accountants'
(America's Supply House), and Napco Press. Rapidforms moved the Histacount
operations into its facility in Thorofare, New Jersey during the spring of 1995.
In December 1994, Rapidforms acquired the assets and business of Business
Envelope Manufacturers, Inc. ("Business Envelope"), located in Deer Park, New
York and with fulfillment in Claysburg, Pennsylvania. Business Envelope is a
direct mail marketer of a wide variety of envelopes, labels, business forms,
stationery and supply items, to small businesses of many types. In 1995, the
sellers continued to fulfill most Business Envelope orders for Rapidforms. Early
in 1996, the fulfillment operations of Business Envelope were moved into the
Thorofare facility and integrated with the operations of Rapidforms.
Sales and Marketing Rapidforms sells to customers located throughout the
United States (including Puerto Rico), and to a limited extent, in Canada. Its
typical customers are small to medium sized manufacturing, wholesale, retail,
and automotive businesses, and professionals such as physicians, dentists,
veterinarians, accountants and lawyers. Sales at wholesale (principally to
distributors of business forms, supplies and merchandising products as well as
pharmaceutical wholesalers) are made to a smaller number of customers.
Rapidforms sells its products primarily through the direct mailing of
catalogs and brochures to existing and prospective customers. Rapidforms uses
various types of catalogs which are revised regularly to reflect product line
and price changes. It also periodically mails a variety of brochures featuring
one product or a few related products. Rapidforms now has approximately 800,000
customers. In 1996, approximately 22,500,000 catalogs and brochures were mailed
to customers and prospective customers. In addition to catalog sales, products
are also sold to a limited extent through distributors and dealers and in the
case of retail merchandising products, direct to large end-users. Continuous and
laser forms are marketed, among other ways, through brochures which are inserted
in the software packages for various computer software.
Retail orders are received by mail, facsimile and over toll-free
telephone lines provided by Rapidforms. Rapidforms' business is characterized by
a high volume of small orders, with an average order totaling approximately
$152. To handle these orders efficiently, Rapidforms generally has computerized
its operations. The computer systems are also used for customer profile analysis
in order to determine which customers should receive Rapidforms mailings.
Rapidforms has a 100% satisfaction guaranteed customer return and cancellation
policy, consistent with industry practices.
Competition The direct mail industry is highly competitive. Rapidforms
believes that its business forms, supplies and other products are well
positioned in its industry, and that it offers a wide selection of forms
designed specially to meet the needs of the businesses in which its customers
are involved.
Rapidforms competes primarily with other direct mail companies, some of
which have more extensive customer lists and greater financial resources. The
company is aware of approximately twenty companies marketing competitive
products by mail, which include New England Business Services, Inc., Deluxe
Check Printers, Inc., Viking Office Products and Executive Greetings, Inc.
Rapidforms competes with these firms
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through a combination of methods, including product selection, design and
quality, speed of delivery, price, selection of markets and quality of its
customer and prospect lists.
To a lesser extent, Rapidforms also competes with non-mail distributors,
local job printers and retail stationery stores located throughout the United
States. Most local job printers have no sales people and their markets are
typically limited to small geographic areas. Local printers have the advantage
of physical proximity to their customers but frequently lack design expertise
and are generally unable to offer products of complex construction. Typically,
pre-printed business forms offered by stationers are limited to general purpose
forms suitable for use by a broad cross-section of businesses and not designed
for specific types of business firms. Continuing growth in the availability and
use of computers and copy machines by Rapidforms' customers also affects
Rapidforms, and, in certain respects, Rapidforms' products compete with forms
that can be designed by computer users with "desk-top publishing" or forms
software capabilities.
Employees
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At February 28, 1997, approximately 725 persons were employed by Paper
Magic, 682 persons were employed by Berwick, 440 were employed by Cleo (with
personnel increasing to approximately 1,390; 1,280 and 1,400, respectively, as
seasonal employees are added), 586 persons were employed at Rapidforms, and 22
persons were employed at the Company's headquarters.
With the exception of the bargaining unit at Cleo, which includes 254
employees as of February 28, 1997, the employees at Paper Magic, Berwick and
Rapidforms are not represented by labor unions. Because of the seasonal nature
of certain of its businesses, the number of Paper Magic, Berwick and Cleo
production employees fluctuate during the year.
The Company believes that relationships with all of its employees are
good.
Item 2. Properties
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Paper Magic operates out of 810,000 square feet of owned production and
warehouse space in northeast Pennsylvania and 192,000 square feet of leased
production and warehouse space in Bloomington, Minnesota and Reynosa, Mexico.
Paper Magic also leases 52,000 square feet of space for creative design
activities and general administrative purposes in Scranton, Pennsylvania,
Concord, California, New York, New York and Minneapolis, Minnesota. Berwick owns
four buildings in northeast Pennsylvania which represent 623,000 square feet of
production, warehouse and office space and leases 345,000 square feet of
additional warehouse space in one building located in northeast Pennsylvania.
Cleo operates principally in two facilities in Memphis, Tennessee. The
manufacturing operations, raw materials warehouse and offices are in a 1,003,000
square foot leased facility while finished goods warehousing and distribution
are in a 1,135,000 square foot owned facility. Rapidforms maintains principal
facilities in a 121,000 square foot owned facility in southern New Jersey.
Rapidforms also has other owned and leased facilities totaling approximately
137,000 square feet located in southern New Jersey and Santa Fe Springs,
California. The Company believes such facilities are adequate for current
production requirements.
The headquarters and principal executive office of the Company are
located in Philadelphia, Pennsylvania.
The Company is also the lessee of approximately 242,000 square feet of
office, loft, retail and warehouse space (which was related to former
operations) which have been subleased by the Company, as sublessor, to various
sublessees.
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Item 3. Legal Proceedings
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Effective November 15, 1995, CSS acquired all of the outstanding shares
of Cleo from Gibson Greetings, Inc. ("Gibson") in accordance with a stock
purchase agreement dated October 3, 1995. The purchase price is subject to
adjustment based on the Closing Date Statement of Net Equity of Cleo at November
15, 1995 (the "Statement"). Based upon the Statement prepared by Cleo, CSS has
requested that Gibson consent to the release to CSS of the $12,000,000 of the
purchase price currently held in escrow for the resolution of such purchase
price adjustments and the payment of any indemnification claims. Gibson has
indicated that it disagrees with the Statement and believes that none of the
$12,000,000 held in escrow should be released to CSS. The disagreement relates
primarily to the valuation of Cleo's inventory.
CSS and Gibson have engaged an independent public accounting firm to
resolve the disputed items on the Statement. Gibson's current and Cleo's former
public accountants have completed their audit of the Statement and have issued
an adverse opinion. CSS disagrees with that conclusion. Regardless of the
outcome of the arbitration, CSS now believes that Gibson's current and Cleo's
former public accountants will never be willing to issue an unqualified opinion
on the Statement. As such, CSS will be unable to satisfy the financial
requirements of Form 8-K with regard to the Cleo acquisition.
CSS has sent to the Securities and Exchange Commission, contemporaneously
with the filing of this Annual Report, a request to waive CSS' requirement to
file historical audited Cleo financial statements. CSS believes at this point
that audited pre-acquisition Cleo financial statements are not material to an
investor, in part, because of material changes in the financial position of Cleo
since the acquisition and, in part, because the relevant current financial
information regarding Cleo is included in CSS' audited financial statements. CSS
cannot estimate at this time the timing for determination of the waiver request
and there is no assurance that any waiver will be granted.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not applicable.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
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(a) Principal Market for Common Stock
---------------------------------
The Common Stock of the Company is listed for trading on the New York
Stock Exchange. The following table sets forth the high and low sales prices per
share of that stock for each of the calendar quarters during 1996 and 1995.
<TABLE>
<CAPTION>
High Low
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1996
----
<S> <C> <C> <C> <C>
First Quarter....................................... $22 1/4 $20 1/2
Second Quarter...................................... 25 3/4 22 1/8
Third Quarter....................................... 23 1/2 21 1/4
Fourth Quarter...................................... 26 1/4 23
1995
----
First Quarter........................................ $17 3/4 $15 1/2
Second Quarter....................................... 18 15 3/4
Third Quarter........................................ 24 3/4 17
Fourth Quarter....................................... 23 20 5/8
</TABLE>
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(b) Holders of Common Stock
-----------------------
At February 28, 1997, there were approximately 2,100 holders of the
Company's Common Stock.
(c) Dividends
---------
The Company has not declared or paid any dividends on its Common Stock
for more than the past three fiscal years. The ability of the Company to pay any
cash dividends on its Common Stock is dependent on the Company's earnings and
profits and cash requirements and is further limited by the terms of the
Company's revolving line of credit. The Company does not anticipate that it will
declare or pay any cash dividends on its Common Stock for the foreseeable
future.
At February 28, 1997, there were no shares of preferred stock
outstanding.
Item 6. Selected Financial Data
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(In thousands, except
per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Sales.................................... $412,079 $288,412 $218,235 $205,743 $151,679
Income from continuing operations
before income taxes
and minority interest................. 37,273 27,386 24,462 24,385 18,643
Net income from continuing
operations ........................... 22,344 15,775 14,027 13,975 10,001
Gain on sale and income from discontinued
operation, net of income taxes........ - - 9,775 3,019 2,876
Net income............................... 22,344 15,775 23,802 16,994 12,877
Net income from continuing operations
per common share -
Primary .......................... 2.03 1.45 1.21 1.18 .91
Fully diluted ..................... 2.01 1.43 1.21 1.17 .88
Balance Sheet Data:
Working capital.......................... 71,780 66,395 72,075 85,288 86,467
Total assets ............................ 346,364 374,961 205,081 200,143 151,923
Short-term debt.......................... 100,016 135,078 1,293 11,650 3,087
Long-term debt........................... 4,612 17,865 11,043 11,810 5,796
Shareholders' equity .................... $176,752 $153,856 $142,980 $133,952 $111,843
</TABLE>
9
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Business Acquisitions and Divestitures
- --------------------------------------
On January 17, 1997 Paper Magic acquired all of the outstanding stock of
Color Clings, Inc. ("Color Clings") for approximately $8,000,000. Color Clings,
headquartered in Bloomington, Minnesota, is a designer and marketer of seasonal
and everyday vinyl home decorations sold primarily to mass market retailers in
the United States and Canada.
On January 8, 1997 Rapidforms sold its Standard Forms subsidiary for
$4,300,000 resulting in an immaterial financial gain. Standard Forms, a British
company headquartered in Romsey, England, sold business forms and related
products by direct mail to automotive dealers and repair shops in the United
Kingdom and France.
On October 29, 1996 Berwick acquired the assets and business of Ribbon
Magic. In consideration for the purchase of this business, Berwick assumed and
paid off $1,581,000 of outstanding debt. Ribbon Magic, headquartered in
Minneapolis, Minnesota , manufactures and distributes a line of upscale ribbon
and bow products to mass market retailers in the United States and Canada.
CSS acquired all of the outstanding stock of Cleo Inc., effective
November 15, 1995, for approximately $135,000,000 which includes $12,000,000
held in escrow for certain post closing adjustments and indemnification
obligations. The Company and the seller have disagreed on the disbursement of
the escrow and have engaged an independent accounting firm to resolve the
disputed items. Cleo, based in Memphis, Tennessee, designs, manufactures and
distributes a wide range of promotional gift wrap and gift wrap accessories to
mass market retailers in the United States and Canada.
Concurrent with the acquisition of Cleo, CSS divided its businesses into
two distinct business units - the Consumer Products Group ("CPG"), comprised of
Paper Magic, Berwick and Cleo and the Direct Mail Business Products Group
("BPG"), comprised of Rapidforms and its subsidiaries.
Subsequent to the acquisition of Cleo, the Company's management initiated
a restructuring plan that was substantially implemented by December 31, 1995.
Prior to its acquisition by CSS, Cleo's 1995 products were manufactured in six
facilities and warehoused in and distributed from five other permanent and
temporary facilities. As a part of this plan, five of Cleo's six manufacturing
facilities were closed and four of the five warehouse and distribution
facilities were vacated. Cleo's boxed card, Valentine, gift tags and ribbon and
bow manufacturing and packaging requirements were blended into existing lines at
Paper Magic and Berwick in early 1996. In addition, all applicable inventory was
transferred from Cleo to Paper Magic and Berwick. As a result of the closure of
facilities and consolidation of manufacturing processes, employees at the
affected facilities were severed and staffing at the headquarters was reduced.
The unaudited consolidated results of operations of the Company and Cleo
on a pro forma basis as though the transaction had been consummated at the
beginning of the respective years were as follows:
1995 1994
---- ----
Sales............................ $429,106 $392,478
Net income....................... 5,634 5,313
Net income per common share
Primary....................... $.52 $.46
Fully diluted................. $.51 $.46
10
<PAGE>
Pro forma adjustments included in the above results reflect (1) increased
inventory obsolescence reserves required for the periods prior to November 15,
1995, (2) reduced rental expense related to a renegotiated lease and to leases
on terminated facilities, (3) reduction of administrative payroll costs and
management fees, and (4) the effect of purchase accounting adjustments on
interest, depreciation, amortization and tax expense.
On June 6, 1995, Paper Magic acquired the assets and businesses of
Topstone Industries, Inc. and Illusive Concepts, Inc. for approximately
$8,740,000 in cash. Topstone is a designer and distributor of a broad range of
Halloween masks, wigs, costumes, accessories and novelties sold to mass
merchandisers, drug chains and party stores. Illusive Concepts, based in
Concord, California, designs and markets highly crafted latex masks, accessories
and decorative displays sold primarily to party and gift stores and limited
edition collectibles sold through various channels.
Seasonality
- -----------
The seasonal nature of the CPG businesses (Paper Magic, Berwick and Cleo)
results in low sales and operating profits for the first two quarters and high
shipment levels and operating profits for the second half of the year, thereby
causing significant fluctuations in the quarterly results of operations of the
Company. Quarterly fluctuation of sales and earnings were further pronounced in
1996 due to the acquisition of Cleo.
Because of the seasonality and the general industry practice of deferred
payment terms, the CPG businesses experience significant collections of accounts
receivable in December and January, thus enabling them to make major reductions
in the short-term debt borrowed during the year to fund their inventory and
accounts receivable build-up.
Results of Operations
- ---------------------
Consolidated sales for 1996 increased by 43% to $412,079,000 from
$288,412,000. The increase was primarily attributable to incremental sales
provided by the November 15, 1995 acquisition of Cleo. Excluding Cleo, sales
decreased 2% as CPG sales decreased 5%, but this decrease was partially offset
by BPG sales increases. The sales decline at CPG was the result of
discontinuance and divestiture of certain product categories, anticipated
Christmas volume erosion, the effect of significant Cleo closeout sales on
existing Paper Magic and Berwick accounts and weak sales in Berwick's wholesale
markets. The increase in BPG sales was attributable to price increases as
overall volume was modestly down from a year ago, reflecting lower orders for
business forms. The increase in sales of 32% to $288,412,000 in 1995 from
$218,235,000 in 1994 was primarily attributable to incremental sales of
companies acquired in 1994 and 1995, as well as 12% growth in CPG sales and 4%
growth in sales of BPG.
As a percentage of sales, cost of sales was 65% in 1996, 62% in 1995 and
59% in 1994. CPG cost of sales as a percentage of sales increased to 71% in 1996
from 70% in 1995 due primarily to the inclusion of lower margin Cleo sales in
1996. BPG cost of sales percentage increased to 45% in 1996 from 44% in 1995 as
a result of higher material costs. The increase in cost of sales as a percentage
of sales in 1995 reflected competitive pricing pressures in consumer products
business, the timing of the Cleo acquisition, the acquisition of lower margin
businesses in 1995, the increasing importance of consumer product direct import
sales and higher paper and resin costs.
Selling, general and administrative expenses, as a percentage of sales,
was 24% in 1996, 28% in 1995 and 30% in 1994. The decrease in 1996 and 1995 was
due to incrementally lower selling, general and administrative costs of acquired
companies and the increased mix of CPG businesses which require less selling,
general and administrative expenses compared to advertising intensive BPG
businesses.
11
<PAGE>
Interest expense, net was $8,235,000 in 1996, $3,957,000 in 1995 and
$923,000 in 1994. The increase in 1996 and 1995 was primarily due to increased
borrowings to fund acquisitions in 1994 and 1995 and to finance additional
working capital requirements.
Rental and other income, net was $1,131,000 in 1996, $1,727,000 in 1995
and $910,000 in 1994. The decrease in 1996 was due to the absence of sublease
income related to a leasehold interest which expired in late 1995 and lower
gains from sales of marketable securities. The increase in 1995 compared to 1994
was primarily due to gains realized on the sale of marketable securities in
1995.
Income before income taxes and minority interest was $37,273,000, or 9%
of sales in 1996, $27,386,000, or 10% of sales in 1995 and $24,462,000, or 11%
of sales in 1994.
Income taxes as a percentage of income before income taxes was 39% in
1996, 40% in 1995 and 41% in 1994. The decrease in 1996 was attributable to
lower state tax expense . The decrease in 1995 was primarily due to permanent
differences in book and tax income.
Minority interest in income of subsidiaries was $540,000 in 1996, or 2%
of income before minority interest, $615,000 or 4% in 1995 and $388,000 or 3% in
1994. The decrease in 1996 was directly related to reduced earnings of the BPG.
Historically, the Company's business strategy provided in certain instances for
the purchase by subsidiary operating management of minority interests in the
businesses they were managing. With the 1993 acquisition of Berwick, the Company
began offering operating management the opportunity to purchase stock of the
Company by participating in the Company's then Incentive Stock Option Plan and
thereafter by participating in its Equity Compensation Plan. With the retirement
of a significant Paper Magic shareholder in 1994, the Company offered the
remaining minority shareholders of Paper Magic the opportunity to redeem their
shares for cash and to exchange any outstanding Paper Magic stock options for
CSS stock options. The remaining minority interest liability on the consolidated
balance sheet relates to Rapidforms' minority ownership and the appreciation on
unexercised Rapidforms' stock options.
Net income from continuing operations increased 42% in 1996 to
$22,344,000, and increased 13% in 1995 to $15,775,000. Fully diluted net income
from continuing operations per share rose 41% in 1996 to $2.01 per share and
increased 18% in 1995 to $1.43 per share.
Net income to common shareholders of $23,802,000 in 1994 reflected the
$9,661,000 gain on the sale of its former Ellisco subsidiary, net of income
taxes.
Inflation
- ---------
The Company attempts to alleviate inflationary material and labor
pressures by increasing selling prices to help offset rising costs (subject to
competitive conditions), increasing productivity, and improving design and
manufacturing techniques. Raw material cost decreases in certain grades of
paper, polypropylene resin and corrugated positively impacted 1996 margins by
approximately 1% as a percentage of sales.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1996, the Company had working capital of $71,780,000 and
shareholders' equity of $176,752,000. The decrease in accounts receivable, net
of reserves, from $174,832,000 in 1995 to $159,008,000 in 1996 reflected
collection of accounts receivable of Cleo and Paper Magic product lines divested
in 1996. Inventories, net of reserves, decreased from $76,397,000 to $58,189,000
due primarily to the sale and disposal of excess acquired inventories of Cleo.
This reduction was somewhat offset by increased
12
<PAGE>
raw paper purchases at the end of 1996. Property increased from $44,995,000 in
1995 to $53,246,000 in 1996 due to incremental investments in information
systems and manufacturing equipment. Current liabilities were reduced due to
payments of $7,615,000 made to reduce Cleo's restructuring reserve and a net
reduction of the Company's Notes Payable of $29,283,000. The decrease in
long-term debt was due to the repayment of Cleo economic development revenue
bonds as well as repayment of the mortgage on the primary Rapidforms' facility.
The Company relies primarily on cash generated from its operations and
seasonal borrowings to meet its liquidity requirements. Most Paper Magic,
Berwick and Cleo revenues are seasonal with approximately 70 percent of sales
being Christmas and Halloween related. As payment for sales of Christmas and
Halloween related products is usually not received until after the respective
holiday in accordance with general industry practice, short-term borrowing needs
increase throughout the second and third quarters, peaking prior to Christmas
and dropping thereafter. Seasonal borrowings are made under a $195,000,000
unsecured revolving credit facility with thirteen banks and financial
institutions. The facility is available to fund the seasonal borrowing needs and
to provide the Company with a source of capital for general corporate purposes.
At December 31, 1996, there was $98,375,000 outstanding under this facility. For
information concerning the bank credit facility, see Note 6 of Notes to
Consolidated Financial Statements.
Based on its current operating plan, the Company believes its sources of
available capital are adequate to meet its ongoing cash needs for the
foreseeable future.
13
<PAGE>
Item 8. Financial Statements
- ------- --------------------
CSS INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
-----
Page
----
<S> <C>
Report of Independent Public Accountants 15
Consolidated Balance Sheets - December 31, 1996 and 1995 16 - 17
Consolidated Statements of Operations - for the years ended
December 31, 1996, 1995 and 1994 18
Consolidated Statements of Cash Flows - for the years ended
December 31, 1996, 1995 and 1994 19
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1996, 1995 and 1994 20 - 21
Notes to Consolidated Financial Statements 22 - 34
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of CSS Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CSS
Industries, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
1996 and 1995 and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the three years in the period ended
December 31, 1996. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CSS
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedule
listed in Item 14(a) is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 20, 1997
15
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except
share amounts)
<TABLE>
<CAPTION>
December 31,
--------------------------------
ASSETS 1996 1995
------ ---------- ---------
CURRENT ASSETS
<S> <C> <C>
Cash and temporary investments...................................... $ 2,755 $ 3,102
Marketable securities............................................... -- 800
Accounts receivable, net of allowance for doubtful
accounts of $3,838 and $4,684.................................... 159,008 174,832
Inventories ........................................................ 58,189 76,397
Deferred income taxes............................................... 1,883 --
Other current assets................................................ 7,269 8,349
--------- ---------
Total current assets............................................. 229,104 263,480
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
Land ............................................................... 1,828 1,876
Buildings, leasehold interests and improvements..................... 33,469 33,836
Machinery, equipment and other...................................... 62,603 53,024
--------- ---------
97,900 88,736
Less - Accumulated depreciation and amortization................... 44,654 43,741
--------- ---------
Net property, plant and equipment .............................. 53,246 44,995
--------- ---------
OTHER ASSETS
Intangible assets, net of accumulated amortization of
$7,364 and $7,299 .............................................. 49,388 50,019
Deferred income taxes.............................................. -- 1,829
Other ........................................................... 14,626 14,638
--------- ---------
Total other assets ............................................. 64,014 66,486
--------- ---------
$346,364 $374,961
========= =========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
------------------------------------ ---------- ----------
CURRENT LIABILITIES
<S> <C> <C>
Notes payable..................................................... $ 99,264 $128,547
Current portion of long-term debt................................. 752 6,531
Accounts payable.................................................. 15,553 15,337
Accrued payroll and other compensation............................ 10,708 7,951
Accrued income taxes.............................................. 6,371 4,278
Accrued expenses ................................................. 24,676 32,342
Deferred income taxes............................................. -- 2,099
---------- ----------
Total current liabilities ..................................... 157,324 197,085
---------- ----------
LONG-TERM DEBT, NET OF CURRENT
PORTION........................................................... 4,612 17,865
---------- ----------
OTHER LONG-TERM OBLIGATIONS.......................................... 2,824 2,547
---------- ----------
MINORITY INTEREST.................................................... 3,862 3,608
---------- ----------
DEFERRED INCOME TAXES................................................ 990 --
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)........................ -- --
SHAREHOLDERS' EQUITY
Preferred stock, Class 2, $.01 par, authorized
1,000,000 shares ............................................. -- --
Common stock, $.10 par, authorized 20,000,000 shares,
issued 12,293,090 shares and 12,193,848 shares ................ 1,229 1,219
Additional paid-in capital........................................ 28,675 27,087
Retained earnings................................................. 171,658 149,314
Unrealized gain on marketable securities.......................... -- 327
Cumulative foreign currency translation adjustment ............... (188) (463)
Common stock in treasury, 1,523,780 and 1,479,832
shares, at cost ............................................... (24,622) (23,628)
---------- ----------
Total shareholders' equity..................................... 176,752 153,856
---------- ----------
$346,364 $374,961
========== ==========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except
per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
SALES................................................ $412,079 $288,412 $218,235
--------- --------- ---------
COSTS AND EXPENSES
Cost of sales...................................... 266,964 178,481 129,079
Selling, general and administrative expenses....... 100,738 80,315 64,681
Interest expense, net of interest income of $148,
$316 and $704................................... 8,235 3,957 923
Rental and other income, net....................... (1,131) (1,727) (910)
--------- --------- ---------
374,806 261,026 193,773
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
MINORITY INTEREST...................................... 37,273 27,386 24,462
INCOME TAXES............................................. 14,389 10,996 10,047
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST............................... 22,884 16,390 14,415
MINORITY INTEREST IN INCOME
OF SUBSIDIARIES........................................ 540 615 388
--------- --------- ---------
NET INCOME FROM CONTINUING
OPERATIONS............................................. 22,344 15,775 14,027
DISCONTINUED OPERATION
Income from discontinued operation,
net of income taxes of $95 in 1994.................. -- -- 114
Gain on sale of subsidiary, net of income
taxes of $6,145 in 1994.............................. -- -- 9,661
--------- --------- ---------
NET INCOME............................................... $22,344 $15,775 $23,802
========= ========= =========
NET INCOME PER COMMON SHARE
Primary:
Continuing operations............................... $ 2.03 $ 1.45 $ 1.21
Discontinued operation.............................. -- -- .01
Gain on sale of subsidiary.......................... -- -- .83
--------- --------- ---------
$ 2.03 $ 1.45 $ 2.05
========= ========= =========
Fully diluted:
Continuing operations............................... $ 2.01 $ 1.43 $ 1.21
Discontinued operation.............................. -- -- .01
Gain on sale of subsidiary.......................... -- -- .83
--------- --------- ---------
$ 2.01 $ 1.43 $ 2.05
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income............................................................... $22,344 $15,775 $23,802
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................................... 8,626 8,170 6,800
Provision for doubtful accounts....................................... 2,295 1,698 910
Deferred tax (benefit)................................................ (1,163) (912) (284)
Minority interest in income of subsidiaries........................... 540 615 388
(Gain) on sale of assets.............................................. (97) (40) (61)
(Gain) on sale of marketable securities............................... (251) (1,061)
(Gain) on sale of discontinued operation.............................. -- -- (9,661)
Changes in assets and liabilities of
discontinued operation............................................. -- -- (6,915)
Changes in assets and liabilities, net of effects from
purchases and disposal of businesses:
Decrease in accounts receivable.................................... 14,446 7,645 3,074
Decrease (increase) in inventories................................. 20,392 5,438 (1,313)
Decrease (increase) in other assets................................ 684 (1,443) (282)
(Decrease) increase in accounts payable............................ (201) 5,876 2,277
Increase in accrued taxes.......................................... 2,218 3,419 579
(Decrease) increase in accrued expenses............................ (6,155) (20,090) 752
--------- --------- ---------
Total adjustments............................................... 41,334 9,315 (3,736)
--------- --------- ---------
Net cash provided by operating activities....................... 63,678 25,090 20,066
--------- --------- ---------
Cash flows from investing activities:
Purchases of marketable securities....................................... -- (2,080) --
Proceeds on sale of marketable securities................................ 724 2,668 --
Purchases of businesses, net of cash received of $50, $63 and $0......... (1,581) (143,298) (19,341)
Purchase of property, plant and equipment................................ (15,980) (8,823) (5,602)
Proceeds from sale of business........................................... -- -- 30,431
Proceeds from sale of assets............................................. 1,753 313 397
--------- --------- ---------
Net cash (used for) provided by investing activities............ (15,084) (151,220) 5,885
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term obligations........................................ (19,827) (2,444) (1,263)
Borrowings (repayments) of notes payable................................. (29,283) 128,123 (10,351)
Dividends paid to minority shareholders of a subsidiary.................. (118) (120) (110)
Purchase of treasury stock............................................... (994) (6,133) (16,237)
Purchase of subsidiary stock from minority shareholders.................. (168) -- (3,123)
Proceeds from exercise of stock options ................................. 1,473 1,007 1,390
--------- --------- ---------
Net cash (used for) provided by financing activities............. (48,917) 120,433 (29,694)
--------- --------- ---------
Effect of exchange rate changes on cash..................................... (24) 25 58
--------- --------- ---------
Net decrease in cash and temporary investments.............................. (347) (5,672) (3,685)
Cash and temporary investments at beginning of year......................... 3,102 8,774 12,459
--------- --------- ---------
Cash and temporary investments at end of year............................... $ 2,755 $ 3,102 $ 8,774
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except
share amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------ -------------------- Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 -- $ -- 11,966,648 $1,197 $24,938
Issuance of common stock upon exercise
of stock options -- -- 130,000 13 1,259
Increase in treasury shares -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Net income -- -- -- -- --
------ ------ ---------- ------- -------
BALANCE, DECEMBER 31, 1994 -- -- 12,096,648 1,210 26,197
Issuance of common stock upon exercise
of stock options -- -- 97,200 9 890
Increase in treasury shares -- -- -- -- --
Unrealized gain on marketable securities -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Net income -- -- -- -- --
------ ------ ---------- ------- -------
BALANCE, DECEMBER 31, 1995 -- -- 12,193,848 1,219 27,087
Issuance of common stock upon exercise
of stock options -- -- 99,242 10 1,588
Increase in treasury shares -- -- -- -- --
Sale of marketable securities -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Net income -- -- -- -- --
------ ------ ---------- ------- -------
BALANCE, DECEMBER 31, 1996 -- $ -- 12,293,090 $1,229 $28,675
====== ====== ========== ====== =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Cumulative
Unrealized Foreign Common Stock
Gain on Currency in Treasury
Retained Marketable Translation ----------------------
Earnings Securities Adjustment Shares Amount Total
- -------- ---------- ---------- ------ ------ -----
<C> <C> <C> <C> <C> <C>
$109,737 $ -- $ (662) (91,190) $(1,258) $133,952
-- -- -- -- -- 1,272
-- -- -- (1,010,685) (16,237) (16,237)
-- -- 191 -- -- 191
23,802 -- -- -- -- 23,802
- -------- ------------ ---------- ----------- --------- --------
133,539 -- (471) (1,101,875) (17,495) 142,980
-- -- -- -- -- 899
-- -- -- (377,957) (6,133) (6,133)
-- 327 -- -- -- 327
-- -- 8 -- -- 8
15,775 -- -- -- -- 15,775
- -------- ------------ ---------- ----------- --------- --------
149,314 327 (463) (1,479,832) (23,628) 153,856
-- -- -- -- -- 1,598
-- -- -- (43,948) (994) (994)
-- (327) -- -- -- (327)
-- -- 275 -- -- 275
22,344 -- -- -- -- 22,344
------- ------------- ---------- ----------- --------- --------
$171,658 $ -- $ (188) (1,523,780) $(24,622) $176,752
======== ============= ========== =========== ========= ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Principles of Consolidation -
-----------------------------
The consolidated financial statements include the accounts of CSS
Industries, Inc. ("Company") and all subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. The assets and
liabilities of International Subsidiaries are translated into U.S. dollars at
the year-end exchange rate; income and expense items are translated at the
average exchange rate for the period. Translation adjustments are charged or
credited to a separate component of shareholders' equity. Gains and losses on
foreign currency transactions are included in the consolidated statements of
income.
Nature of Business -
--------------------
CSS is a diversified company with two groups of businesses - the Consumer
Products Group and the Direct Mail Business Products Group. The Consumer
Products Group is primarily engaged in the manufacture and sale to mass market
retailers of seasonal gift wrap, gift bags, boxed greeting cards, gift tags,
tissue paper, paper and vinyl decorations, calendars, classroom exchange
Valentines, decorative ribbons and bows, Halloween masks, costumes, make-ups and
novelties and Easter egg dyes and novelties. Due to the seasonality of the
Consumer Products Group with the majority of sales occurring in the third and
fourth quarters, a material portion of the Company's trade receivables are due
in December and January of each year. The Consumer Products Group is comprised
of The Paper Magic Group, Inc. ("Paper Magic"), acquired by the Company in
August 1988, Berwick Industries, Inc. ("Berwick"), acquired in May 1993, and
Cleo Inc. ("Cleo"), acquired in November 1995. The Direct Mail Business Products
Group, composed of Rapidforms, Inc. and its subsidiaries ("Rapidforms"),
develops and sells business forms, business supplies, in-store retail
merchandising products, holiday greeting cards and advertising specialties to
small and medium sized businesses in the United States, primarily through the
direct mailing of catalogs and brochures. Rapidforms was acquired by CSS in
January 1985.
Use of Estimates -
------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Marketable Securities -
-----------------------
In accordance with Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), the Company values certain equity securities at market value
at the end of each accounting period. Unrealized market value gains and losses
are charged to earnings if the securities are traded for short-term profit.
Otherwise, such unrealized gains and losses are charged or credited to a
separate component of shareholders' equity.
Management determines the proper classifications of investments in
marketable equity securities at the time of purchase and reevaluates such
designations as of each balance sheet date. During 1996, all remaining
marketable securities were sold resulting in a pre-tax gain of $251,000. At
December 31, 1995, all securities covered by SFAS No. 115 were designated as
available for sale. Accordingly, these securities are stated at fair
22
<PAGE>
value, with unrealized gains and losses reported in a separate component of
shareholders' equity. Realized gains and losses on sales of investments, as
determined in a specific identification basis, are included in the Consolidated
Statements of Operations.
Inventories -
-------------
Inventories are generally stated at the lower of first-in, first-out
(FIFO) cost or market. The remaining portion of the inventory is valued at the
lower of last-in, first-out cost or market. Had all inventories been valued at
the lower of FIFO cost or market, inventories would have been greater by
$1,917,000 and $1,643,000 at December 31, 1996 and 1995, respectively.
Inventories consisted of the following:
1996 1995
----------- ------------
Raw material.................................. $17,372,000 $21,926,000
Work-in-process............................... 8,025,000 13,196,000
Finished goods................................ 32,792,000 41,275,000
------------ ------------
$58,189,000 $76,397,000
Advertising Materials -
-----------------------
Product catalogs for direct mail advertising at Rapidforms are revised and
printed in large quantities several times during the year. The costs of such
catalogs are expensed when mailed. The direct costs of prep work, printing and
binding relating to unmailed catalogs and catalogs in the process of completion
were $1,587,000 and $2,322,000 at December 31, 1996 and 1995, and were included
in other current assets.
Property, Plant and Equipment -
-------------------------------
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided generally on the straight-line method and are based on
estimated useful lives or terms of leases as follows:
Buildings, leasehold interests and improvements. . . Lease term to 40 years
Machinery, equipment and other. . . . . . . . . . . 3 to 12 years
When property is retired or otherwise disposed of, the related cost and
accumulated depreciation and amortization are eliminated from the accounts. Any
gain or loss from the disposition of property, plant and equipment is included
in other income. Maintenance and repairs are expensed as incurred while
improvements are capitalized and depreciated over their estimated useful lives.
Intangible Assets -
-------------------
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of its intangible
assets may warrant revision or that the remaining balance of goodwill may not be
recoverable. Intangible assets, including goodwill, are amortized over a period
not to exceed 40 years.
Income Taxes -
--------------
The Company follows the liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities. Deferred tax assets or liabilities at the end of each period are
determined using the tax rate expected to be in effect when taxes are actually
paid or recovered.
23
<PAGE>
Revenue Recognition -
---------------------
The Company recognizes revenues in accordance with its shipping terms.
Returns and allowances are reserved for based on historical experience.
Net Income Per Common Share -
-----------------------------
Primary net income per common share is based on the weighted average
number of common and common equivalent shares outstanding during the period -
11,006,822 in 1996, 10,890,825 in 1995, and 11,578,956 in 1994. Average
outstanding shares used in the computation of fully diluted net income per share
were 11,127,300 in 1996, 11,031,022 in 1995, and 11,578,956 in 1994.
Accounting Changes -
--------------------
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement
requires review and measurement methods to calculate impairment of long-lived
assets, including certain identifiable intangibles and goodwill. The statement
also requires that long-lived assets to be disposed of be reported at the lower
of the carrying amount or fair value less costs to sell. The adoption of this
statement in 1996 did not result in a material write-down of assets.
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" during 1996. This statement provides for alternatives relating to
the measurement of compensation expense for stock options and other stock-based
compensation. One option is to recognize compensation expense in the
consolidated financial statements using a fair-value based method, applied to
virtually all stock-based compensation. The alternative does not change the
current intrinsic-value approach to expense recognition, but requires pro forma
disclosure in the notes to the consolidated financial statements of the impact
using the fair-value method. The Company adopted the pro forma disclosure
option, and reference is made to the disclosure in Note 3.
Statements of Cash Flows -
--------------------------
For purposes of the statements of cash flows, the Company considers all
holdings of highly liquid debt instruments with original maturity of less than
three months to be temporary investments.
<TABLE>
<CAPTION>
Supplemental Schedule of Cash Flow Information
----------------------------------------------
(In thousands)
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Cash paid during the year for:
Interest......................................... $ 8,790 $ 2,804 $ 1,542
======== ========= ========
Income taxes..................................... $ 13,561 $ 8,044 $ 15,339
======== ========= ========
Details of acquisitions:
Fair value of assets acquired.................... $ 2,430 $ 192,772 $ 24,460
Liabilities assumed.............................. 799 49,411 5,119
-------- --------- --------
Cash paid........................................ 1,631 143,361 19,341
Less cash acquired............................... 50 63 -
-------- --------- --------
Net cash paid for acquisitions $ 1,581 $ 143,298 $ 19,341
======== ========= ========
</TABLE>
See Note 2 for supplemental disclosure of noncash investing activities.
24
<PAGE>
Reclassification -
------------------
Certain prior-period amounts have been reclassified to conform with
current-year classifications.
(2) BUSINESS ACQUISITIONS AND DIVESTITURES:
---------------------------------------
On October 29, 1996 Berwick acquired the assets and business of Ribbon
Magic, Inc. ("Ribbon Magic"). In consideration for the purchase of this
business, Berwick assumed and paid off $1,581,000 of outstanding debt. Ribbon
Magic, headquartered in Minneapolis, Minnesota, manufacturers and distributes a
line of upscale ribbon and bow products to mass retailers in the United States
and Canada.
CSS acquired all of the outstanding stock of Cleo, effective November 15,
1995, for approximately $135,000,000. The purchase price included $12,000,000
held in escrow for certain post closing adjustments and indemnification
obligations which is included in other assets in the consolidated balance sheet.
The Company and the seller have disagreed on the disbursement of the escrow and
have engaged an independent public accounting firm to resolve the disputed
items. Cleo designs, manufactures and distributes a wide range of promotional
gift wrap and gift wrap accessories to mass market retailers in the United
States and Canada. The acquisition was accounted for as a purchase and the
excess of historical book value over the purchase price was recorded as a
$28,528,000 reduction to property, plant and equipment, an accrual for
restructuring expenses of $10,034,000, and a credit to goodwill of $7,243,000.
Negative goodwill is included in intangible assets in the accompanying balance
sheet and is being amortized over ten years.
Subsequent to the acquisition of Cleo, the Company's management initiated
a restructuring plan that was substantially implemented by December 31, 1995.
Cleo's 1995 products were manufactured in six facilities and warehoused in and
distributed from five other permanent and temporary facilities. As a part of
this plan, five of Cleo's six manufacturing facilities were closed and four of
the five warehouse and distribution facilities were vacated. Cleo's boxed card,
Valentine, gift tags and ribbon and bow manufacturing and packaging requirements
were blended into existing lines at Paper Magic and Berwick in early 1996. In
addition, all applicable inventory was transferred from Cleo to Paper Magic and
Berwick. As a result of the closure of facilities and consolidation of
manufacturing processes, employees at the affected facilities were severed and
staffing at the headquarters was reduced.
The restructuring accrual was reduced to $2,419,000 at December 31, 1996
due to (1) the payment of $2,247,000 of severance and related termination costs,
(2) the payment of $3,432,000 of lease and occupancy costs related to idle
facilities and (3) the payment of $1,936,000 of other costs associated with the
integration and restructuring of Cleo.
The unaudited consolidated results of operations of the Company and Cleo
on a pro forma basis as though the transaction had been consummated at the
beginning of the respective years were as follows:
1995 1994
---- ----
Sales............................ $429,106 $392,478
Net income....................... 5,634 5,313
Net income per common share
Primary........................ $.52 $.46
Fully diluted.................. $.51 $.46
25
<PAGE>
Pro forma adjustments included in the above results reflect (1) increased
inventory obsolescence reserves required for the periods prior to November 15,
1995, (2) reduced rental expense related to a renegotiated lease and to leases
on terminated facilities, (3) reduction of administrative payroll costs and
management fees, and (4) the effect of purchase accounting adjustments on
interest, depreciation, amortization and tax expense.
On June 6, 1995, Paper Magic acquired substantially all of the assets and
the business of Topstone Industries, Inc. ("Topstone") and Illusive Concepts,
Inc. ("Illusive Concepts"). Topstone designs, markets and distributes Halloween
masks, wigs, costumes, accessories and novelties sold to mass merchandisers,
drug chains and party stores. Illusive Concepts designs and markets highly
crafted latex masks, accessories and decorative displays sold primarily to party
and gift shops and limited edition collectibles sold through various channels.
In consideration for the purchase of these businesses, Paper Magic assumed and
paid off $8,740,000 of outstanding debt. The acquisition was accounted for as a
purchase and the excess of cost over fair market value of $3,598,000 was
recorded as goodwill in the accompanying balance sheet and is being amortized
over forty years.
On December 22, 1994, Rapidforms acquired certain assets and the business
of Business Envelope Manufacturers, Inc., a direct marketer of envelopes,
business forms, stationery, labels and other office supplies for $4,743,000 in
cash. The acquisition was accounted for as a purchase and the excess of cost
over fair market value of $4,748,000 was recorded as goodwill and other
intangible assets in the accompanying balance sheet and is being amortized over
20 to 40 years.
On November 4, 1994, Rapidforms acquired substantially all of the assets
and business of Histacount Corporation ("Histacount"), for $14,598,000 in cash.
Histacount is a direct marketer of customized business forms, stationery and
other related office products sold primarily to the healthcare, legal and
accounting professions. The acquisition was accounted for as a purchase and the
excess cost over fair market value of $15,446,000 was recorded as goodwill and
other intangible assets in the accompanying balance sheet and is being amortized
over 20 to 40 years.
On March 30, 1994, the Company sold its 96% interest in its Ellisco
subsidiary for total proceeds to the Company of $30,431,000. The after-tax gain
on the sale was $9,661,000 while the net after-tax cash proceeds was
approximately $24,000,000. Sales from the discontinued operation were $8,307,000
in 1994 and $38,834,000 in 1993. Operating income was $316,000 in 1994 and
$3,726,000 in 1993.
(3) STOCK OPTION PLANS:
-------------------
Under the terms of the CSS Industries, Inc. 1995 Stock Option Plan for
Non-Employee Directors ("1995 Plan"), non-qualified stock options to purchase up
to 300,000 shares of common stock are available for grant to non-employee
directors at exercise prices of not less than fair market value on the date of
grant. Options to purchase 4,000 shares of the Company's common stock are to be
granted automatically to each non-employee director on the last day of November
through the year 2000. Options may be exercised at the rate of 25% per year
commencing one year after the date of grant. At December 31, 1996, options to
acquire 272,000 shares were available under the 1995 Plan.
Under the terms of the 1994 Equity Compensation Plan ("1994 Plan"), the
Human Resources Committee ("Committee") of the Board of Directors may grant
incentive stock options, non-qualified stock options, restricted stock grants,
stock appreciation rights or combinations thereof to officers and other key
employees. Grants under the 1994 Plan may be made through November 2004 and are
exercisable at the discretion of the Committee but in no event greater than ten
years from the date of grant. At December 31, 1996, options to acquire 320,000
shares were available for grant under the 1994 plan.
26
<PAGE>
Under the terms of the 1991 Stock Option Plan for Non-Employee Directors
("1991 Plan"), stock options to purchase up to 150,000 shares of common stock
were available for grant to non-employee directors at exercise prices of not
less than fair market value on the date of grant. Options to purchase 4,000
shares of the Company's common stock were granted automatically to each
non-employee director on the last day of November in each year from 1991 through
1995 and options may be exercised at the rate of 25% per year commencing one
year after the date of grant. At December 31, 1996, options to acquire 10,000
shares were available for grant under the 1991 Plan.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been reduced in 1996 and
1995 as follows:
1996 1995
---- ----
Net income - as reported...................... $22,344 $15,775
Net income - pro forma........................ 21,366 15,451
Fully diluted earnings per share - as reported $2.01 $1.43
Fully diluted earnings per share - pro forma.. $1.94 $1.41
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
1996 1995
---- ----
Expected dividend yield.................. 0% 0%
Expected stock price volatility.......... 21.8% 22.9%
Risk-free interest rate.................. 5.5% 5.7%
Expected life of option.................. 4.5 years 4.5 years
Transactions from January 1, 1994 through December 31, 1996, under the
above plans were as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Number Option Price Average Average Life
of Shares per Share Price Remaining
--------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1, 1994..... 626,000 $9.06 - $19.13 $13.43 2.77 years
Granted................................... 460,500 16.00 - 20.00 17.02
Exercised................................. (130,000) 9.06 - 9.94 9.78
Canceled.................................. (134,000) 15.06 - 20.00 18.22
-------- ------ ------ -------
Options outstanding at December 31, 1994... 822,500 9.25 - 20.00 15.24 3.41 years
Granted................................... 255,000 15.38 - 22.25 17.42
Exercised................................. (97,200) 9.25 9.25
Canceled.................................. (75,300) 9.25 - 16.25 $15.48
-------- ------ ------ --------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options outstanding at December 31, 1995..... 905,000 13.88 - 22.25 16.47 3.18 years
Granted................................... 478,500 20.63 - 25.63 21.04
Exercised................................. (99,242) 13.88 - 16.00 14.84
Canceled.................................. (60,000) 15.81 - 20.63 17.70
------- ------- ------ -------
Options outstanding at December 31, 1996..... 1,224,258 $14.38 - $25.63 $18.26 2.95 years
========= ================= ======
Options exercisable at December 31, 1996..... 396,383 $14.38 - $22.25 $16.37 1.96 years
========= ================= ======
</TABLE>
Rapidforms and certain of its subsidiaries maintain incentive stock option
plans in which options to acquire common shares may be granted to key employees
at the fair market value per share on the date of grant. See Note 8.
<PAGE>
(4) PROFIT SHARING PLANS:
---------------------
The Company's principal operating subsidiaries maintain profit sharing
plans covering substantially all of their employees. Corporate officers and
employees are covered by the Rapidforms, Inc. Profit Sharing Plan.
Annual contributions under the plans are determined by the Board of
Directors of the Company or each subsidiary, as appropriate. Consolidated profit
sharing expense for the years ended December 31, 1996, 1995 and 1994 was
$2,817,000, $1,862,000 and $1,798,000.
(5) FEDERAL INCOME TAXES:
---------------------
The following table summarizes the provision for U.S. federal, state and
foreign taxes on income:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Current:
Federal............................................... $13,795 $10,298 $ 8,406
State................................................. 1,167 1,342 1,957
Foreign............................................... 590 268 (32)
----------- ---------- ----------
15,552 11,908 10,331
----------- ---------- ----------
Deferred:
Federal............................................... (1,732) (1,252) (1)
State................................................. 569 340 (283)
Foreign............................................... - - -
----------- ---------- ----------
(1,163) (912) (284)
----------- ---------- ----------
$14,389 $10,996 $10,047
=========== ========== ==========
</TABLE>
The differences between the statutory and effective federal income tax
rates on income from continuing operations before income taxes and minority
interest were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
U.S. federal statutory rate........................... 35.0% 35.0% 35.0%
State income taxes, less federal benefit.............. 3.0 4.0 4.4
Other. . ............................................. .6 1.2 1.7
------ ------ -----
38.6% 40.2% 41.1%
====== ====== =====
</TABLE>
Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax credit
carryforwards. The following temporary differences gave rise to net deferred tax
assets (liabilities) as of December 31, 1996 and 1995:
28
<PAGE>
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventory............................................... $ 2,556 $ -
Property, plant and equipment........................... 3,158 7,407
Accrued expenses........................................ 2,403 4,964
Other................................................... 2,390 878
--------- ---------
10,507 13,249
--------- ---------
Deferred tax liabilities:
Accounts receivable..................................... 3,084 6,836
Inventory............................................... - 2,695
Unremitted earnings of foreign subsidiaries............. 1,253 331
Other................................................... 5,277 3,657
--------- ---------
9,614 13,519
--------- ---------
Net deferred tax asset (liability)...................... $ 893 $ (270)
========= ==========
</TABLE>
(6) LONG-TERM DEBT AND CREDIT ARRANGEMENTS:
---------------------------------------
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Mortgage on Rapidforms' facility, payable monthly
through March 1996, interest at 10.5% .................. $ - $4,287,000
Economic development revenue bonds (tax exempt)
bearing interest at a weighted average rate of 7.17%
with annual serial maturities through 1999 and a
term maturity in 2004, less unamortized discount of
$130,000 to yield an effective rate of 7.29%.......... - 8,075,000
Economic development revenue bonds (taxable) bearing
interest at 9.10% with annual sinking fund payments
through 2004, less unamortized discount of $127,000
to yield an effective rate of 9.35%..................... - 5,678,000
Other mortgages, payable monthly through 2001,
interest at rates ranging from prime
plus 1% to 11.5%........................................ 941,000 1,180,000
Industrial Development Revenue Bonds, payable
periodically through 2005, interest at rates
ranging from 3% to 9.25% ............................... 1,824,000 2,468,000
Berwick acquisition debt, payable in 2003,
interest at 8%.......................................... 2,077,000 2,355,000
Other...................................................... 522,000 353,000
------------ ------------
5,364,000 24,396,000
Less - current portion..................................... (752,000) (6,531,000)
------------- -------------
$4,612,000 $17,865,000
============ ===========
</TABLE>
In conjunction with the acquisition of Cleo and the consolidation of other
credit facilities, the Company entered into a $195,000,000 unsecured revolving
credit facility with thirteen banks and financial institutions on November 15,
1995. The facility expires on November 15, 2000 and provides that borrowings are
limited
29
<PAGE>
during a consecutive 30 day period during each year of the agreement. At the
Company's option, interest on the facility accrues at (1) the greater of the
prime rate or 1/2% in excess of the Federal Funds Rate, or (2) LIBOR plus
1 1/4%. The loan agreement contains provisions to reduce the interest pricing
spread over LIBOR based upon the achievement of certain benchmarks related to
the ratio of earnings to interest expense. The loan agreement also contains
covenants, the most restrictive of which pertain to net worth; earnings before
interest, income taxes and depreciation; capital expenditures; the ratio of
operating cash flow to fixed charges; the ratio of earnings to interest expense
and the ratio of debt to capitalization. The weighted average interest rate
under the loan agreement for 1996 was 6.65%.
On August 13, 1996, CSS entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its floating rate revolving
credit facility. At December 31, 1996 the Company has a swap agreement with a
total notional amount of $20,000,000. This agreement fixes the interest rate on
$20,000,000 of the borrowings under the revolving credit facility to 7.125%. The
interest rate swap agreement matures on February 13, 1998. This agreement
involves the exchange of fixed-rate and floating-rate interest payments
periodically over the life of the agreement without the exchange of the
underlying principal amounts. The differential to be paid or received is accrued
as interest rates change and recognized over the life of the agreement as an
adjustment to interest expense. The fair value of this swap agreement, which is
not material at December 31, 1996, is not recognized in the financial
statements. The counter party to the interest rate swap agreement is a major
financial institution. Management believes the risk of incurring losses related
to credit risk is remote and any potential losses would be immaterial.
On September 18, 1996, CSS entered into a $20,000,000 term loan with a
bank to provide additional capacity for seasonal requirements and general
corporate purposes. The term loan was repaid on December 23, 1996.
In connection with the acquisition of Cleo on November 15, 1995, the
Company entered into a short-term note with the seller for $24,574,000. The note
accrued interest at the rate of 8% and was repaid on January 29, 1996.
Prior to November 15, 1995, Paper Magic had a $40,000,000 unsecured
revolving credit facility with four banks. In addition, the Company maintained a
$15,000,000 unsecured demand line of credit with a bank.
On August 1, 1996, CSS utilized proceeds from its $195,000,000 unsecured
revolving credit facility to redeem the outstanding principal balance of
$12,880,000 related to economic development revenue bonds assumed in connection
with the acquisition of Cleo. Cleo financed the construction of its primary
distribution facility with the proceeds from these economic development revenue
bonds. Cleo also maintained an Urban Development Action Grant ("UDAG") bearing
interest at 8% and payable in quarterly installments. The UDAG was also repaid
on October 2, 1996.
Rapidforms had a $4,287,000 note outstanding with a financial institution
which accrued interest at 10.5% and was secured by a mortgage on its primary
office, manufacturing and warehouse facility. This note was repaid in full in
February 1996. The Company and Berwick maintain various notes relating to the
financing of manufacturing facilities which are secured by mortgages on the
facilities.
A subsidiary of Rapidforms obtained financing through the issuance of
Industrial Development Revenue Bonds for the construction of a manufacturing,
office and warehouse facility and the purchases of new equipment. The bonds,
which bear interest at a rate that approximates 75% of prime, are secured by a
mortgage on the facility, security interests in the equipment and the guarantee
of Rapidforms.
30
<PAGE>
The Company and Berwick maintain second mortgages on several facilities
financed with Industrial Development Revenue Bonds. The bonds mature between
1998 and 2001, accrue interest at rates ranging from 3% to 9.25% and are secured
by mortgages on the facilities.
In connection with the acquisition of Berwick in 1993, the Company
entered into a term loan with the primary selling shareholder. The original term
loan of $3,000,000 was reduced for indemnification claims to $2,077,000 and is
payable on May 3, 2003 with interest payable quarterly at a rate of 8% per year.
The note is callable at the option of the noteholder after May 3, 1996, subject
to then unresolved claims.
Long-term debt matures as follows:
1997...........................................$ 752,000
1998........................................... 749,000
1999........................................... 829,000
2000........................................... 356,000
2001........................................... 151,000
Thereafter..................................... 2,527,000
----------
Total...................................... $5,364,000
==========
(7) OPERATING LEASES:
-----------------
The future minimum rental payments associated with all noncancelable lease
obligations are as follows:
1997............................................ $ 3,868,000
1998............................................ 3,165,000
1999............................................ 3,122,000
2000............................................ 2,740,000
2001............................................ 2,460,000
Thereafter...................................... 3,644,000
-----------
Total........................................ $18,999,000
===========
Rent expense was $5,173,000, $2,792,000 and $2,510,000 in 1996, 1995 and
1994, respectively.
(8) CONCENTRATION RISKS:
--------------------
During 1996, one customer accounted for 14% of the Company's sales.
(9) COMMITMENTS AND CONTINGENCIES:
------------------------------
Rapidforms has entered into agreements with minority shareholders or
stock option grantees that require the subsidiary to repurchase shares or
options held upon death, termination of employment or upon the permissible
voluntary tender of shares by the shareholder. The repurchase price is
established by reference to a multiple of pre-tax earnings or the fair market
value of such shares or options as determined by Rapidforms' board of directors.
During 1994, Paper Magic agreed to purchase for $9,781,000 all shares of
Paper Magic common stock held by its minority shareholders.
As of December 31, 1996 and 1995, only Rapidforms and certain of its
subsidiaries had minority shareholders and outstanding stock options. The
liability of Rapidforms to repurchase such shares was $3,862,000 and $3,608,000
at December 31, 1996 and 1995, respectively, and was reported as minority
interest in the accompanying balance sheet.
31
<PAGE>
(10) SEGMENT INFORMATION:
--------------------
The Company operates in two business segments - consumer products and
direct mail business products. Operations within the consumer products segment
includes the manufacture and sale primarily to mass market retailers of seasonal
gift wrap, gift bags, boxed greeting cards, gift tags, tissue paper, paper and
vinyl decorations, calendars, classroom exchange Valentines, decorative ribbon
and bows, Halloween masks, costumes, make-ups and novelties and Easter egg dyes
and novelties. The direct mail business products segment develops and sells
business forms, business supplies, in-store retail merchandising products,
holiday greeting cards and advertising specialties to small and medium sized
businesses in the United States primarily through the direct mailing of catalogs
and brochures.
<TABLE>
<CAPTION>
Operations by Business Segment
(In thousands)
Consumer Products Direct Mail Business Products Consolidated
------------------------------- ------------------------------ --------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales to
unaffiliated
customers $323,051 $202,274 $153,440 $89,028 $86,138 $64,795 $412,079 $288,412 $218,235
========= ======== ======== ======== ======= =======
Operating profit $ 39,710 $ 21,542 $ 17,091 $10,000 $11,222 $10,031 49,710 32,764 27,122
========= ======== ======== ======== ======= =======
General
corporate
expenses (5,333) (3,148) (2,647)
Interest expense,
net (8,235) (3,957) (923)
Rental and other
income, net 1,131 1,727 910
-------- -------- --------
Income before
income taxes $ 37,273 $ 27,386 $ 24,462
======== ======== ========
Identifiable
assets at
December 31 $ 273,696 $297,791 $124,681 $62,077 $60,970 $60,901 $335,773 $358,761 $185,582
========= ======== ======== ======= ======= =======
Corporate assets 10,591 16,200 19,499
-------- -------- --------
Total assets $346,364 $374,961 $205,081
======== ======== ========
Depreciation and
amortization $ 3,975 $ 4,398 $ 4,076 $3,739 $ 3,205 $ 2,212
========= ======== ======== ====== ======= =======
Capital
expenditures $ 13,407 $ 4,895 $ 4,008 $2,528 $ 3,855 $ 1,651
========= ======== ======== ====== ======= =======
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
(11) QUARTERLY FINANCIAL DATA (UNAUDITED):
(In thousands, except
per share amounts)
Quarters
---------------------------------------------------------
1996 First Second Third Fourth
---- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales.............................................. $47,270 $47,305 $147,527 $169,977
======== ======== ======== ========
Gross profit....................................... $19,782 $18,777 $ 49,552 $ 57,004
======== ======== ======== ========
Net Income......................................... $(2,085) $(1,757) $ 11,141 $ 15,045
======== ======== ======== ========
Net income per common share:
Primary......................................... $ (.19) $ (.16) $ 1.01 $ 1.36
======== ======== ======== ========
Fully diluted................................... $ (.19) $ (.16) $ 1.01 $ 1.35
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Quarters
---------------------------------------------------------
1995 First Second Third Fourth
---- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales.............................................. $42,529 $43,038 $100,736 $102,109
======= ======= ======== ========
Gross profit....................................... $19,221 $18,606 $ 36,693 $ 35,411
======= ======= ======== ========
Net income......................................... $ 501 $ 1,260 $ 8,120 $ 5,894
======= ======= ======== ========
Net income per common share:
Primary......................................... $ .05 $ .12 $ .75 $ .54
======= ======= ======== ========
Fully diluted................................... $ .05 $ .12 $ .74 $ .54
======= ======= ======== ========
</TABLE>
Most Paper Magic, Berwick and Cleo revenues are seasonally oriented, with
approximately 70% of sales being Christmas and Halloween related. As a result,
consolidated revenues and profits are typically lowest in the first half of the
year when Paper Magic, Berwick and Cleo are producing their inventory of
Christmas and Halloween products and highest in the second half when their
products are shipped. Quarterly fluctuations of sales and earnings were further
pronounced in 1996 with the inclusion of a full year of Cleo's results.
(11) SUBSEQUENT EVENTS:
------------------
On January 17, 1997 Paper Magic acquired all of the outstanding stock of
Color Clings for approximately $8,000,000. Color Clings, headquartered in
Bloomington, Minnesota, is a designer and marketer of seasonal and everyday
vinyl home decorations sold primarily to mass market retailers in the United
States and Canada. The acquisition was accounted for as a purchase and the
excess of cost over fair market value of $11,375,000 was recorded as goodwill
and will be amortized over twenty years.
33
<PAGE>
On January 8, 1997 Rapidforms sold its Standard Forms, Ltd. subsidiary
for $4,300,000 resulting in an immaterial financial gain. Sales and operating
income (loss) were $8,237,000 and $19,000 in 1996, $7,925,000 and $220,000 in
1995 and $6,672,000 and $(203,000) in 1994.
Item 9. Disagreements on Accounting and Financial Disclosure
- ------- ----------------------------------------------------
None
34
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
See "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS OF CSS" in the Proxy
Statement for the 1997 Annual Meeting of Stockholders of the Company, which will
be incorporated herein by reference.
Item 11. Executive Compensation
- -------- ----------------------
See "EXECUTIVE COMPENSATION" in the Proxy Statement for the 1997 Annual
Meeting of Stockholders of the Company, which will be incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
See "CSS SECURITY OWNERSHIP" in the Proxy Statement for the 1997 Annual
Meeting of Stockholders of the Company, which will be incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
See "CERTAIN TRANSACTIONS AND SUBSIDIARY MATTERS" in the Proxy Statement
for the 1997 Annual Meeting of Stockholders of the Company, which will be
incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) Attached hereto and filed as part of this report are the financial
statement schedules and the exhibits listed below.
1. Financial Statements
--------------------
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Operations - for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity - for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
35
<PAGE>
2. Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K filed during the last quarter of 1996
---------------------------------------------------------
None.
(c) Exhibits, Including Those Incorporated by Reference The following is a
list of exhibits filed as part of this annual report on Form 10-K.
Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference. For exhibits incorporated by reference,
the location of the exhibit in the previous filing is indicated in
parentheses.
Articles of Incorporation and By-laws
- -------------------------------------
3.1 Restated Certificate of Incorporation filed December 5, 1990. (1)
(Exhibit 3.1)
3.2 Amendment to Restated Certificate of Incorporation filed May 8, 1992.
(2) (Exhibit 3.2)
3.3 Certificate eliminating Class 2, Series A, $1.35 Preferred stock filed
September 27, 1991. (3) (Exhibit 3.2)
3.4 Certificate eliminating Class 1, Series B, Convertible Preferred Stock
filed January 28, 1993. (2) (Exhibit 3.5)
*3.5 By-laws of the Company, as amended to date (as last amended November
18, 1996).
Material Contracts
- ------------------
10.1 CSS Industries, Inc. 1991 Stock Option Plan for Non-Employee Directors.
(2) (Exhibit 10.1)
*10.2 CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee Directors.
10.3 Registration Rights Grant dated January 21, 1993, between the Company
and certain former holders of common stock in Philadelphia Industries,
Inc. (2) (Exhibit 10.2)
10.4 Shareholders' Agreement, dated as of February 4, 1985, by and among
shareholders of Rapidforms, Inc. (4) (Exhibit 4 (B))
10.5 First Amendment to Shareholders' Agreement, dated as of December 17,
1990, by and among shareholders of Rapidforms, Inc. (3) (Exhibit 10.7)
10.6 Loan Agreement among CSS Industries, Inc., the Lending Institutions
listed therein, CoreStates Bank, N.A. as the Administrative Agent, and
Merrill Lynch & Co. as the Syndication Agent, dated as of November 15,
1995 (8) (Exhibit 10.1)
10.7 Stock Purchase Agreement dated as of October 3, 1995 between the
Company and Gibson Greetings, Inc. (9) (Exhibit 2.1)
*10.8 Interest Rate Swap Master Agreement dated as of August 9, 1996 between
CoreStates Bank, N.A. and CSS Industries, Inc.
36
<PAGE>
Executive Compensation Plans and Arrangements
- ---------------------------------------------
10.9 CSS Industries, Inc. 1985 Incentive Stock Option Plan, as last amended
in 1991. (3) (Exhibit 10.1)
*10.10 CSS Industries, Inc. 1994 Equity Compensation Plan (as last amended
January 23, 1996)
10.11 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Agreements, dated March 3, 1993, with certain executive officers of the
Company. (2) (Exhibit 10.15)
10.12 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement
Plan Guidelines, dated January 25, 1994. (5) (Exhibit 10.14)
10.13 Deferred Compensation Agreement between Jack Farber and CSS Industries,
Inc., restated as of December 8, 1994. (7) (Exhibit 10.8)
10.14 CSS Industries, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.17)
10.15 Rapidforms, Inc. Incentive Stock Option Plan, dated June 25, 1987, and
form of stock option agreement. (6) (Exhibit 10.5)
10.16 Amendment to Rapidforms, Inc. Incentive Stock Option Plan, dated
December 11, 1990. (1) (Exhibit 10.5)
*10.17 Rapidforms, Inc. Profit Sharing Plan, as last amended and restated
effective as of July 1, 1996.
10.18 Rapidforms, Inc. Annual Incentive Compensation Arrangement,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.22)
10.19 The Paper Magic Group, Inc. Management Incentive Bonus Program,
Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.28)
10.20 1994 Amendment to The Paper Magic Group, Inc. Management Incentive
Bonus Program, Administrative Guidelines, dated March 2, 1994. (5)
(Exhibit 10.26)
10.21 The Paper Magic Group, Inc. 1994 Incentive Stock Option Plan. (7)
(Exhibit 10.16)
10.22 Berwick Industries, Inc. Incentive Bonus Plan, dated January 1, 1994.
(5) (Exhibit 10.27)
10.23 Employment Agreement between John Pinti and Berwick Industries,
Incorporated, dated October 1, 1992. (7) (Exhibit 10.18)
10.24 Amendment to Employment Agreement between Berwick Industries,
Incorporated and John Pinti, dated May 3, 1993. (7) (Exhibit 10.19)
10.25 Cleo Inc. Management Incentive Plan , dated March 7, 1996. (10)
(Exhibit 10.23)
*10.26 Berwick Industries, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated November 18, 1996.
*10.27 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated December 5, 1996.
Subsidiaries
- ------------
*21. List of Significant Subsidiaries of the Registrant
37
<PAGE>
Footnotes to List of Exhibits
-----------------------------
* Filed with this Annual Report on Form 10-K.
(1) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for
the fiscal year ended December 31, 1990 and incorporated herein by
reference.
(2) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for
the fiscal year ended December 31, 1992 and incorporated herein by
reference.
(3) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.
(4) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for
the fiscal year ended February 2, 1985 and incorporated herein by
reference.
(5) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for
the fiscal year ended December 31, 1993 and incorporated herein by
reference.
(6) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for
the fiscal year ended December 31, 1988 and incorporated herein by
reference.
(7) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for
the fiscal year ended December 31, 1994.
(8) Filed as an exhibit to the Current Report on Form 8-K (No. 1-2661)
dated November 15, 1995.
(9) Filed as an exhibit to the Quarterly Report on Form 10-Q (No. 1-2661)
for the fiscal quarter ended September 30, 1995.
(10) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for
the fiscal year ended December 31, 1995 and incorporated herein by
reference.
The Company agrees to provide the SEC upon request with copies of
certain long-term debt obligations of CSS Industries, Inc., Cleo Inc., Berwick
Industries, Inc., and a subsidiary of Rapidforms, Inc.
The Company agrees to furnish supplementally a copy of omitted
Schedules and Exhibits, if any, with respect to Exhibits listed above upon
request.
Stockholders who have been furnished a copy of this Report may obtain
copies of any Exhibit listed above on payment of $.50 per page for reproduction
and mailing charges by writing to Secretary, CSS Industries, Inc., 1845 Walnut
Street, Philadelphia, Pennsylvania 19103.
38
<PAGE>
CSS INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- ------------------------ -------- --------
Additions
-----------------------
Balance Charged
at to costs Charged Balance
Beginning and to Other at End of
of Period Expenses Accounts Deductions Period
--------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Doubtful accounts
receivable-customers $4,684 $2,295 $ -- $3,141 $3,838
Year ended December 31, 1995
Doubtful accounts
receivable-customers $1,950 $1,698 $2,036 (a) $1,000 $4,684
Year ended December 31, 1994
Doubtful accounts
receivable-customers $1,587 $ 910 $ 64 (b) $ 611 $1,950
</TABLE>
Notes: (a) Balance at acquisition of Cleo, Topstone and Illusive Concepts.
(b) Balance at acquisition of Histacount and Business Envelope.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on behalf of the undersigned hereunto duly authorized.
CSS INDUSTRIES, INC.
----------------------------------------
Registrant
By /s/ Jack Farber
----------------------------------------
Jack Farber, Chairman of the Board, President and Chief
Executive Officer (principal executive officer)
Dated: March 5, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities on the date indicated.
Dated: March 5, 1997 /s/ Jack Farber
--------------------------------------------
Jack Farber, Chairman of the Board,
President and Chief Executive Officer
(principal executive officer)
Dated: March 5, 1997 /s/ James G. Baxter
--------------------------------------------
James G. Baxter, President-Consumer
Products Group and Chief Financial Officer
(principal financial and accounting officer
and a director)
Dated: March 5, 1997 /s/ Willard M. Bright
--------------------------------------------
Willard M. Bright, Director
Dated: March 5, 1997 /s/ James H. Bromley
--------------------------------------------
James H. Bromley, Director
Dated: March 5, 1997 /s/ John R. Bunting, Jr.
--------------------------------------------
John R. Bunting, Jr., Director
Dated: March 5, 1997 /s/ Stephen V. Dubin
--------------------------------------------
Stephen V. Dubin, Director
Dated: March 5, 1997 /s/ Richard G. Gilmore
--------------------------------------------
Richard G. Gilmore, Director
Dated: March 5, 1997 /s/ Leonard E. Grossman
--------------------------------------------
Leonard E. Grossman, Director
Dated: March 5, 1997 /s/ James E. Ksansnak
--------------------------------------------
James E. Ksansnak, Director
Dated: March 5, 1997 /s/ Michael L. Sanyour
--------------------------------------------
Michael L. Sanyour, Director
Dated: March 5, 1997 /s/ William C. Warren
--------------------------------------------
William C. Warren, Director
40
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibit No. Page
- ----------- ----
<S> <C>
3.5 By-Laws of the Company, as amended to date (as last amended November
18, 1996)
10.2 CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee Directors
10.8 Interest Rate Swap Master Agreement dated as of August 9, 1996 between
CoreStates Bank, N.A. and CSS Industries, Inc.
10.10 CSS Industries, Inc. 1994 Equity Compensation Plan (as last amended
January 23, 1996)
10.17 Rapidforms, Inc. Profit Sharing Plan, as last amended and restated effective
as of July 1, 1996
10.26 Berwick Industries, Inc. Non-Qualified Supplemental Executive Retirement
Plan, dated November 18, 1996.
10.27 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive
Retirement Plan, dated December 5, 1996.
</TABLE>
<PAGE>
CSS INDUSTRIES, INC.
(formerly known as City Stores Company)
(A Delaware Corporation)
BY - LAWS
(As Amended to and including November 19, 1996)
OFFICES
1. The principal office shall be in the City of Wilmington, County of
New Castle, State of Delaware and the name of the resident agent in charge
thereof is The Corporation Trust Company.
2. The Corporation may also have an office in the City of New York,
State of New York, and also offices at such other places as the Board of
Directors may from time to time appoint or the business of the Corporation may
require.
SEAL
3. The corporate seal of the Corporation shall be circular in form and
shall have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware". Said seal may be used by
causing it, or a facsimile thereof, to be impressed or affixed or reproduced or
otherwise.
STOCKHOLDERS' MEETINGS
4. All meetings of the stockholders shall be held at such place as may
be designated from time to time by the Board of Directors.
5. The annual meeting of the stockholders of the Corporation shall be
held on a date and at a time set by the Board of Directors, when they shall
elect by a plurality vote, by ballot, a Board of Directors, and transact that
other business as may properly come before the meeting. When a quorum is present
at any meeting, a majority in interest of the stock entitled to vote represented
thereat shall decide any question brought before said meeting, unless the
question is one upon which, by express provisions of law or of the Certificate
of Incorporation or of these By-Laws, a larger or different vote is required, in
which case such express provision shall govern and control the decision of such
question.
6. The holders of a majority of the stock issued and outstanding, and
entitled to
<PAGE>
vote thereat, present in person, or represented by proxy, shall be requisite and
shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws. If, however, such majority shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person, or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting until the requisite amount of voting stock shall be present. At such
adjourned meeting at which the requisite amount of voting stock shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than 30 days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder or
record entitled to vote at the meeting.
7. At any meeting of the stockholders, every stockholder having the
right to vote shall be entitled to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date not more
than one year prior to said meeting, unless said instrument provides for a
longer period. Each stockholder shall have one vote for each share of stock
having voting power, registered in his name on the books of the Corporation.
8. Written notice of every meeting of stockholders shall be given to
each stockholder of record entitled to vote at the meeting not less than ten nor
more than 60 days prior to the date of the meeting, unless a greater period of
notice is required in a particular case by law.
9. A complete list of the stockholders entitled to vote at any meeting
of stockholders, arranged in alphabetical order, with the address of each, and
the number of voting shares registered in the name of each, shall be prepared by
the Secretary and filed at a place within the city where the meeting is to be
held, at least ten (10) days before every meeting, and shall at all times,
during the usual hours of business, and during the whole time of said meeting,
be open to the examination of any stockholders for any purpose germaine to the
meeting.
10. At each meeting of the stockholders for the election of Directors,
proxies and ballots shall be received and be taken in charge, and the validity
of proxies and the acceptance or rejection of votes, shall be decided by two
inspectors. Such inspectors may be appointed by the Board of Directors before or
at the meeting, or, if no appointment shall have been made, then by the
presiding officer at the meeting. If for any reason any of the inspectors
previously appointed shall fail to attend or refuse or be unable to serve,
inspectors
2
<PAGE>
in place of any so failing to attend or refusing or unable to attend, shall be
appointed in like manner. The inspectors shall be sworn faithfully to perform
their duties and shall in writing certify to the returns. No person, who is a
candidate for the office of Director, shall be an inspector.
11. Special meetings of the stockholder shall be held whenever called
by a majority of the Board of Directors or whenever three or more stockholders,
holding at least twenty-five percentum (25%) in interest of the capital stock,
shall make written application to the President or Chairman of the Board,
stating the time, place and purpose of the meeting applied for.
12. Business transacted at all special meetings shall be confined to
the objects stated in the call.
13. At the annual meetings of stockholders the following shall be the
order of business, unless the stockholders otherwise decide:
1. Declaration of quorum.
2. Proof of notice of meeting.
3. Reading of Minutes of last meeting.
4. Election of Directors.
5. Reports of Officers.
6. Miscellaneous business.
DIRECTORS
14. The property and business of this Corporation shall be managed by
its Board of Directors, not less than seven (7) nor more than twenty-five (25)
in number. Directors need not be stockholders. They shall be elected at the
annual meeting of the stockholders, and each Director shall be elected to serve
until his successor shall be elected and shall qualify or until his earlier
resignation or removal. The number of Directors as aforesaid for each next
ensuing year shall be fixed by the Directors at a meeting of the Board prior to
the annual meeting of stockholders. Should the Board of Directors fail to fix
the number of Directors as aforesaid, the number shall be fixed by the
stockholders at such annual meeting. Within the limits on the number of
Directors set forth in this By-Law, the number of Directors may be increased or
may be decreased in lieu of filling a vacancy in the office of Director at any
time by the Board of Directors.
3
<PAGE>
15. The Directors may hold their meetings and have one or more offices,
and keep the books of the Corporation, except the original or duplicate stock
ledger, outside of Delaware, in the city of New York, or at such other places as
they may from time to time determine.
16. If the office of any Director or Directors become vacant by reason
of death, resignation, retirement, disqualification, removal from office,
increase in the number of directors, or otherwise, a majority of the remaining
Directors, though less than a quorum, may choose a person or persons to fill
such vacancy, who shall hold office until the next annual election and until a
successor or successors has or have been duly elected and qualified or until the
earlier resignation or removal of such person or persons.
17. In addition to the powers and authorities by these By-Laws
expressly conferred upon it, the Board of Directors may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these By-Laws directed or required
to be exercised or done by the stockholders.
18. At meetings of the Board of Directors , the business shall be
transacted in the following order, or in such other order as from time to time
the Board, or the presiding officer may determine:
1. Reading the minutes of last regular meeting and of any special meeting
held since the last regular meeting.
2. Reading of the minutes of all meetings of the Executive Committee,
held since the last regular meeting of the Board.
3. Report of the President.
4. Report of the Treasurer.
5. Report of Committees.
6. Unfinished business.
7. New business.
At all meetings of the Board of Directors, the Chairman of the Board, or in his
absence, the President, or in the absence of both, a Vice-President, shall
preside.
4
<PAGE>
EXECUTIVE COMMITTEE
19. The Board of Directors shall elect from its members by a majority
of the whole Board an Executive Committee of not less than three (3) nor more
than nine (9). Any member of the Executive Committee may be removed by a
majority of the entire Board of Directors and vacancies in the Committee shall
be filled in like manner.
20. Powers - The Executive Committee shall have and may exercise all
and any of the powers of the Board of Directors in the management of the
business and affairs of the Corporation during the intervals between the
meetings of the Board of Directors except as otherwise provided by law, and may
cause the corporate seal to be affixed to such papers as may require it in
connection therewith. The Executive Committee shall also have such other powers
as may be conferred upon it by these By-Laws or from time to time by resolution
of the Board.
21. Quorum - In all cases the affirmative vote of a majority of all the
members of the Executive Committee shall be necessary for its adoption of any
resolution.
22. Procedure - The Executive Committee shall keep regular minutes of
its proceedings, and all action by the Executive Committee shall be reported to
the Board of Directors at its special or regular meeting next succeeding such
action and shall be subject to revision and alteration by the Board of
Directors, provided that no rights or acts of third parties shall be affected by
such revision or alteration.
23. The Executive Committee may fix its own rules and procedure and
shall meet when and as provided by such rules or by resolution of the Board of
Directors.
COMMITTEE OF DIRECTORS
24. The Board of Directors may, by resolution or resolutions passed by
a majority of the whole Board, designate standing committees, each committee to
consist of two or more of the Directors of the Corporation, which, to the extent
provided in said resolution or resolutions, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, except as otherwise provided by law, and may have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
25. The committees shall keep minutes of their proceedings and shall
report to the
5
<PAGE>
Board when required.
COMPENSATION OF DIRECTORS
26. Directors shall receive such compensation as may be set from time
to time by resolution of the Board; PROVIDED, that nothing herein contained
shall be construed to preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor.
27. Members of special, standing committees and the Executive Committee
may be allowed like compensation for attending committee meetings.
MEETINGS OF THE BOARD
28. Each newly elected Board may meet either within or without the
State of Delaware, and no notice of such meeting shall be necessary to the newly
elected Directors in order legally to constitute the meeting, provided a
majority of the whole Board shall be present.
29. Regular meeting of the Board may be held without notice at such
time and place either within or without the State of Delaware as shall from time
to time be determined by the Board.
30. Special meetings of the Board of Directors may be held at any time
or place either within or without the State of Delaware, whenever called by the
Chairman of the Board, or the President, or a Vice President, or three or more
Directors, notice thereof being given to each Director by the Secretary or
Assistant Secretary or officer calling the meeting, or at any time without
formal notice provided all the Directors are present or when those not present
may waive notice thereof in writing. Notice of special meetings, stating the
time and place thereof, shall be given by mailing the same to each Director at
his residence or business address at least five (5) days before the meeting, or
by delivering the same to him personally or telephoning or telegraphing the same
to him at his residence or business address, unless, in case of exigency, the
Chairman of the Board of Directors or the President shall prescribe a shorter
notice to be given personally or by telephoning or telegraphing such Director at
his residence or business address, which notice, however, shall be sufficient to
enable all the members of the Board by usual means of travel, to be in
attendance at such meeting. Such special meeting shall be held at such times and
places as the notice thereof or waiver shall specify.
6
<PAGE>
31. Quorum - A majority of the Board of Directors shall constitute a
quorum for the transaction of business and the act of the majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute, the Certificate of Incorporation or these By-Laws. If a quorum is not
present at any meeting of the Board of Directors, the Directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
OFFICERS
32. The Executive Officers of the Corporation shall be a Chairman of
the Board of Directors, President, Vice-Presidents in such number as the Board
shall from time to time determine, Secretary and Treasurer, all of whom shall be
elected by the Board of Directors. One person may hold more than one office,
except as prohibited by law. The Board of Directors may designate from time to
time the Executive Officer who shall be Chief Executive Officer of the
Corporation.
33. The Executive Officers shall be elected by the Board of Directors
after its election by the stockholders, and a meeting may be held for this
purpose without notice immediately after the annual meeting of the stockholders,
and at the same place.
34. The Board may appoint such other officers, counsel and agents as it
shall deem necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
35. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
36. The officers of the Corporation shall hold office until their
successors are chosen and qualify in their stead or until their earlier
resignation or removal. Any officers elected or appointed by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the whole Board of Directors. If the office of any officer or officers becomes
vacant for any reason, the vacancy shall be filled by the Board of Directors.
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CHAIRMAN OF THE BOARD
37. The Chairman of the Board of Directors shall be a member of the
Board of Directors and shall preside at all meetings of the stockholders and of
the Board of Directors, and by virtue of his office shall be Chairman of and a
member of the Executive Committee, and a member of all standing committees
except the Audit Committee. He shall supervise all such matters as may be
delegated to him by the Board of Directors or the Executive Committee.
THE PRESIDENT
38. The President shall be a member of the Board of Directors, and
shall in the absence of the Chairman of the Board be Chairman of the Executive
Committee. He shall, in the absence of the Chairman of the Board, preside at all
meetings of the Directors, and shall also, in the absence of the Chairman of the
Board, preside at all meetings of the stockholders. He shall appoint all persons
other than officers, employed in the service of the Corporation, and may suspend
or remove them. At each regular meeting of the Board of Directors he shall do
and perform such other duties as may from time to time be assigned to him by the
Board of Directors or Executive Committee, or as may be authorized by law.
VICE PRESIDENTS
39. In the absence, vacancy or disability of the President and if so
designated by the Board of Directors or Executive Committee, a Vice President
shall perform the duties and exercise the powers of the President. The Vice
Presidentsshall otherwise perform such other duties as the Board of Directors
shall prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
40. The Secretary shall attend all sessions of the Board and Executive
Committee and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or President, under whose supervision he
shall be. He shall keep in safe custody the seal of the Corporation, and affix
or cause to be affixed the same to any instrument requiring it, and when so
affixed, it shall be attested by his signature or by the signature of the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
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41. The Assistant Secretaries shall perform such duties as the Board of
Directors shall from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
42. The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
43. He shall disburse the funds of the Corporation as may be ordered by
the Board, taking proper vouchers for such disbursements, and shall render to
the President and Directors, at the regular meetings of the Board, or whenever
they may require it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation.
44. The Assistant Treasurers shall perform such duties as the Board of
Directors shall from time to time prescribe.
BONDS
45. Any officer or employee having the care or custody of any of the
securities or cash of the Corporation may be required to give the Corporation a
bond in such sum and in such form and with such surety or sureties as shall be
satisfactory to the Board, for the faithful performance of the duties of his
office.
DUTIES OF OFFICERS MAY BE DELEGATED
46. In case of the absence of any officer of the Corporation, or for
any other reasons that the Board may deem sufficient, the Board may delegate,
for the time being, the power or duties, or any of them, of such officer to any
other officer, or to any Director.
CERTIFICATE OF STOCK
47. The certificates of stock of the Corporation shall be numbered and
shall be entered in the books of the Corporation as they are issued. They shall
exhibit the holder's name and number of shares and shall be signed by the
Chairman of the Board of Directors, President or a Vice President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary.
If the Corporation has a transfer agent or an assistant transfer
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agent acting on its behalf and a registrar, the signatures of any such officer
may be facsimile. The designations, preferences and relative participating
option or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificates
which the Corporation shall issue to represent such class or series of stock.
TRANSFERS OF STOCK
48. Transfers of stock shall be made on the books of the Corporation
only upon surrender of the certificate therefor endorsed by the person named in
the certificate or by attorney, lawfully constituted in writing.
CLOSING OF TRANSFER BOOKS
49. The Board of Directors shall have power to close the stock transfer
books of the Corporation for a period not exceeding sixty (60) days preceding
the date of any meeting of the stockholders or the date for payment of any
dividend or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect or for a period of
not exceeding sixty (60) days in connection with obtaining the consent of
stockholders for any purpose; provided, however, that in lieu of closing the
stock transfer books as aforesaid, the Board of Directors may fix in advance a
date, not exceeding sixty (60) nor less than ten (10) days preceding the date of
any meeting of stockholders, or not exceeding sixty (60) days before the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent, as a record date
for the determination of the stockholders entitled to notice of, and to vote at,
any such meeting and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the rights
in respect of any such change, conversion or exchange of capital stock, or to
give such consent, and in such case such stockholders and only such stockholders
as shall be stockholders of record on the date so fixed shall be entitled to
such notice of, and to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend, or to receive such allotment of rights, or to
exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid. Where such a record date has not been
fixed by the Board of Directors and the Board of Directors has not closed the
stock transfer book as above provided, the record date shall be fixed as
otherwise provided by law.
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REGISTERED STOCKHOLDERS
50. The Corporation shall be entitled to treat the holder of record of
any share or shares of stock as the holder in fact thereof, and accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided by the laws of Delaware.
LOST CERTIFICATE
51. Any person claiming a certificate of stock to be lost, stolen or
destroyed shall make an affidavit or affirmation of that fact and the Board of
Directors may, in its discretion, require the owner of the lost or destroyed
certificate, or his legal representative, to give the Corporation a bond,
sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss of any such certificate. A new
certificate of the same tenor and for the same number of shares as the one
alleged to be lost, stolen or destroyed shall, upon compliance with the
aforesaid provisions, be issued by the Company.
FISCAL YEAR
52. The fiscal year of the Corporation shall begin on January 1 and end
on December 31 in each year or shall be for such period as the Board of
Directors may from time to time hereafter designate.
DIVIDENDS
53. Dividends upon the capital stock of the Corporation subject to the
provisions of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meetings, pursuant to law.
Dividends may be paid in cash, property, or in shares of the capital stock.
54. Before any payment of any dividend there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interests of the
Corporation, and the Directors may abolish any such reserve in the manner in
which it was created.
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NOTICES
55. Whenever under the provisions of these By-Laws notice is required
to be given to any Director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, or by
telegraph by depositing the same in a post office or letter box, in a postpaid
sealed wrapper, addressed to such stockholder or Director at such address as
appears on the books of the Corporation, or with a telegraph office for
transmission to such person and such notice shall be deemed to be given at the
time when the same shall be thus mailed or deposited.
56. Any stockholder or Director may waive any notice required to be
given under these By-Laws.
CHECKS
57. All checks, notes, drafts, acceptances or other demands or orders
for the payment of money of the Corporation, shall be signed by such officer or
officers, or person or persons as the Board of Directors may from time to time
designate.
VOTING UPON STOCKS
58. Unless otherwise ordered by the Board of Directors or by the
Executive Committee, the Chairman of the Board, or the President, and in their
absence any Vice President of the Corporation, shall have full power and
authority on behalf of the Corporation, to attend, to act and to vote at any
meetings of the stockholders of any corporation in which the Corporation may
hold stock, and at any such meeting shall possess and may exercise any and all
rights, and powers incident to the ownership of such stock which, as the owner
thereof, the Corporation might have possessed and exercised if present. The
Board of Directors or the Executive Committee, by resolution from time to time,
may confer like powers upon any other person or persons.
CONTRACTS
59. Inasmuch as the Directors of this Corporation are men of large and
varied business interests and it is contemplated that the Directors of this
Corporation shall be men of large and varied business interests, it is hereby
provided that in the absence of fraud no contract or other transaction between
the Corporation and any other corporation and no act of the Corporation shall in
any manner be affected or invalidated by the fact that any of the Directors of
the Corporation are pecuniarily or otherwise interested in or are directors or
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officers of such other corporation. In the absence of fraud, any Director
individually, or any firm or association of which any Director may be a member,
may be a party to or may be pecuniarily or otherwise interested in any contract
or transaction of the Corporation, provided that the fact that he or such firm
or association is so interested shall be disclosed or shall have been known to
the Board of Directors or to a majority thereof; and provided that such contract
or transaction shall be approved by the affirmative votes of a majority of the
disinterested Directors of this Corporation; and any Director of the Corporation
who is also a director or officer of such other corporation or who is so
interested may be counted in determining the existence of a quorum at any
meeting of the Board of Directors of the Corporation which shall authorize any
such contract or transaction, and may vote thereat to authorize any such
contract or transaction or with respect thereto, and such contract or
transaction shall not be void or voidable solely because his or their vote is
counted for such purposes. Any Director and/or officer of this Corporation may
act as a director and/or officer of any subsidiary or affiliated corporation and
may vote or act without restriction or qualification with regard to any
transaction between such corporations.
AMENDMENTS
60. These By-Laws may be altered or amended or repealed by the
affirmative vote of the holders of record of a majority of the stock issued and
outstanding and entitled to vote thereat, at any regular or annual meeting of
the stockholders, or at any special meeting of the stockholders, if notice of
the proposed alteration or amendment or repeal be contained in the notice of
such annual or special meeting or these By-Laws may be altered or amended or
repealed by the affirmative vote of a majority of the Board of Directors at any
regular meeting of the Board, or at any special meeting of the Board, if notice
of the proposed alteration, amendment or repeal be contained in the notice of
such special meeting, provided, however, that no change of the time or place for
the election of Directors shall be made within sixty days next before the day on
which such election is to be held and that in case of any change of such time
and place, notice thereof shall be given to each stockholder in person or by
letter mailed to his last known post office address at least twenty days before
the election is held.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
61. (A) The Company shall, subject to the provisions of subparagraph
(C) below, indemnify each person who is or was a director, officer or employee
of the Company or of any other corporation which he serves or served as such at
the request of the Company, against any and all liability and reasonable expense
that may be incurred by him in connection with or resulting from any claim,
action, suit or other proceeding (whether actual
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or threatened or brought by or in the right of the Company or such other
corporation or otherwise), civil, criminal, administrative or investigative,
including any appeal relating thereto, in which he may become involved, as a
party or otherwise, by reason of his being or having been a director, officer or
employee of the Company or such other corporation, or by reason of his serving
or having served as a trustee of a trust at the request of the Company, or by
reason of any past or future action taken or not taken in his capacity as such
director, officer, trustee or employee, whether or not he continues to be such
at the time such liability or expense is incurred, provided (a) in the case of a
claim, action, suit or other proceeding brought by or in the right of the
Company or such other corporation to procure a judgment in its favor, that such
person has not been adjudged to be liable for negligence or misconduct in the
performance of his duty to it, (b) in the case of a claim, action, suit or other
proceeding not covered by clause (a) such person acted in the best interests of
the Company or such other corporation, as the case may be and (c) in addition,
in any criminal action or proceeding he had not reasonable cause to believe that
his conduct was unlawful. Indemnification pursuant to this Section 61 of the
By-Laws, however, shall (i) not include any amount payable by such person to the
Company or to such other corporation in satisfaction of any judgment or
settlement, and (ii) be reduced by the amount of other indemnification or
reimbursement of such person in respect of the liability and expense with
respect to which indemnification is claimed. As used in this Section 61, the
term "liability" shall include, but shall not be limited to, amounts of
judgments, fines or penalties against, and amounts paid in settlement by, such
person; the term "expense" shall include, but shall not be limited to, counsel
fees and disbursements; and the term "employee" shall mean an executive (other
than an executive who is a director or officer of the Company) of the Company,
of any operating division of the Company, of any subsidiary of the Company in
which the Company owns a majority of the voting control or power, or of any
other corporation which such executive serves or served at the request of the
Company, whom the Board of Directors of the Company, in its discretion, may
determine, in each instance, to be an "employee" for the purpose of this Section
61. The termination of any claim, action, suit or other proceeding, by judgment,
order, settlement (whether with or without court approval) or conviction or upon
a plea of guilty or of nolo contendere or its equivalent, shall not create a
presumption that such person did not meet the standards of conduct as set forth
in this Section.
(B) Every person referred to in the foregoing subparagraph (A)
of this Section 61 who has been successful on the merits or otherwise, in
defense of any action, suit or other proceeding of the character described in
said subparagraph, or in defense of any claim, issue or matter therein, shall be
entitled to indemnification as of right against reasonable expenses incurred by
him in connection with such successful defense.
(C) Except as provided in the foregoing subparagraph (B) of
this Section 61,
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any indemnification under subparagraph (A) shall be made solely at the
discretion of the Company, but only upon a determination that the person seeking
indemnification has met the standards of conduct set forth in said subparagraph
(A). Such determination shall be made (a) by the Board of Directors, acting by a
majority vote of a quorum consisting of directors who were not parties to such
claim, action, suit or other proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable, such a quorum by such vote so directs, by
independent legal counsel (who may be counsel regularly retained by the Company)
in a written opinion delivered to the Company.
(D) Expense incurred in defending any claim, action, suit or
other proceeding of the character described in subparagraph (A) of this Section
may be advanced by the Company prior to the final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
unless it shall ultimately be determined that he is entitled to indemnification
for such expense under this Section.
(E) The provisions for indemnification set forth in this
Section, (a) shall be in addition to any rights to which any person referred to
in subparagraph (A) of this Section may otherwise be entitled by contract or as
a matter of law; (b) may apply as to any such person who has ceased to be a
director, officer or employee; (c) shall inure to the benefit of the heirs,
executors and administrators of any such person referred to in subparagraph (A);
and (d) shall be applicable whether or not the claim asserted against such
person is based on matters which antedate the adoption of this Section 61.
62. Section 203 of the Delaware General Corporation Law shall not
applicable to the Company. Anything of the foregoing to the contrary, Section 62
of the By-Laws may not be altered, modified or repealed by the Board of
Directors.
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CSS INDUSTRIES, INC.
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose. The purpose of this 1995 Stock Option Plan for Non-Employee
Directors (the "Plan") of CSS Industries, Inc. (the "Company") is to increase
the ownership interest in the Company of Non-Employee Directors whose services
are considered essential to the Company's continued progress and to provide a
further incentive to serve as a Director of the Company.
2. The Plan. The Plan shall consist of options to acquire Shares of the Common
Stock of the Company, $.10 par value (the "Shares").
3. Administration. The Plan shall be administered by a Committee of the Board of
Directors consisting of Directors who are not eligible to participate in the
Plan (the "Committee"). Subject to the provisions of the Plan, the Committee
shall be authorized to interpret the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan; providing, however,
that the Committee shall have no discretion with respect to the eligibility or
selection of Directors to receive options under the Plan, the number of Shares
subject to any such options, other than by reason of an adjustment pursuant to
Section 8
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hereof, or the purchase price of options or the frequency of option grants
thereunder, and provided further that the Committee shall not have the authority
to take any action to make any determination that would materially increase the
benefits accruing to participants under the Plan. The determination of the
Committee in the administration of the Plan, as described herein, shall be final
and conclusive and binding upon all persons including, without limitation, the
Company, its stockholders and persons granted options under the Plan. The
Secretary of the Company shall be authorized to implement the Plan in accordance
with its terms and to take such actions of a ministerial nature as shall be
necessary to effectuate the intent and purposes thereof. The validity,
construction and effect of the Plan and any rules and regulations relating to
the Plan shall be determined in accordance with the laws of the State of
Delaware.
4. Participation in the Plan. Directors of the Company who are not employees of
the Company or any subsidiary or affiliate of the Company shall be eligible to
participate in the Plan ("Eligible Directors").
5. Shares Subject to the Plan. Subject to adjustment as provided in Section 8,
an aggregate of Three Hundred Thousand (300,000) Shares shall be available for
issuance upon the exercise of options granted under the Plan. The Shares
deliverable upon the exercise of an option may be made available from unissued
Shares not reserved for any other purpose
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or Shares reacquired by the Company, including Shares purchased in the open
market or in private transactions. If any option granted under the Plan shall
expire or terminate for any reason without having been exercised in full, the
Shares subject to, but not delivered under, such option may again become
available for the grant of other options under the Plan.
6. Non-Statutory Stock Options. All options granted under the Plan shall be non-
statutory options not intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
7. Terms, Conditions and Forms of Options. Each option granted under this Plan
shall be evidenced by a written agreement with the Company in such form as the
Committee shall from time to time approve, which agreements shall comply with
and be subject to the following terms and conditions:
(i) Option Grant Dates. Options to purchase 4,000 Shares (as
adjusted pursuant to Section 8) shall be granted automatically to each Eligible
Director on the last day that the Company's Shares are traded on the New York
Stock Exchange or other national securities exchange upon which the shares are
traded or if the Shares are not then listed on a national securities exchange
and are not traded over-the-counter on the date of the last trade as reported by
NASDAQ or, if not reported by NASDAQ, the last trade which was
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reported, in each November through 2000, except that any such grant shall be
subject to and contingent upon approval of the Plan by the stockholders of the
Company at the 1996 Annual Meeting of Stockholders.
(ii) Purchase Price. The purchase price of Shares upon
exercise of an option shall be 100% of the fair market value of the Shares on
the date of grant of an option; which shall be: (i) if the Shares are then
listed on a national securities exchange, the closing price of the Shares on
such date; provided, however, if on such date the Shares were traded on more
than one national securities exchange, then the closing price on the exchange on
which the greatest volume of Shares were traded on such day; (ii) if the Shares
are not then listed on a national securities exchange and are traded
over-the-counter, the last sale price of the Shares on such date as reported by
NASDAQ or, if not reported by NASDAQ, the average of the closing bid and asked
prices for the Shares on such date; and (iii) if the Shares are neither then
listed on a national securities exchange nor traded in the over-the-counter
market, such value as the Committee shall in good faith determine. If the Shares
are then listed on a national securities exchange or are traded over-the-counter
but are not traded on the date of grant, then the purchase price of such shares
shall be the closing price on the last day prior thereto on which such Shares
were traded.
(iii) Exercisability and Term of Options. Each option granted
under the
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Plan will become exercisable and mature in four equal installments, commencing
on the first anniversary of the date of grant and annually thereafter. Each
option granted under the Plan shall expire five years from the date of the
grant, and shall be subject to earlier termination as hereinafter provided.
(iv) Termination of Service. In the event of the termination
of service on the Board by the holder of any option, other than by reason of
death as set forth in Paragraph (v) hereof or by reason of such holders
commencement of employment with the Company, the then outstanding options of
such holder may be exercised only to the extent that they were exercisable on
the date of such termination and shall expire three months after such
termination, or on their stated expiration date, whichever occurs first.
(v) Death. In the event of the death of the holder of any
option, each of the then outstanding options of such holder will immediately
mature in full and become exercisable by the holder's legal representative at
any time within a period of six months after death, but in no event after the
expiration date of the term of the option.
(vi) Payment. Options may be exercised only upon payment to
the Company in full of the purchase price of the Shares to be delivered. Such
payment shall be made (a) in cash or check at the time of purchase, (b) by
delivering Shares already owned by the holder and having a fair market value (as
defined in Section 7(ii)) on the date
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immediately preceding the date of exercise equal to the option price, or a
combination of (a) and (b). Notwithstanding the foregoing, the Committee
reserves the right not to permit such payment to be made by delivering Shares
already owned by the holder if it determines that the same would not be in the
best interests of the Company.
8. Adjustment upon Changes in Shares; Acceleration and Cancellation of Options.
(i) In the event of any reclassification, recapitalization,
merger, consolidation, reorganization, issuance of warrants, rights or
debentures, stock dividend, stock split or reverse stock split, extraordinary
cash dividend, property dividend, combination or exchange of shares, repurchase
of shares or any other change in corporate structure which in the judgment of
the Committee materially affects the value of Shares, the Committee may
determine the appropriate adjustments, if any, to the number and class of Shares
available for issuance upon the exercise of options granted under the Plan, the
number and class of Shares and the exercise price per Share set forth in any
option theretofore granted.
(ii) In the event of (a) the disposition of all or
substantially all of the assets of the Company, (b) the dissolution of the
Company, (c) the merger or consolidation of the Company with or into any other
entity or the merger or consolidation of any other entity into the Company in
each case whereby the Company is not the surviving entity, or (d) the
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making of a tender offer or exchange offer to purchase all or substantially all
of the Shares of the Company, all outstanding options awarded under the Plan
shall become exercisable in full immediately prior to such event and such
options shall be canceled by the Company, which shall remit to each Eligible
Director a cash payment equal to the difference between (y) the aggregate fair
market value of all Shares subject to the unexercised portion of such options
less (z) the aggregate exercise price of such unexercised options above.
9. Options Non-Assignable and Non-Transferable. Each option and all rights
thereunder shall be non-assignable and non-transferable other than by will or
the laws of descent and distribution and shall be exercisable during the
holder's lifetime only by the holder or the holder's guardian or legal
representative.
10. Limitations of Rights.
(i) No Right to Continue as a Director. Neither the Plan nor the
granting of an option nor any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that an Eligible Director has a right to continue as a Director for any period
of time, or at any particular rate of compensation.
(ii) No Stockholders' Rights for Holders of Options. A holder of
options
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shall have no rights as a stockholder with respect to the Shares covered by
options granted hereunder until the date of the issuance of a stock certificate
therefor, and no adjustment will be made for any cash dividend distributions for
which the record date is prior to the date such certificate is issued.
11. Effective Date and Duration of Plan. The Plan is effective upon its adoption
by the Board of Directors, subject to approval by the stockholders of the
Company at the 1996 Annual Meeting of Stockholders. The period during which
option grants shall be made under the Plan shall terminate on December 31, 2000
(unless the Plan is extended or is terminated on an earlier date by action of
the stockholders), but such termination shall not affect the terms of any then
outstanding options.
12. Amendment, Suspension or Termination of the Plan. Subject to the limitations
described in this Section, the Committee may amend, suspend or terminate the
Plan; provided, however, that no such action shall adversely affect the rights
of Directors who hold outstanding options previously granted hereunder and,
provided further, however, that any stockholder approval necessary or desirable
in order to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, shall be obtained in the manner required therein. Amendments to
Sections 4 and 7(i) and (ii) shall not be effected more than once every six
months, unless such amendments are implemented to comport with changes in the
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Code or regulations thereunder.
13. Notice. Any notice to the Company required by any of the provisions of this
Plan shall be in writing and addressed to the Secretary of the Company at the
Company's then Executive Offices and shall become effective when it is received.
14. Use of Proceeds. Proceeds from the sale of Shares pursuant to options
granted under the Plan shall constitute general funds of the Company.
15. No Fractional Shares. No fractional Shares shall be issued pursuant to
options granted hereunder.
16. Expenses of the Plan. All of the expenses of administering the Plan shall be
paid by the Company.
17. Compliance with Applicable Law. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or any
certificate for Shares to be delivered pursuant to the exercise of an option
unless and until the Company is advised by its counsel that the issuance and
delivery of such certificate is in compliance with all applicable laws,
regulations or governmental authority and the requirements of any
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exchange upon which Shares are traded. The Company shall in no event be
obligated to register any securities pursuant to the Securities Act of 1933 (as
now in effect or as hereafter amended) or to take any other action in order to
cause the issuance and delivery of any such certificate to comply with any such
law, regulations or requirement. The Committee may require, as a condition of
the issuance and delivery of any such certificate and in order to insure
compliance with such laws, regulations and requirements, such representations as
the Committee, in its sole discretion, deems necessary or desirable. Each option
shall be subject to the further requirement that if at any time the Committee
shall determine in its discretion that the listing or qualification of the
Shares subject to such option, is required under any securities exchange or
association requirements or under any applicable law, or that the consent or
approval of any governmental regulatory body is necessary as a condition of, or
in connection with, the granting of such option or the issuance of Shares
thereunder, such option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
18. Governing Law. Except to the extent pre-empted by federal law, this Plan
shall be construed and enforced in accordance with, and governed by, the laws of
the State of Delaware.
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(Local Currency-Single Jurisdiction)
ISDA(R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of August 9, 1996
CoreStates Bank/ N.A. CSS Industries, Inc
.................................... and......................................
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:-
1. Interpretation
(a) Definitions. The terms defined in Section 12 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the
relevant Confirmation or otherwise pursuant to this Agreement, in
freely transferable funds and in the manner customary for payments in
the required currency. Where settlement is by delivery (that is, other
than by payment), such delivery will be made for receipt on the due
date in the manner customary for the relevant obligation unless
otherwise specified in the relevant Confirmation or elsewhere in this
Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent specified
in this Agreement.
Copyright (C) 1992 by International Swap Dealers Association, Inc.
<PAGE>
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five
Local Business Days prior to the scheduled date for the payment or
delivery to which such change applies unless such other party gives
timely notice of a reasonable objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:-
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will
apply-separately to each pairing of branches or offices through which the
parties make and receive payments or deliveries.
(d) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section
6(c), be required to pay interest (before as well as after judgment) on
the overdue amount to the other party on demand in the same currency as
such overdue amount, for the period from (and including) the original
due date for payment to (but excluding) the date of actual payment, at
the Default Rate. Such interest will be calculated on the basis of daily
compounding and the actual number of days elapsed. If, prior to the
occurrence or effective designation of an Early Termination Date in
respect of the relevant Transaction, a party defaults in the performance
of any obligation required to be settled by delivery, it will compensate
the other party on demand if and to the extent provided for in the
relevant Confirmation or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into) that:-
(a) Basic Representations.
(i) Status. It is duly organised and validly existing under the laws of
the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it has
under any Credit Support Document to which it is a party and has taken
all necessary action to authorise such execution, delivery and
performance;
(iii) No Violation or Conflict. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment of
any court or other agency of government applicable to it or any of its
assets or any contractual restriction binding on or affecting it or any
of its assets;
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(iv) Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in
full force and effect and all conditions of any such consents have been
complied with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal,
valid and binding obligations, enforceable in accordance with their
respective terms (subject to applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of
general application (regardless of whether enforcement is sought in a
proceeding in equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
4. Agreements
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:-
(a) Furnish Specified Information. It will deliver to the other party any forms,
documents or certificates specified in the Schedule or any Confirmation by the
date specified in the Schedule or such Confirmation or, if none is specified, as
soon as reasonably practicable.
(b) Maintain Authorisations. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:-
(i) Failure to Pay or Deliver. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or
2(d) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is
given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or
perform any agreement or obligation (other than an obligation to make
any payment under this Agreement or delivery under Section 2(a)(i) or
2(d) or to give notice of a Termination Event) to be complied with or
performed
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<PAGE>
by the party in accordance with this Agreement if such failure is not remedied
on or before the thirtieth day after notice of such failure is given to the
party;
(ii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party to
comply with or perform any agreement or obligation to be complied with
or performed by it in accordance with any Credit Support Document if
such failure is continuing after any applicable grace period has
elapsed;
(2) the expiration or termination of such Credit Support Document or the
failing or ceasing of such Credit Support Document to be in full force
and effect for the purpose of this Agreement (in either case other than
in accordance with its terms) prior to the satisfaction of all
obligations of such party under each Transaction to which such Credit
Support Document relates without the written consent of the other party;
or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the validity
of, such Credit Support Document;
(iv) Misrepresentation. A representation made or repeated or deemed to have been
made or repeated by the party or any Credit Support Provider of such party in
this Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have been
made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support Provider
of such party or any applicable Specified Entity of such party (1) defaults
under a Specified Transaction and, after giving effect to any applicable notice
requirement or grace period, there occurs a liquidation of, an acceleration of
obligations under, or an early termination of, that Specified Transaction, (2)
defaults, after giving effect to any applicable notice requirement or grace
period, in making any payment or delivery due on the last payment, delivery or
exchange date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least three Local Business Days if
there is no applicable notice requirement or grace period) or (3) disaffirms,
disclaims, repudiates or rejects, in whole or in part, a Specified Transaction
(or such action is taken by any person or entity appointed or empowered to
operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as applying
to the party, the occurrence or existence of (1) a default, event of default or
other similar condition or event (however described) in respect of such party,
any Credit Support Provider of such party or any applicable Specified Entity of
such party under one or more agreements or instruments relating to Specified
Indebtedness of any of them (individually or collectively) in an aggregate
amount of not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming, or
becoming capable at such time of being declared, due and payable under such
agreements or instruments, before it would otherwise have been due and payable
or (2) a default by such party, such Credit Support Provider or such Specified
Entity (individually or collectively) in making one or more payments on the due
date thereof in an aggregate amount of not less than the applicable Threshold
Amount under such agreements or instruments (after giving effect to any
applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or any
applicable Specified Entity of such party:-
(1) is dissolved (other than pursuant to a consolidation, amalgamation
or merger); (2) becomes insolvent or is unable to pay its debts or fails
or admits in writing its inability generally to pay its debts as they
become due; (3) makes a general assignment, arrangement or composition
with or for the benefit of its creditors; (4) institutes or has
instituted against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency law or
other similar law affecting creditors' rights, or a petition is
presented for its
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winding-up or liquidation, and, in the case of any such
proceeding or petition instituted or presented against it, such
proceeding or petition (A) results in a judgment of insolvency or
bankruptcy or the entry of an order for relief or the making of
an order for its winding-up or liquidation or (B) is not
dismissed, discharged, stayed or restrained in each case within
30 days of the institution or presentation thereof; (5) has a
resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation
or merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver,
trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter; (8)
causes or is subject to any event with respect to it which, under
the applicable laws of any jurisdiction, has an analogous effect
to any of the events specified in clauses (1) to (7) (inclusive);
or (9) takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the foregoing
acts; or
(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:-
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it
or its predecessor was a party by operation of law or pursuant to
an agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, and, if specified to be applicable, a Credit
Event Upon Merger if the event is specified pursuant to (ii) below or an
Additional Termination Event if the event is specified pursuant to (iii) below:-
(i) Illegality. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent jurisdiction
of any applicable law after such date, it becomes unlawful (other than
as a result of a breach by the party of Section 4(b)) for such party
(which will be the Affected Party):-
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other material
provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party
(or such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and
such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such Credit
Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event, X or its
successor or transferee, as appropriate, will be the Affected Party);
or
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(iii) Additional Termination Event. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying,
the occurrence of such event (and, in such event, the Affected Party
or Affected Parties shall be as specified for such Additional
Termination Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has
occurred and is then continuing, the other party (the "Non-defaulting
Party") may, by not more than 20 days notice to the Defaulting Party
specifying the relevant Event of Default, designate a day not earlier
than the day such notice is effective as an Early Termination Date in
respect of all outstanding Transactions. If, however, "Automatic Early
Termination" is specified in the Schedule as applying to a party, then
an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party
of an Event of Default specified in Section 5(a)(vii)( 1), (3), (5),
(6) or, to the extent analogous thereto, (8), and as of the time
immediately preceding the institution of the relevant proceeding or the
presentation of the relevant petition upon the occurrence with respect
to such party of an Event of Default specified in Section 5(a)(vii)(4)
or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction
and will also give such other information about that Termination Event
as the other party may reasonably require.
(ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1)
occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice
thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iii) Right to Terminate. If:-
(1) an agreement under Section 6(b)(ii) has not been effected
with respect to all Affected Transactions within 30 days after
an Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality other than that referred to in Section
6(b)(ii), a Credit Event Upon Merger or an Additional
Termination Event occurs,
either party in the case of an Illegality, any Affected Party in the
case of an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then continuing, designate a day not earlier than the day such
notice is effective as an Early Termination Date in respect of all
Affected Transactions.
(c) Effect of Designation.
(i) if notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
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(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(d) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is to
be paid. In the absence of written confirmation from the source of a
quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day
that notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event
of Default) and on the day which is two Local Business Days after the
day on which notice of the amount payable is effective (in the case of
an Early Termination Date which is designated as a result of a
Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well
as after judgment), from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily
compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an
Event of Default:-
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the Unpaid
Amounts owing to the Non-defaulting Party over (B) the Unpaid
Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply,
the Defaulting Party will pay to the Non-defaulting Party, if a
positive number, the Non-defaulting Party's Loss in respect of
this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount, will be payable equal to (A)
the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions
and the Unpaid Amounts owing to the Non-defaulting Party less (B)
the Unpaid Amounts owing to the Defaulting Party. If that amount
is a positive number, the Defaulting Party will pay it to the
Non-defaulting Party; if it is a negative number, the
Non-defaulting Party will pay the absolute value of that amount
to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply,
an amount will be payable equal to the Non-defaulting Party's
Loss in respect of this Agreement. If that amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative
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number, the Non-defaulting Party will pay the absolute value of
that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:-
(1) One Affected Party. If there is one Affected Party, the
amount payable will be determined in accordance with Section
6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4),
if Loss applies, except that, in either case, references to the
Defaulting Party and to the Non-defaulting Party will be deemed
to be references to the Affected Party and the party which is
not the Affected Party, respectively, and, if Loss applies and
fewer than all the Transactions are being terminated, Loss shall
be calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:-
(A) if Market Quotation applies, each party will
determine a Settlement Amount in respect of the
Terminated Transactions, and an amount will be payable
equal to (I) the sum of (a) one-half of the difference
between the Settlement Amount of the party with the
higher Settlement Amount ("X") and the Settlement Amount
of the party with the lower Settlement Amount ("Y") and
(b) the Unpaid Amounts owing to X less (II) the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss
in respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all
Terminated Transactions) and an amount will be payable
equal to one-half of the difference between the Loss of
the party with the higher Loss ("X") and the Loss of the
party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X;
if it is a negative number, X will pay the absolute value of that
amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies
in respect of a party, the amount determined under this Section 6(e)
will be subject to such adjustments as are appropriate and permitted by
law to reflect any payments or deliveries made by one party to the
other under this Agreement (and retained by such other party) during
the period from the relevant Early Termination Date to the date for
payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies
an amount recoverable under this Section 6(e) is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the
loss of bargain and the loss of protection against future risks and
except as otherwise provided in this Agreement neither party will be
entitled to recover any additional damages as a consequence of such
losses.
7. Transfer
Neither this Agreement nor any interest or obligation in or under this Agreement
may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party, except that:-
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
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8. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
9. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees,
incurred by such other party by reason of the enforcement and protection of its
rights under this Agreement or any Credit Support Document to which the
Defaulting Party is a party or by reason of the early termination of any
Transaction, including, but not limited to, costs of collection.
10. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:-
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
9
<PAGE>
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or
the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
11. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:-
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan in
New York City, if this Agreement is expressed to be governed by the
laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such Proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other Jurisdiction.
(c) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
12. Definitions
As used in this Agreement:-
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
10
<PAGE>
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, all Transactions affected by the occurrence of such
Termination Event and (b) with respect to any other Termination Event, all
Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:-
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement. "Credit Support Provider" has the meaning specified in
the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iii).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"law" includes any treaty, law, rule or regulation and "lawful" and "unlawful"
will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located, (c) in
relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), in the city specified in the address for notice provided
by the recipient and, in the case of a notice contemplated by Section 2(b), in
the place where the relevant new account is to be located and (d) in relation to
Section 5(a)(v)(2), in the relevant locations for performance with respect to
such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, an amount that party reasonably
determines in good faith to be its total losses and costs (or gain, in which
case expressed as a negative number) in connection with this Agreement or that
Terminated Transaction or group of Terminated Transactions, as the case may be,
including any loss of bargain, cost of funding or, at the election of such party
but without duplication, loss or cost incurred as a result of its terminating,
liquidating, obtaining or reestablishing any hedge or related trading position
(or any gain
11
<PAGE>
resulting from any of them). Loss includes losses and costs (or gains) in
respect of any payment or delivery required to have been made (assuming
satisfaction of each applicable condition precedent) on or before the relevant
Early Termination Date and not made, except, so as to avoid duplication, if
Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a
party's legal fees and out-of-pocket expenses referred to under Section 9. A
party will determine its Loss as of the relevant Early Termination Date, or, if
that is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more leading
dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or of
Terminated Transactions are to be excluded but, without limitation, any payment
or delivery that would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition precedent) after
that Early Termination Date is to be included. The Replacement Transaction would
be subject to such documentation as such party and the Reference Market-maker
may, in faith, agree. The party making the determination (or its agent) will
request each Reference Market-maker to provide its quotation to the extent
reasonably practicable as of the same day and time (without regard to different
time zones) on or as soon as reasonably practicable after the relevant Early
Termination Date. The day and time as of which those quotations are to be
obtained will be selected in good faith by the party obliged to make a
determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without regard
to the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation remaining
after disregarding the highest and lowest quotations. For this purpose, if more
than one quotation has the same highest value or lowest value, then one of such
quotations shall be disregarded. If fewer than three quotations are provided, it
will be deemed that the Market Quotation in respect of such Terminated
Transaction or group of Terminated Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Potential Event of Default" means any event which, with the giving, of notice
or the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under
12
<PAGE>
this Agreement, another contract, applicable law or otherwise) that is exercised
by, or imposed on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:-
(a) the Market Quotations (whether positive or negative) for each Terminated
Transaction or group of Terminated Transactions for which a Market Quotation is
determined; and
(b) such party's Loss (whether positive or negative and without reference to any
Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, aLl Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Event" means an Illegality or, if specified to be applicable, a
Credit Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such Early Termination Date, at the Applicable Rate. Such
amounts of interest will be calculated on the basis of daily compounding and the
actual number of days elapsed. The fair market value of any obligation referred
to in clause (b) above shall be reasonably determined
13
<PAGE>
by the party obliged to make the determination under Section 6(e) or, if each
party is so obliged, it shall be the average of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
CoreStates Bank, N.A. CSS Industries, Inc.
---------------------- ---------------------
(Name of Party) (Name of Party)
By:/s/ Daniel J. Thomas By: /s/ Clifford E. Pietrafitt
-------------------- --------------------------
Name: Daniel J. Thomas Name: Clifford E. Pietrafitt
Title: Vice President Title: Vice President Finance
Date: September 5, 1996 Date: September 9, 1996
14
<PAGE>
(Local Currency-Single Jurisdiction)
ISDA(R)
International Swap Dealers Association, Inc.
SCHEDULE
to the
Master Agreement
dated as of August 9, 1996
between CoreStates Bank, N.A. and CSS Industries, Inc.
("Party A") ("Party B")
Part 1. Termination Provisions.
(a) "Specified Entity" means in relation to Party A for the
purpose of:--
Section 5(a)(v), none
Section S(a)(vi), none
Section 5(a)(vii), none
Section 5(b)(ii), none
and in relation to Party B for the purpose of:--
Section 5(a)(v), none
Section 5(a)(vi), none
Section 5(a)(vii), none
Section 5(b)(ii), none
(b) "Specified Transactions" will have the meaning specified in Section 12 of
this Agreement.
(C) The "Cross Default" provisions of Section 5(a)(vi)
will apply to Party A
will apply to Party B
<PAGE>
If such provisions apply:--
"Specified Indebtedness" will have the meaning specified in Section 12 of
this Agreement except that such term shall not include obligations in
respect of deposits received in the ordinary course of a party's banking
business.
Threshold Amount" means, with respect to Party A, an amount (including
its equivalent in another currency) equal to the higher of $10,000,000 or
2% of its stockholder's equity as reflected on its most recent financial
statements or call reports, and with respect to Party B, $50,000.
(d) The "Credit Event Upon Merger" provisions of Section 5(b)(ii)
will apply to Party A
will apply to Party B
(e) The "Automatic Early Termination" provision of Section 6(a)
will not apply to Party A
will not apply to Party B
(f) Payments on Early Termination. For purpose of Section 6(e) of this
Agreement:--
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) Additional Termination Event will not apply.
Part 2. Agreement to Deliver Documents.
For the purpose of Section 4(a) of this Agreement, each party agrees to deliver
the following documents, as applicable:--
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Party required to Form/Document/ Date by which Covered by
deliver document Certificate to be delivered Section 3(d)
Representation
Party B Certificate Upon Execution Yes
substantially in of this Agreement
the form of
Exhibit II
Party B Opinion of Counsel Upon Execution No
substantially in the of this Agreement
form of Exhibit III
</TABLE>
Part 3. Miscellaneous
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<PAGE>
(a) Addresses for Notices. For the purpose of Section 10 (a) of this
Agreement:--
Address for notices or communications to Party A:--
Street Address: 1345 Chestnut Street, Philadelphia, PA 19107
Mailing Address: P.O. Box 8590, Philadelphia, PA 19101-8590
Attention: Investment Operations, F.C. 1-1-8-4
Attention: Ms. Wendy Havens
FAX: (215) 973-8388
Phone: (215) 973-2385
Address for notices or communications to Party B:--
Address: 1845 Walnut Street\ Suite 800\ Phila, PA 19103-4755
Attention: Mr. Cliff Pietrafitta
Telex No.: .................... Answerback: ......................
Facsimile No.: (215) 569-9979 Telephone No.: (215) 569-9900
Electronic Messaging System Details: ................................
(b) Calculation Agent. The Calculation Agent is Party A unless
otherwise specified in a Confirmation in relation to the relevant
Transaction.
(c) Credit Support Document. N/A
(d) Credit Support Provider. Credit Support Provider means in relation
to Party A. None
Credit Support Provider. Credit Support Provider means in relation
to Party B. None
(e) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without
reference to choice of law doctrine).
2(f) Netting of Payments. Subparagraph (ii) of Section 2(c) of this
Agreement will not apply to any Transaction unless otherwise
specified in a Confirmation in relation to the relevant
Transaction.
(g) "Affiliate" will have the meaning specified in Section 12 of this
Agreement.
Part 4. Other Provisions.
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<PAGE>
(a) Confirmations. Notwithstanding anything to the contrary in this
Agreement:
(i) The parties hereto agree that with respect to each Transaction
hereunder a legally binding agreement shall exist from the moment
that the parties hereto agree on the essential terms of such
Transaction, which the parties anticipate will occur by telephone.
(ii) For each Transaction Party A and Party B agree to enter into
hereunder, Party A shall promptly send to Party B a Confirmation,
substantially in the form of Exhibit I setting forth the terms of
such Transaction. Party B shall execute and return the Confirmation
to Party A or request correction of any error within three Business
Days of receipt. Failure of Party B to respond within such period
shall not affect the validity or enforceability of such Transaction
and shall be deemed to be an affirmation of such terms.
(b) Additional Agreements.
(i) Each party agrees, upon learning of the occurrence of any event
or commencement of any condition that constitutes (or that with the
giving of notice or passage of time or both would constitute) an
Event of Default or Termination Event with respect to the party,
promptly to give the other party notice of such event or condition
(or, in lieu of giving notice of such event or condition in the
case of an event or condition that with the giving of notice or
passage of time or both would constitute an Event of Default or
Termination Event with respect to the party, to cause such event or
condition to cease to exist before becoming an Event of Default or
Termination Event).
(ii) Party B agrees to give all notices described in (b)(i) of this
Part 4 with respect to any Credit Support Provider.
(c) Additional Representations. Section 3 of the Agreement is hereby
amended by adding at the end thereof the following subsections (e)
and (f):
"(e) Eligible Swap Participant. It is an "eligible swap
participant" as that term is defined by the Commodity Futures
Trading Commission at 17 C.F.R. Section 35.1(b)(2)."
"(f) Line of Business. It has entered into this Agreement
(including each Transaction evidenced hereby) in conjunction
with its line of business (including financial intermediation
services) or the financing of its business."
(d) FDIC Requirements. The following Additional Representations and
Agreements will apply to Party A and will not apply to Party B:
(i) The necessary action to authorize referred to in the
-4-
<PAGE>
representation in Section 3 (a)(ii) of this Agreement includes
all authorizations required under the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 and any
regulations and guidelines thereunder.
(ii) At all times during the term of this Agreement, it will
continuously include and maintain as part of its official
written books and records, this Agreement, this Schedule and
all other exhibits, supplements, and attachments hereto and
documents incorporated by reference herein, all Confirmations
and evidence of all necessary approvals. In addition to any
other remedies which the other party may have under this
Agreement or otherwise, if it breaches or defaults on any of
its obligations set forth in this subparagraph (ii), the other
party shall be entitled to apply to any court of competent
jurisdiction for an order requiring specific performance of
such obligations, and it shall not contest any such
application and shall comply with any such order.
(e) Set-off. Section 6 of the Agreement is amended by adding the
following new subsection 6(f):
"(f) Set-off. Without affecting the provisions of this
Agreement requiring the calculation of certain net payment
amounts, all payments under this Agreement shall be made
without set-off or counterclaim and will not be subject to any
conditions except as provided in Section 2 of this Agreement
and except as provided in this Section 6(f). Any amount (the
'Early Termination Amount') payable to one party (the 'Payee')
by the other party (the 'Payer') under Section 6(e), in
circumstances where there is a Defaulting Party or one
Affected Party in the case where a Termination Event under
Section 5(b) has occurred, will, at the option of the party
('X') other than the Defaulting Party or the Affected Party
(and without prior notice to the Defaulting Party or the
Affected Party), be reduced by its set-off against any
amount(s) (the 'Other Agreement Amount') payable (whether at
such time or in the future or upon the occurrence of a
contingency) by the Payee to the Payer (irrespective of the
currency, place of payment or booking office of the
obligation) under any other agreement(s) between the Payee and
the Payer or instrument(s) or undertaking(s) issued or
executed by one party to, or in favor of, the other party (and
the other Agreement Amount will be discharged promptly and in
all respects to the extent it is so set-off). X will give
notice to the other party of any set-off effected under this
Section 6(f).
"For this purpose, either the Early Termination Amount or the
Other Agreement Amount (or the relevant portion of such
amounts) may be converted by X into the currency in which the
other is denominated at the rate of exchange at which such
party would be able, acting in a reasonable manner and in good
faith, to purchase the relevant amount of such currency.
-5-
<PAGE>
"If an obligation is unascertained, X may in good faith
estimate that obligation and set-off in respect of the
estimate, subject to the relevant party accounting to the
other when the obligation is ascertained.
"Nothing in this Section 6(f) shall be effective to create a
charge or other security interest. This Section 6(f) shall be
without prejudice and in addition to any right of set-off,
combination of accounts, lien or other right to which any
party is at any time otherwise entitled (whether by operation
of law, contract or otherwise)."
(f) Consent to Recording. Each Party (i) consents to the recording of
the telephone conversations of trading and marketing personnel of
the Parties and their Affiliates in connection with this Agreement
or any potential Transaction and (ii) agrees to obtain any
necessary consent of, and give notice of such recording to, such
personnel of it and its Affiliates.
(g) No Reliance. In connection with the negotiation of, the entering
into, and the confirming of the execution of this Agreement, any
Credit Support Document to which it is a party, each Transaction,
and any other documentation relating to this Agreement that it is
required by this Agreement to deliver, each party agrees and
confirms that:(i) the other party hereto or thereto is not acting
as a fiduciary or financial, investment, or commodity trading
advisor for it; (ii) it is not relying (for purposes of making any
investment decision or otherwise) upon any advice, counsel or
representations (whether written or oral) of the other party hereto
or thereto other than the representations expressly set forth in
this Agreement, in such Credit Support Document, and in any
Conformation; (iii) the other party hereto or thereto has not given
to it (directly or indirectly through any other person) any
assurance or guaranty whatsoever as to the merits (either legal,
regulatory, tax, financial, accounting or otherwise) of this
Agreement, such Credit Support Document, such Transaction or such
other documentation; (iv) it has consulted with its own legal,
regulatory, tax, business, investment, financial and accounting
advisors to the extent deemed necessary, and it has made its own
judgment and upon any advice as it has deemed necessary and not
upon any view expressed by the other party hereto or thereto; (v)
it has determined that all trading decisions have been the result
of arm's length negotiations between the parties; (vi) it is
entering into this Agreement, such Credit Support Document, such
Transaction and such other documentation with a full understanding
of all or the terms, condition and risks hereof and thereof
(economic and otherwise), and it is capable of assuming and willing
to assume (financially and otherwise) those risks; and (vii) it is
a sophisticated investor.
(h) Interest Rate Caps, Collars, Floors and Options. The condition
precedent in Section 2(a)(iii)(1) of the Agreement does not apply
to
-6-
<PAGE>
a payment and delivery owing by a party if the other party shall have satisfied
in full all its payments and delivery obligations under Section 2(a)(i) of this
Agreement and shall at the relevant time have no future payment delivery
obligations, whether absolute or contingent, under Section 2(a)(i).
(i) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY AND ALL RIGHTS TO
TRIAL BY JURY WITH RESPECT TO ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER OR ANY TRANSACTION CONTEMPLATED HEREBY.
-7-
<PAGE>
2000 One Logan Square Morgan, Lewis
Philadelphia, PA 19103-6993
215-963-5000 & Bockius LLP
Fax: 215-963-5299 C O U N S E L 0 R S A T L A W
September 17, 1996
CoreStates Bank, N.A.
1345 Chestnut Street
P.O. Box 7618
Philadelphia, PA 19101-7618
Re: ISDA Master Agreement, dated as of
August 9, 1996, with CSS Industries, Inc.
-----------------------------------------
Ladies and Gentlemen:
We have acted as counsel to CSS Industries, Inc., a Delaware corporation (the
"Company"), in connection with the execution and delivery of a Master Agreement
(Local Currency--Single Jurisdiction), dated as of August 9, 1996 (the "Master
Agreement"), between your Bank and the Company, on a standard form of the
International Swap Dealers Association, Inc., providing for the completion from
time to time of swap and other Transactions (as defined in the Master Agreement)
between the parties thereto pursuant to the provisions thereof. This opinion is
furnished to you pursuant to Part 2 of the schedule to the Master Agreement.
In such capacity, we have examined facsimile copies of executed counterparts of
the Master Agreement with its Schedule, dated as of August 9, 1996, attached
thereto (which copies we assume conform with their originals in all respects)
and such other documents and instruments, and we have conducted such other
investigations of law and fact, as we have deemed necessary for purposes of this
opinion. As to certain questions of fact material to the opinions expressed
herein, we have, with your permission, relied without independent investigation
on certificates of officers of the Company.
Based on the foregoing, we are of the opinion that:
1. The Company is duly incorporated and validly existing under the laws
of the State of Delaware and has the necessary power and authority to execute
and deliver, and to perform its obligations under, the Master Agreement.
Philadelphia Washington New York Los Angeles Miami Harrisburg Pittsburgh
Princeton London Brussels Frankfurt Tokyo Singapore Jakarta
<PAGE>
Morgan, Lewis
CoreStates Bank, N.A. & Bockius LLP
September 17, 1996
Page 2
2. The execution and delivery of the Master Agreement by the Company
and the performance by the Company of its obligations thereunder have been duly
authorized by all necessary corporate action and do not contravene any provision
of the certificate of incorporation or bylaws of the Company or any law or
regulation binding upon the Company or any restriction under any contract, known
to us, to which the Company is a party or by which it may be bound or by which
any of its properties may be affected.
References herein to matters "known to us" are limited to the actual knowledge
of the attorneys of this firm who have primary responsibility for this firm's
representation of the Company or who have been actively engaged in connection
with the Master Agreement and the Loan Agreement, dated November 15, 1995, among
the Company, your Bank as Administrative Agent and the lenders identified
therein.
This opinion is limited to matters governed by the federal laws of the United
States, the laws of the Commonwealth of Pennsylvania and the State of New York
and the General Corporation Law of the State of Delaware, and no opinion is
herein expressed with respect to the laws of any other jurisdiction.
This opinion is intended for your exclusive benefit in connection with the
transactions contemplated by the Master Agreement and without our permission may
not be furnished to or relied upon by any other person or in connection with any
other transaction, except that a copy of this opinion may be furnished to and
relied upon by any other institutional lender acquiring any interest in any of
the transactions contemplated by the Master Agreement.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
- -------------------------------
<PAGE>
CERTIFICATE OF SECRETARY
OF
CSS INDUSTRIES, INC.
--------------------
I, the undersigned Secretary of CSS Industries, Inc., (the "Company"),
DO HEREBY CERTIFY as such officer that:
1. Attached hereto as Exhibit A is a true, correct and complete copy of
resolutions duly adopted by the Executive Committee of the Board of
Directors of the Company, which resolutions have not been revoked,
modified, amended or rescinded and are in full force and effect as of
the date hereof
2. The person(s) named below has(have) been duly elected to and currently
hold the office or offices set forth opposite their respective names.
Each respective officer's genuine signature has been set forth after
his name and title.
Name Title
Stephen V. Dubin Senior Vice President,
Law and Human Resources and
Secretary
Clifford E. Pietrafitta Vice President of Finance,
Treasurer and Assistant Secretary
IN WITNESS WHEREOF, I have executed this certificate this 16th day of
September, 1996.
/s/ Stephen V. Dubin
-------------------------------
Stephen V. Dubin, Secretary
I, Vice President of Finance, Treasurer and Assistant Secretary of the
Company, do hereby certify that Stephen V. Dubin is the duly elected and acting
Secretary of the Company and that the signature above is his genuine signature.
/s/ Clifford E. Pietrafitta
-----------------------------------------------
Clifford E. Pietrafitta, Vice President of
Finance, Treasurer and Assistant Secretary
<PAGE>
EXHIBIT "A"
-----------
RESOLUTIONS OF THE
EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS
OF
CSS INDUSTRIES, INC.
--------------------
RESOLVED, that the terms and provisions of the International Swap
Dealers Association, Inc. Master Agreement dated as of August 9, 1996
("Agreement"), a copy of which has been marked as Exhibit "A" for identification
and is attached hereto, between CoreStates Bank, N.A. and CSS Industries, Inc.
be, and they hereby are, ratified and approved in all respects, and be it
further
RESOLVED, that the officers of CSS Industries, Inc., and any of the
acting singly, be, and they hereby are, authorized to execute and deliver such
Agreement on behalf of CSS Industries, Inc. and to take such further or other
action as is deemed necessary or appropriate to implement such Agreement.
<PAGE>
CSS INDUSTRIES, INC.
EQUITY COMPENSATION PLAN
------------------------
(as amended effective 5/7/96)
The purpose of the Equity Compensation Plan (the "Plan") of CSS
Industries, Inc. (the "Company") is to promote the interests of the Company by
providing incentives to designated officers and other employees of the Company
or a Subsidiary Corporation (as defined herein), to encourage them to acquire a
proprietary interest, or to increase their proprietary interest, in the Company.
The Company believes that the Plan will cause participants to contribute
materially to the growth of the Company, thereby benefitting the Company's
stockholders. For purposes of the Plan, the terms "Parent Corporation" and
"Subsidiary Corporation" shall have the meanings set forth in subsections (e)
and (f) of Section 424 of the Internal Revenue Code of 1986, as amended (the
"Code").
1. Administration
--------------
The Plan shall be administered and interpreted by the Human Resources
Committee of the Board of Directors (the "Committee") consisting of not less
than three persons, all of whom shall be "disinterested persons" as defined
under Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act")
or any successor provisions and all of whom shall be "outside directors" as
defined under section 162(m) of the Code and related Treasury regulations. The
Committee shall have the sole authority to determine (i) who is eligible to
receive Grants (as defined in Section 2 below) under the Plan; (ii) the type,
size and terms of each Grant under the Plan (subject to Section 4 below); (iii)
the time when each Grant will be made and the duration of any exercise or
restriction period; (iv) any restrictions on resale applicable to the shares to
be issued or transferred pursuant to the Grant; and (v) any other matters
arising under the Plan. The Committee may, if it so desires, base any of the
foregoing determination upon the recommendations of management of the Company.
The Committee shall have full power and authority to administer and interpret
the Plan and to adopt or amend such rules, regulations, agreements and
instruments as it may deem appropriate for the proper administration of the
Plan. The Committee's interpretations of the Plan and all determinations made by
the Committee pursuant to the powers vested in it hereunder shall be conclusive
and binding on all persons having any interests in the Plan or in any Grants
under the Plan. No person acting under this Section shall be held liable for any
action or determination made in good faith with respect to the Plan or any Grant
under the Plan.
2. Grants
------
Incentives under the Plan shall consist of Incentive Stock Options (as
defined in Section 5(b) below), Non-Qualified Stock Options (as defined in
Section 5(b) below), Restricted Stock Grants (as defined in Section 6 below) and
SARs (as defined in Section 7 below) (hereinafter collectively referred to as
"Grants"). All Grants shall be subject to the terms and conditions set forth
herein and to such other terms and conditions of any nature as long as they are
not inconsistent with the Plan as the Committee deems appropriate and specifies
in writing to the participant (the "Grant Letter"). The Committee shall approve
the form and provisions of each Grant Letter. Grants under any
<PAGE>
section of the Plan need not be uniform as among the participants receiving the
same type of Grant, and Grants under two or more sections of the Plan may be
combined in one Grant Letter.
3. Shares Subject to the Plan
--------------------------
(a) The aggregate number of shares of the Common Stock, par value $.10
("Common Stock"), of the Company that may be issued or transferred under the
Plan is 1,000,000 shares, subject to adjustment pursuant to Section 3(b) below.
The maximum aggregate number of shares of Company Stock that shall be subject to
options or restricted stock grants under the Plan to any single individual shall
be 50% of the aggregate number of shares specified in the preceding sentence.
The shares may be authorized but unissued shares or reacquired shares. If and to
the extent that options granted under the Plan terminate, expire or are
cancelled without having been exercised (including shares cancelled as part of
an exchange of Grants), or if any shares of restricted stock are forfeited, the
shares subject to such Grant shall again be available for subsequent Grants
under the Plan.
(b) If any change is made to the Common Stock (whether by reason of
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, or exchange of shares or any other change in
capital structure made without receipt of consideration), then unless such event
or change results in the termination of all outstanding Grants under the Plan,
the Committee shall preserve the value of the outstanding Grants by adjusting
the maximum number and class of shares issuable under the Plan to reflect the
effect of such event or change in the Company's capital structure, and by making
appropriate adjustments to the number and class of shares, the exercise price of
each outstanding option and otherwise, except that any fractional shares
resulting from each adjustments shall be eliminated by rounding any portion of a
share equal to .500 or greater up, and any portion of a share equal to less than
.500 down, in each case to the nearest whole number.
4. Eligibility for Participation
-----------------------------
Officers and other employees of the Company or a Subsidiary Corporation
shall be eligible to participate in the Plan (referred to individually as an
"Eligible Participant" and collectively as "Eligible Participants"). The
Committee shall select from among the Eligible Participants those who will
receive Grants (referred to individually as "Grantee" and collectively as
"Grantees") and shall determine the number of shares of Common Stock subject to
each Grant. The Committee may, if it so desires, base any such selections or
determinations upon the recommendations of management of the Company. Nothing
contained in the Plan shall be construed to limit in any manner whatsoever the
right of the Company to grant rights or options to acquire Common Stock or
awards of Common Stock otherwise than pursuant to the Plan.
5. Stock Options
-------------
(a) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be subject to each
option.
2
<PAGE>
(b) Type of Option and Option Price.
(1) The Committee may grant options qualifying as incentive
stock options within the meaning of Section 422 of the Code
("Incentive Stock Options") and other stock options
("NonQualified Stock Options"), in accordance with the terms
and conditions set forth herein, or may grant any combination
of Incentive Stock Options and NonQualified Stock Options
(hereinafter referred to collectively as "Stock Options"). The
option price per share of an Incentive Stock Option shall be
the fair market value (as defined herein) of a share of Common
Stock on the date of grant. However, if the Grantee of an
Incentive Stock Option is the owner of Common Stock (as
determined under section 424(d) of the Code) who possesses
more than 10% of the total combined voting power of all
classes of stock of the Company or a Parent Corporation or
Subsidiary Corporation, the option price per share in the case
of an Incentive Stock Option shall not be less than 110% of
the fair market value of a share of Common Stock on the date
of grant. The option price per share of a Non-Qualified Stock
Option shall be an amount determined by the Committee in the
exercise of its discretion, but in no event shall such option
price be less than the book value of a share of Common Stock
on the date of grant unless an option price of less than such
book value is approved by the Board of Directors of the
Company.
(2) For all valuation purposes under the Plan, the fair market
value of a share of Common Stock shall be determined in
accordance with the following provisions:
(A) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is
traded either on the over-the-counter market or
listed on Nasdaq National Market segment of the
Nasdaq Stock Market, the fair market value shall be
the closing selling price of one share of Common
Stock on the date immediately preceding the date in
question as such price is reported by the NASDAQ
system or any successor system. If there is no
reported closing selling price for the Common Stock
on the date immediately preceding the date in
question, then the closing selling price on the next
preceding date for which such quotation exists shall
be determinative of fair market value.
(B) If the Common Stock is at the time listed or
admitted to trading on any stock exchange, then the
fair market value shall be the closing selling price
of one share of Common Stock on the date immediately
preceding the date in question on the stock exchange
determined by the Committee to be the primary market
for the Common Stock, as such prices are officially
quoted on such exchange. If there is no reported
closing selling price of Common Stock on such
exchange on the date immediately preceding the date
in question, then the fair market value shall be the
closing selling price on the
3
<PAGE>
next preceding date for which such quotation exists.
(C) If the Common Stock is at the time neither listed
or admitted to trading on any stock exchange nor
traded in the over-the-counter market (or, if the
Committee determines that the value as determined
pursuant to Section 5(b) (2) (A) or (B) above does
not reflect fair market value), then the Committee
shall determine fair market value after taking into
account such factors as it deems appropriate.
(c) Exercise Period. The Committee shall determine the option exercise
period of each Stock Option. The exercise period shall not exceed ten years from
the date of grant. However, if the Grantee of an Incentive Stock Option is the
owner of Common Stock (as determined under Section 424(d) of the Code) who then
possesses more than 10% of the total combined voting power of all classes of
stock of the Company or a Parent Corporation or Subsidiary Corporation, the
exercise period shall not exceed five years.
(d) Vesting of Options and Restrictions on Shares. The vesting period
for Stock Options shall commence on the date of grant and shall end on the date
or dates, determined by the Committee, that shall be specified in the Grant
Letter. The Committee may impose upon the shares of Common Stock issuable upon
the exercise of a Stock Option such restrictions as it deems appropriate and
specifies in the Grant Letter. During any period in which such restrictions
apply, the provisions of Section 6(d) below shall be applicable to such shares,
and the Committee, in such circumstances as it deems equitable, may determine
that all such restrictions shall lapse.
(e) Manner of Exercise. A Grantee may exercise a Stock Option by
delivering a duly completed notice of exercise to the Secretary of the Company,
together with payment of the option price.
(f) Termination of Employment, Disability or Death.
(1) If a Grantee ceases to be an Eligible Participant for any
reason other than either by reason of the death of such Grantee, the
termination for cause of the Grantee's employment by the Company, or
the Grantee's voluntary termination of his or her employment with the
Company, any Stock Option which is otherwise exercisable by the Grantee
shall terminate unless exercised within ninety days following the date
on which the Grantee ceases to be an Eligible Participant (or within
such other period of time, which may be longer or shorter than ninety
days, as may be specified in the Grant Letter).
(2) In the event of a death of a Grantee while he or she is an
Eligible Participant or within not more than ninety days following the
date on which the Grantee ceases to be an Eligible Participant (or
within such other period of time, which may be longer or shorter than
ninety days, as may be specified in the Grant Letter), any Stock Option
which was otherwise exercisable by the Grantee at the date of death may
be exercised by the
4
<PAGE>
Grantee's personal representative at any time prior to the expiration
of one hundred eighty days from the date of death, but in any event no
later than the date of expiration of the option exercise period.
(3) If a Grantee ceases to be an Eligible Participant either
by reason of termination of the Grantee's employment by the Company for
cause or the Grantee's voluntary termination of such employment, any
Stock Option which is otherwise exercisable by the Grantee shall
terminate on the date of termination of employment with the Company.
(g) Satisfaction of Option Price. The Grantee shall pay the option
price specified in the Grant Letter in (i) cash, (ii) with the consent of the
Committee in its sole discretion, by delivering shares of Common Stock already
owned by the Grantee and having a fair market value on the date immediately
preceding the date of exercise equal to the option price (iii)* with the consent
of the Committee in its sole discretion, with the proceeds of a promissory note
payable by the Optionee to the Company, but only in accordance with the
provisions of a Loan Program established by the Company, or any successor
program as in effect from time to time, (A) in a principal amount of up to 100%
of the payment due upon the exercise of the Stock Option, or such applicable
lower percentage as may be specified by the Committee pursuant to the Loan
Program, and (B) bearing interest at a rate not less than the applicable Federal
rate prescribed by Section 1274 of the Code, or such higher rate as may be
specified by the Committee pursuant to the Loan Program or (iv) through any
combination of (i), (ii) or (iii). The Optionee shall pay the option price and
the amount of withholding tax due, if any, at the time of exercise. Shares of
Company Stock shall not be issued or transferred upon exercise of a Stock Option
until the option price is fully paid.
(h) Limits on Incentive Stock Options. Each Grant of an Incentive Stock
Option shall provide that:
(1) the Stock Option is not transferable by the Grantee,
except, in the case of an individual Grantee, by will or the
laws of descent and distribution;
(2) the Stock Option is exercisable only by the Grantee,
except as otherwise provided herein or in the Grant Letter in
the event of the death of an individual Grantee;
(3) the aggregate fair market value of the Common Stock on the
date of the Grant with respect to which Incentive Stock
Options are exercisable for the first time by a Grantee during
any calendar year under the Plan and under any other stock
option plan of the Company shall not exceed $100,000; and
(4) unless the Grantee could otherwise transfer Common Stock
issued pursuant to the Stock Option without incurring
liability under Section 16(b) of the Exchange Act, at least
six months must elapse from the date of acquisition of the
Stock Option until the date of disposition of the Common Stock
issued upon exercise
5
<PAGE>
thereof.
6. Restricted Stock Grants
-----------------------
The Committee may issue shares of Common Stock to an Eligible
Participant pursuant to an incentive or long range compensation plan, program or
contract approved by the Committee (a "Restricted Stock Grant"). The following
provisions are applicable to Restricted Stock Grants:
(a) General Requirements. Shares of Common Stock issued pursuant to a
Restricted Stock Grant will be issued for or in consideration for cash or
services rendered having a value, as determined by the Committee, at least equal
to the par value thereof. All conditions and restrictions imposed under each
Restricted Stock Grant, and the period of years during which the Restricted
Stock Grant will remain subject to such restrictions, shall be set forth in the
Grant Letter and designated therein as the "Restriction Period." All
restrictions imposed under any Restricted Stock Grant shall lapse on such date
or dates as the Committee may approve until the restrictions have lapsed as to
100% of the shares. In addition, the Committee, in circumstances that it deems
equitable, may determine as to any or all Restricted Stock Grants, that all the
restrictions shall lapse, notwithstanding any Restriction Period.
(b) Number of Shares. The Committee, in its sole discretion, shall
determine the number of shares of Common Stock that will be granted in each
Restricted Stock Grant.
(c) Requirement of Relationship with Company. If the Grantee's
relations with the Company as an employee terminates during the period
designated in the Grant Letter as the Restriction Period, the Restricted Stock
Grant shall terminate as to all shares covered by the Grant as to which
restrictions on transfer have not lapsed, and such shares shall be immediately
returned to the Company. The Committee may, in its sole discretion, provide for
complete or partial exceptions to the provisions of this Section 6(c).
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Common Stock to which such Restriction Period
applies except to a Successor Grantee pursuant to Section 8 below. Each
certificate representing a share of Common Stock issued or transferred under a
Restricted Stock Grant shall contain a legend giving appropriate notice of the
restrictions in the Grant. The Grantee shall be entitled to have the legend
removed from the stock certificate or certificates representing any such shares
as to which all restrictions have lapsed.
(e) Stockholder Rights. Except as provided in this Section 6, the
Grantee shall have, with respect to shares of Common Stock issued pursuant to a
Restricted Stock Grant, all of the rights of a stockholder, including the right
to vote the shares and the right to receive any dividends thereon.
7. Stock Appreciation Rights
-------------------------
6
<PAGE>
(a) General Provisions. Stock Appreciation Rights ("SARs") may be
granted in conjunction with all or part of any Stock Option granted under the
Plan. In the case of a NonQualified Stock Option, such rights may be granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. The exercise price of each SAR shall be equal to (i) the
exercise price or option price of the related Stock Option or (ii) the fair
market value of a share of Common Stock as of the date of grant of such SARs (as
determined in accordance with the valuation method set forth in Section 5(b)(2)
hereof), but only in such circumstances where the SAR is granted subsequent to
the date of grant of the related Stock Option and an exercise price established
in accordance with clause (i) above would result in the disallowance of the
Company's expense deduction pursuant to Section 162(m) of the Code.
(b) Number of SARs. The number of SARs granted to a Grantee which shall
be exercisable during any given period of time shall not exceed the number of
shares of Common Stock which the Grantee may purchase upon the exercise of the
related Stock Option during such period. Upon the exercise of a Stock Option,
the SARs relating to the Common Stock covered by the Stock Option shall
terminate. Upon the exercise of any SARs, the related Stock Option shall
terminate to the extent of an equal number of shares of Common Stock.
(c) Settlement Amount. Upon a Grantee's exercise of some or all of the
Grantee's SARs, the Grantee shall receive in settlement of such SARs an amount
equal to the stock appreciation (as defined herein) for the number of SARs
exercised, payable in cash, Common Stock or a combination thereof. The "stock
appreciation" for an SAR is the difference between the option price specified
for the related Stock Option and the fair market value of the underlying Common
Stock (as determined in accordance with the valuation method set forth in
Section 5 (b)(2) hereof),on the date of exercise of the SAR.
(d) Settlement Election. Upon a Grantee's exercise of any SARs, the
Grantee shall have the right to elect the portions of the settlement amount that
the Grantee desires to receive in cash and shares of Common Stock, respectively.
For purposes of calculating the number of shares of Common Stock to be received
upon settlement, shares of Common Stock shall be valued at their fair market
value (as determined in accordance with the valuation method set forth in
Section 5 (b)(2) hereof), on the date of exercise of the SARs. Notwithstanding
the foregoing, the Committee shall have the right (i) to disapprove a Grantee's
election to receive such settlement in whole or in part in cash, and to require
that shares of Common Stock be delivered in lieu of cash or (ii) to require that
settlement be made in cash if the Company does not or may not in the future have
sufficient shares authorized for issuance. If shares of Common Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
(e) Exercise. An SAR is exercisable only during the period when the
Stock Option to which it is related is also exercisable. No SAR may be
exercised, in whole or in part, by any person who is subject to Section 16 of
the Exchange Act except in accordance with Rule 16b-3(e) under the Exchange Act.
7
<PAGE>
8. Transferability of Options and Grants
-------------------------------------
Only a Grantee (or, in the case of an individual Grantee, his or her
authorized legal representative) may exercise rights under a Grant. No
individual Grantee may transfer those rights except by will or by the laws of
descent and distribution or, if permitted under Rule 16b-3 of the Exchange Act
and by the Committee in its sole discretion, pursuant to a qualified domestic
relations order as defined under the Code or Title I of ERISA or the rules
thereunder. Upon the death of an individual Grantee, the personal representative
or other person entitled to succeed to the rights of the Grantee ("Successor
Grantee") may exercise such rights. A Successor Grantee shall furnish proof
satisfactory to the Company of such person's right to receive the Grant under
the Grantee's will or under the applicable laws of descent and distribution.
9. Certain Corporate Changes
-------------------------
(a) Sale or Exchange of Assets, Dissolution or Liquidation, or Merger
or Consolidation Where the Company Does Not Survive. If all or substantially all
of the assets of the Company are to be sold or exchanged, the Company is to be
dissolved or liquidated, or the Company is a party to a merger or consolidation
with another corporation in which the Company will not be the surviving
corporation, then, at least ten days prior to the effective date of such event,
the Company shall give each Grantee with any outstanding Grants written notice
of such event and shall indicate in such notice one of the following
determinations by the Committee (which determination shall be made in the
exercise of the sole and absolute discretion of the Committee and shall be
binding on the Grantee): (i) the Grantee shall have the right to exercise in
full any installments of such Grants not previously exercised (whether or not
the right to exercise such installments has accrued pursuant to such Grants),
within ten days after such written notice is sent by the Company, and any
installments of such Grants not so exercised shall thereafter lapse and be of no
further force or effect; or, (ii) the Grantee shall receive new Grants in
substitution for any then unexpired Grants under terms set forth in such notice;
or, (iii) any such successor to the Company shall assume any then unexpired
Grants in accordance with their terms.
(b) Merger or Consolidation Where the Company Survives. If the Company
is a party to a merger or consolidation in which the Company will be the
surviving corporation, then the Committee may, in its sole and absolute
discretion, elect to give each Grantee with any outstanding Grants written
notice of such event. If such notice is given, each such Grantee shall thereupon
have the right to exercise in full any installments of such Grants not
previously exercised (whether or not the right to exercise such installments has
accrued pursuant to such Grants), within ten days after such written notice is
sent by the Company. Any installments of such Grants not so exercised shall
thereafter lapse and be of no further force or effect.
10. Stockholder Approval
--------------------
The Plan is subject to and no Options shall be exercisable hereunder
until after approval of the Plan by holders of a majority of the shares of
Common Stock present or represented by a
8
<PAGE>
proxy in a separate vote at a duly held meeting of the stockholders of the
Company within twelve months after the date of the adoption of the Plan by the
Board of Directors.
11. Approval By The Committee
-------------------------
The Plan is subject to and no Options or SARs shall be exercisable
hereunder until after approval of the Plan and Grants by the Committee which is
comprised solely of the then directors who are (i) not presently employees of
the Company (or related entities); (ii) not former employees still receiving
compensation for prior services (other than benefits under a tax-qualified
pension plan); (iii) not officers of the Company (or related entities) at any
time; and (iv) not currently receiving compensation for personal services in any
capacity other than as a director.
12. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board of Directors may amend or terminate the Plan
at any time, subject to the following limitations:
(1) the approval by the stockholders of the Company and approval by the
Committee shall be required in respect or any amendment that (a)
materially increases the benefits accruing to Eligible Participants
under the Plan, (b) increases the aggregate number of shares of Common
Stock that may be issued or transferred under the Plan (other than by
operation of Section 3(b) above), (c) increases the maximum number of
shares of Common Stock for which any Grantee may be granted options
under the Plan, (d) materially modifies the requirements as to
eligibility for participation in the Plan, or (e) modifies the
provisions for determining the fair market value of a share of Common
Stock; and
(2) the Board of Directors shall not amend the Plan if such amendment
would cause the Plan, any Grant or the exercise of any right under the
Plan to fail to comply with the requirements of Rule 16b-3 under the
Exchange Act, or if such amendment would cause the Plan or the Grant or
exercise of an Incentive Stock Option to fail to comply with the
requirements of Section 422 of the Code including, without limitation,
a reduction of the option price set forth in Section 5(b) above or an
extension of the periods during which an Incentive Stock Option may be
exercised as set forth in Section 5(c) above.
(b) Termination of the Plan. The Plan shall terminate on the tenth
anniversary of its effective date (as set forth in Section 19 below) unless
earlier terminated by the Board of Directors.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not result in the
termination or amendment of the Grant unless the Grantee consents or unless the
Committee acts under Section 20(b) below. The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Grant. Whether or not the Plan has terminated, an outstanding Grant may be
9
<PAGE>
terminated or amended under Section 20(b) below or may be amended by agreement
of the Company and the Grantee which is consistent with the Plan.
13. Funding of the Plan
-------------------
The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under the Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
14. Rights of Eligible Participants
-------------------------------
Nothing in the Plan shall entitle any Eligible Participant or other
person to any claim or right to any Grant under the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any eligible Participant
or Grantee any rights to be retained by the Company in any capacity, whether as
an employee, non-employee member of the Board of Directors, independent
contractor, consultant or otherwise.
15. Withholding of Taxes
--------------------
The Company shall have the right to deduct from all Grants paid in cash
any federal, state or local taxes required by law to be withheld with respect to
such Grants paid in cash. In the case of Grants paid in Common Stock, the
Company shall have the right to require the Grantee to pay to the Company the
amount of any taxes which the Company is required to withhold in respect of such
Grants or to take whatever action it deems necessary to protect the interest of
the Company in respect of such tax liabilities, including, without limitation,
withholding a portion of the shares of Common Stock otherwise deliverable
pursuant to the Plan. The Company's obligation to issue or transfer shares of
Common Stock upon the exercise of a Stock Option or SAR or the acceptance of a
Restricted Stock Grant shall be conditioned upon the Grantee's compliance with
the requirements of this Section to the satisfaction of the Committee.
16. Agreements with Grantees
------------------------
Each Grant made under the Plan shall be evidenced by a Grant Letter
containing such terms and conditions as the Committee may from time to time
approve.
17. Requirements for Issuance of Shares
-----------------------------------
No Common Stock shall be issued or transferred under the Plan unless
and until all applicable legal requirements have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Stock Option, Restricted Stock Grant or SAR on the Grantee's undertaking in
writing to comply with such restrictions on any subsequent dispositions of the
shares of Common Stock issued or transferred thereunder as is deemed
10
<PAGE>
necessary or advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions.
18. Headings
--------
The section headings of the Plan are for reference only. In the event
of a conflict between a section heading and the content of a Section of the
Plan, the content of the Section shall control.
19. Effective Date
--------------
The provisions of the Plan shall be effective as of the date the Plan
is adopted by the Board of Directors of the Company, subject to the approval of
the Company's stockholders within twelve months of the effective date.
20. Miscellaneous
-------------
(a) Substitute Grants. The Committee may make a Grant to an employee
who was an employee of another corporation and became an Eligible Participant by
reason of a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or a Subsidiary Corporation
and such other corporation. Any such Grant shall be made in substitution for a
stock option or restricted stock grant granted by the other corporation
("Substituted Stock Incentives"), but the terms and conditions of the substitute
Grant may vary from the terms and conditions required by the Plan and from those
of the Substituted Stock Incentives. The Committee shall prescribe the
provisions of the substitute Grants.
(b) Compliance with Law. The Plan, the exercise of Grants and the
obligations of the Company to issue or transfer shares of Common Stock under
Grants shall be subject to all applicable laws and required approvals by
governmental or regulatory agencies. With respect to persons subject to Section
16 of the Exchange Act, it is the intent of the Company that the Plan and all
transactions under the Plan shall comply with all applicable conditions of Rule
16b-3 or any successor provisions under the Exchange Act. The Committee may
revoke any Grant if it is contrary to law or modify any Grant to bring it into
compliance with any then applicable government regulations. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
rights as a stockholder with respect to any shares of Common Stock covered by a
Grant until the shares are issued or transferred to the Grantee or Successor
Grantee on the stock transfer records of the Company.
(*This Amendment shall be effective as of January 23, 1996, with respect to all
options granted after such date.)
11
<PAGE>
401(K) PROFIT SHARING PLAN
OF
RAPIDFORMS, INC.
As Amended and Restated
Effective as of July 1, 1996
<PAGE>
<TABLE>
<CAPTION>
INTRODUCTION.................................................................................................... v
<S> <C>
SECTION I. DEFINITIONS................................................................................... 1
1.1 "Account"..................................................................................... 1
1.2 "Affiliated Company".......................................................................... 1
1.3 "Amendment Effective Date".................................................................... 1
1.4 "Anniversary Date"............................................................................ 1
1.5 "Code"........................................................................................ 1
1.6 "Committee"................................................................................... 1
1.7 "Company"..................................................................................... 1
1.8 "Compensation"................................................................................ 1
1.9 "Effective Date".............................................................................. 2
1.10 "Elective Deferral Account"................................................................... 2
1.11 "Employee".................................................................................... 2
1.12 "ERISA"....................................................................................... 2
1.13 "Five Percent Owner".......................................................................... 2
1.14 "414(q)(7) Compensation"...................................................................... 2
1.15 "Fund"........................................................................................ 2
1.16 "Highly Compensated Employee"................................................................. 2
1.17 "Hour of Service"............................................................................. 4
1.18 "Investment Fund"............................................................................. 5
1.19 "Key Employee"................................................................................ 5
1.20 "Leased Employee"............................................................................. 5
1.21 "Limitation Year"............................................................................. 5
1.22 "Matching Contribution Account"............................................................... 5
1.23 "Member"...................................................................................... 5
1.24 "Non-Highly Compensated Employee"............................................................. 5
1.25 "Non-Key Employee"............................................................................ 5
1.26 "Normal Retirement Age"....................................................................... 6
1.27 "Participating Member"........................................................................ 6
1.28 "Plan"........................................................................................ 6
1.29 "Plan Year"................................................................................... 6
1.30 "Profit Sharing Account"...................................................................... 6
1.31 "QDRO"........................................................................................ 6
1.32 "Qualified Joint and Survivor Annuity"........................................................ 6
1.33 "Qualified Non-Elective Contribution Account"................................................. 6
1.34 "REA"......................................................................................... 6
1.35 "Rollover Account(s)"......................................................................... 6
1.36 "Sponsor"..................................................................................... 6
1.37 "Spouse"...................................................................................... 6
1.38 "TEFRA"....................................................................................... 6
1.39 "Total Disability"............................................................................ 6
1.40 "Trustee"..................................................................................... 7
SECTION II. PARTICIPATION AND SERVICE..................................................................... 7
2.1 Initial Eligibility........................................................................... 7
2.2 Break-in-Service.............................................................................. 7
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
2.3 Readmission After Termination of Employment................................................... 8
SECTION III. CONTRIBUTIONS................................................................................. 8
3.1 Amount of Contributions....................................................................... 8
3.2 Timining of Contributions..................................................................... 8
SECTION IV. CREDITS OF MEMBERS............................................................................ 8
4.1 Allocation of Company Contributions........................................................... 9
4.2 Eligibility................................................................................... 9
4.3 Participating Members......................................................................... 9
4.4 Allocation of Realized Gains, Losses and Expenses............................................. 9
4.5 Annual Additions Limitations.................................................................. 10
4.6 Allocation of Amounts in Excess of Section 415 Limitations.................................... 11
4.7 Annual Additions Limitations for Multiple Plans............................................... 12
4.8 Allocation Date............................................................................... 12
4.9 Valuation - Fund Assets....................................................................... 12
4.10 Valuation - Profit Sharing Account and Rollover Account(s).................................... 12
SECTION V. VESTING....................................................................................... 13
5.1 Profit Sharing Account, Matching Contribution Account, Qualified
Non-Elective Contribution Account, Elective Deferral Account and
Rollover Account(s)........................................................................... 13
SECTION VI. EMPLOYEE ELECTIVE CASH OR DEFERRED ARRANGEMENT................................................ 14
6.1 Definitions................................................................................... 14
6.2 Amount and Timing of Elective Deferrals....................................................... 16
6.3 Amount of Matching Contributions.............................................................. 17
6.4 Amount of Qualified Non-Elective Contributions................................................ 17
6.5 Amount of Voluntary Non-deductible Contributions.............................................. 17
6.6 Excess Elective Deferrals..................................................................... 17
6.7 Actual Deferral Percentage Test............................................................... 18
6.8 Average Contribution Percentage Test.......................................................... 20
6.9 Allocation and Valuation...................................................................... 23
6.10 Distribution (Normal and Hardship)............................................................ 23
SECTION VII. TOP HEAVY PLAN RULES.......................................................................... 25
7.1 General Rule.................................................................................. 25
7.2 Determination of Top Heavy Status............................................................. 25
7.3 Minimum Contribution.......................................................................... 27
7.4 Vesting....................................................................................... 28
SECTION VIII. INVESTMENT OF FUNDS........................................................................... 29
8.1 Vesting....................................................................................... 29
8.2 Investment Direction by Members............................................................... 29
8.3 Accounting Procedure.......................................................................... 29
8.4 Failure to Direct Investment.................................................................. 30
SECTION IX. DISTRIBUTION OF BENEFITS...................................................................... 30
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.1 Distribution in General....................................................................... 30
9.2 Death or Disability........................................................................... 30
9.3 Valuation and Retirement Options.............................................................. 30
9.4 Form of Benefit............................................................................... 30
9.5 Termination of Employment Other Than Because of Death, Total
Disability or Retirement...................................................................... 36
9.6 Annual Fund Adjustments....................................................................... 39
9.7 Death Benefits................................................................................ 39
9.8 Designation of Beneficiary.................................................................... 39
9.9 Payment to Minors, etc........................................................................ 40
9.10 Commencement of Benefits...................................................................... 40
9.11 Loans to Members.............................................................................. 40
9.12 Nonalienation of Benefits..................................................................... 43
9.13 Receipt of Domestic Relations Order........................................................... 43
9.14 Qualified Spousal Consent..................................................................... 44
9.15 Direct Rollovers.............................................................................. 44
SECTION X. THE COMMITTEE................................................................................. 45
10.1 Appointment of Committee...................................................................... 45
10.2 Adoption of Rules............................................................................. 45
10.3 Delegation;Contracting for Services........................................................... 45
10.4 Construction of the Plan...................................................................... 46
10.5 Records....................................................................................... 46
10.6 Member's Access to the Committee.............................................................. 46
10.7 Designation of Plan Administrator; Power and Duties of the
Committee..................................................................................... 46
10.8 Review of Decisions of the Committee.......................................................... 46
10.9 Reporting and Disclosure...................................................................... 46
10.10 Indemnification............................................................................... 47
10.11 Service of Legal Process...................................................................... 47
SECTION XI. DISTRIBUTION OF BENEFITS...................................................................... 47
11.1 Distribution in General....................................................................... 47
11.2 Voluntary Termination......................................................................... 47
11.3 Liability of the Company...................................................................... 48
11.4 Plan and Trust Qualification.................................................................. 48
SECTION XII. MISCELLANEOUS................................................................................. 48
12.1 Plan Creates No Contract of Employment........................................................ 48
12.2 Exclusive Benefit of Funds.................................................................... 48
12.3 Transfer from Qualified Funds................................................................. 48
12.4 Severability of Provisions.................................................................... 49
12.5 Mergers and Consolidation of Plans............................................................ 49
12.6 Exclusive Benefit; Refund of Contributions.................................................... 50
12.7 Liquidation of the Company.................................................................... 50
12.8 Location of Member or Beneficiary Unknown..................................................... 50
12.9 Headings and Captions......................................................................... 50
</TABLE>
iii
<PAGE>
INTRODUCTION
------------
This Plan is to provide eligible Employees of RapidForms, Inc., and
Affiliated Companies who adopt the Plan, with deferred compensation.
This Plan was originally effective August 8, 1965 as the RapidForms,
Inc. Profit Sharing Plan. The RapidForms, Inc. Profit Sharing Plan is being
amended and restated effective July 1, 1996 due to (1) the merger of the
RapidForms, Inc. 401(k) Plan and the Russell & Miller, Inc. Profit Sharing Plan
into it and (2) the addition of a 401(k) salary reduction feature.
This Plan is a deferred compensation plan qualified under Section
401(a) of the Internal Revenue Code. It includes this Plan and the related Trust
Agreement.
All trust assets held under the Plan and Trust will be administered,
distributed, forfeited and otherwise governed by the provisions of this Plan and
the Trust Agreement. The Plan is administered by an administrative Committee for
the exclusive benefit of Members (and their beneficiaries).
iv
<PAGE>
RAPIDFORMS, INC.
401(K) PROFIT SHARING PLAN
As Amended and Restated
Effective as of July 1, 1996
SECTION I. DEFINITIONS
1.1 "Account" shall mean the entire interest of a Member in the Plan. A
Member's Account will consist of the sum of the Profit Sharing Account, Rollover
Account(s), Elective Deferral Account, Matching Contribution Account and
Qualified Non-Elective Contribution Account.
1.2 "Affiliated Company" shall mean (a) any entity included with the
Company in a controlled group of corporations (as defined in Code Section
414(b)); (b) a trade or business (whether or not incorporated) which is under
common control (as defined in Code Section 414(c)); (c) any organization
(whether or not incorporated) in an affiliated service group (as defined in Code
Section 414(m)); and (d) any other entity required to be aggregated with the
Company pursuant to regulations under Code Section 414(o).
1.3 "Amendment Effective Date" shall mean July 1, 1996, the date when
this Restated Plan shall be effective.
1.4 "Anniversary Date" shall mean any January 1 after the Effective
Date.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6 "Committee" shall mean the administrative Committee appointed as
provided in Section IX.
1.7 "Company" shall mean RapidForms, Inc., a New Jersey corporation,
and any Affiliated Company, that with the approval of the board of directors of
the Sponsor, has joined the Plan by executing a declaration of joinder.
1.8 "Compensation" shall mean the first $150,000 of cash compensation
paid by the Company [or Affiliated Company] to a Member during the Plan Year,
including salary, wages, overtime pay, bonuses and commissions, excluding
reimbursements or other expense allowances, fringe benefits (cash and noncash),
moving expenses, deferred compensation and welfare benefits, but including any
amount contributed which qualifies as an "elective contribution" as defined in
Section 6.1 or amounts which are not includable in the gross income of the
Member under Code Section 125. Compensation shall not include contributions to
this or any other plan for the benefit of Employees, remuneration derived from
nonrecurring extraordinary items, or amounts attributable to service before
becoming a Member. Compensation shall be calculated only for the balance of the
Plan Year during which the Member participates. The limitation on Compensation
shall be adjusted to reflect cost-of-living increases provided in accordance
with Code Section 401(a)(17). Furthermore, for purposes of the limitation on
Compensation, the
<PAGE>
"family member rule" as set forth in Section 1.16(c) of the Plan shall apply
in determining a Member's total Compensation. However, for purposes of this
Section, the term "family member" shall include only the Member's spouse and any
children who have not attained age 19 before the close of the Plan Year in
question. See Sections 1.16 and 1.19 for special testing definitions of
compensation.
1.9 "Effective Date" shall mean August 8, 1965, the date as of which
the Plan was effective.
1.10 "Elective Deferral Account" shall mean a Member's account
established pursuant to the provisions of Section 6.2.
1.11 "Employee" shall mean any individual employed by the Company or an
Affiliated Company, including any Leased Employees, but excluding any person who
is (i) an independent contractor, or (ii) a member of or otherwise included in a
collective bargaining unit which has negotiated with the Company in good faith
for retirement benefits.
1.12 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
1.13 "Five Percent Owner" shall mean any individual who owns (or is
considered as owning within the meaning of Code Section 318) more than 5% of the
outstanding stock of the Company or stock possessing more than 5% of the total
combined voting power of all stock of any Affiliated Company. Code Section 318
shall be applied for purposes of this section by substituting "5%" for "50%" in
Code Section 318(a)(2)(C). In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Section 414(b), (c), and
(m) shall be treated as separate employers. In determining whether an Employee
is a Five Percent Owner of an entity which is not a corporation, Five Percent
Owner shall mean any individual who owns more than 5% of the capital or profits
interest in the entity.
1.14 "414(q)(7) Compensation" shall mean 415 Compensation as defined
below, but without excluding therefrom amounts not included in taxable income
because of Code Sections 125 (relating to cafeteria plans), 402(a)(8) (relating
to cash or deferred arrangements), 402(h) (relating to simplified employee
pensions), and Code Section 403(b) (relating to annuity contracts).
1.15 "Fund" shall mean all property held by the Trustee for purposes of
the Plan.
1.16 "Highly Compensated Employee" shall mean:
(a) each Employee who, with respect to the Company or an
Affiliated Company, performed services (an "Active Employee") during the Plan
Year for which a determination is being made (the "Determination Year") and who
during such Determination Year, or the preceding Determination Year,
(i) was at any time a Five Percent Owner;
2
<PAGE>
(ii) received 414(q)(7) Compensation in excess of
$100,000 (adjusted to reflect any cost of living increases
provided in accordance with Code Section 415(d));
(iii) received 414(q)(7) Compensation in excess of
$66,000 (adjusted to reflect any cost of living increases
provided in accordance with Code Section 415(d)) and was in
the top 20% of Active Employees (based on 414(q)(7)
Compensation received) during such year; or
(iv) was an officer (as defined in Code Section
416(i) and the regulations issued thereunder) and received
414(q)(7) Compensation greater than 50% of the amount in
effect under Code Section 415(b)(1)(A) for any such Plan year
($120,000 for 1996 to be adjusted to reflect any cost of
living increases provided in accordance with Code Section
415(d)). If the Company does not have at least one officer
whose annual 414(q)(7) Compensation is in excess of 50% of the
amount in effect under Code Section 415(b)(1)(A) for any Plan
Year, then the highest paid officer of the Company will be
treated as a Highly Compensated Employee.
Notwithstanding the foregoing, the provisions of paragraph (ii), (iii) or (iv)
above shall not cause an Employee to be treated as a Highly Compensated Employee
for the Determination Year of reference unless such Employee is one of the top
100 Active Employees (based on 414(q)(7) Compensation received) during such
Determination Year and was a Highly Compensated Employee in accordance with the
provisions of paragraph (ii), (iii) or (iv) above for the preceding
Determination Year (without regard to this sentence).
The term "Highly Compensated Employee" includes a Highly Compensated
Former Employee.
(b) A Highly Compensated Former Employee shall mean any
Employee who separated from service (or was deemed to have separated) prior to
the Determination Year, performs no service for the Company during the
Determination Year and was an active Highly Compensated Employee for either the
separation year or any Determination Year ending on or after the Employee's 55th
birthday.
(c) Family Member Rule - If an Employee is a "family member"
of either (1) a Five Percent Owner or (2) one of the top ten Highly Compensated
Employees based on 414(q)(7) Compensation, then any compensation paid to the
"family member" and any contributions made under the Plan for the "family
member" are aggregated with the compensation paid and contributions made for the
Highly Compensated Employee. An individual is a "family member" with respect to
a Member if he is a spouse, lineal ascendant or descendant or the spouse of a
lineal ascendant or descendant.
(d) The determination of Highly Compensated Employee made
pursuant to this Section shall be made in accordance with Code Section 414(q)
and the regulations issued thereunder.
3
<PAGE>
1.17 "Hour of Service" shall mean:
(a) Each hour for which an Employee is paid or entitled to
payment, for the performance of duties for the Company during the applicable
computation period.
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Company on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including disability)
layoff, jury duty, military duty or leave of absence, provided that an
individual shall be credited with no more than 501 hours of service on account
of any single continuous period during which the Employee performs no duties
(whether or not such period occurs in a single computation period). For purposes
of this subparagraph (b), a payment shall be deemed to be made by or due from
the Company regardless of whether such payment is made by or due from the
Company directly, or indirectly through, among others, a trust fund, or insurer
to which the Company contributes or pays premiums and regardless of whether
contributions made or due to the trust fund, insurer or other entity are for the
benefit of particular Employees or are on behalf of a group of Employees in the
aggregate.
(c) Each hour for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the Company. The same hours of
service shall not be credited both under subparagraph (a) or subparagraph (b),
as the case may be, and under this subparagraph. Crediting of hours of service
for back pay awarded or agreed to with respect to periods described in
subparagraph (b) shall be subject to the limitations set forth in that
subparagraph.
(d) For purposes of determining hours of service for reasons
other than the performance of duties and for crediting of hours of service to
computation periods, the rules of DOL Reg. Secs. 2530.200b-2(b) and (c) are
hereby specifically incorporated by reference.
Hours of Service shall also be credited for employment with Affiliated
Companies.
Solely for the purpose of determining whether a One Year
Break-in-Service has occurred, Hours of Service shall be credited for "maternity
and paternity leaves of absence". A "maternity or paternity leave of absence"
shall mean an absence from work for any period by reason of the pregnancy of the
Member, birth of a child of the Member, placement of a child with the Member in
connection with the adoption of such child by such Member, or for purposes of
caring for such child for a period beginning immediately following such birth or
placement. For purposes of this paragraph, Hours of Service shall be credited
for the computation period in which the absence from work begins, only if a
credit therefor is necessary to prevent the Member from incurring a One Year
Break-in-Service, or in any other case, in the immediately following computation
period. The Hours of Service credited for a "maternity or paternity leave of
absence" shall be those which would normally have been credited but for such
absence, or, in any case in which the Committee is unable to determine such
hours normally credited, eight Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
4
<PAGE>
1.18 "Investment Fund" shall mean all property, except contracts, held
by the Trustee for the purpose of the Plan.
1.19 "Key Employee" means any Employee or former Employee (and his
beneficiaries) who, at any time during the Plan Year ending on the Determination
Date (the last day of the preceding Plan Year, the last of the first Plan Year,
or such other date as defined in Treasury Regulations) or any of the preceding
four Plan Years, is:
(a) an officer of the Company or Affiliated Company (as the
term officer is defined within the meaning of the regulations under Code Section
416), having an annual 414(q)(7) Compensation greater than 50% of the amount in
effect under Code Section 415(b)(1)(A) for any such Plan year ($120,000 for 1996
to be adjusted to reflect any cost of living increases provided in accordance
with Code Section 415(d)), provided that no more than 50 Employees, or if lesser
the greater of 3 or 10% of the Employees, shall be treated as officers;
(b) one of the ten Employees owning (or considered as owning
within the meaning of Code Section 318) the largest interests in the Company or
an Affiliated Company required to be aggregated under Code Sections 414(b), (c),
(m) and (o) and having annual 414(q)(7) Compensation for the Plan year of more
than the dollar amount set forth in Section 4.5(a) applicable to the Plan year;
provided that if two Employees have the same ownership interest in such
employers, the Employee having the greater amount of compensation from the
employers shall be treated as having the larger interest;
(c) a "Five Percent Owner" of the Company or Affiliated
Company.
(d) a "one percent owner" of the Company or Affiliated Company
having an annual 414(q)(7) Compensation of more than $150,000 and who would be a
Five Percent Owner if 1% were substituted for 5% in the definition of Five
Percent Owner.
1.20 "Leased Employee" shall mean a person described in Code Section
414(n)(2). This Plan shall not cover any Leased Employee.
1.21 "Limitation Year" shall mean the Plan Year for purposes of Section
IV.
1.22 "Matching Contribution Account" shall mean a Member's account
established pursuant to the provisions of Section 6.3.
1.23 "Member" shall mean any Employee employed by the Company who meets
the eligibility requirements of Section 2.1, has become a Member of the Plan
pursuant to Section 2.1 and is employed by the Company on the appropriate entry
date pursuant to Section 2.1.
1.24 "Non-Highly Compensated Employee" shall mean an Employee who is
not a Highly Compensated Employee.
1.25 "Non-Key Employee" shall mean any Employee who is not a Key
Employee.
5
<PAGE>
1.26 "Normal Retirement Age" shall be age 65.
1.27 "Participating Member" shall mean any Member who meets the
requirements of Section 4.3.
1.28 "Plan" shall mean the 401(k) Profit Sharing Plan of the Company as
set forth herein.
1.29 "Plan Year" shall mean a fiscal year ending on December 31 of any
year.
1.30 "Profit Sharing Account" shall mean a Member's account
attributable to Company contributions under this Plan plus earnings, accretions,
or forfeitures less any loss properly allocated to such Profit Sharing Account.
1.31 "QDRO" shall mean a "qualified domestic relations order" within
the meaning of Section 206(d)(3)(B) of ERISA.
1.32 "Qualified Joint and Survivor Annuity" shall mean an immediate
annuity for the life of the Member, with a benefit payable after the death of
the Member to the surviving Spouse of the Member for the life of such surviving
Spouse, where the periodic benefit payable to such surviving Spouse is not less
than 50% nor more than 100% of the periodic benefit payable to the Member during
his lifetime, and which is the amount of benefit which can be purchased with the
Member's vested Account. Unless otherwise specified in the Plan, any reference
to a Qualified Joint and Survivor Annuity in the Plan shall be a reference to
such an annuity providing a surviving Spouse's benefit of 50% of the benefit
that would have been (or was) payable to the Member during his lifetime.
1.33 "Qualified Non-Elective Contribution Account" shall mean a
Member's account established pursuant to the provisions of Section 6.4.
1.34 "REA" shall mean the Retirement Equity Act of 1984.
1.35 "Rollover Account(s)" shall mean a Member's account established
pursuant to the provisions of Section 11.3.
1.36 "Sponsor" shall mean RapidForms, Inc., a New Jersey corporation.
1.37 "Spouse" shall mean the person to whom the Member was married on
the earlier of his benefit commencement date or his date of death. However,
Spouse shall instead refer to a former spouse to the extent provided under a
QDRO.
1.38 "TEFRA" shall mean the Tax Equity and Fiscal Responsibility Act of
1982.
1.39 "Total Disability" shall mean disability of an apparently
permanent nature based on medical certification which prevents the Employee from
performing the principal duties of his regular occupation with the Company. The
Committee may require physical examinations by its medical representative at
reasonable intervals during the continuance
6
<PAGE>
of the disability, and the decision of the Committee regarding the extent of the
disability shall be final.
1.40 "Trustee" shall mean the Trustee or Trustees duly designated by
the board of directors of the Sponsor from time to time pursuant to the terms of
a Trust Agreement ("Trust Agreement").
Terms stated in the masculine or feminine gender shall be construed as
applying in the opposite gender as appropriate in the context or circumstances.
Terms stated in the singular or plural shall be deemed the opposite as
appropriate in the context or circumstances.
SECTION II. PARTICIPATION AND SERVICE
2.1 Initial Eligibility. For purposes of Section 3.1, each Employee
hired prior to August 1, 1996 who has completed a Year of Service during a Plan
Year shall become a Member as of the first day of such Plan Year. For purposes
of eligibility to make Elective Deferrals under Article VI, each employee hired
prior to August 1, 1996 who has completed a Year of Service during a Plan Year
shall become a Member as of the next January 1 or July 1 after the Employee has
completed a Year of Service, provided that the Employee is employed by the
Company on such entry date. Each Employee hired on or after August 1, 1996 who
has completed a Period of Service shall become a Member of the Plan as of the
earlier of the next January 1 or July 1 after the Employee has completed a
Period of Service, provided that the Employee is employed by the Company on such
entry date. Employees of Affiliated Companies which have not adopted the Plan
shall not become Members.
For purposes of this Section 2.1, (a) "Year of Service" shall mean a
computation period of twelve consecutive months of service as an Employee during
which the Employee is credited with at least 1,000 Hours of Service, and (b)
"Period of Service" shall mean a computation period of six consecutive months of
service as an Employee during which the Employee is credited with at least 500
Hours of Service. The initial computation period shall begin with the date on
which the Employee first performs an Hour of Service for the Company, any
Affiliated Company, or any predecessor corporate employer, partnership or sole
proprietorship whether as an Employee, partner or sole proprietor. Subsequent
computation periods will be measured from the end of the immediately preceding
computation period.
2.2 Break-in-Service. A "One Year Break-in-Service" shall occur when a
Member fails to be credited with more than 500 Hours of Service in any Plan
Year. However, a One Year Break-in-Service shall not occur if the Member failed
to be credited with more than 500 Hours of Service because of:
(a) absence for military service under leave granted
by the Company or when required by law, provided the absent Employee
returns to employment with the Company within 90 days of his release
from active military duty or any longer period during which his right
to re-employment is protected by law, or
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(b) an authorized leave of absence for no longer than
two years, for personal hardship or other unusual circumstances.
Except in the event of an earlier forfeiture under Section 8.5, a
Member shall continue as such until such time as the Member has completed five
consecutive One Year Breaks-in-Service and is not employed by the Company on the
last day of the Plan Year in which occurs the fifth (or later) consecutive One
Year Break-in-Service. Any Employee who has ceased to be a Member under the
preceding sentence shall again become a Member of the Plan as of his date of
re-employment and a Participating Member of the Plan as of the first day of the
Plan Year in which he satisfies the requirements of Section 4.3.
A Member who has completed five consecutive One Year Breaks-in-Service
and is not employed by the Company on the last day of the Plan Year in which
falls the fifth (or later) consecutive One Year Break-in-Service shall forfeit
that portion of the balance in his Profit Sharing Account, determined as of the
beginning of the Plan Year in question, which is not vested as of the end of the
Plan Year during which the fifth (or later) consecutive One Year
Break-in-Service occurs. Thereafter, such a Member will have a 100% vested
interest in the nonforfeited balance and all earnings attributed to this
balance. An earlier forfeiture may occur pursuant to Section 8.5.
Furthermore, in the case of a terminated Member whose vested benefit is
zero, such Member shall be treated as having received a distribution of his
vested benefit upon his termination of employment pursuant to Section 8.5.
Restoration of such amounts shall occur, if need be, pursuant to Section 8.5.
2.3 Readmission After Termination of Employment. A Member of the Plan
who terminates employment and who subsequently is reemployed shall again become
a Member of the Plan as though his employment had been uninterrupted.
SECTION III. CONTRIBUTIONS
3.1 Amount of Contributions. The Company and each Affiliated Company
will contribute annually to the Fund in respect of each Plan Year such amount,
if any, as may be determined by their respective boards of directors, regardless
of whether the Company or the Affiliated Companies have any current or
accumulated profits. The amount of contributions made by each employer shall not
exceed the amount deductible under Code Section 404(a).
3.2 Timing of Contributions. Contributions under Section 3.1 will be
made not later than the time prescribed by law (including any extensions
thereof) for filing the contributing Company's federal income tax return for the
Plan Year for which they are made.
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SECTION IV. CREDITS OF MEMBERS
4.1 Allocation of Company Contributions. Subject to the provisions of
Section 4.5, the Company's contribution for any Plan Year shall be allocated to
the Profit Sharing Account of each Participating Member in accordance with the
following:
(a) First, the Company's contribution for each Plan Year shall
be allocated to the Profit Sharing Accounts of Participating Members in the
ratio that the sum of each Participating Member's total Compensation plus
"excess compensation" bears to the sum of the total Compensation plus "excess
compensation" of all Participating Members. The amount allocated pursuant to
this paragraph (a) shall not exceed 5.7% of the sum of the total Compensation
plus "excess compensation" of all Participating Members.
(b) Second, that part of the Company's contribution for the
year which exceeds the part of the contribution allocated under paragraph (a)
shall be allocated to the Profit Sharing Accounts of all Participating Members
according to the ratio that each such Participating Member's compensation for
the year bears to the total Compensation of all Participating Members for the
year.
(c) For purposes of this provision "excess compensation" of a
Member shall mean his Compensation in excess of the Social Security Taxable Wage
Base in effect on the first day of the Plan year.
4.2 Eligibility. Before making the allocation pursuant to Section 4.1
above, any amounts released from the Accounts of former Members as forfeitures
shall be credited in the following order: (1) against the expenses of the Plan
and (2) to Participating Member's Profit Sharing Accounts in the same ratio as
the amount of each such Participating Member's Compensation during the Plan Year
bears to all such Participating Members' Compensation during the Plan Year.
4.3 Participating Members. Allocations under Sections 4.1 and 4.2 shall
be made only to Members who are Participating Members for the Plan Year. The
following Members shall be Participating Members for the Plan Year:
(a) Any Member who is credited with 1,000 or more Hours of
Service during a Plan Year and who is employed by the Company on the last day of
the Plan Year; and
(b) A Member (irrespective of the number of Hours of Service
with which he is credited), if his employment was terminated prior to such Plan
Year end if the reason for such termination was because of his retirement, death
or Total Disability.
4.4 Allocation of Realized Gains, Losses and Expenses. As of the last
day of each Plan Year for those Members and former Members who will have a
balance in their Profit Sharing Account and/or Rollover Account(s) on such last
day, all realized net income, net losses and expenses of the Fund for the Plan
Year shall be credited or charged to such Profit Sharing Accounts and/or
Rollover Account(s) in direct proportion to the respective balances (determined
pursuant to Section 4.9) of each as of the first day of the Plan Year
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in question, except that during the first Plan Year credits under Section 4.1
for the first Plan Year shall be considered.
4.5 Annual Additions Limitations. Notwithstanding anything to the
contrary contained in this Section IV, the maximum Annual Addition to any
Member's Account for any Limitation Year shall in no event exceed the lesser of:
(a) $30,000.00, or, if greater, one-fourth of the defined
benefit dollar limitation set forth in Code section 415(b)(1) as in effect for
the Limitation Year, or
(b) 25% of the Member's 415 Compensation for the Limitation
Year in question.
If a short Limitation Year is created because of an amendment changing
the Limitation Year to a different twelve consecutive month period, the maximum
permissible amount will not exceed the amount in subparagraph (a) above
multiplied by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
The term "Annual Addition" shall mean: (1) the Company's contribution
for the Member, (2) forfeitures allocated to the Member's Profit Sharing
Account, plus (3) amounts described in Code Sections 415(l)(1) and 419A(d)(2).
The term "415 Compensation" shall mean a Member's remuneration
including wages, salaries, fees for professional services and other amounts
received (without regard to whether an amount is paid in cash) for personal
services actually rendered in the course of employment with a Company
maintaining the Plan to the extent that the amounts are includable in gross
income (including, but not limited to, commissions paid salesmen, compensation
for services on the basis of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, reimbursements and expense allowances), and excluding
the following:
(a) contributions made by the Company to a deferred
compensation plan which, without regard to Code Section 415, are not includable
in the Member's gross income for the taxable year in which contributed;
(b) Company contributions made on behalf of a Member to a
simplified employee pension to the extent they are deductible by the Member
under Code Section 219(b)(7);
(c) distributions from a deferred compensation plan (except
from an unfunded non-qualified plan when includable in gross income);
(d) amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by a Member either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
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(e) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; or
(f) other amounts which receive special tax benefits, such as
premiums for group term life insurance (to the extent excludable from gross
income) or Company contributions towards the purchase of an annuity contract
described in Code Section 403(b).
The compensation limitation referred to in paragraph (b) above shall
not apply to any contribution for medical benefits (within the meaning of Code
Section 419A(f)(2)) after separation from service which is otherwise treated as
an Annual Addition or any amount otherwise treated as an Annual Addition under
Code Section 415(l)(1).
Contributions made to the Trust pursuant to Section 11.3 shall not be
treated as Annual Additions.
If, in addition to this Plan, the Company maintains one or more other
qualified defined contribution plans as defined by ERISA and the Code, the above
limitation on Annual Additions to a Member's Account shall be applied to the
maximum Annual Addition (as defined above and in the other such Plan or Plans)
made to both Plans in the Limitation Year in question.
4.6 Allocation of Amounts in Excess of Section 415 Limitations. An
allocation may not be made to a Member's Profit Sharing Account in any Plan Year
if it will exceed the limits set forth in Section 4.5. However, if as a result
of the allocation of forfeitures, a reasonable error in estimating a Member's
Compensation, or other limited facts and circumstances which the Commissioner of
the Internal Revenue Service finds justify the availability of the rules set
forth in this Section 4.6, then such allocation would (if made) exceed such
limitations, the following steps must be taken:
(a) Any elective deferrals made by the Participating Member
for the Limitation Year (whether to this Plan or another defined contribution
plan maintained by the Company) causing the excess shall be distributed
immediately to the Participating Member pursuant to Section 6.6.
(b) If after returning any such contributions or deferrals to
the Participating Member as provided in paragraph (a) an excess would still
exist, and if the excess is a result of forfeitures which were available for
allocation pursuant to Section 4.2, the excess amount shall be reallocated to
all the other Participating Members in the ratio of each such Participating
Member's Compensation for the Plan Year to the total Compensation of all
Participating Members sharing the reallocation.
(c) If after complying with the provisions in paragraphs (a)
and (b) an excess would still exist, then such excess shall remain unallocated
and be held in a non-interest bearing suspense account. Amounts held in such
suspense account will be allocated in subsequent Limitation Years in accordance
with Section 4.2 until the suspense account is exhausted. No additional Company
contributions shall be made until the
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suspense account is exhausted. In no event shall any excess amounts that are
held in such suspense account be distributed to a Member or Former Member.
For purposes of this Section, the term "excess amount" for the
Company's contribution shall be the difference between the credit due the Member
under Section 4.1 less the limitation amount of the Company's contribution for
the Member determined under Section 4.5.
4.7 Annual Additions Limitations for Multiple Plans.
(a) If the Company maintains a qualified Money Purchase
Pension Plan and in any Plan Year the Company's contribution to the Money
Purchase Pension Plan will when added to the Company's planned Profit Sharing
Plan contribution exceed the applicable limitation of Section 4.5, then the
Company's contribution to this Plan will be reduced to zero if necessary to
bring the combined contributions within the limitations prescribed by Section
4.5 before the Company will reduce its contribution under the Money Purchase
Pension Plan.
(b) The Company and all Affiliated Companies shall be
considered a single employer for purposes of applying the limitation of Code
Section 415.
4.8 Allocation Date. Credits under Sections 4.1, 4.2 and 4.4, shall be
deemed to have been made on the same date to which they are related although
actually determined on some later date.
4.9 Valuation - Fund Assets. The Trustee shall ascertain and certify to
the Committee the fair market value of the Fund as of the last day of the Plan
Year. In addition, when requested by the Committee, the Trustee shall within
fifteen (15) days after the last day of that month ascertain and certify to the
Committee, the fair market value of the Fund as of the date requested by the
Committee, provided, however, to the extent that the Fund is invested in a
common Trust Fund of a corporate Trustee, such interests shall be valued as of
the last quarterly valuation date thereof, in the valuation of the Fund. Such
determination of value so made shall, for all purposes of the Plan, conclusively
establish such value. As of the last day of each Plan Year, the balance in each
Member's Profit Sharing Account and Rollover Account(s) shall be adjusted to
reflect the fair market value of the Fund as of such last day by allocating the
value to each Account less transfers made pursuant to Section 11.3 during the
last month of the Plan Year in direct proportion to the respective balances in
each Account determined pursuant to this Section 4.9 as of the end of the last
Plan Year plus the (1) credits and charges under Sections 4.1, 4.2 and 4.4, and
(2) transfers during the first eleven months for the Plan Year in question.
Transfers made pursuant to Section 11.3 during the last month of any Plan Year
will be allocated directly to the Member's Rollover Account(s) on a dollar for
dollar basis.
4.10 Valuation - Profit Sharing Account and Rollover Account(s). For
purposes of distribution to Members or their beneficiaries under Section VIII,
the value of the Profit Sharing Account and Rollover Account(s) for each Plan
Year shall be the respective balance in the Member's Profit Sharing Account and
Rollover Account(s) as of the
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valuation date following his death, Total Disability, retirement at Normal
Retirement Date or other termination of employment, determined pursuant to
Section 4.9.
SECTION V. VESTING
5.1 Profit Sharing Account, Matching Contribution Account, Qualified
Non-Elective Contribution Account, Elective Deferral Account and Rollover
Account(s). A Member shall have at all times a nonforfeitable interest in his
Qualified Non-Elective Contribution Account, Elective Deferral Account and
Rollover Account(s). Each Member shall have a vested interest in his Profit
Sharing Account and Matching Contribution Accounts determined as of the end of a
Plan Year on the basis of Section 4.9, based upon Years of Service determined as
follows:
Years of Service Percent Vested
---------------- --------------
less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
A member who was employed by CSS Industries, Inc. and had three Years
of Service on December 29, 1989 under the CSS Industries, Inc. Profit Sharing
Plan shall have the following vested interest in the amount credited to his
Profit Sharing Account:
Years of Service Percent Vested
---------------- --------------
less than 3 0%
3 40%
4 60%
5 80%
6 or more 100%
For purposes of this Section 5.1, "Year of Service" shall mean any Plan
Year in which the Employee completes 1,000 Hours of Service.
A Member who was a participant in the RapidForms, Inc. Profit Sharing
Plan who had attained age 60 and had five Years of Service in the RapidForms,
Inc. Profit Sharing Plan as of July 1, 1996, shall have a 100% vested interest
in his Profit Sharing Account. In addition, as of July 1, 1996, a Participant
shall have the greater of the Years of Service calculated under the RapidForms,
Inc. 401(k) Plan or the RapidForms, Inc. Profit Sharing Plan.
A Member who has less than a 100% vested interest in his Profit Sharing
and Matching Accounts pursuant to the applicable above schedule shall
nonetheless be deemed to have a 100% vested interest upon the happening of the
following events:
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(a) Death prior to termination of his employment by the
Company.
(b) Normal retirement or retirement due to Total Disability.
Any discharge or voluntary termination of employment of a Member who has reached
Normal Retirement Age shall be deemed at retirement.
SECTION VI. EMPLOYEE ELECTIVE CASH OR DEFERRED ARRANGEMENT
6.1 Definitions. The following definitions shall apply for purposes of
this Section VI:
(a) Actual Deferral Percentage ("ADP"): For a specified group
of Members for a Plan Year, the average of the ratios (calculated separately for
each Member in such group) of (i) the amount of Company Contributions actually
paid over to the trust on behalf of such Member for the Plan Year to (ii) the
Member's Compensation for such Plan Year (whether or not the Employee was a
Member for the entire Plan Year). For purposes of computing the Actual Deferral
Percentages, an Employee who would be a Member but for failure to make Elective
Deferrals shall be treated as a Member on whose behalf no Elective Deferrals are
made.
(b) Aggregate Limit: The sum of:
(i) 125% of the greater of the ADP of the Non-Highly
Compensated Employees for the Plan Year or the ACP of
Non-Highly Compensated Employees under the Plan subject to
Code Section 401(m) for the Plan Year beginning with or within
the Plan Year of the CODA; and
(ii) the lesser of 200% or 2 plus the lesser of such
ADP or ACP.
(c) Average Contribution Percentage ("ACP"): The average of
the Contribution Percentages of the Eligible Members in a group. An Eligible
Member is any Member of the Plan who is eligible to receive a Matching
Contribution.
(d) CODA: A cash or deferred arrangement as described under
Code Section 401(k) and the regulations thereunder.
(e) Company Contributions: Company Contributions on behalf of
any Member shall include:
(i) any Elective Deferrals made pursuant to the
Member's deferral election, including Excess Elective
Deferrals, but excluding Excess Elective Deferrals that are
taken into account in the Average Contribution Percentage test
(provided the ADP test is satisfied both with and without
exclusion of these Elective Deferrals); and
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(ii) Matching Contributions and Qualified
Non-Elective Contributions.
(f) Contribution Percentage: The ratio (expressed as a
percentage) of the Member's Contribution Percentage Amounts to the Member's
Compensation for the Plan Year (whether or not the Employee was a Member for the
entire Plan Year).
(g) Contribution Percentage Amounts: Matching Contributions
(to the extent not taken into account for purposes of the ADP test) made under
the Plan on behalf of the Member for the Plan Year. Such Contribution Percentage
Amounts shall include forfeitures of Excess Aggregate Contributions or Matching
Contributions allocated to the Member's accounts which shall be taken into
account in the year in which such forfeiture is allocated. Qualified
Non-Elective Contributions shall be included in the Contribution Percentage
Amounts. The Company also may elect to use Elective Deferrals 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.
(h) Elective Deferrals: Any Company Contributions made to the
Plan at the election of the Member, in lieu of cash compensation, and including
contributions made pursuant to a salary reduction agreement or other deferral
mechanism and allocated to a Member's Elective Deferral Account.
(i) Elective Deferral Account: A Member's account attributable
to such Member's Elective Deferrals under this Plan.
(j) Excess Aggregate Contributions: With respect to any Plan
Year, the excess of:
(i) 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
(ii) the maximum Contribution Percentage Amounts
permitted by the ACP test (determined by reducing
contributions made on behalf of Highly Compensated Employees
in order of their Contribution Percentages beginning with the
highest of such percentages).
(k) Excess Contributions: With respect to any Plan Year, the
excess of:
(i) the aggregate amount of Company Contributions
actually taken into account in computing the ADP of Highly
Compensated Employees for such Plan Year, over
(ii) the maximum amount of such contributions
permitted by the ADP test (determined by reducing
contributions made on
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behalf of Highly Compensated Employees in order of the ADPs,
beginning with the highest of such percentages).
(l) Excess Elective Deferrals: Those Elective Deferrals that
are includible in an Employee's gross income under Code Section 402(g) to the
extent such Employee's Elective Deferrals for a taxable year exceed the dollar
limitation under such Code Section. Excess Elective Deferrals shall be treated
as Annual Additions under the Plan.
(m) Matching Contributions: Company Contributions made to this
Plan on behalf of a Member on account of a Member's Elective Deferral, under a
plan maintained by the Company and allocated to a Member's Matching Contribution
Account.
(n) Matching Contribution Account: A Member's account
attributable to such Member's Matching Contributions under this Plan.
(o) Qualified Non-Elective Contributions: Contributions (other
than Matching Contributions) made by the Company and allocated to Member's
Qualified Non-Elective Contribution Account that the Members may not elect to
receive in cash until distributed from the Plan; that are nonforfeitable when
made; and that are distributable only in accordance with the distribution
provisions that are applicable to Elective Deferrals.
(p) Qualified Non-Elective Contribution Account: shall mean a
Member's account attributable to such Member's Qualified Non-Elective
Contributions under this Plan.
6.2 Amount and Timing of Elective Deferrals. Each Participating Member
shall be eligible to have Elective Deferrals made on his behalf. Each
Participating Member may elect to enter into a written salary reduction
agreement with the Company which provides that the Member agrees to accept a
reduction in salary (in an amount specified by the Participating Member) from
the Company and that the Company will make a contribution to his Elective
Deferral Account in an amount equal to the amount by which the Participating
Member's salary was reduced pursuant to the salary reduction agreement. The
maximum reduction in salary that a Participating Member may elect shall not
exceed 15% of his Compensation. No contributions or benefits (other than
Matching Contributions) shall be conditioned upon a Participating Member's
Elective Deferrals. Elective Deferrals made by a Participating Member shall be
subject to the limitations set forth in Section 6.7.
(a) A Participating Member shall be afforded a reasonable
period at least twice each calendar year, during which he may elect to commence
Elective Deferrals. Such election may not be made retroactively. A Participating
Member's election to commence Elective Deferrals will remain in effect until
modified or terminated.
(b) A Participating Member may elect to increase the amount or
frequency of his Elective Deferrals on the first day of each month.
(c) A Participating Member may elect to decrease or terminate
an election at any time.
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6.3 Amount of Matching Contributions. The Company will make Matching
Contributions on behalf of all Members who make Elective Deferrals. The amount
of such Matching Contributions shall be determined each year by the Company and
allocated pro rata according to a Member's Elective Deferrals not in excess of a
Company-specified percentage of his Compensation.
(a) Matching Contributions are subject to the limitations set
forth in Section 6.9. Matching Contributions shall be vested in accordance with
Section 5.1.
(b) Forfeitures of Matching Contributions, other than Excess
Aggregate Contributions, shall be made in accordance with Section 4.2.
6.4 Amount of Qualified Non-Elective Contributions. The Company will
make Qualified Non-Elective Contributions to the Plan on behalf of all Members.
The amount of such Qualified Non-Elective Contributions shall be an amount
necessary to satisfy the Actual Deferral Percentage test, Average Contribution
Percentage test, or both. In addition, in lieu of distributing Excess
Contributions as provided in Section 6.7(h), or Excess Aggregate Contributions
as provided in Section 6.8(i) of the Plan, the Company may make Qualified
Non-Elective Contributions on behalf of Non-Highly Compensated Employees that
are sufficient to satisfy either the Actual Deferral Percentage test or the
Average Contribution Percentage test, or both, pursuant to regulations under the
Code.
6.5 Amount of Voluntary Non-deductible Contributions. No Member shall
be permitted to make contributions to the Fund.
6.6 Excess Elective Deferrals. No Member shall be permitted to have
Elective Deferrals made under this Plan, or any other qualified Plan maintained
by the Company, during any taxable year, in excess of the dollar limitation
contained in Code Section 402(g) in effect at the beginning of such taxable
year.
(a) A Member may assign to this Plan any Excess Elective
Deferrals made during a taxable year of the Member by notifying the Committee on
or before January 31 of the subsequent taxable year of the amount of the Excess
Elective Deferrals to be assigned to the Plan.
(b) Notwithstanding any other provision of the Plan, Excess
Elective Deferrals, plus any income and minus any loss allocable thereto, shall
be distributed no later than April 15 to any Member to whose Elective Deferral
Account Excess Elective Deferrals were assigned for the preceding year and who
claims Excess Elective Deferrals for such taxable year.
(c) Excess Elective Deferrals shall be adjusted for any income
or loss up to the date of distribution. The income or loss allocable to Excess
Elective Deferrals is the sum of:
(i) income or loss allocable to the Member's Elective
Deferral Account for the taxable year multiplied by a
fraction, the numerator of which is such Member's Excess
Elective Deferrals for
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the year and the denominator is the Member's Elective
Deferral Account balance without regard to any income or loss
occurring during such taxable year; and
(ii) 10% of the amount determined under (i)
multiplied by the number of whole calendar months between the
end of the Member's taxable year and the date of distribution,
counting the month of distribution if the distribution occurs
after the 15th of such month.
6.7 Actual Deferral Percentage Test.
(a) The Actual Deferral Percentage for Members who are Highly
Compensated Employees for each Plan Year and the ADP for Members who are
Non-Highly Compensated Employees for the same Plan Year must satisfy one of the
following tests:
(i) The ADP for Members who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for
Members who are Non-Highly Compensated Employees for the same
Plan Year multiplied by 1.25; or
(ii) The ADP for Members who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP for
Members who are Non-Highly Compensated Employees for the same
Plan Year multiplied by 2.0, provided that the ADP for Members
who are Highly Compensated Employees does not exceed the ADP
for Members who are Non-Highly Compensated Employees by more
than 2 percentage points.
(b) The ADP for any Member who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Elective Deferrals (and
Qualified Non-Elective Contributions if treated as Elective Deferrals for
purposes of the ADP test) allocated to his accounts under 2 or more arrangements
described in Code Section 401(k), that are maintained by the Company, shall be
determined as if such Elective Deferrals (and, if applicable, such Qualified
Non-Elective Contributions) were made under a single arrangement. 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.
(c) In the event that this Plan satisfies the requirements of
Code Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of such Code
Sections only if aggregated with this Plan, then this Section shall be applied
by determining the ADP of Members as if all such plans were a single plan. Plans
may be aggregated in order to satisfy Code Section 401(k) only if they have the
same Plan Year.
(d) For purposes of determining the ADP of a Member who is 5%
Owner or one of the 10 most highly-paid Highly Compensated Employees, the
Elective Deferrals
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(and Qualified Non-Elective Contributions if treated as Elective Deferrals for
purposes of the ADP test) and Compensation of such or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for purposes of Member
shall include the Elective Deferrals (and, if applicable, Qualified Non-Elective
Contributions) and Compensation for the Plan Year of family members (as defined
in Code Section 414(q)(6)). Family members, with respect to such Highly
Compensated Employees, shall be disregarded as separate Members in determining
the ADP both for Members who are Non-Highly Compensated Employees and for
Members who are Highly Compensated Employees.
(e) For purposes of determining the ADP test, Elective
Deferrals and Qualified Non-Elective Contributions must be made before the last
day of the twelve-month period immediately following the Plan Year to which
contributions relate.
(f) The Company shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount of Qualified
Non-Elective Contribution, used in such test.
(g) The determination and treatment of the ADP amounts of any
Member shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
(h) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan Year to Members to whose
accounts such Excess Con tributions were allocated for the preceding Plan Year.
If such excess amounts are distributed more than 2 1/2 months after the last day
of the Plan Year in which such excess amounts arose, a 10% excise tax will be
imposed on the Company maintaining the Plan with respect to such amounts. Such
distributions shall be made to Highly Compensated Employees on the basis of the
respective portions of the Excess Contributions attributable to each of such
Employees. Excess Contributions shall be allocated to Members who are subject to
the family member aggregation rules of Code Section 414(q)(6) in the manner
prescribed by the regulations.
(i) Excess Contributions (including amounts recharacterized)
shall be treated as Annual Additions under Section IV of the Plan.
(j) 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:
(i) income or loss in the Member's Elective Deferral
Account (and, if applicable, the Qualified Non-Elective
Contribution Account) for the Plan Year multiplied by a
fraction, the numerator of which is such Member's Excess
Contributions for the year and the denominator of which is the
Member's Elective Deferral Account balance (and the Qualified
Non-Elective Contribution Account, if any of such
contributions are included in the ADP test) without regard to
any income or loss occurring during the Plan Year; and
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(ii) 10% of the amount determined under (i)
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.
Excess Contributions shall be distributed from the Member's Elective Deferral
Account in proportion to the Member's Elective Deferrals for the Plan Year.
Excess Contributions shall be distributed from the Member's Qualified
Non-Elective Contribution Account only to the extent that such Excess
Contributions exceed the balance in the Member's Elective Deferral Account.
6.8 Average Contribution Percentage Test.
(a) The Average Contribution Percentage for Members who are
Highly Compensated Employees for each Plan Year and the ACP for Members who are
Non-Highly Compensated Employees for the same Plan Year must satisfy one of the
following tests:
(i) The ACP for Members who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for
Members who are Non-Highly Compensated Employees for the same
Plan Year multiplied by 1.25; or
(ii) The ACP for Members who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP for
Members who are Non-Highly Compensated Employees for the same
Plan Year multiplied by 2, provided that the ACP for Members
who are Highly Compensated Employees does not exceed the ACP
for Members who are Non-Highly Compensated Employees by more
than 2 percentage points.
(b) If one or more Highly Compensated Employees participate in
both a CODA and a plan subject to the ACP test maintained by the Company and the
sum of the ADP and ACP of those Highly Compensated Employees subject to either
or both tests exceeds the Aggregate Limit, then the ACP of those Highly
Compensated Employees who also participate in a CODA will be reduced (beginning
with such Highly Compensated Employee whose ACP is the highest) so that the
limit is not exceeded. The Aggregate Limit shall be the sum of: (a) 125% of the
greater of the ADP of Non-Highly Compensated Employees for the Plan Year or the
ACP of Non-Highly Compensated Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the Plan Year of the CODA and
(b) the lesser of 200% or 2 plus the lesser of such ADP or ACP. The amount by
which each Highly Compensated Employee's Contribution Percentage Amounts is
reduced shall be treated as Excess Aggregate Contribution. The ADP and ACP of
the Highly Compensated Employees are determined after any corrections required
to meet the ADP and ACP tests. Multiple use does not occur if both the ADP and
ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the
ADP and ACP of the Non-Highly Compensated Employees.
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(c) For purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(m), if two or more plans of the Company to which Matching
Contributions are made are treated as one plan for purposes of Code Section
401(a)(4) or 410(b) (other than the average benefits test under Code Section
410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988),
such plans shall be treated as one plan. In addition, two or more plans of the
Company to which Matching Contributions are made may be considered as a single
plan for purposes of determining whether or not such plans satisfy Code Sections
401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy
this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such
aggregated plans were a single plan. For Plan Years beginning after December 31,
1989, plans may be aggregated under this paragraph (c) only if they have the
same plan year.
(d) For purposes of this Section, the Contribution Percentage
for any Member who is a Highly Compensated Employee and who is eligible to have
Contribution Percentage Amounts allocated to his account under 2 or more plans
described in Code Section 401(a), or arrangements described in Code Section
401(k) that are maintained by the Company, shall be determined as if the total
of such Contribution Percentage Amount 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.
(e) For purposes of determining the Contribution Percentage of
a Member who is a 5% owner or one of the 10 highest-paid Highly Compensated
Employees, the Contribution Percentage Amounts and Compensation of such Member
shall include the Contribution Percentage Amounts and Compensation for the Plan
Year of family members (as defined in Code Section 414(q)(6)). Family Members,
with respect to Highly Compensated Employees, shall be disregarded as separate
Employees in determining the Contribution Percentage both for Members who are
Non-Highly Compensated Employees and for Members who are Highly Compensated
Employees.
(f) For purposes of determining the ACP test, Matching
Contributions and Qualified Non-Elective 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.
(g) The Company shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount of Qualified
Non-Elective Contributions used in such test.
(h) The determination and treatment of the Contribution
Percentage of any Member shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
(i) Notwithstanding any other provision of this Plan,
Excess Aggregate Contributions, plus any income and minus any
loss allocable thereto, shall be distributed (on or before the
fifteenth day of the third month following the end of the
Plan Year, but in no event
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later than the close of the following Plan Year), to
the Highly Compensated Employee having the highest actual
contribution ratio, his portion of Excess Aggregate
Contributions (and income allocable to such contributions)
until either one of the tests set forth in paragraph (a) above
is satisfied or until his actual contribution ratio equals the
actual contribution ratio of the Highly Compensated Employee
having the second highest actual contribution ratio. This
process shall continue until one of the tests set forth in
paragraph (a) above is satisfied. Excess Aggregate
Contributions shall be allocated to Members who are subject to
the family member aggregation rules of Code Section 414(q)(6)
in the manner prescribed by the regulations. If such Excess
Aggregate Contributions are distributed more than 2 1/2 months
after the last day of the Plan Year in which such excess
amounts arose, a 10% excise tax will be imposed on the Company
maintaining the Plan with respect to those amounts.
(i) Excess Aggregate Contributions shall be treated as Annual
Additions under Section IV.
(j) 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:
(i) income or loss allocable to the Member's Matching
Contribution Account and Qualified Non-Elective Contribution
Account, to the extent amounts therein are not used in the ADP
test, and Elective Deferral Account for the Plan Year
multiplied by a fraction the numerator of which is such
Member's Excess Aggregate Contributions for the year and the
denominator of which is the Member's account balances
attributable to Contribution Percentage Amounts without regard
to any income or loss occurring during such Plan Year; and
(ii) 10% of the amount determined under (i)
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.
(k) Forfeitures of Excess Aggregate Contributions may either
be reallocated to the accounts of Non-Highly Compensated Employees or applied to
reduce Company Contributions, as elected by the Company.
(l) Excess Aggregate Contributions shall be forfeited, if
forfeitable, or distributed on a pro-rata basis from the Member's Matching
Contribution Account (and, if applicable, the Qualified Non-Elective
Contribution Account or Elective Deferral Account, or both).
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(m) For purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(m), if two or more plans of the Company to which Matching
Contributions are made are treated as one plan for purposes of Code Section
401(a)(4) or 410(b) (other than the average benefits test under Code Section
410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988),
such plans shall be treated as one plan. In addition, two or more plans of the
Company to which Matching Contributions are made may be considered as a single
plan for purposes of determining whether or not such plans satisfy Code Sections
401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy
this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such
aggregated plans were a single plan. For Plan Years beginning after December 31,
1989, plans may be aggregated under this paragraph (m) only if they have the
same plan year.
6.9 Allocation and Valuation. A Member's accrued benefit derived from
Elective Deferrals and Qualified Non-Elective Contributions is nonforfeitable.
An Elective Deferral Account, Qualified Non-Elective Contribution Account and
Matching Contribution Account will be maintained for each Member. Each Account
will be established and credited with the applicable contributions and earnings
thereon in a manner analogous to that set forth in Section IV.
6.10 Distribution (Normal and Hardship).
(a) Elective Deferrals and Qualified Non-Elective
Contributions and income allocable to each are not distributable to a Member or
his beneficiary or beneficiaries, in accordance with such Member's or
beneficiary's or beneficiaries' election, earlier than upon separation from
service, death or disability. Notwithstanding the foregoing, such amounts may
also be distributed in accordance with paragraphs (b) and (c) below.
(b) Amounts described in (a) above may also be distributed
upon:
(i) termination of the Plan without the establishment
of another defined contribution plan;
(ii) the disposition by a corporation to an unrelated
corporation of substantially all of the assets (within the
meaning of Code Section 409(d)(2)) used in a trade or business
of such corporation if such corporation continues to maintain
this Plan after the disposition, but only with respect to
Employees who continue employment with the corporation
acquiring such assets; and
(iii) the disposition by a corporation to an
unrelated entity of such corporation's interest in a
subsidiary (within the meaning of Code Section 409(d)(3)) if
such corporation continues to maintain this Plan, but only
with respect to Employees who continue employment with such
subsidiary.
(c) Distribution of Elective Deferrals (and earnings thereon
accrued as of December 31, 1988), Profit Sharing, Matching and Rollover
contributions, subject to a
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$1,000 minimum amount, may be made to a Member in the event of hardship. For
purposes of this Section, hardship is defined as an immediate and heavy
financial need of the Member where such Member lacks other available resources.
Hardship distributions are subject to the spousal consent requirements contained
in Code Sections 401(a)(11) and 417.
(i) The following are the only financial needs
considered immediate and heavy:
(i) expenses incurred or necessary for
medical care, described in Code Section 213(d), of
the Member, the Member's Spouse, children, or
dependents;
(ii) the purchase (excluding mortgage
payments) of a principal residence for the Member;
(iii) payment of tuition, related
educational fees, and room and board expenses for the
next twelve months of post-secondary education for
the Member, the Member's Spouse, children or
dependents; or
(iv) the need to prevent the eviction of the
Member from, or a foreclosure on the mortgage of the
Member's principal residence.
(ii) A distribution will be considered as necessary
to satisfy an immediate and heavy financial need of the Member
only if:
(A) the Member has obtained all
distributions, other than hardship distributions, and
all nontaxable loans under all plans maintained by
the Company;
(B) all plans maintained by the Company
provide that the Member's Elective Deferrals (will be
suspended for 12 months after the receipt of the
hardship distribution;
(C) the distribution is not in excess of the
amount of an immediate and heavy financial need
(including amounts necessary to pay any federal,
state or local income taxes or penalties reasonably
anticipated to result from the distribution); and
(D) all plans maintained by the Company
provide that the Member may not make Elective
Deferrals for the Member'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 taxable year less
the
24
<PAGE>
amount of such Member's Elective Deferrals for
the taxable year of the hardship distribution.
(d) Distributions under this Section 6.10 shall be made to a
Member from his Accounts in the following order with each Account balance being
reduced to $0 before distributions may be made from the next succeeding Account:
Elective Deferral, Rollover, Qualified Non-Elective, Matching and Profit
Sharing.
SECTION VII. TOP HEAVY PLAN RULES
7.1 General Rule. Notwithstanding any provision in the Plan to the
contrary, for any Plan Year in which the Plan is determined to be a Top Heavy
Plan, the provisions of this Section VIA shall become effective.
7.2 Determination of Top Heavy Status. The Plan will be considered a
Top Heavy Plan for the Plan Year, if as of the Determination Date:
(a) the Top-heavy ratio for this Plan exceeds 60% and the Plan
is not part of any Aggregation Group (within the meaning of Code Section
416(g)(2)), or
(b) the Plan is part of an Aggregation Group (within the
meaning of Code Section 416(g)(2)) and the Top-heavy ratio for such Aggregation
Group exceeds 60%.
(c) Top-heavy ratio shall mean:
(i) If the Company maintains one or more defined
contribution plans (including any Simplified Employee Pension
Plan) and the Company has not maintained any defined benefit
plan which during the 5-year period ending on the
Determination Date(s) has or has had accrued benefits, the
Top-heavy ratio for this Plan alone or for the Aggregation
Group (within the meaning of Code Section 416(g)(2)) as
appropriate is a fraction, the numerator of which is the sum
of the account balances of all Key Employees as of the
Determination Date(s) (including any part of any account
balance distributed in the 5-year period ending on the
Determination Date(s)), and the denominator of which is the
sum of all account balances (including any part of any account
balance distributed in the 5-year period ending on the
Determination Date(s)), both computed in accordance with Code
Section 416 and the regulations thereunder. Both the numerator
and denominator of the Top-heavy ratio are increased to
reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into
account on that date under Code Section 416 and the
regulations thereunder.
(ii) If the Company maintains one or more defined
contribution plans (including any Simplified Employee Pension
Plan) and the Company maintains or has maintained one or
more defined benefit plans which during the 5-year period
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<PAGE>
ending on the Determination Date(s) has or has had any accrued
benefits, the Top-heavy ratio for any Aggregation Group
(within the meaning of Code Section 416(g)(2)) as appropriate
is a fraction, the numerator of which is the sum of account
balances under the aggregated defined contribution plan or
plans for all Key Employees, determined in accordance with (i)
above, and the present value of accrued benefits under the
aggregated defined benefit plan or plans for all Key Employees
as of the Determination Date(s), and the denominator of which
is the sum of the account balances under the aggregated
defined contribution plan or plans for all members, determined
in accordance with (i) above, and the present value of accrued
benefits under the defined benefit plan or plans for all
members as of the Determination Date(s), all determined in
accordance with Code Section 416 and the regulations
thereunder. The accrued benefits under a defined benefit plan
in both the numerator and denominator of the Top-heavy ratio
are increased for any distribution of an accrued benefit made
in the 5-year period ending on the Determination Date.
(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 and
the regulations thereunder for the first and second Plan Years
of a defined benefit plan. The account balances and accrued
benefits of a Member (1) who is not a Key Employee but who was
a Key Employee in a prior year, or (2) who has not been
credited with at least one Hour of Service with any Company
maintaining the Plan at any time during the 5-year period
ending on the Determination Date will be disregarded. The
calculation of the Top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account
will be made in accordance with Code Section 416 and the
regulations thereunder. 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 Member other than a Key Employee shall be
determined under (a) the method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained by the Company, 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).
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<PAGE>
(d) For purposes of this Section 6A.2, Determination Date
shall mean 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.
(e) 'Aggregation Group' means either a Required Aggregation
Group or a Permissive Aggregation Group as hereinafter determined.
(i) For purposes of this Section 6A.2, Required
Aggregation Group shall mean (i) each qualified plan of the
Company 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 Company which enables a plan
described in (i) to meet the requirements of Code Sections
401(a) or 410.
(ii) For purposes of this Section 6A.2, Permissive
Aggregation Group shall mean the Required Aggregation Group of
plans plus any other plan or plans of the Company which, when
considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Section
401(a)(4) and 410.
7.3 Minimum Contribution. Instead of the allocation of Company
contributions to Member's Profit Sharing Accounts provided in Section 4.1 and
the allocation of forfeitures provided in Section 4.2, the Company's
contribution and forfeitures for the Plan Year shall be allocated to the
Member's Profit Sharing Accounts of Participating Members in accordance with the
following, subject to the provisions of Section 4.5.
(a) The Company's contribution for each Plan Year shall be
allocated first to the Profit Sharing Accounts of Participating Members
according to the ratio that such Participating Member's Compensation for the
year bears to the compensation of all Participating Members for the Plan Year.
The sum of the allocations under this paragraph (a) and under Section 4.2 shall
not exceed 3% of such Member's Compensation. The minimum contribution under this
subparagraph (a) shall be made on behalf of each Non-Key Employee who is
employed on the last of the Plan Year without regard to whether or not such
Employee has completed 1,000 Hours of Service, his Compensation or whether such
Employee has made any contribution to the Plan in such Plan Year.
(b) The Company's contribution for each Plan Year shall be
allocated to the Profit Sharing Accounts of Participating Members who earned
"excess compensation" for such year. Such allocation shall be made on a pro rata
basis according to the ratio that a Participating Member's "excess compensation"
for the year bears to the "excess compensation" of all participating Members for
the year. However, the portion of the Company's contribution to be allocated
pursuant to this paragraph shall not exceed 3% of the "excess compensation" of
all Participating Members for the year.
(c) That part of the Company's contribution which is in excess
of the amounts allocated under paragraphs (a) and (b) shall be allocated to the
Members' Profit
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<PAGE>
Sharing Account of all Participating Members in the ratio that the sum of each
Participating Member's total Compensation plus "excess compensation" bears to
the sum of the total Compensation plus "excess compensation" of all
Participating Members. The amount allocated pursuant to this paragraph (c) shall
not exceed 2.7% of the sum of the total Compensation plus "excess compensation"
of all Participating Members.
(d) That part of the Company's contribution for the year which
exceeds the part of the contribution allocated under paragraph (c) shall be
allocated to the Profit Sharing Accounts of all Participating Members according
to the ratio that each such Participating Member's compensation for the year
bears to the total Compensation of all Participating Members for the year.
(e) For purposes of this provision "excess compensation" of a
Member shall mean his Compensation in excess of the Social Security Taxable Wage
Base in effect on the first day of the Plan Year.
7.4 Vesting. For any Plan Year in which the Plan is determined to be a
Top Heavy Plan pursuant to Section 6A.2, each Member shall have a vested
interest in the fair market value of his Profit Sharing Account and Matching
Contribution Account determined as of the end of a Plan Year on the basis of
Section 4.9, based upon Years of Service for the Company determined as follows:
Years of Service Percent Vested
---------------- --------------
less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
To the extent that Section 5.1 of the Plan provides for a greater
vesting percentage in a Member's Profit Sharing Account and Matching
Contribution Account, such greater vesting percentage shall be applicable to
such account rather than the vesting percentage set forth in this Section.
The vesting schedule set forth above shall not apply to those Members
or former Members who are not credited with an Hour of Service on or after the
first day of the Plan Year in which the Plan becomes a Top Heavy Plan. Instead,
such Members shall continue to vest according to the schedule which was in
effect prior to the first day of the Plan Year in which the Plan becomes a Top
Heavy Plan.
If in any year the Plan has been a Top Heavy Plan and in a later year
ceases to be a Top Heavy Plan, the Plan shall once again be governed by the
vesting schedule set forth in Section 5.1. However, no decrease in any
Employee's already vested percentage in his Profit Sharing Account and Matching
Contribution Account shall result from such change in vesting schedule.
Furthermore, each Participating Member of the Plan on the date the Plan ceases
to be a Top Heavy Plan who has a vested interest in his Profit Sharing
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Account and Matching Contribution Account balance and has at least three
Years of Service at the expiration of the election period may elect in writing
during the election period to have his vested interest in his Profit Sharing
Account and Matching Contribution Account balance determined pursuant to the
Plan's vesting schedule in effect on the last day of the last year the Plan was
a Top Heavy Plan. Any such election shall be irrevocable and shall only be
available to Employees who are Members of the Plan at the time such election is
made.
The Member's election period shall commence on the date that it is
determined that the Plan is no longer a Top Heavy Plan and shall end 60 days
after the latest of:
(i) The date that it is determined that the Plan is
no longer a Top Heavy Plan.
(ii) The effective date of the Plan no longer being a
Top Heavy Plan, or
(iii) The date the Member receives written notice of
an amendment to the vesting schedule from the Company or the
Committee describing in detail the change in the vesting
schedule and the election provided for by Section 6A.4.
However, any Participating Member with at least three Years of Service
at the expiration of the election period shall automatically remain subject to
the vesting schedule set forth in this Section 6A.4 if such schedule is more
liberal than the vesting schedule contained in Section 5.1.
SECTION VIII. INVESTMENT OF FUNDS
8.1 Vesting. Investment of the Fund shall be at the direction of each
Member as to his own Account as provided herein and in the Trust Agreement.
8.2 Investment Direction by Members. In conjunction with Section 7.1
and irrespective of anything else contained in this Plan to the contrary, the
investment of the balance in each Member's Profit Sharing Account, his Rollover
Account(s), his Elective Deferral Account, Qualified Non-Elective Contribution
Account and Matching Contribution Account shall be controlled solely by the
Member who will instruct the Trustee, on forms provided by the Committee as to
such investments. The investment options will be limited to those vehicles
chosen by the Committee.
8.3 Accounting Procedure. All earnings and losses with respect to funds
in each Member's Account subject to investment by the Members pursuant to
Section 7.2 will be allocated directly to each Member's Account involved
irrespective of the provisions of Section IV of this Plan. The Trustee shall
ascertain and certify to the Committee the fair market value of each Account as
of the end of each Plan Year. In addition, when requested by the Committee, the
Trustee shall within fifteen (15) days after the last day of the month certify
the fair market value of any or all such Accounts as of the date requested by
the Committee. Any costs and/or expenses related to the Committee's and
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Trustees' compliance with a Member's direction, pursuant to Section 7.2, shall
be borne by such Member's Account.
8.4 Failure to Direct Investment. In the event that any Member fails to
direct the investment of his Account, the Trustee shall invest all such
non-directed funds in investments selected by the Trustee from among the
vehicles chosen by the Trustee.
SECTION IX. DISTRIBUTION OF BENEFITS
9.1 Distribution in General. The value of the Member's Account shall be
paid to him at the times, to the extent, and in the manner hereinafter provided
in this Section VIII.
9.2 Death or Disability. Upon the death of a Member or former Member or
upon the Total Disability of a Member while employed by the Company, the value
of the Member's Account determined under Section 4.10, shall become payable in
the manner hereinafter provided. Proof of death or Total Disability satisfactory
to the Committee must be furnished prior to any payment.
9.3 Valuation and Retirement Options. When a Member's service is
terminated on or after his Normal Retirement Age, the value of the Member's
Account determined under Section 4.10, shall become payable to him. If the
Member remains in the Company's employ subsequent to the normal retirement date,
subject to the provisions of Sections 2.2 and 4.3, he shall share in all
contributions made in his behalf up to the end of the Plan Year in which actual
termination of employment occurs and he shall be entitled to receive his
retirement benefits only after death, Total Disability or actual termination of
employment, or if earlier, April 1 of the calendar year after the calendar year
in which the Member attains age 70 1/2.
9.4 Form of Benefit.
I. For Members Whose Employment Commences On Or After January 1,
1988.
(a) When the Account of any Member becomes payable, the value of
his Account shall be paid in the form of either a lump sum distribution or in
equal installment payments, as such Member (or such beneficiary, in the event of
death of the Member, if no choice of payment methods was made by the Member or
if the beneficiary wishes to change the payment method selected by the Member)
shall request. The Member or beneficiary, as applicable, shall notify the
Committee in writing of his election of method of distribution within sixty days
of the event in Section 8.2 or 8.3 which causes amounts to become payable under
Section 8.4.
Any designation of the method of distribution shall be by written
notice filed with the Committee on forms supplied by it or by other means
selected by the Committee. The Committee, with the consent of the Member or
beneficiary, shall have the right to accelerate distributions under any method
of distribution selected by the Member or beneficiary.
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Equal installment payments which the Member, or beneficiary, as
applicable, may select shall be the payment of equal annual, quarterly or
monthly installments over a period not to exceed the period permitted by
paragraph (b) or (c), as applicable, with the first installment to be paid
within 60 days after the end of Plan Year in which actual termination of
employment or death occurred, or such later starting time as the Member may
select, within the constraints set forth in paragraph (b) or (c), as applicable.
If a Member dies before all the funds in his Account have been
distributed to him, the remaining balance shall be paid or made available to the
designated beneficiary or the beneficiary otherwise determined according to the
provisions of Section 8.8, in the form of a lump sum or equal installment
payments as the Member (or such beneficiary, if no choice of payment methods was
made by the Member or if the beneficiary wishes to change the payment method
selected by the Member) shall request in a signed writing. The method of payment
so selected by the beneficiary may be any of the methods listed above.
(b) Notwithstanding the provisions of paragraph (a), no
payment method shall fail to comply with the provisions of Code Section
401(a)(9) and the regulations thereunder including the incidental death benefit
regulations. Such Code and regulation provisions shall override any provisions
of the Plan which are inconsistent therewith.
(i) Distributions of the Member's Account shall
commence not later than the Required Beginning Date. The
Required Beginning Date shall be April 1 of the calendar year
following the calendar year in which the Member attains age
70 1/2.
(ii) Distributions shall be made over a period not
extending beyond the longest of the life of the Member, the
life of the Member and a designated beneficiary, the life
expectancy of the Member, and the life expectancy of the
Member and his designated beneficiary. The Member shall have
the right to elect, no later than the Required Beginning Date,
whether or not life expectancy of the Member (and his spouse,
if the spouse is his beneficiary) will be recalculated
annually in the manner prescribed by Treasury regulations. Any
such election shall become irrevocable on the Required
Beginning Date. In the absence of an election by the Required
Beginning Date, life expectancy shall be recalculated annually
in accordance with Treasury regulations.
(c) Notwithstanding the provisions of paragraph (a), if a
Member dies prior to the distribution of any portion of his Account, no payment
method shall fail to comply with the provisions of this paragraph (c).
(i) The Member's Account shall be distributed to the
beneficiary(ies) of the Member within 5 years of the death of
the Member.
(ii) However, if any portion of such Account is
distributable to a designated beneficiary (as such term is
defined in Treasury
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regulations), the 5-year distribution rule shall not apply to
such portion if the designated beneficiary so elects and
distributions begin no later than December 31 of the calendar
year following the calendar year in which the Member died in
the case of a non-spouse beneficiary; and the Spousal Required
Beginning Date in the case of a designated beneficiary who is
the Member's spouse. If the election is made, such portion may
be distributed over the life of such designated beneficiary
(or over a period not extending beyond the life expectancy of
such designated beneficiary).
(iii) However, if the designated beneficiary is the
Member's Spouse, the requirement that distributions commence
within one year of the Member's death shall not apply. In lieu
thereof, such distribution must commence no later than the
later of December 31 of the calendar year immediately
following the year in which the Member died and December 31 of
the year in which the Member would have attained age 70 1/2
("the Spousal Required Beginning Date"). The Member's Spouse
shall have the right to elect whether or not to have his life
expectancy recalculated prior to the Spousal Required
Beginning Date in accordance with Treasury regulations. Any
such election shall become irrevocable on the Spousal Required
Beginning Date. In the absence of an election received from
the Spouse prior to the Spousal Required Beginning Date, such
Spouse's life expectancy shall be recalculated annually in
accordance with Treasury regulations. If the surviving Spouse
dies before the distributions to such Spouse begin, then the
5-year distribution requirement of subparagraph (i) shall
apply as if the Spouse were the Member.
(d) Notwithstanding the provisions of paragraph (a), if a
Member dies after payments to the Member commence subject to the rules of
paragraph (b), the portion of the Account of such Member remaining at the
Member's death shall be distributed at least as rapidly as under the method of
payment being used before the Member's death which complies with the
requirements of paragraph (b).
II. For Members Whose Employment Commenced Prior to January 1,
1988.
(a) When the Account of any Member becomes payable, the Member
may elect to have the value of his Account paid in one of the following forms
rather than a lump sum:
(i) Payment of substantially equal monthly, quarterly
or annual installments over a period not to exceed the period
permitted by this Section, with the first installment to be
paid before the end of Plan Year after which actual
termination of employment or death occurred, or such later
starting time as the Member may select, within the constraints
set forth in this Section, as applicable.
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(ii) An annuity for the life of the Member as
described below.
(b) 1. If a Member elects an annuity form of payment, in
accordance with paragraph (a)(ii) above and the Member is married on the
"Annuity Starting Date", he will be paid in the form of a Qualified Joint and
Survivor Annuity. A Member who elects an annuity form of payment, in accordance
with paragraph (a)(ii) above, and is unmarried on the "Annuity Starting Date"
will be paid in the form of an annuity for his life. Except where an earlier
date is required, payments shall commence no later than the 60th day following
the close of the Plan Year in which the event in Section 8.2 or 8.3 causing such
amounts to become payable occurs, unless the Member elects a later starting date
permitted under this Section.
2. For purposes of this Section, the "Annuity
Starting Date" means the first day of the first period for which an amount is
paid as an annuity (whether by reason of retirement or Total Disability) or any
other form.
3. The Committee shall provide each Member no less
than 30 days and no more than 90 days prior to the Annuity Starting Date a
written explanation of (i) the terms and conditions of the Qualified Joint and
Survivor Annuity (or, if the Member is unmarried, the life annuity), and (ii)
the rights of the Member's spouse. The Member shall also be furnished a general
description of the eligibility, conditions, and other material features of the
optional forms of benefit and sufficient additional information to explain the
relative values of the optional forms of benefit available under the Plan.
4. If the value of the Member's Account determined
under Section 4.10 does not exceed $3,500 at the time of an event causing such
Account to become payable to the Member under this Section 8.4, the Qualified
Joint and Survivor Annuity form of benefit (or, if applicable, the life annuity
form of benefit) shall not be made available to the Member. If any contribution
under Section 3.1 is made to the Member's Account after payment under the
preceding sentence, it shall be distributed within 30 days after it is made to
the Member's Account.
(c) In the event a Member duly elects pursuant to paragraph
(a) above not to receive the value of his Account in a lump sum, or in the event
of the Member's death, the value of his Account shall be paid to the Member or
his surviving designated beneficiary or the beneficiary otherwise determined
according to the provisions of Section 8.8, in such alternative form of payment,
as such Member (or such beneficiary, in the event of death of the Member, if no
choice of payment methods was made by the Member or if the beneficiary wishes to
change the payment method selected by the Member) shall request from the forms
set forth below. The Member or beneficiary, as applicable, shall notify the
Committee in writing of any alternative payment method he has selected before
the end of the "notification period". The notification period shall be:
1. In the case of a living Member, the period ending
on the Annuity Starting Date.
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2. In the case of a deceased Member, the period
beginning on the date of the Member's death and ending on the
sixtieth day after the close of the Plan Year in which the
Committee learns of the Member's death.
The methods of payment which the Member, beneficiary, or Committee, as
applicable, may select shall include:
(i) Payment of substantially equal monthly, quarterly
or annual installments over a period not to exceed the period
permitted by this Section, with the first installment to be
paid before the end of Plan Year after which actual
termination of employment or death occurred, or such later
starting time as the Member may select, within the constraints
set forth in this Section, as applicable.
(ii) An annuity for the life of the Member.
If a Member dies before all the funds in his Account have been
distributed to him, and such funds were not being distributed in a life annuity
form of benefit, the remaining balance shall be paid or made available to the
designated beneficiary or the beneficiary otherwise determined according to the
provisions of Section 8.8, in a lump sum or equal installment payments as the
Member (or such beneficiary, if no choice of payment methods was made by the
Member or if the beneficiary wishes to alter the payment method selected by the
Member) shall have requested in a signed writing. If no choice of payment
methods was made by the Member and the beneficiary does not select a method of
payment within the notification period after the death of the Member, a lump sum
distribution will be paid.
Any designation of the method of distribution shall be by written
notice filed with the Committee on forms supplied by it or by other means
selected by the Committee. The Committee, with the consent of the Member or
beneficiary, shall have the right to accelerate distributions under any method
of distribution selected by the Member or beneficiary under this paragraph (c).
(d) Notwithstanding the provisions of paragraph (a) or (b), no
payment method shall fail to comply with the provisions of Code Section
401(a)(9) and the regulations thereunder including the incidental death benefit
regulations. Such Code and regulation provisions shall override any provisions
of the Plan which are inconsistent therewith.
(i) Distributions of the Member's Account shall
commence not later than the Required Beginning Date. The
Required Beginning Date shall be April 1 of the calendar year
following the calendar year in which the Member attains age
70 1/2.
(ii) Distributions shall be made over a period not
extending beyond the longest of the life of the Member, the
life of the Member and a designated beneficiary, the life
expectancy of the Member, and
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the life expectancy of the Member and his designated
beneficiary. The Member shall have the right to elect, no
later than the Required Beginning Date, whether or not life
expectancy of the Member (and his spouse, if the spouse is his
beneficiary) will be recalculated annually in the manner
prescribed by Treasury regulations. Any such election shall
become irrevocable on the Required Beginning Date. In the
absence of an election by the Required Beginning Date, life
expectancy shall be recalculated annually in accordance with
Treasury regulations.
(e) Notwithstanding the provisions of paragraph (a) and (b),
if a Member dies prior to the distribution of any portion of his Account, no
payment method shall fail to comply with the provisions of this paragraph (e).
(i) The Member's Account shall be distributed to the
beneficiary(ies) of the Member within 5 years of the death of
the Member.
(ii) However, if any portion of such Account is
distributable to a designated beneficiary (as such term is
defined in Treasury regulations), the 5-year distribution rule
shall not apply to such portion if the designated beneficiary
so elects and distributions begin no later than December 31 of
the calendar year following the calendar year in which the
Member died in the case of a non-spouse beneficiary; and the
Spousal Required Beginning Date in the case of a designated
beneficiary who is the Member's spouse. If the election is
made, such portion may be distributed over the life of such
designated beneficiary (or over a period not extending beyond
the life expectancy of such designated beneficiary).
(iii) However, if the designated beneficiary is the
Member's Spouse, the requirement that distributions commence
within one year of the Member's death shall not apply. In lieu
thereof, such distribution must commence no later than the
later of December 31 of the calendar year immediately
following the year in which the Member died and December 31 of
the year in which the Member would have attained age 70 1/2
("the Spousal Required Beginning Date"). The Member's Spouse
shall have the right to elect whether or not to have his life
expectancy recalculated prior to the Spousal Required
Beginning Date in accordance with Treasury regulations. Any
such election shall become irrevocable on the Spousal Required
Beginning Date. In the absence of an election received from
the Spouse prior to the Spousal Required Beginning Date, such
Spouse's life expectancy shall be recalculated annually in
accordance with Treasury regulations. If the surviving Spouse
dies before the distributions to such Spouse begin, then the
5-year distribution requirement of subparagraph (i) shall
apply as if the Spouse were the Member.
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(f) Notwithstanding the provisions of paragraphs (a) and (b),
if a Member dies after payments to the Member commence subject to the rules of
paragraph (d), the portion of the Account of such Member remaining at the
Member's death shall be distri buted at least as rapidly as under the method of
payment being used before the Member's death which complies with the
requirements of paragraph (d).
(g) All annuity contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of any annuity
contract purchased for or distributed to a Member or a Member's spouse shall
comply with all of the requirements of the Plan.
9.5 Termination of Employment Other Than Because of Death, Total
Disability or Retirement.
I. For Members Whose Employment Commences On Or After January 1,
1988.
In the event a Member's employment is terminated for a reason other
than death, Total Disability or retirement, the amount to which he has a vested
interest standing to his credit in his Account, determined under Section 4.10
shall be distributed to him or to his surviving designated beneficiary (as the
case may be) as follows:
(a) In a lump sum as set forth in Section 8.4(a), beginning on
the first payment date, to be selected by the Member.
(b) In equal installments as set forth in Section 8.4(a).
If the Member's vested benefit does not exceed $3,500, then
the Committee shall automatically distribute the Member's vested benefit to him
in a lump sum as soon as practicable after termination of employment, and after
completion of the valuation of the Plan as set forth in Section 4.10.
Any former Member who receives a distribution of his vested benefits
attributable to Company contributions pursuant to this paragraph, who once again
qualifies as a Member of the Plan subsequent to his being rehired may buy back
into the Plan and restore his Profit Sharing Account balance by paying to the
Trustee in cash the full amount of the distribution he received under this
paragraph. The Member's restored Profit Sharing Account shall equal the sum of
(i) the amount paid back to the Trustee by the Member, plus (ii) the amount of
the unvested portion of the Member's Profit Sharing Account not distributed to
the Member under this paragraph. In order for a rehired Employee who once again
qualifies as a Member to buy back into the Plan, he must not have been 100%
vested at the time of termination of his employment and the Employee must repay
the full amount of the distribution no later than the earlier of five years
after the first date on which the Member is rehired by the Company or the date
of completion of five consecutive One Year Breaks-in-Service commencing after
the date of distribution. If the Employee complies with the buy-back rules, the
Company shall restore his Profit Sharing Account balance equal to the
predistribution account balance, in accordance with Treasury
Regulation Section 1.411(a)-7(d)(6)(iii). Any member who fails to buy back
into the Plan within
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<PAGE>
the time limitations herein established shall be deemed to have waived his right
to buy back into the Plan.
If a distribution to a partially vested Member is made prior to the
Member's having completed five consecutive One Year Breaks-in-Service pursuant
to the above rules, the Committee shall treat such nonvested portion as
forfeited as of the end of the Plan Year in which the distribution occurs,
subject to the restoration right noted above and the Member shall cease being a
Member at the end of the Plan Year in which the distribution occurs.
If a distribution is one to which Code Sections 401(a)(11) and 417 do
not apply, such distribution may commence less than 30 days after the notice
under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided
that:
(1) the Committee clearly informs the Member that the
Member has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or
not to elect a distribution (and, if applicable, a particular
distribution option), and
(2) the Member, after receiving the notice,
affirmatively elects a distribution.
The provisions of paragraphs (b), (c) and (d) of Section 8.4 shall
apply to distributions made under this Section 8.5.
II. For Members Whose Employment Commenced Prior To January 1,
1988.
In the event a Member's employment is terminated for a reason other
than death, Total Disability or retirement, the amount to which he has a vested
interest standing to his credit in his Account, determined under Section 4.10
shall be distributed to him or to his surviving designated beneficiary (as the
case may be) as follows:
(a) In a lump sum as set forth in Section 8.4(a), beginning on
the first payment date, to be selected by the Member.
(b) In equal installments or an annuity as set forth in
Section 8.4(a). If the Member elects to receive his benefit in the form of an
annuity in the manner described in Section 8.4(a) in the 90-day period ending on
the 60th day after the close of the Plan Year (the "first payment date") in
which occurs the former Member's 65th birthday or in which the Committee
receives proof prior to such former Member's 65th birthday of his Total
Disability, in the form of a Qualified Joint and Survivor Annuity (or an annuity
for the life of the Member, if unmarried), commencing with the close of the
90-day period described in this paragraph (b). The Committee shall furnish the
Member with the notice required by Section 8.4(a)(3) within a reasonable period
prior to the commencement of benefits hereunder.
(c) The Member may elect to receive his vested benefit as soon
as practicable after termination of employment, and after completion of the
valuation of the
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Plan as set forth in Section 4.10. If the vested benefit of the Member exceeds
(or at the time of any prior distribution exceeded) $3,500, such vested benefit
shall be distributed to him, with his written consent.
If the vested benefit of the Member does not exceed $3,500, then the
Committee shall automatically distribute the Member's vested benefit to him in a
lump sum as soon as practicable after termination of employment, and after
completion of the valuation of the Plan as set forth in Section 4.10.
Any former Member who receives a distribution of his vested benefits
attributable to Company contributions pursuant to this paragraph (c), who once
again qualifies as a Member of the Plan subsequent to his being rehired may buy
back into the Plan and restore his Profit Sharing Account balance by paying to
the Trustee in cash the full amount of the distribution he received under this
paragraph (c). The Member's restored Profit Sharing Account shall equal the sum
of (i) the amount paid back to the Trustee by the Member, plus (ii) the amount
of the unvested portion of the Member's Profit Sharing Account not distributed
to the Member under paragraph (c). In order for a rehired Employee who once
again qualifies as a Member to buy back into the Plan, he must not have been
100% vested at the time of termination of his employment and the Employee must
repay the full amount of the distribution no later than the earlier of five
years after the first date on which the Member is rehired by the Company or the
date of completion of five consecutive One Year Breaks-in-Service commencing
after the date of distribution. If the Employee complies with the buy-back
rules, the Company shall restore his Profit Sharing Account balance equal to the
predistribution account balance, in accordance with Treasury Regulation Section
1.411(a)-7(d)(6)(iii). Any member who fails to buy back into the Plan within the
time limitations herein established shall be deemed to have waived his right to
buy back into the Plan.
If a distribution to a partially vested Member is made prior to the
Member's having completed five consecutive One Year Breaks-in-Service pursuant
to the above rules, the Committee shall treat such nonvested portion as
forfeited as of the end of the Plan Year in which the distribution occurs,
subject to the restoration right noted above and the Member shall cease being a
Member at the end of the Plan Year in which the distribution occurs.
If a distribution is one to which Code Sections 401(a)(11) and 417 do
not apply, such distribution may commence less than 30 days after the notice
under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided
that:
(1) the Committee clearly informs the Member that the
Member has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or
not to elect a distribution (and, if applicable, a particular
distribution option), and
(2) the Member, after receiving the notice,
affirmatively elects a distribution.
The provisions of paragraphs (d), (e) and (f) of Section 8.4 shall be
deemed to modify distributions made under this Section 8.5.
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9.6 Annual Fund Adjustments. Any installments which shall be payable in
accordance with 8.4 or 8.5 shall be adjusted annually to reflect increases in
the value of the Fund by way of interest, dividends, realized and unrealized
gains, and income from other sources and shall bear any realized or unrealized
losses and expenses as provided in Section 4.4. Such adjustments shall not
affect the manner or intervals of payment. However, this provision shall not
cause payments to be reduced below the minimum amount which must be distributed
to the Member in order to comply with plan qualification requirements concerning
the form of payment as set forth in Section 8.4.
If a former Member's interest in the Fund is being paid to him in
installments, such former Member may direct the Committee to pay the value of
the former Member's interest in the Fund to him in a lump sum within 31 days
after the end of such month in which the request is made. The provisions of this
Section shall not apply to payments made in the form of a life annuity.
9.7 Death Benefits.
I. For Members Whose Employment Commences On Or After January 1,
1988.
Within a reasonable time following the death of a Member or former
Member, the sum of the vested portion of the balance of the Member's Account
determined under Section 4.10 shall be paid in a lump sum or installments to the
beneficiary determined under Section 8.8.
II. For Members Whose Employment Commenced Prior To January 1,
1988.
If a married Member or married former Member dies prior to commencement
of payment of benefits to such Member and such Member had elected to be paid in
an annuity form of benefit, then the sum of the vested portion of the balance of
the Member's Account determined under Section 4.10 shall be paid as an annuity
for the life of the Spouse, unless the Spouse elects to have the benefit
distributed in the form of a lump sum or in equal installments.
For all other Members or former Members the sum of the vested portion
of the balance of the Member's Account determined under Section 4.9 shall be
paid in a lump sum or equal installments to the beneficiary determined under
Section 8.8.
9.8 Designation of Beneficiary.
A Member shall designate a beneficiary or beneficiaries to receive any
benefits which may become payable in the event of his death. If the Member is
married, such designation shall be made only with the consent of the Member's
Spouse, in the form of a Qualified Spousal Consent, if the beneficiary is other
than the Member's spouse. A Member may at any time revoke his designation or
change his beneficiary by filing written notification of such change with the
Committee. However, the Member's Spouse must again consent in writing in the
form of a Qualified Spousal Consent to any such change or
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revocation. A designation made by a Member while unmarried shall not be given
effect if the Member subsequently marries. If a married Member designates a
beneficiary other than his Spouse (and does so prior to the Member's normal
retirement age and prior to receipt of any benefits under Section 8.4 or 8.5),
then such designation shall only be given effect if a General Spouse's Consent
is on file with the Committee. The term "beneficiary" as used in the Plan,
includes beneficiaries if more than one beneficiary is designated. If there is
no beneficiary designated and surviving at the Member's death, payment of any
benefit which may become payable in the event of his death shall be made to any
one of or jointly to any number of the following surviving relatives of the
Member with priority in the order named: (1) spouse, (2) children, (3) parents,
(4) brothers and sisters, (5) nephews and nieces, and (6) the Member's estate.
In the event the benefits are paid to a surviving relative or class of
relatives, they shall be paid to the first-mentioned relative or class of
relatives, if there be such, in order named to the exclusion of all the
following relatives or classes named.
Any designation or change of beneficiary shall be by written notice
filed with the Committee on forms supplied by it. A change of beneficiary shall
take place only upon the filing of a notice of change with the Committee.
9.9 Payment to Minors, etc. If any person to whom a benefit is payable
hereunder is an infant or if the Committee determines that any person to whom
such benefit is payable is incompetent by reason of physical or mental
disability (whether or not such incompetency has been recognized in a legal
proceeding), the Committee shall have power to cause the payments becoming due
to such person to be made to another for his benefit without responsibility of
the Committee or the Trustee to see to the application of such payments. Any
payment made pursuant to such powers shall, as to such payment, operate as a
complete discharge of the Fund, the Trustee and the Committee.
9.10 Commencement of Benefits. Irrespective of any other provision in
this Section VIII, unless the Member elects otherwise, the payment of benefits
under the Plan to any Member will begin not later than the 60th day after the
latest of the close of the Plan Year in which:
(a) the Member attains the earlier of age 65
or the Normal Retirement Age specified under the
Plan,
(b) occurs the 10th anniversary of the year
in which the Member commenced participation in the
Plan, or
(c) the Member terminates his service with
the Company.
No Member may elect that benefits commence later than the time
specified in Section 8.4.
9.11 Loans to Members. The Committee is responsible to authorize and
administer all loans under the Plan. Upon written application to the Committee
specifying the amount, duration and security for the loan, a Member or
beneficiary may borrow from
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the Fund for any reason whatsoever provided that the total amount borrowed from
this Plan and all other Plans enumerated in the following sentence shall not at
any time exceed the lesser of: (1) $50,000.00, reduced by the highest
outstanding balance of all loans from the Plan during the one-year period ending
on the day before the date the loan is made, over the outstanding balance of
loans from the Plan on the date the loan is made, or (2) one-half (1/2)of the
vested interest of such Member's Account. For purposes of the foregoing
limitation, all Plans of the Company in which the Member is a Member (and
beneficiary is a beneficiary) shall be treated as one Plan and all Plans of
Affiliated Companies in which the Member participates (the beneficiary has an
account balance) shall be treated as Plans of the Company. The minimum amount of
a loan shall be $1,000 and no more than three loans may be outstanding at any
time.
A Member may borrow from his Elective Deferral Account and Rollover
Account for any reason, but may only borrow from his Profit Sharing Account,
Qualified Non-Elective and Matching Contribution Account in the case of a
hardship, the criteria for which will be determined by the Committee in
accordance with the provisions of Section 6.10(c)(i). Limitations on the total
amount a Member may borrow are always subject to the provisions set forth in the
preceding paragraph.
Loans will be granted in a uniform and nondiscriminatory manner.
However, a loan request may be denied for failing to meet any one of the
requirements set forth in the following paragraph, for failure to satisfy the
spousal consent requirements set forth in this Section 8.11, or for any other
reason for denial which commercial lending institutions commonly deny loan
requests. If a loan is denied for any reason, a full written explanation will be
provided to the Member or beneficiary.
Any such borrowing shall be permitted only upon the Member's execution
of a promise to repay the amount at a reasonable rate of interest as required to
comply with Section 408(b) of ERISA and Code section 4975(d)(1); any such loan
shall provide for level amortization with payments to be made not less
frequently than quarterly over a period not to exceed 5 years. However, loans
used to acquire any dwelling unit which, within a reasonable time, is to be used
(determined at the time the loan is made) as a principal residence of the Member
shall provide for repayment over a reasonable period of time that may exceed 5
years. All loans shall be repaid on a schedule providing for level amortization
determined by the Committee. All such loans shall be nonrenewable. By accepting
such a loan, the Member automatically assigns to the Plan as security for the
loan his right, title and interest in and to the appropriate portion of his
Account (not to exceed the lesser of $50,000.00 or 50% of such Member's vested
interest in his Account as of the date the loan is made) plus any additional
collateral security as may be required by the Committee in its discretion (such
as title to an automobile, a second mortgage on a residence, etc...). A
reasonable rate of interest will be determined which will be reflective of the
interest rate which would be charged by an independent lending institution with
regard to a similar loan. In determining what the final interest rate and
additional collateral security, if any, will be, the Committee may consider the
creditworthiness of the Member and the security given for the loan.
If a Member borrows pursuant to this section, the amount of such loan
shall be treated for accounting purposes as being taken from the Member's
Account in the
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following order with each Account balance being reduced to $0 before
distributions may be made from the next succeeding Account: Elective Deferral,
Rollover, Qualified Non-Elective, Matching and Profit Sharing. Any and all
investment results which occur in connection with such loan (i.e., installment
payments of principal and interest and any losses) shall be allocated directly
to the Member's Rollover Account, Elective Deferral Account, Matching
Contribution Account, Qualified Non-Elective Account and Profit Sharing Account
of the Member who borrows from the Plan and shall not be treated as a general
investment of the Fund.
A default of the loan will occur upon the event of:
(a) failure to make a payment within sixty days after the due
date of the payment,
(b) commencement of any insolvency proceedings by or against
the Member, or
(c) the death of the Member.
The Member (or beneficiary) will receive notice that the loan is a taxable
distribution and will be reported to the Internal Revenue Service.
If a default occurs or a Member terminates his employment with the
Company and the debt remains unpaid when the Member (or beneficiary) is
otherwise eligible to receive a distribution, the amount distributable is
reduced by the outstanding indebtedness (principal plus interest).
In the event a Member defaults on any such borrowing, the Committee and
the Trustee are specifically directed to immediately take legal action against
the defaulting Member by filing suit against the Member for breach of his
promise to repay the loan and/or filing suit to obtain title and possession of
any and all security pledged as collateral for the loan except that the
Committee and the Trustee shall not proceed to acquire the Member's vested
interest in his Member's Account for default unless all other legal remedies
have been considered and either pursued or rejected on the advice of legal
counsel. It is the intention of the Company that a Member's vested interest
shall be maintained for that Member free of any alienation except as provided in
this Section 8.11 and that a forfeiture of the Member's interest should only be
considered a remedy of last resort.
No married Member shall be permitted to borrow from the Plan without
the written consent of the Member's Spouse in the form of a Qualified Spousal
Consent. The Member and spouse shall consent to the possible reduction in the
Member's plan benefit in the 90-day period before the making of the loan, which
could occur if the Member defaults on repayment of the loan and the Member's
plan benefit is reduced to satisfy the Member's obligation. Such consent shall
acknowledge the effect of the loan.
No borrowing shall be permitted from a Member's Rollover Account(s)
originally attributable to participation in a non-corporate qualified plan
without an opinion of counsel
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to the Company or the Plan that such borrowing will not adversely affect the
qualified status of the Plan.
Trust investments (including investments in residential mortgages)
shall not be considered as loans if: (1) such investments are made pursuant to
an established written investment program, (2) the amount of the mortgage loan
does not exceed the fair market value of the property purchased with the loan
proceeds, (3) the mortgage loan was not made as the result of a directed
investment, and (4) the loan does not benefit an officer, director or
shareholder of the Company or the beneficiaries of such person.
9.12 Nonalienation of Benefits.
(a) No benefit payable under the Plan will, except as
otherwise specifically provided by law or herein, be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge and any attempt to so anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same will be void; nor will any benefit be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the person entitled thereto. Compliance with the provisions and
conditions of a QDRO shall not be considered a violation of this provision.
(b) If the Committee receives a qualified disclaimer (as
defined in Code Section 2518) from any beneficiary entitled to benefits as a
result of and within 9 months after the death of a Member, such benefits shall
instead be paid to an alternate beneficiary determined according to a valid
beneficiary designation made by a Member, or if an alternate beneficiary cannot
be determined according to such a designation, according to the provisions of
Section 8.8. Payment to an alternate beneficiary on account of receipt of a
qualified disclaimer shall not be treated as a violation of paragraph (a) of
this section.
9.13 Receipt of Domestic Relations Order. If the Committee receives a
domestic relations order (as defined in Code Section 414(p)), the Committee
shall promptly notify the Member and any spouse, former spouse, child or other
dependent of the Member who is recognized by the order as having a right to
receive all, or a portion of, the benefits payable to the Member under the Plan
("alternate payee") of the Plan's procedures for determining the qualified
status of such order. Within a reasonable time after receipt of such order, the
Committee shall notify the Member and alternate payee of its determination
whether the domestic relations order is a QDRO. While making its determination,
the Committee shall segregate in a separate account in the Plan the amounts
which would have been payable to the alternate payee during such period if the
order had been determined to be a QDRO. If within 18 months of receipt, the
order is determined to be a QDRO, the Committee shall pay the segregated amounts
to the person or persons entitled thereto under the order. If within 18 months
of receipt the order is determined not to be a QDRO, the Committee shall treat
the segregated account as belonging to the Member in accordance with the other
provisions of this Section 8.13, and shall pay to the Member any amounts in the
segregated account which would have been paid to him during the period of
segregation if no order had been received. If an order is determined to be a
QDRO more than 18 months after receipt by the Committee, it shall be applied
prospectively from the date of determination. Furthermore, once the domestic
relations order is determined to be a QDRO, the alternate payee shall be
entitled to
43
<PAGE>
designate a beneficiary pursuant to the provisions of Section 8.8 of the Plan
with respect to the amounts which have been segregated on his or her behalf.
To the extent that an order is determined to be a QDRO, Sections 8.4,
8.5 and 8.7 shall be deemed modified, but only to permit payment to the
alternate payee.
9.14 Qualified Spousal Consent. Any spousal consent referred to in this
Section VIII as a Qualified Spousal Consent shall comply with the provisions of
this Section 8.14 and shall not be required under those circumstances described
in this Section 8.14. A spouse's consent shall be in writing, shall be
irrevocable and must acknowledge the effect of such election and be witnessed by
a member or agent of the Committee or a notary public. Such consent shall not be
required if it is established to the satisfaction of the Committee that the
required consent cannot be obtained because there is no spouse or the spouse
cannot be located. If the spouse is legally incompetent to give the consent, the
spouse's guardian, even if the Member, may give consent. If the Member is
legally separated or has been abandoned (within the meaning of local law) and a
Member has a court order to such effect, spousal consent shall not be required
unless a QDRO provides otherwise. A former Spouse's consent shall not be binding
on a new Spouse. Any spousal consent to a Member's waiver of the Qualified Joint
and Survivor Annuity or the Qualified Pre-retirement Survivor Annuity must state
the specific non-spouse beneficiary who will receive the benefit. Any spousal
consent to a Member's waiver of the Qualified Joint and Survivor Annuity must
specify the particular optional form of benefit.
Notwithstanding the foregoing, a Member's Spouse may execute a "General
Spouse's Consent" which permits a Member who waives the Qualified Joint and
Survivor Annuity to change the designated non-spouse beneficiary or the optional
form of benefit without any further spousal consent requirements. A General
Spouse's Consent must acknowledge that the Spouse has the right to limit his or
her consent to a specific non-spouse beneficiary and a specific optional form of
benefit, in the case of a waiver of a Qualified Joint and Survivor Annuity, and
that the Spouse voluntarily elects to relinquish such rights. However, a Spouse
may execute a General Spouse's Consent that is limited to certain beneficiaries
or optional forms of benefit. A General Spouse's Consent to a Member's waiver of
a Qualified Joint and Survivor Annuity must be made within the period set forth
in Section 8.4(a)(3). A General Spouse's Consent executed prior to October 22,
1986 does not have to meet the requirements of this paragraph.
9.15 Direct Rollovers.
(a) This section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this section, a distributee
may elect, at the time and in the manner prescribed by the plan administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
44
<PAGE>
(b) For purposes of this Section the following definitions shall apply:
(1) 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).
(2) 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.
(3) 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.
(4) A "direct rollover" is a payment by the Plan to
the eligible retirement plan specified by the
distributee.
SECTION X. THE COMMITTEE
10.1 Appointment of Committee. The Board of Directors of the Company
shall appoint a Committee to administer the Plan consisting of one or more
persons who shall serve at the Board's pleasure. The Board of Directors shall
fill vacancies on the Committee and shall fix from time to time the compensation
of members of the Committee.
10.2 Adoption of Rules. The Committee shall adopt such rules for the
conduct of its business and administration of the Plan as it considers desirable
provided that they do not conflict with the Plan.
10.3 Delegation;Contracting for Services. The Committee may authorize
one or more of its members or any agent to act on its behalf and may contract
for legal, investment, advisory, medical, accounting, clerical and other
services to carry out the Plan.
45
<PAGE>
The costs of such services and expenses of the Committee shall be paid by the
Fund except that the Company may, at its option, pay any or all such costs.
10.4 Construction of the Plan. The Committee may construe the Plan,
correct defects, supply omissions or reconcile inconsistencies to the extent
necessary to effectuate the Plan and such action shall be conclusive.
10.5 Records. The Committee shall keep records reflecting
administration of the Plan which shall be subject to audit by the Company.
Members may examine records pertaining directly to them.
10.6 Member's Access to the Committee. The Committee shall make
available to each Member a copy of the Plan and Trust after a written request
from such Member and such of its records as may pertain to the assets held by
the Trustee for the benefit of such Member.
10.7 Designation of Plan Administrator; Power and Duties of the
Committee. The Company is hereby specifically designated as the administrator of
this Plan and Trust and, as such, is charged with full and complete liability
and responsibility for the administration of the Plan. Each member of the
Committee is hereby designated a "named fiduciary" as this term is used in
Section 402 of ERISA. The Committee shall have the discretionary authority to
interpret the provisions of the Plan and Trust. Decisions regarding eligibility
and payment of benefits shall be made by the Committee in a manner consistent
with the provisions of the Plan. Where deemed necessary, the Committee may
assign the duties of plan interpretation. Any denial by the Committee of the
claim for benefits under the Plan by a Member or beneficiary shall be stated in
writing by the Committee and delivered or mailed to the Member or beneficiary;
and such notice shall set forth the specific reasons for the denial, written to
the best of the Committee's ability in a manner that may be understood without
legal or actuarial counsel. In addition, the Committee shall afford a reasonable
opportunity to any Member or beneficiary whose claim for benefits has been
denied for a review of the decision denying the claim in the manner set forth in
Section 9.8.
10.8 Review of Decisions of the Committee. The Company intends that the
payment of benefits to a Member under this Plan will be automatic and will not
depend on any specific action of the Member. However, any Member or his
beneficiary who feels aggrieved by a decision of the Committee with respect to
such Member's or beneficiary's rights under the Plan, may submit a written
statement to the Committee listing the Member's or beneficiary's position with
respect to the matter in question. The Committee may, at its option, invite the
Member or beneficiary to attend a Committee meeting to present his position to
the Committee or respond in writing to the Member or beneficiary.
10.9 Reporting and Disclosure. The Committee shall exercise such
authority and responsibility as it deems appropriate in order to comply with
ERISA and governmental regulations issued thereunder relating to records of
Member's service, account balances and the percentage of such account balances
which are nonforfeitable under the Plan, notifications to Members, annual
registration with the Internal Revenue Service, and annual reports to the
Department of Labor.
46
<PAGE>
10.10 Indemnification. No Committee member or Trustee guarantees the
Fund in any manner against investment loss or depreciation in asset value. The
Company shall, to the maximum extent permitted by ERISA, indemnify each
Committee member, director, officer, and Employee who is a fiduciary of the Plan
and who is a party, or who is threatened with being made a party, to a
threatened, pending, or completed action suit, or proceeding, whether civil,
criminal, administrative, or investigative (including any such action by or in
the right of the Company), by reason of the fact that such person is or was a
fiduciary of the Plan, against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement, actually and reasonably incurred by such
fiduciary in connection with such action, suit, or proceeding. Reasonable
expenses incurred in defending any such action, suit, or proceeding shall be
paid by the Company in advance of a final disposition of such action, suit, or
proceeding, upon presentation of the statements received by him therefor by any
such fiduciary of the Plan.
10.11 Service of Legal Process. Each member of the Committee is hereby
designated agent for the Plan for purposes of accepting service of process in
any judicial or administrative proceeding. Such service shall be effective if
the member is served at 301 Grove Road, Thorofare, NJ 08096-9499.
SECTION XI. DISTRIBUTION OF BENEFITS
11.1 Distribution in General. This Plan may be amended by the Company,
if as amended, it continues to be for the exclusive benefit of Employees. Any
amendment shall be accomplished by a resolution (or, if allowed by applicable
corporate law, unanimous written consent) of the Company's board of directors.
No amendment shall divest a Member's then vested interest. No amendment to this
Plan shall have the effect of eliminating or reducing an early retirement
benefit or retirement type subsidy, nor shall any amendment made to this Plan
have the effect of eliminating a Section 411(d)(6) protected form of benefit
with respect to benefits attributable to service before the amendment except to
the extent permitted by regulations of the Internal Revenue Service or other
publications of the Internal Revenue Service of general applicability. The rules
of Treasury Regulations Section 1.411(d)-4 are incorporated herein for the
purpose of determining what is a Section 411(d)(6) protected form of benefit. In
the case of a retirement type subsidy, the preceding sentence shall apply only
with respect to a Member who satisfies (either before or after the amendment)
the pre-amendment conditions for the subsidy. However, an amendment to this Plan
may have the effect otherwise prohibited by the preceding two sentences to the
extent the amendment is necessary (1) to satisfy a change in the law regarding
plan qualification, if the amendment is timely, the Internal Revenue Service
grants relief under Code Section 7805(b), and the elimination or reduction is
made only to the extent necessary to enable the plan to continue to satisfy the
requirements for qualified plans; or (2) is permitted by Treasury Regulations
Section 1.411(d)-4(b)(2)(ii) relating to multiple forms of qualified joint and
survivor annuities. Notwithstanding any other provisions of this Plan, no
amendment to this Plan shall be construed in a manner to have the effect
prohibited by this Section.
11.2 Voluntary Termination. (a) The Company intends to continue the
Plan indefinitely but reserves the right to terminate it at any time. Upon the
complete or partial termination of the Plan or the complete discontinuance of
the Company's contributions,
47
<PAGE>
the total amounts (including contracts) then standing to the Member's Accounts
shall be nonforfeitable and the Fund shall continue to be held for distribution
as provided in Sections V, VIII and XI.
(b) Notwithstanding paragraph (a), upon the full termination
of the Plan, the Company may direct the distribution of the assets of the Fund
to Members in a manner which is consistent with and satisfies the provisions of
Section VIII. Distributions to a Member shall be made in cash or in property or
through the purchase of irrevocable nontransferable deferred commitments from an
insurer. Except as permitted by Regulations, the termination of the Plan shall
not result in the reduction of "Section 411(d)(6) protected benefits" in
accordance with Section 10.1.
11.3 Liability of the Company. The Company shall have no liability for
payments under the Plan or administration of the Fund except to make the
contributions required by Section 3.1. Persons entitled shall look solely to the
Fund for any payments under the Plan.
11.4 Plan and Trust Qualification. This Plan and the accompanying Trust
Agreement have been qualified under the Code and the lawful rules and
regulations of the Secretary of the Treasury or his delegate promulgated
thereunder so as to be a tax-free deferred compensation Plan and Trust,
contributions to which are deductible by the Company in computing taxable
income, and it is intended that they should continue to be so qualified. This
Plan, as restated, will be submitted to the Secretary of the Treasury or his
delegate for a ruling with respect to such continued qualification. If such
authority refuses to rule or withholds his ruling that this Plan and Trust are
so qualified, and if this Plan and Trust can in a manner satisfactory to the
Company be amended and the favorable ruling of such authority be obtained
thereby, the Company reserves the right to so amend and such amendment, anything
else in this plan to the contrary notwithstanding, shall be effective July 1,
1996, the same date as if incorporated herein in the first instance unless a
different effective date is expressly stated in such amendment.
SECTION XII. MISCELLANEOUS
12.1 Plan Creates No Contract of Employment. This Plan shall not confer
upon any Employee any right to be continued as such.
12.2 Exclusive Benefit of Funds. At no time prior to the satisfaction
of all liabilities with respect to Members and their beneficiaries shall any
part of the corpus or income of the Trust be used for or diverted to purposes
other than for the exclusive benefit of Members and their beneficiaries.
12.3 Transfer from Qualified Funds.
(a) With the consent of the Committee, amounts may be
transferred from other qualified corporate and non-corporate plans, provided
that the trust from which such funds are transferred permits the transfer to be
made and, in the opinion of legal counsel for the Company, the transfer will not
jeopardize the tax exempt status of the Plan or Trust, create adverse tax
consequences for the Company or require the Plan to provide any
48
<PAGE>
optional form of benefit which it does not already provide. Each such amount
transferred shall be set up in a separate account herein referred to as a
"Rollover Account(s)". A separate account shall be maintained for each rollover
of a given Member. If a rollover is attributable partially to employer
contributions and partially to Employee contributions, a separate Rollover
Account(s) shall be established for the amounts attributable to each such
portion. Such account shall be fully vested at all times and shall not be
subject to forfeiture for any reason.
(b) For purposes of this Section the term "amounts transferred
from another qualified corporate and non-corporate plan" shall mean: (i) amounts
transferred to this Plan directly from another qualified corporate and qualified
non-corporate plan; (ii) lump sum distributions received by a Member from
another qualified Plan which are eligible for tax free rollover treatment and
which are transferred by the Member to this Plan within 60 days following his
receipt thereof; (iii) amounts transferred to this Plan from a conduit
individual retirement account provided that the conduit individual retirement
account has no assets other than assets which were previously distributed to the
Member by another qualified plan (other than an individual retirement account or
if transferred prior to January 1, 1984; an H.R. 10 plan) as a lump sum
distribution which were eligible for tax free rollover treatment and which were
deposited in such conduit individual retirement account within 60 days of
receipt thereof and other than earnings on said assets; and (iv) amounts
distributed to the Member from a conduit individual retirement account meeting
the requirements of clause (iii) above, and transferred by the Member to this
Plan within 60 days of his receipt thereof from such conduit individual
retirement account. Prior to accepting any transfers to which this Section
applies the Committee may require the Member to establish that the amounts to be
transferred to this Plan meet the requirements of this Section and may also
require the Member to provide an opinion of counsel satisfactory to the Company
that the amounts to be transferred meet the requirements of this Section.
(c) For purposes of this Section, the term "qualified
corporate or non-corporate plan" shall mean any tax qualified plan under Code
Section 401(a).
12.4 Severability of Provisions. It is the Company's intention that
this Plan and Trust will meet all of the requirements contained in ERISA and for
qualified plans under the Code, and all regulations issued thereunder. Any
provision contained herein which does not meet any such requirement is hereby
declared null and void as of the effective date of this applicable requirement.
12.5 Mergers and Consolidation of Plans. If the Plan is merged or
consolidated with another Plan or if the assets or liabilities of the Plan are
transferred to any other Plan, each Member in the Plan will (if the Plan then
terminated) receive a benefit immediately after the merger, consolidation or
transfer which is equal to or greater than the benefit the Member would have
been entitled to receive immediately before the merger, consolidation or
transfer (if the Plan had then terminated). Further, all optional forms of
benefit which are available to the Member in this Plan shall be available to
such Member in the transferee plan at least to the extent of the benefit accrued
by the Member in this Plan.
49
<PAGE>
12.6 Exclusive Benefit; Refund of Contributions. The assets of the Plan
are intended to be held for the exclusive purposes of providing benefits to
participants in the Plan and their beneficiaries and defraying reasonable
expenses of administering the Plan. The contributions are not intended to inure
to the benefit of the Company; however, as provided in Section 403(c) of ERISA,
the Company may require the Committee to return certain contributions, in whole
or in part, to the Company in the following instances:
(a) In the case of a contribution which is made by the Company
by a good faith mistake of fact, the contribution may be recovered within one
year after the payment of the contribution. Earnings of the Plan attributable to
the excess contributions may not be returned to the Company but any losses
attributable thereto must reduce the amount so returned.
(b) If the contribution is conditioned upon the deductibility
of the contribution under Code Section 404, then to the extent the deduction is
disallowed, the contribution may be recovered by the Company within one year
after the disallowance of the deduction. Earnings of the Plan attributable to
the excess contributions may not be returned to the Company but any losses
attributable thereto must reduce the amount so returned.
12.7 Liquidation of the Company. If at any time the Company is
liquidated, the Company shall designate a plan administrator to serve effective
after the liquidation of the Company. Such plan administrator shall have
authority to exercise all powers granted to the Company and the plan
administrator in Articles 9 and 10 and in the Trust Agreement, including,
without limitation, the power to amend the Plan and the Trust Agreement. If the
Company fails to appoint a plan administrator pursuant to this provision, then
the Trustee shall have the power to appoint a plan administrator (which may
include the Trustee or any one of the Trustees, if more than one is serving) to
act as plan administrator.
12.8 Location of Member or Beneficiary Unknown. In the event that all,
or any portion, of the distribution payable to a Member or his beneficiary
hereunder shall, at the expiration of five years after it shall become payable,
remain unpaid solely by reason of the inability of the Committee, after sending
a registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Member or
his beneficiary, the amount so distributable shall be treated as a forfeiture
pursuant to the Plan. In the event a Member or beneficiary is located subsequent
to his benefit being reallocated, such benefit shall be restored.
12.9 Headings and Captions. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
50
<PAGE>
MEMORANDUM
TO: File
FROM: John Pinti
SUBJECT: Non-Qualified Supplemental Executive Retirement Plan
("SERP") Covering Officer-Employees of Berwick Industries, Inc.
(the "Company") and its Subsidiaries in the United States
DATE: November 18, 1996
1. With the approval of the Company's Executive Committee, effective
January 1, 1996, a SERP is instituted covering the officers of the
Company and its subsidiaries in the United States who are also
employees hereof.
2. Commencing with the calendar year 1996, the Company will, for each year
in which the Company makes a Profit Sharing contribution to the Berwick
Industries, Inc. 401(k) Retirement Plan or such other profit sharing
plan then maintained for the benefits of the employees of the Company
(the "Plan"), incur and accrue on its books as a liability to each
such officer of the Company, an amount equal to the product of (x) the
percentage then used in deriving the dollar amount approved by the
Company's Board of Directors as the Company's contribution to the Plan
for such calendar year, and (Y) the difference between each such
Company officer's total cash compensation for such calendar year and
the dollar amount of the compensation limitation imposed by section
401(a) (17) of the Internal Revenue code of 1986, as amended.
3. The accruals on the Company's books required by paragraph "2" above will
be entered on the books of the Company for the benefit of each such
officer on the same basis that accruals are entered on the books of the
Company for its Plan participants;
4. The amounts so accrued on the books of the Company as required by
paragraph "2" above shall thereafter be adjusted to reflect the
performance of the investments selected for the Plan by the participant,
at the same time and as if such accrued amounts had been invested in the
Plan during such period;
5. All accrued amounts due to such an officer pursuant to the SERP shall
be deemed vested and payable in accordance with and pursuant to the
pertinent provisions of the Plan;
page 1 of 2
<PAGE>
6. All amounts payable by the Company to any officer (or to his or her
designated beneficiary in the event of such officer's death) for whose
benefit amounts have been accrued on the Company's books under the
provision of the SERP shall represent an unsecured debt of the Company
and the Company shall not be required to escrow or otherwise segregate
any money or other property on account of its obligation hereunder; and
7. Nothing herein contained shall be construed to affect the status or
nature of the employment with the Company of each officer covered by
the SERP and such employment shall continue to be an employment at
will, unless otherwise expressly provided in writing between the
Company and such officer.
8. Each officer-employee of the Company shall as a condition precedent to
entitlement of SERP participation execute and deliver to the Company a
form of designation of beneficiary of the SERP amount which has been
accrued for such officer's benefit in the event of his or her death, an
acknowledgement of receipt of a copy of this memorandum and an
agreement to be bound by the provisions hereof.
page 2 of 2
<PAGE>
PAPER The Paper Magic Group, Inc.
MAGIC P.O. Box 977
GROUP Scranton, PA 18501
Phone:717-961-3863
TO: File
FROM: John J. Nucero
DATE: December 5, 1996
RE: Non-Qualified Supplemental Executive Retirement Plan ("SERP")
Covering Officer-Employees of The Paper Magic Group, Inc. (the
"Company") and its subsidiaries in the United States
- -------------------------------------------------------------------------------
1. With the approval of the Board of Directors, effective January 1, 1996,
a SERP is instituted covering the officers of the Company and its
subsidiaries in the United States who are also employees thereof,
2. Commencing with the calendar year 1996, the Company will, for each year
in which the Company makes a contribution to the The Paper Magic Group,
Inc. Profit-Sharing Plan or such other profit sharing plan then
maintained for the benefits of the employees of the Company ("Plan"),
incur and accrue on its books a liability to each such officer of the
Company, an amount equal to the product of (x) the percentage then used
in deriving the dollar amount approved by the Company's Board of
Directors as the Company's contribution to the Plan for such calendar
year, and (y) the difference between each such Company officer's total
cash compensation for such calendar year and the dollar amount of the
compensation limitation imposed by Section 401 (a) (17) of the
Internal Revenue Code of 1986, as amended.
3. The accruals on the Company's books required by paragraph "2" above
will be entered on the books of the Company for the benefit of each
such officer on the same basis that accruals are entered on the books
of the Company for its Plan participants;
4. The amounts so accrued on the books of the Company as required by
paragraph "2" above shall thereafter be adjusted to reflect the
investment performance of the Plan, at the same time and as if such
accrued amounts had been invested in the Plan during such period;
5. All accrued amounts due to such an officer pursuant to the SERP shall
be deemed vested and payable in accordance with and pursuant to the
pertinent provisions of the Plan;
<PAGE>
Memo to File
December 5, 1996
Page 2
6. All amounts payable by the Company to any officer (or to his or her
designated beneficiary in the event of such officer's death) for
whose benefit amounts have been accrued on the Company's books under
the provision of the SERP shall represent an unsecured debt of the
Company and the Company shall not be required to escrow or otherwise
segregate any money or other property on account of its obligation
hereunder; and
7. Nothing herein contained shall be construed to affect the status or
nature of the employment with the Company of each office covered by
the SERP and such employment shall continue to be an employment at
will, unless otherwise expressly provided in writing between the
Company and such officer.
8. Each officer-employee of the Company shall as a condition precedent
to entitlement of SERP participation execute and deliver to the
Company a form of designation of beneficiary of the SERP amount which
has been accrued for such officer's benefit in the event of his or
her death, an acknowledgment of receipt of a copy of this memorandum
and an agreement to be bound by the provisions hereof.
JJN/ame
cc: Rick Barton
Exhibit 21
LIST OF SIGNIFICANT SUBSIDIARIES
OF CSS INDUSTRIES, INC.
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
The Paper Magic Group, Inc. Pennsylvania
- ---------------------------
Rapidforms, Inc. New Jersey
- ----------------
Berwick Industries, Inc. Pennsylvania
- ------------------------
Cleo Inc. Tennessee
- ---------
Philadelphia Industries, Inc. Delaware
- -----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000020629
<NAME> CSS INDUSTRIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,755
<SECURITIES> 0
<RECEIVABLES> 159,008
<ALLOWANCES> 3,838
<INVENTORY> 58,189
<CURRENT-ASSETS> 9,152
<PP&E> 97,900
<DEPRECIATION> 44,654
<TOTAL-ASSETS> 346,364
<CURRENT-LIABILITIES> 157,324
<BONDS> 4,612
0
0
<COMMON> 1,229
<OTHER-SE> 175,523
<TOTAL-LIABILITY-AND-EQUITY> 346,364
<SALES> 412,079
<TOTAL-REVENUES> 412,079
<CGS> 266,964
<TOTAL-COSTS> 266,964
<OTHER-EXPENSES> 97,312
<LOSS-PROVISION> 2,295
<INTEREST-EXPENSE> 8,235
<INCOME-PRETAX> 37,273
<INCOME-TAX> 14,389
<INCOME-CONTINUING> 22,344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,344
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.01
</TABLE>
