<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[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, 1998.
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 ______.
Commission file number 0-22010
THOMAS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 72-0843540
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5221 NORTH O'CONNOR BOULEVARD, SUITE 500, IRVING, TEXAS 75039-3714
(Address of principal executive offices) (Zip Code)
(972) 869-3400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 per share NASDAQ-NMS
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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. [X] Yes / No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) 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]
As of February 26, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $44,809,000, based on the NASDAQ-NMS
closing price.
As of February 26, 1999, the following number of shares of the registrant's
stock were outstanding:
<TABLE>
<S> <C>
Common Stock 4,988,519
Class B Common Stock 14,345
--------------
Total 5,002,864
==============
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE.
<PAGE> 2
(a) Portions of the 1998 Annual Report to Shareholders are herein incorporated
by reference into Part III.
(b) Portions of the definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
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Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6 Selected Financial Data 9
Item 7 Management's Discussion and Analysis of Financial Condition and Results
Of Operations 10
Item 7a Quantitative and Qualitative Disclosure About Market Risk 17
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes in and Disagreements with Accountants on Accounting and 17
Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Company 18
Item 11 Executive Compensation 18
Item 12 Security Ownership of Certain Beneficial Owners and Management 18
Item 13 Certain Relationships and Related Transactions 18
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 19
Signatures 21
Index to Consolidated Financial Statements F-1
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL
The Company, established in 1978, provides management consulting
services designed to improve the competitiveness and profitability of the
Company's clients. The Company's specific methodology, known as Total Cycle
Time, focuses on reducing the time spent on revenue production, product
development and administrative processes. By accelerating these processes using
Total Cycle Time methodology, clients are able to improve responsiveness to
customers, accelerate new product design and introduction and increase quality
and productivity, thereby resulting in improvements in financial performance.
The Company's clients are typically large companies, many of which are included
in the Fortune 1000.
In February 1998, the Company announced the appointment of J. Thomas
Williams, the former President of the European Business Unit, as President and
Chief Operating Officer of the Company. Alexander Young, the former President
and Chief Operating Officer became President of the Services Business Unit. In
May 1998, the Board of Directors elected Mr. Williams as Chief Executive Officer
and as a director of the Company. General John T. Chain, Jr., a member of the
Company's Board of Directors since May 1995, was elected as Chairman of the
Board. Philip R. Thomas, founder and former Chairman and Chief Executive
Officer, retired but remained an outside director of the Company until the
Annual Meeting of Stockholders in July 1998.
The need for the Company's Total Cycle Time services arises from
growing competitive pressures that affect most industries worldwide and require
companies to respond with faster development and supply of goods and services.
The Company believes this change has been caused by several factors, including
shorter product life cycles, higher quality standards and technological
innovation. Burdened by slow, bureaucratic operations, many companies risk
deteriorating margins, product obsolescence and loss of market share. Past
competitive advantages such as size, market position and reputation are often no
longer sufficient to maintain a leading competitive position. As a result,
traditional management techniques, which often focus on individual departments
or functional units of a business, rather than processes, may lessen a company's
ability to respond to market opportunities.
Utilizing Total Cycle Time methodology, the Company analyzes a client's
business, determines potential performance improvements, trains the client's
senior management and employees, and works to implement actions to improve
operating performance. Total Cycle Time services are designed to enable the
Company's clients to achieve quantifiable results, such as improved
profitability, greater productivity, more effective asset utilization and
reduced time in developing and delivering new products to market, thereby making
clients more competitive. Due to the Company's prior success with and confidence
in Total Cycle Time services, the Company is generally willing to accept a
combination of fixed fees and incentive fees based on measurable improvements in
a client's business operations.
As part of a restructuring of the Company in the second quarter of 1998,
the Company exited its software business segment, wrote down underutilized
assets and incurred personnel charges to focus on its core competency - business
process improvement.
TOTAL CYCLE TIME
The Total Cycle Time methodology developed and employed by the Company
is used to analyze and re-engineer a client's business into components of three
basic processes: the development of new products and services; the production
and delivery of goods and services; and the definition and implementation of
strategies to capitalize on fast response. By defining such processes, the
Company is able to quantify a client's existing performance levels using
measures of time, productivity, asset utilization, cost and quality. These
measurements are then used to establish operating and financial improvements the
Company believes can be obtained by a client using existing or reduced
resources. Total Cycle Time implementation programs typically span one to three
years, although new, more targeted products can be implemented in three to six
months.
The Company's activities begin with the assessment of a potential
client's existing level of performance. This assessment typically includes site
visits, interaction with management and an analysis of historical performance.
The
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Company uses the results of this assessment to determine the estimated operating
and financial improvements that can be obtained by the client using existing or
reduced resources through the implementation of Total Cycle Time. The Company
then analyzes whether a Total Cycle Time program or shorter-term products will
generate sufficient benefits to the client prior to proceeding with a proposal.
The Company believes that results from the implementation of Total Cycle
Time programs will be obtained only if the senior executives of a client are
committed to change. Consequently, the Company may provide a client's chief
executive officer (or chief operating officer of a business unit) and senior
managers a CEO workshop tailored exclusively for the client. The CEO workshop is
generally conducted at a site selected by the client or at the Company's CEO
Center, a remote facility located near Baton Rouge, Louisiana. At the
concentrated workshop, a client will gain exposure to Total Cycle Time tools,
help define what the client's business is capable of achieving, identify the
critical processes/high leverage areas within the client's company, identify
appropriate measurements for each of the critical processes and learn how the
improvement of critical processes will lead to tangible results. A key objective
of the workshop is to build a business team commitment to improve performance
using Total Cycle Time as the driver for process improvement. See "Business
Facilities." If a full CEO workshop is not relevant due to the length of the
selected Thomas Group program then the Company's methodology is introduced and
trained in an integrated manner along with the implementation of fast process
improvements at the client.
Frequently, business and cultural "barriers" restrict or hinder a
client's operating processes. These barriers may consist of excessive
inspections, inappropriate lot/batch sizes, improper measures or a client's view
of its business as departments or functions rather than as integrated processes.
Cultural and business process barriers appear in a wide variety of
manufacturing, project and service businesses and their removal can have a
significant, positive impact on a client's business. Because these barriers are
ingrained in a client's business and culture, they may be difficult for a
client's management to identify and address without the assistance of
experienced outside business professionals.
At an early stage of a program's implementation, the Company analyzes
each of a client's business processes, identifies the business process and
cultural barriers restricting a client's business and determines the actions
required to remove these barriers. As barriers to improved performance and
unnecessary steps in the business processes are removed, cycle times are reduced
and activities or actions are more rapidly and efficiently completed.
During implementation of a Total Cycle Time program, the Company
transfers its methodology to a client. The Company works with a client to
internalize Total Cycle Time in order to sustain a change in a client's culture
after the company's personnel complete the bulk of the program. The Company
grants its clients a limited license to use Total Cycle Time rights internally
following completion of a program. See "Intellectual Property."
In response to client demand, the Company introduced a range of
"continuous improvement services," consisting in part of ongoing assessments and
upgrades to Total Cycle Time methodology for completed programs. Continuous
improvement services are designed to maintain and improve upon the successes of
the original Total Cycle Time programs. In addition to providing the Company
with the opportunity for further client development and additional fees,
continuous improvement services provide clients with an extended means of
assessing, monitoring and improving their business utilizing Total Cycle Time.
COMPETITIVE STRATEGY
The Company's strategy is to maintain and enhance its position in the
development and implementation of its Total Cycle Time methodology. The
Company's strategy includes the following key elements, many of which
differentiate the Company from traditional providers of consulting services.
Emphasize Results. The Company may enter into incentive fee contracts,
which make the Company's revenue from a particular program partially contingent
upon certain results. The Company offers incentive fee contracts in cases where
the client may doubt the ability of Thomas Group to extract change. This
willingness differentiates Thomas Group from competitors, who generally charge
fees based on time expended regardless of results. These incentive fee contracts
demonstrate the Company's confidence that its programs will positively enhance
the businesses of its clients.
Targets Large Clients and Multiple Program Opportunities. The Company
has focused its marketing efforts on companies with annual revenues ranging from
$500 million to $50 billion, preferably with sequential program opportunities,
in the specific industry business units the Company has identified. The Company
believes larger clients
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provide greater revenue opportunities because such clients are likely to realize
greater economic benefit from the Company's services.
Active Involvement and Method for Continuous Improvement. By
implementing Total Cycle Time throughout a complete business or business unit in
cooperation with a client's management, the Company believes it can more
effectively influence business culture and processes and provide clients with
the methodology necessary for continuous improvement. In contrast, traditional
consulting firms often provide only isolated expertise in the form of written
assessments or reports that focus on discrete functions or an isolated segment
of a business.
Experienced Professional Staff. The Company employs professionals with
extensive business management experience. Traditional consulting firms often
hire recent business school graduates with expertise in a particular subject
rather than expertise in business management.
Program Focus. The Company focuses on cultural and business process
barriers rather than on subject matter barriers and functional units, which the
Company believes have less impact on improving a client's performance.
CLIENTS
The Company's clients are typically large, well-established
manufacturing, project and service companies, or distinct business units of such
companies, in the United States, Europe, and the Asia/Pacific region. Many of
the Company's clients are Fortune 1000 companies (or equivalent size non-U.S.
companies) or units thereof. The Company has worked for over 250 clients,
including the following:
DOMESTIC CLIENTS:
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American Microsystems Pinnacle Automation
Bell Packaging Polaroid
Chief Auto Parts Rohm and Haas
Coleman Outdoor Products Skychefs Caterair
Cypress Semiconductor Signetics
Cyprus Amax Tastemaker
Delco Electronics Teledyne
Detroit Diesel Texas Instruments
Dresser Industries W.W. Grainger
DSC Communications Wacker Chemtronic
Douglas Aircraft Western Digital
Dover
Dresser Industries INTERNATIONAL CLIENTS:
Electronic Data Systems ABB Asea Brown Boveri
General Electric Bosch Blaupunkt
General Motors Greuguet
GTS Euclid Hitachi
Graphic Controls Gemplus
Gulfstream Aerospace Hilti
Hillenbrand Industries Philco Tatuapa Radio & Televisao
ITT Philips N.V.
Moore Business Forms Saab
Motorola Schindler
National Semiconductor SGS Thomson Microelectronics
Olivetti Siemens
Osram Sylvania Johnson Electric
Pawnee Industries
</TABLE>
There can be no assurance that in the future the Company will perform
services for any of the companies listed above. In order to maintain and
increase its revenues, the Company will need to add new clients or expand
existing client relationships to include additional divisions or business units
of such clients.
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The Company operates in one operating segment, but conducts its business
primarily in three geographic areas, the United States, Europe and Asia.
Information regarding these areas follows:
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<CAPTION>
In thousands of dollars United States Europe Asia Corporate Total
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<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Sales to unaffiliated clients $48,027 $16,764 $ 3,570 $ -- $68,361
Long-lived assets $ 3,420 $ 572 $ 54 $ 6,494 $10,540
Year ended December 31, 1997:
Sales to unaffiliated clients $49,747 $14,903 $ 4,970 $ -- $69,620
Long-lived assets $10,850 $ 829 $ 81 $ 5,191 $16,951
Year ended December 31, 1996:
Sales to unaffiliated clients $45,445 $18,357 $ 1,209 $ -- $65,011
Long-lived assets $13,001 $ 1,109 $ 40 $ 3,318 $17,468
</TABLE>
In 1998, one client, General Motors, accounted for an aggregate of 30%
of the Company's total revenues. In 1997, two clients, LSG Skychefs and General
Motors, accounted for an aggregate of 20% of the Company's total revenues. In
1996, three clients, LSG Skychefs, Siemens and Moore Business Forms, accounted
for an aggregate of 34% of the Company's total revenues
SALES AND MARKETING
In addition to direct sales efforts, the Company's services are
marketed using several methods, including:
References and Referrals. The Company believes that references and
referrals from clients are its most powerful sales tool. Even without a direct
referral, clients are frequently contacted for their evaluation of the Company
and its services. In addition, the Company believes that each Total Cycle Time
program holds the potential for added revenues by exposing the Company and its
programs to other business units, customers and suppliers of each client.
Lectures and Publications. The Company also markets its services
through lectures and publications. Five books provide an introduction to the
value of implementing Total Cycle Time. These five books are Competitiveness
Through Total Cycle Time, Getting Competitive, Time Warrior, Quality Alone is
Not Enough and Survival at Nodulex. In addition, the Company promotes the
publication in periodical and business journals, of articles about time-based
management generally and Total Cycle Time specifically. Company personnel also
lecture to chambers of commerce, trade associations, and business symposia on
the subject of achieving competitiveness through the application of Total Cycle
Time.
CONTRACTUAL ARRANGEMENTS
The Company performs Total Cycle Time services for clients pursuant to
contracts generally with terms of one to three years or targeted process
improvement programs that could last from three to six months. Clients
compensate the Company for its services in the form of fixed fees or a
combination of both fixed and incentive fees (based on client improvements
achieved). The Company's fee structure is based on a client's size, which
defines the magnitude of anticipated results, the complexity and geographic
deployment of a client's business, and the total level of improvement
opportunity available to a client and certain other factors.
Fixed fees are recognized as revenues monthly over the term of a
program. Incentive fees are generally based on objective measures, such as cycle
time reduction, inventory reduction, accounts receivable reduction, profit
improvement or other quantifiable objectives and are recognized as revenues as
earned under the terms of the relevant contract. Factors such as a client's
commitment to Total Cycle Time, general business and economic cycles, and a
client's product position in the marketplace will affect the performance of the
Company's clients, thus affecting the Company's revenues from incentive fee
compensation. In 1998, 1997 and 1996, approximately 21%, 25% and 27%,
respectively, of the Company's revenues were attributable to incentive fees.
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The Company includes in its business under commitment (backlog) signed
client contracts with terms generally ranging from 12 to 18 months. Business
under commitment was $50 million at December 31, 1998 of which approximately $11
million is not expected to be realized within fiscal 1999.
PROFESSIONAL STAFF
The Company's staff of business professionals who apply Total Cycle
Time methodology are referred to by the Company as "Resultants." For its
Resultant work force, the Company employs individuals with significant
problem-solving and managerial skills from fields including manufacturing,
engineering and finance. The Company's Resultants typically have 15 to 20 years
of business management and specific industry experience. The Company provides
computer-based, classroom, textbook and videotape training for all new
Resultants. The Company historically has experienced less than 10% voluntary
annual turnover of its Resultants, reflecting the stable nature of its
workforce. The Company provides its Resultants with the opportunity to share in
the Company's profits and achieve significant bonuses through results-oriented
compensation such as the Company's stock option and bonus plans.
COMPETITION
Traditional consulting firms provide services similar in some respects
to the services provided by the Company. Providers of such services include A.T.
Kearney, Inc., Boston Consulting Group, McKinsey & Co. and major international
accounting firms, as well as several small firms that primarily focus on
time-based management services. Many of the Company's competitors have greater
personnel, financial, technical and marketing resources than the Company, and
there can be no assurance that the Company will be able to compete successfully
with its existing competitors or with any new competitors.
The Company believes that the competitive factors most important to its
business are the unique quality of its Total Cycle Time methodology, the quality
of its professional staff, its willingness to be compensated on an incentive
basis, its reputation for achieving targeted results, and its dedication to
selling results. The Company believes that no significant competitor offers
their clients the opportunity to base fees on the results achieved.
The Company believes that its most significant "competitor" is the
propensity for potential clients to "self-medicate" by attempting to implement
changes in their businesses themselves, in the belief they will achieve results
comparable to those resulting from the Company's services without the assistance
of outside professionals. The Company believes that these attempts to
self-medicate may result in limited success. However, such attempts may
substantially lengthen the Company's sales cycle and may therefore limit
business opportunities for the Company.
Because the Total Cycle Time methodology or related shorter-term
products are not capable of being patented, there can be no assurance that the
Company will not be subject to competition from others using substantially
similar methodologies. However, the Company believes that its base of knowledge,
experience and clients provide it with a competitive advantage.
INTELLECTUAL PROPERTY
The Company has secured federal registration for the service marks
"Total Cycle Time", "TCT(R)", "5 I's Process" and "Cycles of Learning." These
registrations expire from August 2002 to January 2003. The Company has filed an
application for federal service mark registration for "Resultants." "AIP
Management," "AIP's(SM)," "Actions-In-Process" and "Speed Driven Results." The
Company has also made appropriate filings in several European countries to
secure protection of its marks in those countries. The Company considers each of
these service marks or trademarks to be significant to the Company's business.
The Company's proprietary methodologies have been developed over 20
years at great expense, have required considerable effort on the part of skilled
professionals, are not generally known and are considered trade secrets.
Although the Company's services necessarily incorporate trade secrets, the
Company maintains its trade secrets in strict confidence and as part of its
standard engagement grants clients a limited license to make internal use of
certain of the Company's proprietary methodologies following completion of a
program.
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The Company has entered into nondisclosure and non-compete agreements
with substantially all of its current and former employees. There can be no
assurance that such agreements will deter any employee of the Company from
disclosing confidential information to third parties or from using such
information to compete with the Company in the future.
FACILITIES
The Company moved from its 25,000 square feet principal executive
office on the 25th floor of an office tower in Irving, Texas to the 5th floor of
the same office complex. The Company leases approximately 22,000 square feet of
office space under leases that expire in August, 2001 and December, 2002. The
Company also leases space for its offices in Troy, Michigan; Frankfurt, Germany,
and Singapore. The Company believes that these facilities are adequate for its
current needs.
The Company has entered into 25 year lease agreements with Philip
Thomas, founder and former Chief Executive Officer, for land on which an
executive training facility is situated and a separate Residential Facilities
Usage Agreement for guest accommodations situated on Mr. Thomas' adjacent
property. The land is leased pursuant to two 25-year leases entered into in
December, 1991 and January, 1994. The annual rentals on these leases is $6,000
each, one of which has been prepaid through the year 2016. The Residential
Facilities Usage Agreement on the guest accommodations provides for monthly
payments of $12,960 through November 30, 2016. On December 31, 1995, the Company
prepaid the Residential Facilities Usage Agreement lease in its entirety at a
negotiated discount to future payments.
EMPLOYEES
At January 31, 1999, the Company had a total of 255 employees,
consisting of 142 full-time Resultants(SM), 44 part-time Resultants(SM), and 69
sales and administrative employees. The Company's employees are not represented
by a labor union nor are they subject to any collective bargaining agreement.
The Company considers its employee relations to be good.
ITEM 2. PROPERTIES.
The Company's principal executive office is located in Irving, Texas.
The Company also leases space its offices in Troy, Michigan; Frankfurt, Germany,
and Singapore. The Company currently leases 60 acres of land near Baton Rouge,
Louisiana, on which the Company conducts seminars when the customer has not
selected an alternate location. The Company considers these properties to be
adequate for their business purposes.
ITEM 3. LEGAL PROCEEDINGS.
The Company has become subject to various claims and other legal
matters, described below, in the course of conducting its business. The Company
believes that neither such claims and other legal matters nor the cost of
prosecuting and/or defending such claims and other legal matters should have a
material adverse effect on the Company's consolidated results of operations,
financial condition or cash flows.
The Company is party to a legal action styled Creative Dimensions in
Management, Inc. v. Thomas Group, Inc., filed September 17, 1996 in the U.S.
District Court for the Eastern District of Pennsylvania. This matter arises out
of disputes under two agreements between the Company and Creative Dimensions in
Management, Inc. ("CDM"), a small private Company with whom the Company had an
alliance. The Company is contesting CDM's claims and is pursuing its
counterclaims vigorously. The matter is currently set for trial in March, 1999.
In the case of Thomas Group, Inc. v. Blevins, et al., filed May 19,
1997 in the U.S. District Court for the Northern District of Texas, and in the
case styled Blevins, et al. v. Thomas Group, Inc., et al., filed June 9, 1997 in
the U.S. District Court for the Northern District of Ohio, each party has
asserted claims arising out of the purchase agreement and consulting agreement
in connection with the Company's purchase of Interlink Technologies
("Interlink"). As a result of losses sustained by its subsidiary, the Company
asserted claims in the Texas action against Ron Blevins and Mike Smith, the
former owners of Interlink, for breach of contract and fraudulent
misrepresentation. The Texas federal action was transferred to Ohio and
consolidated with the Ohio federal action. The trial date has been set for July
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27, 1999. The Company believes the former owners' claims have no merit, and it
is the Company's intention to vigorously pursue its own claims against the
former owners of Interlink, as well as vigorously defend against the former
owners' claims.
The Company is party to a legal action styled Philip R. Thomas and
Wayne Heirtzler Thomas v. Thomas Group, Inc., before the U.S. District Court,
Middle District of Louisiana, consolidated with another action styled Thomas
Group of Louisiana, Inc. v. Philip R. Thomas and Wayne Heirtzler Thomas. Mr. and
Mrs. Thomas are seeking to "enforce leases" and have seized, under a writ of
sequestration, movable assets at the Company's CEO Center in Louisiana. No
damages are alleged by Mr. and Mrs. Thomas. The second suit was filed against
Mr. and Mrs. Thomas by a subsidiary of the Company, seeking to dissolve the writ
of sequestration and asserting a claim for damages. A hearing was held on
February 2, 1999 on the motions of the Company and its subsidiary to dissolve
the writ of sequestration, and the court has lifted the sequestration order.
The Company is party to a legal proceeding with the former Chairman and
CEO of the Company, styled Thomas Group, Inc. v. Philip Thomas. The Company
timely paid Mr. Thomas all benefits due him under his written employment
agreement, including a $1.8 million severance payment, yet Mr. Thomas has
demanded additional compensation and retirement benefits. On December 18, 1998,
the Company initiated this proceeding before the American Arbitration
Association in Dallas, Texas pursuant to an arbitration clause in Mr. Thomas'
employment agreement. On December 31, 1998, Mr. Thomas filed suit in Dallas
County District Court in an action styled Philip R. Thomas v. Thomas Group, Inc.
The Company believes Mr. Thomas' claims have no merit, vigorously contests Mr.
Thomas' claims, has moved to stay the litigation based on the parties' written
agreement to arbitrate, and is seeking a determination that Mr. Thomas is owed
nothing further as a result of his employment relationship with the Company.
The Company has become subject to various other claims and other legal matters,
such as collection matters initiated by the Company, in the course of conducting
its business. The Company believes that neither such claims and other legal
matters nor the cost of prosecuting and/or defending such claims and other legal
matters should have a material adverse effect on the Company's consolidated
results of operations, financial condition or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET FOR REGISTRANT'S COMMON EQUITY
The Company's Common Stock is traded on the over the counter market on
the NASDAQ National Market System under the symbol TGIS. The stock prices set
forth represent the highest and lowest sales prices per share of the Company's
Common Stock as reported by the NASDAQ National Market System. The prices
reported in the following table by the NASDAQ National Market System reflect
inter-dealer prices without retail mark-up, markdown or commissions.
<TABLE>
<CAPTION>
Quarter Ended High Low
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<S> <C> <C>
March 31, 1997 $11.50 $ 6.63
June 30, 1997 $12.50 $ 7.00
September 30, 1997 $14.00 $10.50
December 31, 1997 $13.00 $10.00
March 31, 1998 $ 9.00 $ 8.81
June 30, 1998 $10.75 $10.50
September 30, 1998 $ 9.06 $ 9.06
December 31, 1998 $10.50 $ 9.00
</TABLE>
There is no established public market for the Company's Class B Common
Stock.
HOLDERS OF RECORD
As of January 31, 1999 there were approximately 130 holders of record
of the Company's Common Stock.
DIVIDENDS
The Company has not paid cash dividends on its Common Stock. The
Company intends to retain future earnings in order to provide funds for use in
the operation and expansion of the business, and, accordingly, does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial
information regarding the Company. This historical financial information has
been derived from the audited financial statements of the Company and is
adjusted for the elimination of results from operations of discontinued
operations. This information should be read in conjunction with, and is
qualified by, the consolidated financial statements and notes thereto included
in this Annual Report to Stockholders.
<TABLE>
<CAPTION>
Year ended December 31,
In thousands, except per share data 1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues from continuing operations $ 68,361 $ 69,620 $ 65,012 $ 63,392 $ 52,460
Operating Expenses 68,069 58,625 59,604 53,183 52,899
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Operating Income (Loss) 292 10,995 5,408 10,209 (439)
Net gain on securities sale -- -- -- -- 479
Interest income (expense) (164) 159 252 524 105
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Income from continuing operations
before Income Taxes 128 11,154 5,660 10,733 145
Income Taxes 37 4,461 2,264 4,203 99
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Income from continuing operations 91 6,693 3,396 6,530 46
Discontinued operations:
Loss from operations, net of tax (1,092) (4,267) (1,571) 225 --
Loss on disposal, net of tax (3,341) -- -- -- --
-------------------------------------------------------------------------------
Net Income (Loss) $ (4,342) $ 2,426 $ 1,825 $ 6,755 $ 46
===============================================================================
Earnings (loss) per share
Basic
Income from continuing operations $ 0.02 $ 1.10 $ 0.57 $ 1.09 $ 0.01
Loss from discontinued operations (0.84) (0.70) (0.26) 0.04 --
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Net income (loss) $ ( 0.82) $ 0.40 $ 0.31 $ 1.13 $ 0.01
===============================================================================
Diluted
Income from continuing operations $ 0.02 $ 1.06 $ 0.54 $ 1.04 $ 0.01
Loss on discontinued operations (0.82) (0.68) (0.25) 0.04 --
-------------------------------------------------------------------------------
Net income (loss) $ (0.80) $ 0.38 $ 0.29 $ 1.08 $ 0.01
===============================================================================
Weighted average shares
Basic 5,304,882 6,097,782 5,963,394 5,998,009 5,792,333
Diluted 5,433,707 6,327,484 6,309,970 6,282,036 6,127,332
BALANCE SHEET - YEAR END
Working Capital $ 13,600 $ 20,738 $ 15,705 $ 20,001 $ 15,248
Total Assets 31,631 44,386 38,890 40,157 27,567
Long-term Obligations, Including
Current Maturities 3,257 3,286 1,661 1,128 1,131
Total Stockholders'
Equity 21,212 34,708 31,512 31,051 22,277
</TABLE>
9
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company derives the majority of its revenues from monthly fixed and
incentive fees for the implementation of Total Cycle Time and other business
improvement programs. Incentive fees are tied to improvements in a variety of
client performance measures typically involving response time, asset
utilization, productivity and profitability. Due to the Company's use of
incentive fee contracts, variations in revenue levels may cause fluctuations in
quarterly results. Factors such as a client's commitment to a Total Cycle Time
program, general economic and industry conditions, and other issues could affect
a client's business performance, thereby affecting the Company's incentive fee
revenues and quarterly earnings. Quarterly revenue and earnings of the Company
may also be impacted by the size of individual contracts relative to the annual
revenues of the Company.
In February 1998, the Company announced the appointment of J. Thomas Williams,
the former President of the European Business Unit, as President and Chief
Operating Officer of the Company. Alexander Young, the former President and
Chief Operating Officer, became President of the Services business unit. In May
1998, Philip R. Thomas retired as Chairman of the Board and Chief Executive
Officer. The Board of Directors elected Mr. Williams as Chief Executive Officer
and as a director of the Company. General John T. Chain, Jr., a member of the
Company's Board of Directors since May 1995, was elected as Chairman of the
Board.
On May 6, 1998, the Company announced a plan to realign its corporate structure.
The restructuring charges include approximately $3.0 million for personnel
reduction costs, a reserve totaling $5.9 million which was established against
the value of certain leasehold improvements and other underutilized and
unnecessary facilities, and miscellaneous other charges of approximately $0.8
million. The Company also recorded a non-recurring charge of $0.8 million in the
first quarter of 1998 associated with the departure of three senior level
managers.
Prior to May 1998, the Company, through its Information Technologies business
unit, provided software solutions for certain business processes through the
sale of software licenses, services and maintenance, and computer hardware.
These services were provided through subsidiary companies purchased in August
1995 and July 1996, which each experienced several quarters of operating losses.
On May 6, 1998, the Company announced its plan to dispose of its Information
Technologies business unit. In connection with this decision, the Company took
an after tax charge of approximately $2.9 million as the estimated loss on
disposal of the segment, including estimated operating losses during the
phase-out period and up to the anticipated date of sale.
The sale of the Thomas Group Information Technologies assets closed on August
31, 1998. No proceeds were received at the time of the transaction, but the
agreements included potential earn-outs over the next five years. In exchange,
the Company was relieved of the liabilities related to extended service
contracts. Terms of the sale required a revision to the estimated loss on
disposal and an additional $0.4 million after tax charge was recorded in the
third quarter of 1998.
With the 1998 management and organizational changes completed, the Company's
focus will be on future revenue growth. Management is currently evaluating
several options for increasing revenue, including establishing strategic
partnerships, acquisitions of small consulting companies, and leveraging past
and current client relationships.
In addition to its domestic operations, the Company has operations and contracts
in Europe and the Asia/Pacific region. Contracts in these regions traditionally
have been denominated in the local currency of the client for which the service
is performed; therefore, the Company is exposed to currency fluctuation risks.
10
<PAGE> 13
UNLESS OTHERWISE STATED, THE DISCUSSION THAT FOLLOWS PERTAINS TO CONTINUING
OPERATIONS ONLY.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
FOR YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Revenues from continuing operations 100.0% 100.0% 100.0%
Cost of Sales 58.0% 57.9% 63.7%
-----------------------------------------------------
Gross Margin 42.0% 42.1% 36.3%
Selling, General and Administrative 41.6% 26.2% 28.0%
-----------------------------------------------------
Operating Income 0.4% 15.9% 8.3%
Interest Income (Expense), net (0.2)% 0.2% 0.4%
-----------------------------------------------------
Income from continuing operations 0.2% 16.1% 8.7%
before income taxes
Income taxes 0.1% 6.4% 3.5%
-----------------------------------------------------
Income from continuing operations 0.1% 9.7% 5.2%
=====================================================
</TABLE>
RESULTS OF OPERATIONS
Years Ended December 31, 1998 and December 31, 1997
Revenues
Revenue decreased $1.2 million, or 2% from $69.6 million in 1997 to $68.4
million in 1998; however, the number of active programs in 1998 increased. Also,
in 1998 the Company had fewer incentive programs and consequently, less revenue
volatility. Incentive revenues in 1998 were $14.0 million or 21% of total
revenues a decrease from $18.6 million or 27% of revenue in 1997.
United States revenues decreased $1.7 million, or 3%, from $49.7 million in 1997
to $48.0 million in 1998. The revenue mix reflects a strong increase in the
operations of the Company's Aviation and Automotive business units combined with
a decrease in Electronics business unit and Consumer and Industrial Products'
business unit operations in 1998. This decline is partially due to a reduction
in the number of semiconductor clients. Effective January 1, 1999, the Company
has realigned itself along what it believes are the industry and geographic
areas with the highest growth potential in the near future. In this realignment
the Electronics and Consumer and Industrial Products business units were merged
into other business units. The Company's current business units are Aviation,
Automotive, Business Solutions, Service, Telecommunications, Europe and
Asia/Pacific. Two new business units, Business Solutions and Telecommunications,
re expected to generate revenue almost immediately, as the Company already is
recognizable as experienced in these industries.
Also affecting 1998 revenue was the decrease in the Company's Asia/Pacific
business unit where revenues decreased to $3.6 million in 1998 from a high in
1997 of $5.0 million. The Company anticipates that revenues for this business
unit will have limited growth until companies and the general economy in this
region regain financial stability. The Company continues to work closely with
its existing and potential clients on structuring fees that are compatible with
the continuing Asian economic situation.
European revenues increased $1.9 million, to $16.8 million in 1998 from $14.9
million in 1997. The primary source of this increase is the addition of a large
contract in Sweden and two additional significant contracts through the
Company's Switzerland operations. European revenue may decline in 1999 due to
the completion of several programs in late 1998 that have not yet been replaced.
Gross Profit
Gross profit for 1998 decreased slightly to $28.7 million in 1998 from $29.3
million in 1997. As a percentage of sales, gross margin remained steady at 42%
from 1997 to 1998. In 1998, the Company increased the use of part-time
Resultants(SM) who are compensated only when they are working on client
assignments. This use of part-time employees
11
<PAGE> 14
is designed to reduce the volatility of the Company's profit margin in the event
of a reduction in the number of active contracts.
Selling, General and Administrative
Selling, general and administrative expenses increased significantly due to a
$9.7 million restructuring charge in the second quarter of 1998. On May 6, 1998,
the Company announced a plan to realign its corporate structure. The
restructuring charges include approximately $3.0 million for personnel reduction
costs, a reserve totaling $5.9 million which was established against the value
of certain leasehold improvements and other underutilized and unnecessary
facilities, and miscellaneous other charges of approximately $0.8 million. The
Company also recorded a non-recurring charge of $0.8 million in the first
quarter of 1998 associated with the departure of three senior level managers.
Excluding the effect of the restructuring and non-recurring charges, selling,
general and administrative expenses decreased slightly to $17.9 million in 1998
from $18.3 million in 1997. Significant cost savings in personnel costs, rent
expense and sales and marketing expenses obtained as a result of restructuring
in the second quarter of 1998 were offset by increased employee bonuses and $1.0
million in increased legal costs. The Company anticipates that the legal issues
temporarily increasing legal expenses will conclude in 1999. Additionally, costs
related to telephone and internet connectivity increased as the Company
developed it's own intranet and increased its use of teleconferencing in order
to reduce travel expense. Additionally, the Company increased its technology
expenditures by approximately $0.6 million as it continued to upgrade its
systems, networks, and general support for travelling ResultantsSM.
Income Taxes
The Company's effective tax rate in 1998 was 29%, compared to 40% in 1997. The
tax rate has been significantly affected by issues related to the restructuring
charge in the second quarter of 1998 and the allowance that has been established
against the deferred tax asset related to deferred tax assets on foreign
operations and includes the Asian net operating loss, the foreign tax credit
carryover and certain temporary differences related to foreign operations. The
Company has deferred tax assets of $4.9 million at December 31, 1998. Management
believes that current and future levels of taxable income will be sufficient to
realize the benefits of the deferred tax assets.
Income from Continuing Operations
As a result of the foregoing, the income from continuing operations for 1998 was
$0.1 million compared to $6.7 million for 1997. Earnings per share for
continuing operations decreased from $1.06 per diluted share in 1997 to $0.02
per diluted share in 1998. Affecting the per share results for the Company is
the April 1998 purchase of 1.3 million shares of common stock into treasury.
This purchase into treasury reduced the weighted average shares outstanding used
in the calculation of per share results from 6.3 million diluted shares at
December 31, 1997 to 5.4 million shares at December 31, 1998.
Discontinued Operations
The Company's loss on the Information Technologies business segment,
discontinued May 1998, decreased from $4.3 million in 1997 to $1.1 million in
1998. This decrease in loss is due primarily to inclusion of only five months of
operations in 1998.
Years Ended December 31, 1997 and December 31, 1996
Revenues
Revenues for 1997 increased by $4.6 million or 7% to $69.6 million from $65.0
million for 1996. Revenue increased due to increases in the number of
Asia/Pacific programs combined with the new programs in the Automotive and
Aviation Business Units. Fixed fee and incentive based revenues were 73% and
27%, respectively, of revenues for 1997 compared to 70% and 30%, respectively,
in 1996.
United States revenues increased $4.3 million or 10% in 1997 to $49.7 million
from $45.4 million in 1996 due to additional contracts, particularly in the
Automotive and Aviation business units. European revenues decreased $3.5 million
or 19% to $14.9 million from $18.4 million in 1996. European revenues decreased
primarily due to a weakening of the Swiss Franc and German Mark against the U.S.
dollar. Since most of the Company's European contracts are in the local currency
of the programs, exchange rate fluctuation in 1997 reduced the converted U.S.
dollar revenues.
12
<PAGE> 15
Asia/Pacific revenues were $5 million in 1997, an increase of $3.8 million or
311% over revenues of $1.2 million in 1996. Revenues in this region increased in
1997 as the Company increased its visibility and number of active programs since
entering the market in 1996.
Gross Profit
Gross profit for 1997 increased by $5.7 million or 24% to $29.3 million from
$23.6 million for 1996. As a percentage of sales, gross margin for 1997
increased to 42% from 36% for 1996. The increase in gross profit was the result
of improved cost control measures combined with ResultantSM work force
reductions made in late 1996. Cost control measures included the closing of the
Company's Princeton, New Jersey and San Jose, California offices.
Selling, General and Administrative
Selling, general and administrative expenses for 1997 increased by $0.5 million
or 3% to $18.3 million from $17.8 million for 1996. As a percentage of sales,
the Company's selling, general and administrative expenses for 1997 decreased to
36% from 28% for 1996.
Increases in selling, general and administrative expenses were due primarily to
business development initiatives started in the second half of 1996 and
continued throughout 1997. Sales and marketing expenses increased $0.4 million
due primarily to headcount increases and investments in improving market
visibility through advertisements and other initiatives.
Additionally contributing to the increase in selling, general and administrative
expense was the officers' incentive compensation of $0.8 million earned in 1997.
No incentive compensation was earned in 1996.
The above-mentioned increases were partially offset by cost control measures
implemented throughout the Company, resulting in reduced travel and utilities
expenses.
Income Taxes
The Company's effective tax rate in 1997 and 1996 was 40%. The Company reported
a deferred tax asset of $2.6 million at December 31, 1997.
Income from Continuing Operations
Income from continuing operations for 1997 increased by $3.3 million or 85% to
$6.7 million from $3.4 million for 1996. Earnings per share on a diluted basis
increased by $0.52 or 83% to $1.06 from $0.54 for 1996.
Discontinued Operations
The Company's loss on the Information Technologies business segment,
discontinued in May 1998, was due primarily to reduced revenues in 1997 combined
with a fourth quarter 1997 goodwill impairment charge of $0.7 million.
Margins declined in 1997 to a negative 28% compared to a positive 1% in 1996.
Quarterly Results - The following table sets forth certain unaudited operating
results for each of the four quarters in the two years ended December 31, 1998.
The information has been prepared on the same basis as the audited financial
statements and, in the opinion of the Company, includes all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the information for the periods presented.
13
<PAGE> 16
<TABLE>
<CAPTION>
In Thousands,Except Per 1998 1997
Share Data FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------
MAR 31 JUNE 30 SEPT. 30 DEC. 31 YTD MAR. 31 JUNE 30 SEPT. 30 DEC. 31 YTD
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $15,646 $16,565 $17,439 $18,711 $68,361 $15,421 $18,564 $ 18,456 $ 17,179 $ 69,620
Operating Income (Loss) 645 (7,546) 3,150 4,043 292 2,117 3,462 3,477 1,939 10,995
Income (Loss) before
Income Taxes 674 (7,636) 3,080 4,010 128 2,125 3,522 3,512 1,995 11,154
Net Income (Loss) 405 (4,731) 1,956 2,462 91 1,275 2,114 2,078 1,226 6,693
Earnings (Loss) per share
Basic $ 0.07 ($ 0.94) $ 0.40 $ 0.48 $ 0.02 $ 0.21 $ 0.35 $ 0.34 $ 0.20 $ 1.10
Diluted $ 0.06 -- $ 0.39 $ 0.47 $ 0.02 $ 0.21 $ 0.34 $ 0.32 $ 0.19 $ 1.06
Weighted average shares
And share equivalents
Basic 6,152 5,031 4,946 5,116 5,305 6,079 6,081 6,102 6,131 6,097
Diluted 6,257 -- 5,055 5,258 5,434 6,220 6,247 6,435 6,391 6,327
STOCK PRICE (1)
High $ 13.00 $ 12.06 $ 11.38 $ 13.00 $ 13.00 $ 11.50 $ 12.50 $ 14.00 $ 13.00 $ 14.00
Low $ 7.00 $ 7.75 $ 8.00 $ 7.25 $ 7.00 $ 6.63 $ 7.00 $ 10.50 $ 10.00 $ 6.63
Close $ 9.00 $ 10.63 $ 9.06 $ 10.25 $ 10.25 $ 9.75 $ 11.75 $ 12.75 $ 12.50 $ 12.50
</TABLE>
(1) The stock prices set forth represent the highest and lowest sales prices
per share of the Company's common stock as reported by NASDAQ. The prices
reported by NASDAQ reflect inter-dealer prices without retail mark-up,
markdown or commissions, and may not necessarily represent actual
transactions.
Quarter ended December 31, 1998
Revenue increased $1.5 million, or 9%, in the fourth quarter of 1998 compared to
the fourth quarter of 1997. Net income increased 108% from $1.2 million in the
fourth quarter of 1997 to $2.5 million in the fourth quarter of 1998. Diluted
earnings per share increased 135% from $0.19 in the fourth quarter of 1997 to
$0.47 in the fourth quarter of 1998. Management does not guarantee that this
trend will continue into subsequent quarters. Earnings per share were affected
by a 1998 repurchase of treasury shares which reduced the diluted weighted
average shares and share equivalents outstanding by 16% to 5.4 million shares in
the fourth quarter of 1998 from 6.4 million in the fourth quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flow from operations,
periodically supplemented by borrowings under a bank line of credit.
Operations provided cash of $7.1 million in 1998, as compared to $12.6 million
in 1997. Significant items positively affecting operating activities cash flow
include: net income of $0.1 million; depreciation and amortization of $1.6
million; reserves established against certain fixed assets of $3.9 million;
increases in accounts payable and accrued liabilities of $1.1 million; and
decreases in other assets of $1.8 million. The principal item negatively
affecting cash flow is a $2.4 million increase in trade accounts receivable and
an increase in the deferred tax asset of $1.1 million. Due to a significant
client whose payment terms are 45 to 60 days, days sales outstanding have eroded
from 32 days at December 31, 1997 from 53 days at December 31, 1998.
Capital expenditures and subsidiary acquisitions have historically been the
Company's largest investing activities. Capital expenditures in 1998 related
primarily to office enhancement related to the relocation of the Company's
corporate offices, additional computer and network upgrades and office
infrastructure enhancements in 1997, and conference center capacity expansion
and computer hardware upgrades in 1996. In 1996 the Company used $2.3 million of
cash to acquire Bermac Communications.
Cash flows used in financing activities in 1998, 1997 and 1996 were for the
purchase of the Company's stock for $10.6 million, $0.2 million and $3.3
million, respectively. Additionally in 1996, cash flows from financing
activities included the settlement of 1995 amounts due to affiliates, including
a payment of $1.0 million to a former officer of the Company for the purchase of
a suite at Texas Stadium and for prepaid rent for its CEO Center facility, and
certain advances to affiliates.
14
<PAGE> 17
In February 1998, the Company entered into a stock purchase agreement with Mr.
Philip R. Thomas, former Chairman and Chief Executive Officer, to repurchase
shares of common stock of the Company for $8.3 million in cash and satisfaction
of a $2.3 million debt to the Company. At the close of the market on April 24,
1998, the end of the ninety-day valuation period, the number of shares to be
purchased was determined to be approximately 1.3 million shares.
In 1994, the Board of Directors approved a stock repurchase plan for up to
250,000 shares. The Company purchased 7,000 shares at an average price of $10.71
in 1994 and 226,600 shares at an average price per share of $14.74 in 1996. The
Company completed the purchase of the remaining 16,400 shares in the second
quarter of 1997, at an average price per share of $11.37.
In January 1999, the Board of Directors approved another stock repurchase plan
for up to 250,000 shares. Through February 26, 1999, the Company had not
purchased any shares of stock under this newly approved plan.
On December 4, 1996 the Company entered into a $20 million revolving credit
facility with Comerica Bank - Texas. This facility expires in December 2003 and
includes a call option in December 2001. Additionally, the terms provide for a
$1 million per quarter reduction in any outstanding balances after the first two
years. Loans under this agreement bear interest at the prime rate or other
options. The Company also has a $1.0 million credit facility with Comerica Bank
- - Leasing for the purchase of computer equipment. The Company made draws of $0.9
million on this facility during 1997 to purchase computer equipment.
DEFERRED TAXES
As a result of the restructuring charges and losses from discontinued operations
recognized in the second quarter, the Company maintains a $4.9 million deferred
tax asset. Utilization of the deferred tax asset is dependent on future taxable
profits.
Although there was a reported loss for the year ended December 31, 1998, the
asset has been recognized because management believes it is more likely than not
that the deferred tax asset will be utilized in future years. This conclusion is
based on the belief that current and future levels of taxable income will be
sufficient to realize the benefits of the deferred tax asset on domestic
operations. The Company has not historically realized losses on its Business
Improvement Services. (See "Selected Historical Financial Data") Unprofitable
operations were sold in 1998. At a tax rate of 38% the Company needs to realize
pre-tax income of $12.9 million in the next five years to fully realize the
benefit of the $4.9 million deferred tax asset. Assuming margins remain
equivalent to historical levels, business under commitment (backlog) at December
31, 1998 should produce income before taxes of approximately $8.8 million in the
next two years. Management believes that closing additional $4.1 million of
revenue in this period is highly likely.
Included in the $4.9 million deferred tax asset is a $1.5 million valuation
allowance. The valuation allowance is related to deferred tax assets on foreign
operations and includes the Asian net operating loss, the foreign tax credit
carryover and certain temporary differences related to foreign operations. The
Company will continue in future periods to evaluate the realizability of the
deferred tax asset and make necessary adjustments through charges to expense
should projected future taxable income be insufficient to realize the benefit of
the deferred tax asset. (See also Note 8 to the Consolidated Financial
Statements of the Company.)
INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation had a material effect on
the results of operations during the years ended December 31, 1998.
FINANCIAL CONDITION
The Company believes that its financial condition remains strong and that it has
the financial resources necessary to meet its needs. Cash provided by operating
activities and the Company's credit facility should be sufficient to meet short
and long-term operational needs.
YEAR 2000 ISSUES
The Company's internal business information systems are primarily comprised of
commercial application software
15
<PAGE> 18
products offered for license by Microsoft Corporation and other recognized
providers. Because these provider's products are widely distributed,
commercially developed applications, the Company anticipates these applications
have been or will be brought into compliance by the manufacturers. On January 1,
1999 the Company began using its new accounting and financial reporting software
implemented during 1998. The reasons for such purchase included the assurance of
Year 2000 compliance. Costs incurred specifically related to Year 2000 issues
have totaled less than $0.5 million as of December 31, 1998.
The Company does not anticipate any Year 2000 compliance issues to arise related
to its primary internal business information systems. Thomas Group is not aware
of any further material operational issues or costs associated with preparing
internal systems for the Year 2000. However, the Company utilizes other third
party network equipment, telecommunications products, and other third party
software products that may or may not be Year 2000 compliant. Although the
Company is currently taking steps to address the impact, if any, of the Year
2000 issue surrounding such third party products, failure of any critical
technology to operate properly in the Year 2000 may have an adverse impact on
business operations or financial results.
The Company can not anticipate the impact of Year 2000 compliance on its clients
at this time. The Company is unaware of any client who may be impacted by the
Year 2000 issue. A failure of a client to appropriately handle issues related to
the Year 2000 might have an adverse impact on the financial results of the
Company.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This statement standardized the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. The statement generally provides for matching the timing of gain or loss
recognition on the hedging instrument with the recognition of (a) the changes in
fair value of hedged asset or liabilities that are attributable to the hedged
risk or (b) the earnings effect of the hedged forecasted transaction. The
statement is effective for all fiscal quarters for all fiscal years beginning
after June 15, 1999, with early application encouraged, and shall not be applied
retroactively to financial statements of prior periods. Adoption of SFAS 133 is
expected to have no effect on the Company's financial statements.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:
With the exception of historical information, the matters discussed in this
report are "forward looking statements" as that term is defined in Section 21E
of the Securities Exchange Act of 1934.
While the Company believes that its strategic plan is on target and the business
outlook remains strong, several important factors have been identified, which
could cause actual results to differ materially from those predicted. By way of
example:
o The competitive nature of the management consulting industry, in light
of new entrants into the industry and the difficulty of differentiating
the services offered to potential clients.
o The time required by prospective clients to fully understand the value
and complexity of a typical Total Cycle Time (TCT) program may result
in an extended lead time to close new business.
o Performance-oriented fees are earned upon the achievement of
improvements in a client's business. The client's commitment to a TCT
program and general economic/industry conditions could impact a
client's business performance and consequently the Company's ability to
forecast the timing and ultimate realization of performance-oriented
fees.
o The ability of the Company to productively re-deploy personnel during
program transition periods.
o The ability of the Company to create alliances and make acquisitions
that are accretive to earnings.
16
<PAGE> 19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company invests cash balances in excess of operating requirements
in short-term securities, generally with maturities of 90 days or less. In
addition, the Company's credit agreement provides for borrowings which bear
interest at variable rates based on either the prime rate or other options. The
Company had borrowings on this credit facility from time to time during 1998,
but had no outstanding borrowings at December 31, 1998 or through February 26,
1999. The Company believes that the effect, if any, of reasonably possible
near-term changes in interest rates on the Company's financial position, results
of operations, and cash flows should not be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1.
Supplementary quarterly financial information for the Company is included in
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
17
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information relating to the Company's directors and nominees for
election as directors, and the information relating to executive officers of the
Company, is incorporated herein by reference from the Company's Proxy Statement
(herein so called) for its 1999 Annual Meeting of Stockholders. It is currently
anticipated that the Proxy Statement will be publicly available and mailed to
stockholders in May 1999.
ITEM 11. EXECUTIVE COMPENSATION.
The discussion under "Executive Compensation" in the Company's Proxy
Statement for its 1999 Annual Meeting is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The discussion under "Security Ownership of Certain Beneficial Owners
and Management" in the Company's Proxy Statement for its 1999 Annual Meeting is
incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The discussion under "Certain Transactions" in the Company's Proxy
Statement for its 1999 Annual Meeting is incorporated herein by reference.
18
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report.
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
*3.1 Amended and Restated Certificate of Incorporation of
the Company.
*3.2 Amended and Restated By-Laws
4.1 Specimen Certificate evidencing Common Stock (filed
as Exhibit 4.1 to the Company's 1993 Form S-1 (File
No. 33-64492) and incorporated herein by reference).
*4.2 Form of Warrant Certificate for the Purchase of
Shares (SRG & Associates, Ltd.)
*4.3 Form of Warrant Certificate for the Purchase of
Shares (Lyon Securities, Inc.)
*4.4 Amendment No. 1 to Rights Agreement dated March 1,
1999
*10.1 Employment Agreement between the Company and Leland
L. Grubb, Jr.
*10.2 Amended and Restated 1988 Stock Option Plan
*10.3 Amended and Restated 1992 Stock Option Plan
*10.4 Amended and Restated 1997 Stock Option Plan
*10.5 401(k) Plan
*10.6 First Amended and Restated Revolving Credit Loan
Agreement dated December 4, 1996 between Comerica
Bank-Texas and the Company.
*10.7 Commercial lease dated December 31, 1991 between
Philip R. Thomas and Wayne Heirtzler Thomas, as
owners, and the Company, as lessee
*10.8 Amendment No. 1 to Commercial Lease between Philip R.
Thomas and Wayne Heirtzler Thomas, as owners, and the
Company, as lessee, dated February 8, 1992
*10.9 Amendment No. 2 to Commercial Lease between Philip R.
Thomas and Wayne Heirtzler Thomas, as owners, and the
Company, as lessee, dated February 1, 1993
*10.10 Amendment No. 3 to Commercial Lease between Philip R.
Thomas and Wayne Heirtzler Thomas, as owners, and the
Company, as lessee
*10.11 Agreement re: Pre-Payment of rent
*10.12 Non-Employee Director Retainer Fee Plan
*10.13 Commercial Lease dated February 8, 1994 between
Philip R. Thomas and Wayne Heirtzler Thomas, as
owners, and the Company, as lessee
19
<PAGE> 22
*13 1997 Annual Report to Stockholders. (Filed as
Exhibit 13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (the "1997
Form 10-K") and incorporated herein by reference.)
*21 Subsidiaries of the Company.
24 Power of Attorney (set forth on the signature page of
this Form 10-K).
*27 Financial Data Schedule
---------------
* Filed herewith.
(b) Reports on Form 8-K.
Current reports on Form 8-K. None
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irving,
State of Texas, on March 9, 1999.
THOMAS GROUP, INC.
By: /s/ J. THOMAS WILLIAMS
-----------------------------
J. Thomas Williams
Chief Executive Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
J. Thomas Williams such person's true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for such person and in such
person's name, place, and stead, in any and all capacities, to sign any and all
amendments to this Form 10-K and to file the same with all exhibits thereto, and
all documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents or any of
them, or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Form 10-K has been signed by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ J. THOMAS WILLIAMS
- ------------------------------- Chief Executive Officer, President, Chief Operating Officer March 9, 1999
J. Thomas Williams and Director
/s/ LELAND L. GRUBB, JR.
- ------------------------------- Vice President, Chief Financial Officer and Treasurer March 9, 1999
Leland L. Grubb, Jr. (Principal Financial and Accounting Officer)
/s/ JOHN T. CHAIN, JR.
- ------------------------------- Chairman of the Board March 9, 1999
John T. Chain, Jr.
/s/JAMES E. DYKES
- ------------------------------- Director March 9, 1999
James E. Dykes
/s/RICHARD A. FREYTAG
- ------------------------------- Director March 9, 1999
Richard A. Freytag
/s/ DAVID B. MATHIS
- ------------------------------- Director March 9, 1999
David B. Mathis
</TABLE>
21
<PAGE> 24
THOMAS GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of Thomas Group, Inc. are
included in response to Item 8:
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the fiscal years ended December 31, 1998, 1997 and F-4
1996
Consolidated Statements of Stockholders' Equity for the fiscal years ended December 31, 1998, F-5
1997 and 1996
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 25
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Thomas Group, Inc.
Irving, Texas
We have audited the accompanying consolidated balance sheets of Thomas Group,
Inc. as of December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Thomas
Group, Inc. at December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Dallas, Texas
February 12, 1999
F-2
<PAGE> 26
THOMAS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands, except share data December 31,
- -------------------------------
ASSETS ---------------------------
1998 1997
---------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 6,376 $ 11,254
Trade accounts receivable, net of allowances of $396 and $341 11,239 10,278
Unbilled receivables 740 2,083
Accounts and notes receivable - affiliates -- 2,274
Deferred tax asset 2,331 745
Other assets 405 800
---------------------------
Total Current Assets 21,091 27,434
---------------------------
Property and equipment, net 3,627 8,326
Capitalized software development costs, net -- 888
Deferred tax asset 2,519 1,826
Other assets 4,394 5,912
---------------------------
$ 31,631 $ 44,386
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 6,028 $ 4,716
Income taxes payable 602 1,356
Advance payments 532 320
Current maturities of long-term obligation 329 304
---------------------------
Total Current Liabilities 7,491 6,696
Long-Term Obligations 2,928 2,982
---------------------------
Total Liabilities 10,419 9,678
---------------------------
Commitments and Contingencies
Stockholders' Equity
Common Stock, $.01 par value; 25,000,000 shares authorized; 6,536,416 and 6,282,391
shares issued 65 63
Class B Common Stock, $.01 par value; 1,200,000 shares authorized; 22,989 and 176,594
shares issued and outstanding -- 2
Additional paid-in capital 22,699 21,597
Retained earnings 13,654 17,996
Accumulated other comprehensive losses (482) (531)
Treasury stock, 1,558,849 and 312,391 shares of Common, at cost (14,724) (4,419)
---------------------------
Total Stockholders' Equity 21,212 34,708
---------------------------
$ 31,631 $ 44,386
===========================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 27
THOMAS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands, except share data 1998 1997 1996
- -------------------------------
-----------------------------------------------------
<S> <C> <C> <C>
Revenues $ 68,361 $ 69,620 $ 65,012
Cost of sales 39,625 40,302 41,429
-----------------------------------------------------
Gross Profit 28,736 29,318 23,583
Selling, general and administrative 28,444 18,323 18,175
-----------------------------------------------------
Operating Income 292 10,995 5,408
Interest income (expense), net (164) 159 252
-----------------------------------------------------
Income before Income Taxes 128 11,154 5,660
Income taxes 37 4,461 2,264
-----------------------------------------------------
Income from continuing operations 91 6,693 3,396
Discontinued Operations:
Loss from operations, net of income tax benefit of $471 in 1998,
$2,844 in 1997 and $1,047 in 1996 (1,092) (4,267) (1,571)
Loss on disposal, net of income tax benefit of $1,302 (3,341) - -
-----------------------------------------------------
Net Income (Loss) $ (4,342) $ 2,426 $ 1,825
=====================================================
Earnings (Loss) per common share Basic:
Income from continuing operations $ 0.02 $ 1.10 $ 0.57
Loss from discontinued operations (0.84) (0.70) (0.26)
-----------------------------------------------------
Net Income (Loss) $ (0.82) $ 0.40 $ 0.31
=====================================================
Diluted:
Income from continuing operations $ 0.02 $ 1.06 $ 0.54
Loss from discontinued operations (0.82) (0.68) (0.25)
=====================================================
Net Income (Loss) $ (0.80) $ 0.38 $ 0.29
=====================================================
Weighted average shares:
Basic 5,304,882 6,097,782 5,963,394
Diluted 5,433,707 6,327,484 6,309,970
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 28
THOMAS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
In thousands, except share data Class B Additional Other
- ------------------------------- Common Common Paid-In- Retained Comprehensive Treasury
Stock Stock Capital Earnings Income (Loss) Stock Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1995 $ 60 $ 2 $ 18,094 $ 13,745 $ 283 $ (1,133) $ 31,051
- ---------------------------------------------------------------------------------------------------------------------------------
Issuance of 195,949 and 180,622 shares 2 2 3,288 - - 3,292
of Common Stock and of Class B
Tax benefit of non-qualified stock - - 619 - - - 619
option exercises
Redemption of 146,966 shares of - (2) (2,181) - - - (2,183)
Class B
Purchase of 226,600 shares of Common - - - - - (3,340) (3,340)
Stock
Reissuance of 19,742 shares of treasury - - 52 - - 240 292
stock through 401(k) plan, at cost
Discounted common stock options - - 271 - - - 271
issued under employee stock option
plans
Foreign currency translation adjustment - - - - (315) - (315)
Net Income - - - 1,825 - - 1,825
- ---------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1996 62 2 20,143 15,570 (32) (4,233) 31,512
- ---------------------------------------------------------------------------------------------------------------------------------
Issuance of 97,632 and 1,378 shares of 1 - 998 - - - 999
Common Stock and of Class B
Tax benefit of non-qualified stock - - 247 - - - 247
option exercises
Redemption of 9,973 shares of Class B - - (82) - - - (82)
Purchase of 16,400 shares of Common - - - - - (186) (186)
Stock
Discounted common stock options - - 291 - - - 291
issued under employee stock option plans
Foreign currency translation adjustment - - - - (499) - (499)
Net Income - - - 2,426 - - 2,426
- ---------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1997 63 2 21,597 17,996 (531) (4,419) 4,708
- ---------------------------------------------------------------------------------------------------------------------------------
Issuance of 100,420 shares of Common 2 - 666 - - - 668
Stock
Purchase of 1,277,627 shares of - - - - - (10,604) (10,604)
Common Stock
Tax benefit of non-qualified stock - - 146 - - - 146
option exercises
Redemption of 153,605 shares of - (2) (1) - - - (3)
Class B
Discounted common stock options - - 291 - - - 291
issued under employee stock option
plans
Reissuance of 31,169 shares of treasury - - - - - 299 299
stock
Foreign currency translation adjustment - - - - 49 - 49
Net Loss - - - (4,342) - - (4,342)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1998 $ 65 $ - $ 22,699 $13,654 $ (482) $ (14,724) $ 21,212
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 29
THOMAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands, except share data 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income from continuing operations $ 91 $ 6,693 $ 3,396
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities
Depreciation and amortization 1,635 2,852 2,537
Write-down of assets 3,867 - -
Allowance for doubtful accounts 250 255 397
Provision for expatriate costs - - (151)
Other 31 (31) 27
Deferred taxes (1,118) 1,785 (327)
Amortization of stock option grants 291 291 271
Change in operating assets and liabilities
(Increase)/decrease trade accounts receivable (2,463) (2,076) 4,418
(Increase)/decrease unbilled receivables 1,343 (720) (1,363)
(Increase)/decrease other assets 1,752 (289) (2,901)
Increase/(decrease) accounts payable and accrued liabilities 1,137 1,705 668
Increase/(decrease) advance payments 418 58 (82)
Increase/(decrease) income taxes payable (122) 2,086 847
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 7,112 12,609 7,737
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Acquisition of subsidiary - - (2,308)
Decrease in short-term receivable - - 598
Capital expenditures (1,341) (3,131) (2,445)
Capitalization of software development costs - - (204)
Other - - (250)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (1,341) (3,131) (4,609)
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Purchase of treasury stock (10,604) (186) (3,340)
Proceeds from sale of treasury stock 299 - 240
Proceeds from exercise of stock options 146 552 985
Repayment of other long-term obligations (307) (71) (27)
Advances - computer line of credit - 977 -
Advances -line of credit 32,508 5,500 -
Repayments -line of credit (32,508) (5,500) -
Repayment of obligations to affiliate - - (4,462)
Net repayments from (advances to) affiliates 2,274 (1,881) (1,700)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Financing Activities (8,192) (609) (8,304)
Effect of Exchange Rate Changes on Cash 51 (311) (163)
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Continuing Operations (2,370) 8,558 (5,339)
- -----------------------------------------------------------------------------------------------------------------------------
Discontinued Operations:
Net cash used in operating activities (2,508) (3,296) (1,476)
Net cash used in investing activities - (784) (2,119)
Net cash provided by financing activities - 1,065 3,372
- -----------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Discontinued Operations (2,508) (3,015) (223)
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents
Beginning of year 11,254 5,711 11,273
- -----------------------------------------------------------------------------------------------------------------------------
End of year $ 6,376 $ 11,254 $ 5,711
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 30
THOMAS GROUP, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY - Thomas Group, Inc. (the "Company") was incorporated under the
laws of the State of Delaware in June 1978 and provides management services
designed to improve the competitiveness and profitability of the Company's
clients. The Company's specific methodology in its core product is known as
Total Cycle Time and focuses on reducing the time spent on revenue-production,
product development and administrative processes, resulting in operational and
financial improvements.
(b) BASIS OF PRESENTATION - The accompanying consolidated financial statements
include the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated.
(c) EARNINGS PER SHARE - Earnings (loss) per common share is presented in
accordance with the provisions of the Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128), which requires the
presentation of "basic" and "diluted" earnings per share. Basic earnings (loss)
per share is based on the weighted average shares outstanding without regard for
common stock equivalents such as stock options and warrants. Diluted earnings
per share includes the effect of common stock equivalents. Earnings (loss) per
share amounts for all periods presented reflects the provisions of SFAS 128.
Diluted earnings per share, as restated for the adoption of SFAS 128 is
equivalent to previously reported amounts and basic earnings per share is $0.02
higher than reported in 1996.
The following table reconciles basic earnings per share to diluted earnings per
share under the provisions of SFAS 128. Diluted earnings per share and diluted
weighted shares outstanding for the year ended December 31, 1998 are presented,
in accordance with the provisions of SFAS 128, even though inclusion of common
stock equivalents in the calculation of loss per share results in antidilutive
adjustments to basic loss per share for that period.
<TABLE>
<CAPTION>
Income Shares Per Share
Year Ended December 31, 1998 (Numerator) (Denominator) Amount
- ---------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Basic earnings (loss) per share:
Income available to common shareholders $(4,342) 5,305 $ (0.82)
Effect of dilutive securities:
Options and warrants -- -- 129
------- -------
Diluted earnings per share
Income available to common shareholders $(4,342) 5,434 $ (0.80)
======= ======= =======
Year Ended December 31, 1997 Basic earnings per share:
Income available to common shareholders $ 2,426 6,098 $ 0.40
Effect of dilutive securities:
Options and warrants -- -- 229
------- -------
Diluted earnings per share
Income available to common shareholders $ 2,426 6,327 $ 0.38
======= ======= =======
Year Ended December 31, 1996 Basic earnings per share:
Income available to common shareholders $ 1,825 5,963 $ 0.31
Effect of dilutive securities:
Options and warrants -- -- 347
------- -------
Diluted earnings per share
Income available to common shareholders $ 1,825 6,310 $ 0.29
======= ======= =======
</TABLE>
(d) MANAGEMENT'S ESTIMATES AND ASSUMPTIONS - The presentation 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
F-7
<PAGE> 31
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company reviews all significant estimates affecting the financial statements
on a recurring basis and records the effect of any necessary adjustments prior
to their issuance.
(e) WARRANTS- At December 31, 1997 the Company had 225,000 warrants outstanding
to purchase the Company's common stock. During 1998, 175,000 warrants expired.
In November, 1998 the remaining 50,000 warrants were repriced at an exercise
price of $9.125 per share, the market price on the date of repricing, and
extended to expire on October 28, 2003. The warrants are granted to a financial
advisor to the Company.
(f) RECLASSIFICATIONS - Certain consolidated financial statement amounts have
been reclassified from the previously reported financial statements in order to
conform with the current presentation.
(g) PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation. The carrying value of property and equipment is
evaluated periodically in relation to the operating performance and future
undiscounted net cash flows of the related business. Depreciation is provided by
accelerated methods over the estimated useful lives of the various assets as
follows:
Furniture and fixtures 5-7 Years
Equipment 3-7 Years
Leasehold improvements 5-19 Years
(h) CAPITALIZED SOFTWARE DEVELOPMENT COSTS - The Company was required to
capitalize certain software development and production costs once technological
feasibility has been achieved. The cost of purchased software is capitalized
when related to a product which has achieved technological feasibility or that
has an alternative future use. Capitalization of software development costs
stops when the product is available for sale. For the years ended December 31,
1997 and 1996, the Company capitalized $0.6 million and $1.7 million,
respectively. Software development costs incurred prior to achieving
technological feasibility were charged to research and development expense. In
1998 all capitalized software costs were written off in conjunction with the
discontinuation of the Information Technologies segment. (See also Note 3 to the
Consolidated Financial Statements.)
(i) INTANGIBLES - The Company amortizes costs in excess of net assets acquired
on a straight-line basis over the estimated benefit period, generally three to
five years. Patents and licenses are generally amortized on a straight-line
basis over five years. The carrying value of goodwill and patents and licenses
is evaluated periodically in relation to the operating performance and future
undiscounted net cash flows of the related business. In 1998 all intangibles
were written off in conjunction with the discontinuation of the Information
Technologies segment. (See also Note 3 to the Consolidated Financial
Statements.)
(j) REVENUES - Business Improvement Program contracts specify fixed fees, or
fixed fees plus incentives based on improvements achieved. Incentive
(performance-oriented) revenues are based on agreed-upon formulas relating to
improvements in customer-specific measures. Improvements are measured at time
intervals specified in each contract. Both the Company and the client agree to
the measured improvements and the corresponding incentive fees earned by the
Company, thereby completing the earnings process. Fixed fees are recognized as
revenue when earned, generally on a straight-line basis over the life of the
contract. An allowance for doubtful accounts is provided when necessary and is
determined periodically on a client-by-client basis.
(k) UNBILLED RECEIVABLES - Fixed fees are recognized when earned, generally on a
straight-line basis over the life of the contract. Although fixed fee
recognition generally coincides with billings, as an accommodation to its
clients the Company may structure fee billings to increase in the latter stages
of a program. In such instances, straight-line recognition results in unbilled
receivables. Unbilled receivables are reduced as the program proceeds to its
latter stages and the cumulative billings more closely approximate aggregate
fees recognized.
(l) ADVANCE PAYMENTS - The Company occasionally receives advance payments of a
portion of its fees. Advance payments are deferred upon receipt and credited
against future revenue earned as specified by the contract.
F-8
<PAGE> 32
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(m) INCOME TAXES - Deferred income taxes are provided for temporary differences
between the financial statement and income tax basis of assets and liabilities.
Provisions are made for estimated domestic and foreign income taxes, less
available tax credits and deductions, which may be incurred on the remittance of
the Company's share of foreign subsidiaries' undistributed earnings.
(n) CASH AND CASH EQUIVALENTS - Cash equivalents consist of highly liquid
investments with original maturities of three months or less. At December 31,
1998, the Company had approximately $2.3 million invested in tax-exempt funds
and certificates of deposit.
(o) CONCENTRATION OF CREDIT RISK - The Company provides its services primarily
to a diverse group of large, well-established companies and does not require
collateral on receivable balances. The Company is currently expanding its
operations in Asia where severe economic turmoil has resulted in significant
fluctuations in the value of certain foreign currencies versus the U.S. dollar.
Until the economic situation in this area stabilizes, the Company may experience
difficulties expanding its operations or may encounter other collection issues
with those customers.
(p) FOREIGN CURRENCY TRANSLATION - All balance sheet accounts of foreign
subsidiaries are translated at the current exchange rate as of the end of the
accounting period. The resulting translation adjustment is recorded as a
separate component of stockholders' equity. Income statement items are
translated at average currency exchange rates. Foreign currency fluctuation
risks are partially offset because the foreign subsidiaries' costs are
denominated in local currency.
(q) COMPREHENSIVE INCOME - In the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income. Comprehensive income includes all changes in equity except those
resulting from investments by stockholders and distributions to stockholders. At
December 31, 1998, the Company recorded comprehensive income (loss) from foreign
currency translation as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
In thousands of dollars
----------------------- 1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (4,342) $ 2,426 $ 1,825
Change in comprehensive income (loss) 49 (499) (315)
--------------------------------------------
Comprehensive income (loss) $ (4,293) $ 1,927 $ 1,510
============================================
</TABLE>
(r) Stockholder Rights Plan - On July 9, 1998, the Company announced the
adoption of a Stockholder Rights Plan, intended to protect from unfair or
coercive takeover attempts. The rights become exercisable only if a tender offer
is made. The grant of the rights was made to stockholders of record as of July
20, 1998.
(s) STOCK OPTIONS AND WARRANTS - The Company accounts for stock options and
warrants issued to employees in accordance with APB 25, "Accounting for Stock
Issued to Employees". For financial statement disclosure purposes and issuance
of options and warrants to non-employees for services rendered, the Company
follows SFAS Statement 123 "Accounting for Stock-Based compensation". (See also
Note 14 to the Consolidated Financial Statements.)
(t) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS - The Company's financial
instruments include notes payable. The carrying value of these notes approximate
market value because the borrowing rate is similar to other financial
instruments with similar terms.
(u) RECENT ACCOUNTING STANDARDS - In June, 1998 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement standardized the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. The statement generally
provides for
F-9
<PAGE> 33
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
matching the timing of gain or loss recognition on the hedging instrument with
the recognition of (a) the changes in fair value of hedged assets or liabilities
that are attributable to the hedged risk or, (b) the earnings effect of the
hedged transaction. The statement is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999, with earlier application encouraged,
and shall be applied retroactively to financial statements of prior periods.
Adoption of SFAS 133 is expected to have no effect on the Company's financial
statements.
NOTE 2
DISCONTINUED OPERATIONS
On May 6, 1998, the Company announced its plan to dispose of its Information
Technologies business segment. The Company recorded an after tax charge of
approximately $2.9 million as the estimated loss on disposal of the segment,
including estimated operating losses during the phase-out period, in the second
quarter of 1998. The sale of the majority of the assets of Thomas Group
Information Technologies closed on August 31, 1998. No proceeds were received at
the time of the transaction, but the agreement contains provisions for future
payments to the Company if certain revenue thresholds are met. In exchange, the
Company was relieved of the liabilities related to extended service contracts.
Terms of the sale required a revision to the estimated loss on disposal and an
additional $0.4 million after tax charge was recorded in the third quarter of
1998.
The net loss from operations of Information Technologies prior to May 6, 1998 is
as follows:
<TABLE>
<CAPTION>
Year ended December 31,
In thousands of dollars --------------------------------------------------
----------------------- 1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Revenues $ 2,040 $ 5,504 $ 7,018
(Loss) before income taxes (6,206) (7,111) (2,618)
Income tax benefit 471 2,844 1,047
--------------------------------------------------
(Loss) from discontinued operations (1,092) (4,267) (1,571)
==================================================
</TABLE>
NOTE 3
RESTRUCTURING CHARGE
On May 6, 1998, the Company announced its plan to realign its corporate
structure, including establishing a reserve against the value of certain
facilities and other cost-cutting measures. As a result of these actions, the
Company recorded restructuring charges of $9.7 million in the second quarter of
1998. The restructuring charges include approximately $3.0 million for
personnel reduction costs. Also included in the restructuring charges is the
reserve established against the value of leasehold improvements and other costs
associated with underutilized and unnecessary facilities, totaling $ 5.9
million, and miscellaneous other charges of approximately $0.8 million.
F-10
<PAGE> 34
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4
OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
In thousands of dollars 1998 1997
----------------------- ---------------------
<S> <C> <C>
Deferred compensation plan assets $ 2,434 $ 2,124
Cash surrender value of key-man life insurance 974 820
Prepaid expenses 385 1,478
Long-term receivables 330 436
Income tax receivable 265 25
Investment in Texas Stadium Suite, net 189 489
Notes receivable, affiliate 129 229
Other 93 364
Goodwill, net - 731
Other intangibles, net - 16
--------------------
4,799 6,712
Less current portion (405) (800)
--------------------
$ 4,394 $ 5,912
====================
</TABLE>
NOTE 5
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
In thousands of dollars 1998 1997
----------------------- -------------------
<S> <C> <C>
Equipment $ 6,790 $ 7,985
Furniture and fixtures 2,163 2,943
Leasehold improvements 1,692 5,547
Equipment under capital leases - 977
Construction in process 411 3
Automobiles 31 204
-------------------
11,087 17,659
Less accumulated depreciation and
amortization, including $414 and $94
respectively, relating to capital leases (7,460) (9,333)
-------------------
$ 3,627 $ 8,326
===================
</TABLE>
NOTE 6
LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
December 31,
In thousands of dollars 1998 1997
----------------------- --------------------
<S> <C> <C>
Capital lease obligations $ 579 $ 882
Deferred compensation plan 2,434 2,124
Other 244 280
--------------------
3,257 3,286
Less current portion (329) (304)
--------------------
$ 2,928 $ 2,982
====================
</TABLE>
F-11
<PAGE> 35
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum lease payments required under non-cancelable lease arrangements
subsequent to December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Operating Capital
In thousands of dollars Leases Leases
----------------------- --------------------
<S> <C> <C>
1999 $ 1,652 $ 368
2000 1,118 256
2001 886 -
2002 716 -
2003 538 -
Thereafter 143 -
--------------------
$ 5,053 624
========
Less amount representing interest (45)
------
$ 579
======
</TABLE>
The Company leases office space, vehicles and various types of office equipment.
Rent expense related to operating leases totaled $2.1 for 1998, $3.3 million for
1997 and $3.1 million for 1996.
NOTE 7
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31,
In thousands of dollars 1998 1997
----------------------- --------------------
<S> <C> <C>
Accounts payable and accrued liabilities $ 4,789 $ 4,003
Accrued payroll and bonuses 1,116 579
Accrued employee benefits 123 134
--------------------
$ 6,028 $ 4,716
====================
</TABLE>
NOTE 8
INCOME TAXES
The domestic and foreign source components of income (loss) before taxes are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands of dollars 1998 1997 1996
----------------------- ---------------------------------
<S> <C> <C> <C>
Domestic sources $ (4,894) $ 9,983 $ 3,602
Foreign sources 5,022 1,171 2,058
---------------------------------
128 11,154 5,660
Discontinued operations (6,206) (7,111) (2,618)
---------------------------------
$ (6,078) $ 4,043 $ 3,042
=================================
</TABLE>
The reconciliation of income tax from continuing operations computed at the U.S.
federal statutory tax rate to the Company's effective income tax rate is as
follows::
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands of dollars 1998 1997 1996
----------------------- ---------------------------------
<S> <C> <C> <C>
Income taxes at statutory rate $ 44 $ 3,792 $ 1,924
Effect on taxes resulting from:
State taxes 5 446 226
Foreign taxes (16) 129 67
Other (primarily permanent differences) 4 94 47
---------------------------------
$ 37 $ 4,461 $ 2,264
=================================
</TABLE>
F-12
<PAGE> 36
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Federal, state and foreign income tax expense consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands of dollars 1998 1997 1996
----------------------- ----------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal $ - $ 1,656 $ 629
State - 280 253
Foreign 1,095 1,015 711
----------------------------------
1,095 2,951 1,593
Deferred tax expense (benefit):
Federal (3,589) (586) (252)
State (422) (154) (209)
Foreign 1,180 (594) 85
----------------------------------
(2,831) (1,334) (376)
----------------------------------
$ (1,736) $ 1,617 $ 1,217
==================================
</TABLE>
Income tax expense (benefit) is included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands of dollars 1998 1997 1996
----------------------- ---------------------------------
<S> <C> <C> <C>
Continuing operations $ 37 $ 4,461 $ 2,264
Discontinued operations (1,773) (2,844) (1,047)
---------------------------------
$ (1,736) $ 1,617 $ 1,217
=================================
</TABLE>
Significant components of the Company's net deferred tax assets (liabilities)
for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
In thousands of dollars 1998 1997
----------------------- --------------------
<S> <C> <C>
Fixed assets $ 504 $ 492
Allowance for doubtful accounts 135 139
Foreign tax credit 569 612
Computer software - 570
Restructuring expenses 1,721 -
Discontinued operations 203 -
Accrued expenses 267 105
Goodwill - 344
Deferred compensation 535 322
Contributions carryover 17 (13)
Net operating loss carryforward 2,414 -
--------------------
6,365 2,571
Valuation allowance (1,515) -
--------------------
$ 4,850 $ 2,571
====================
</TABLE>
F-13
<PAGE> 37
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is an analysis of the current and long-term portions of the deferred
tax asset.
<TABLE>
<CAPTION>
In thousands of dollars
Current deferred tax assets: 1998 1997
---- ----
<S> <C> <C>
Allowance for doubtful accounts $ 135 $ 139
Deferred compensation 535 322
Accrued expenses 267 105
Discontinued operations 203 -
Restructuring expenses 1,721 -
Foreign tax credit 569 179
Asian net operating loss carryforward 410 -
-------- -------
Gross deferred income tax assets 3,840 745
Valuation allowance (1,515) -
-------- -------
Net deferred tax assets - current $ 2,325 $ 745
======== =======
Non-current deferred tax assets:
Fixed assets bases differences $ 504 492
Computer software - 570
Goodwill bases differences - 344
Foreign tax credit - 433
Other (6) (13)
Contributions carryover 17 -
Net operating loss carryforward 2,004 -
-------- -------
Net deferred tax assets - noncurrent $ 2,519 $ 1,826
======== =======
</TABLE>
Utilization of the deferred tax asset is dependent on future taxable profits in
excess of profits arising from existing taxable temporary differences. Although
there was a reported loss for the year ended December 31, 1998, the asset has
been recognized because management believes it is more likely than not that the
deferred tax asset will be utilized in future years. This conclusion is based on
the belief that current and future levels of taxable income will be sufficient
to realize the benefits of the deferred tax asset on domestic operations. The
valuation allowance is related to deferred tax assets on foreign operations and
includes the Asian net operating loss, the foreign tax credit carryover and
certain temporary differences related to foreign operations.
NOTE 9
EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) retirement plan. The Company, at its discretion,
matches a portion of the participants' contribution. Participants are vested in
the Company's matching contribution after five years of full-time service and
may join the plan January 1 and July 1. Matching contribution expense was $0.4
million for 1998, 1997 and 1996.
In 1994, the Company established a non-qualified deferred compensation plan.
Participation is limited to officers and key employees. Assets of the plan were
$2.4 million and accrued liabilities were $2.4 million at December 31, 1998 and
are recorded in the long-term section of the balance sheet.
The Company has incentive compensation plans covering all full-time employees
and a separate incentive compensation program for certain key executive officers
including Mr. Philip Thomas, former Chairman and Chief Executive Officer. The
aggregate incentive compensation paid or advanced under these plans was $1.4
million and $1.5 million in 1997 and 1996, respectively. (See also Note 12 to
the Consolidated Financial Statements.)
The Company self-insures its medical costs associated with injury and
hospitalization to its employees and their dependents up to a limit of $50,000
per person per plan year. Insurance is purchased for claims in excess of the
self-insurance limits. The current program also has contractual caps on the
total aggregate claims the Company is obligated to fund in any plan year. The
Company had an accrual for outstanding claims of approximately $0.1 million to
cover any loss incurred, including those not yet reported, through December 31,
1998.
F-14
<PAGE> 38
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10
LITIGATION
The Company is subject to various claims and other legal matters, described
below, in the course of conducting its business. The Company believes that
neither such claims and other legal matters nor the cost of prosecuting and/or
defending such claims and other legal matters should have a material adverse
effect on the Company's consolidated results of operations, financial condition
or cash flows.
The Company is party to a legal action styled Creative Dimensions in Management,
Inc. v. Thomas Group, Inc., filed September 17, 1996 in the U.S. District Court
for the Eastern District of Pennsylvania. This matter arises out of disputes
under two agreements between the Company and Creative Dimensions in Management,
Inc. ("CDM"), a small private company with whom the Company had an alliance. The
Company is contesting CDM's claims and is pursuing its counterclaims vigorously.
The matter is currently set for trial in March 1999.
In the case of Thomas Group, Inc. v. Blevins, et al., filed May 19, 1997 in the
U.S. District Court for the Northern District of Texas, and in the case styled
Blevins, et al. v. Thomas Group, Inc., et al., filed June 9, 1997 in the U.S.
District Court for the Northern District of Ohio, each party has asserted claims
arising out of the purchase agreement and consulting agreement in connection
with the Company's purchase of Interlink Technologies ("Interlink"). As a result
of losses sustained by its subsidiary, the Company asserted claims in the Texas
action against Ron Blevins and Mike Smith, the former owners of Interlink, for
breach of contract and fraudulent misrepresentation.
The Texas federal action was transferred to Ohio and consolidated with the Ohio
federal action. The trial date has been set for July 27, 1999. The Company
believes the former owners' claims have no merit, and it is the Company's
intention to vigorously pursue its own claims against the former owners of
Interlink, as well as vigorously defend against the former owners' claims.
The Company is party to a legal action styled Philip R. Thomas and Wayne
Heirtzler Thomas v. Thomas Group, Inc., before the U.S. District Court, Middle
District of Louisiana, consolidated with another action styled Thomas Group of
Louisiana, Inc. v. Philip R. Thomas and Wayne Heirtzler Thomas. Mr. and Mrs.
Thomas are seeking to "enforce leases" and have seized, under a writ of
sequestration, movable assets at the Company's CEO Center in Louisiana. No
damages are alleged by Mr. and Mrs. Thomas. The second suit was filed against
Mr. and Mrs. Thomas by a subsidiary of the Company, seeking to dissolve the writ
of sequestration and asserting a claim for damages. A hearing was held on
February 2, 1999 on the motions of the Company and its subsidiary to dissolve
the writ of sequestration, and the court has lifted the sequestration order.
The Company is party to a legal proceeding with the former Chairman and CEO of
the Company, styled Thomas Group, Inc. v. Philip Thomas. The Company timely paid
Mr. Thomas all benefits due him under his written employment agreement,
including a $1.8 million severance payment, yet Mr. Thomas has demanded
additional compensation and retirement benefits. On December 18, 1998, the
Company initiated this proceeding before the American Arbitration Association in
Dallas, Texas pursuant to an arbitration clause in Mr. Thomas' employment
agreement. On December 31, 1998, Mr. Thomas filed suit in Dallas County District
Court in an action styled Philip R. Thomas v. Thomas Group, Inc. The Company
believes Mr. Thomas' claims have no merit, vigorously contests Mr. Thomas'
claims, has moved to stay the litigation based on the parties' written agreement
to arbitrate, and is seeking a determination that Mr. Thomas is owed nothing
further as a result of his employment relationship with the Company.
The Company has become subject to various other claims and other legal matters,
such as collection matters initiated by the Company, in the course of conducting
its business. The Company believes that neither such claims and other legal
matters nor the cost of prosecuting and/or defending such claims and other legal
matters should have a material adverse effect on the Company's consolidated
results of operations, financial condition or cash flows.
F-15
<PAGE> 39
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11
SEGMENT DATA AND SALES TO MAJOR CUSTOMERS
The Company operates in one industry segment, but conducts its business
primarily in three geographic areas, United States, Europe and Asia. Information
regarding these areas follows:
<TABLE>
<CAPTION>
In thousands of dollars United States Europe Asia Corporate Total
- ----------------------- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Sales to unaffiliated clients $48,027 $16,764 $ 3,570 $ -- $68,361
Long Lived Assets 3,420 572 54 6,494 10,540
Year ended December 31, 1997:
Sales to unaffiliated clients $49,747 $14,903 $ 4,970 $ -- $69,620
Long Lived Assets 10,850 829 81 5,191 16,951
Year ended December 31, 1996:
Sales to unaffiliated clients $45,445 $18,357 $ 1,209 $ -- $65,012
Long Lived Assets 13,001 1,109 40 3,318 17,468
</TABLE>
The following table indicates those clients whose revenues were in excess of 10%
of consolidated revenues in any of the three years ended December 31, 1998.
<TABLE>
<CAPTION>
United % of Europe % of Asia % of
In thousands of dollars States Total Total Total
- ----------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Client 1 $20,466 30% -- -- -- --
Year Ended December 31, 1997:
Client 1 $ 2,297 3% $ 4,466 6% $ 1,082 2%
Client 2 7,317 10% -- -- -- --
Year Ended December 31, 1996:
Client 1 $ 5,708 8% $ 1,937 3% -- --
Client 2 7,746 11% -- -- -- --
Client 3 4,068 6% 5,305 7% -- --
</TABLE>
NOTE 12
RELATED PARTY TRANSACTIONS
PHILIP R. THOMAS - Former Chairman and Chief Executive Officer - The Company
entered into 25-year lease agreements with Mr. Thomas for land on which the CEO
Center is situated and a separate agreement to use guest accommodations situated
on Mr. Thomas' adjacent property. The land is leased pursuant to two 25 year
leases entered into in December 1991 and January 1994. The annual rentals on
these leases is $6,000 each, one of which has been prepaid throughout the year
2016. The agreement for guest accommodations provides for monthly payments of
$12,960 through November 30, 2016. This rate was determined by evaluating
average occupancy rates and costs of comparable facilities in the area. On
December 31, 1995, the Company prepaid the guest accommodations agreement in its
entirety. The $0.9 million prepayment represents a discount of $0.6 million
(computed on a net present value basis) from the payments to which Mr. Thomas
was entitled. The prepayment is included in Other Assets, and is being amortized
on a straight-line basis over the term of the agreement.
On December 31, 1995, the Company agreed to purchase Mr. Thomas' interest in a
Texas Stadium luxury suite for $0.6 million. The purchase price was established
by an independent third party that facilitates similar transactions. In
conjunction with the restructuring charge in the second quarter of 1998, the
Company determined through outside appraisal the value of
F-16
<PAGE> 40
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the interest in the suite was diminished. (See Note 3 to the Consolidated
Financial Statements.) Accordingly the carrying value of the asset was written
down to approximately $0.3 million.
The Company employed two sales executives whose focus was acquiring new business
through relationships in the investment banking community. Supporting these
executives, the Company incurred costs of approximately $0.6 million and $0.5
million in 1996 and 1995, respectively. These executives have an ownership
interest in Celerity Partners, a limited partnership (the "Partnership") which
invests in companies whose competitiveness within a particular industry may be
significantly improved. The general partner of the Partnership is a limited
liability Company ("Celerity LLC") in which Mr. Thomas owns a 30% equity
interest. The Company's board of directors precluded Mr. Thomas from negotiating
or approving contracts with any potential client in which the Partnership holds
or is negotiating an ownership interest and from negotiating the Company's
agreements with Celerity LLC. During 1997, the Company ended the employment of
the two sales executives and entered into a "finder's agreement" with the
partnership which would compensate the partnership when it delivered potential
clients who ultimately entered into a business improvement program. The Company
made advances to Celerity LLC in 1997 in the amount of $0.2 million against
future finder's fees.
In 1997, Mr. Thomas earned $0.8 million in incentive compensation and was paid
compensation advances of $1.4 million. The excess of $0.6 million was repaid
through the tender of shares to the Company, as described in the following
paragraph. Mr. Thomas did not earn incentive compensation in 1996 and therefore
executed a $1.5 million promissory note, bearing interest at prime plus 1/4% for
advances made to him. This note was extended and was paid by Mr. Thomas as a
result of the Company's purchase of shares from Mr. Thomas, as described in the
following paragraph.
On February 19, 1998, the Company entered into a stock purchase agreement with
Mr. Philip R. Thomas, then the Chairman and Chief Executive Officer, for an
undetermined number of shares of common stock in exchange for $8.2 million in
cash and the satisfaction of a $2.3 million outstanding debt to the Company. The
ultimate number of shares to be purchased from Mr. Thomas was determined based
on a formula and at a discount to market. The Company utilized an investment
banking firm to determine the appropriate discount factor. At the close of the
market on April 24, 1998 the number of shares to be purchased was determined to
be approximately 1.3 million shares.
OTHER AFFILIATES - In 1996 the Company advanced Mr. Thomas Williams $0.2
million. Mr. Williams executed a promissory note due December 18, 2000. Mr.
Williams repaid approximately $0.1 million on the note during 1998.
A summary of current receivables from affiliates follows:
<TABLE>
<CAPTION>
December 31,
In thousands of dollars 1998 1997
----------------------- -------------------
<S> <C> <C>
Philip R. Thomas - incentive compensation advances $ - $ 2,274
Other affiliates - long term 129 229
</TABLE>
A summary of transactions with affiliates follows:
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands of dollars 1998 1997 1996
----------------------- --------------------------------
<S> <C> <C> <C>
Philip R. Thomas:
Real estate and other rentals paid to Mr. Thomas $ - $ 6 $262
Payments to BERMAC for custom
computer software - prior to acquisition - - 388
Payments to Celerity - advance against
finder's agreement - 200 -
Other Affiliates:
Loan to Thomas Williams 100 200 -
</TABLE>
F-17
<PAGE> 41
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13
FINANCING AGREEMENT
At December 31, 1998, the Company maintains a $20 million revolving credit
agreement with Comerica Bank Leasing. This agreement expires in December 2003
and includes a call option in December 2001. Additionally, terms of the
agreement provide for a $1 million per quarter reduction in any outstanding
balances after the first two years. Loans under this agreement bear interest at
the prime rate or other similar option. The Company utilized the credit line
during 1998 to meet working capital requirements. The average daily balance
outstanding under the credit line was $2.3 million and total interest paid, at
an annual rate of 8.25%, was $0.2 million. The Company paid commitment fees for
the periods for which the Company had no outstanding amounts totaling $67,000,
$56,000 and $22,000 for 1998, 1997 and 1996, respectively. The Company did not
borrow funds under the revolving line of credit agreement at any time during
1996.
In addition, the Company has a $1.0 million credit facility with Comerica Bank -
Leasing for the purchase of portable computer equipment. In 1997 the Company
made draws of $0.9 million on this facility to purchase notebook computers. No
additional draws were made on this facility during 1998. At December 31, 1998,
$0.6 million remained outstanding on the credit facility.
NOTE 14
COMMON STOCK AND STOCK OPTIONS
Shares of Common Stock and Class B Common Stock are identical, except that
holders of Class B Common Stock have no voting rights. The Company grants
incentive and non-qualified stock options and has reserved 2,425,000 shares of
Common Stock and 675,000 shares of Class B Common Stock for issuance. Options to
purchase shares of the Company's Common Stock and Class B Common Stock have been
granted to directors, officers and employees. The majority of the options
granted become exercisable at the rate of 20% per year, and generally expire ten
years after the date of grant.
The Company has elected to continue to account for stock options issued to
employees in accordance with APB opinion 25, "Accounting for Stock Issued to
Employees." In February 1996 the Company granted options to officers and
employees at an exercise price lower than the market price of the stock at the
date of grant. The total related deferred compensation expense was $0.9 million,
which will be recognized as the options vest. The total 1998 compensation cost
of $0.2 million was recorded as an increase in equity.
Effective for the year ended December 31, 1996, the Company was required to
adopt the disclosure portion of Statement of Financial Accounting Standard No.
123 (SFAS No. 123), "Accounting for Stock Based Compensation." This statement
requires the Company to provide pro forma information regarding net income
applicable to common stockholders and net income per share as if compensation
cost for the Company's stock options had been determined in accordance with the
fair value assumptions used for grants in 1998, 1997 and 1996 as follows:
dividend yield of 0% for all years; expected volatility of 65%; risk free
interest rates ranging from 5% to 7%; and expected lives ranging from 3.84 to 6
years. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands of dollars 1998 1997 1996
----------------------- ------------------------------
<S> <C> <C> <C>
Net Income (Loss)
As reported $ (4,342) $2,426 $1,825
Pro forma $ (7,308) $1,513 $1,245
Earnings (Loss) Per Share
As reported
Basic $ (0.82) $ 0.40 $ 0.31
Diluted $ (0.80) $ 0.38 $ 0.29
Pro forma
Basic $ (1.38) $ 0.25 $ 0.21
Diluted $ (1.34) $ 0.24 $ 0.20
</TABLE>
F-18
<PAGE> 42
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's stock options to employees as of
December 31, 1998, 1997 and 1996 and changes in the years then ended is
presented below.
<TABLE>
<CAPTION>
COMMON OPTION SHARES 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,506,818 $ 9.89 1,367,625 $ 9.78 949,597 $10.16
Granted 1,334,718 11.37 370,250 10.35 656,415 9.60
Exercised (299,543) 10.45 (104,382) 6.88 (196,120) 11.19
Forfeited (905,639) 11.63 (126,675) 11.90 (42,267) 9.11
-------------------------------------------------------------------------------
Outstanding at end of year 1,636,354 10.52 1,506,818 $ 9.89 1,367,625 $ 9.78
===============================================================================
Options exercisable at year-end 1,093,274 $10.52 739,848 $10.39 680,761 $10.18
Weighted average fair value of
options granted during the year $11.37 $10.49 $ 7.61
</TABLE>
<TABLE>
<CAPTION>
COMMON OPTION SHARES 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 9,000 $5.44 12,360 $5.42 203,202 $ 4.47
Granted - - - - -
Exercised - - (3,360) 5.36 (180,622) 4.57
Forfeited 9,000 $5.44 - - (10,220) 1.57
-----------------------------------------------------------------------------------
Outstanding at end of year - - 9,000 $5.44 12,360 $ 5.42
===================================================================================
Options exercisable at year-end - - 9,000 $5.44 12,360 $ 5.42
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998.
<TABLE>
<CAPTION>
COMMON OPTIONS Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Outstanding Life (Years) Price Exercisable Price
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 - $ 5.44 10,310 7.21 $ 0.16 5,644 $ 0.29
6.00 7.94 458,864 5.46 7.50 175,856 6.82
8.00 - 9.94 447,949 8.90 8.77 276,670 8.77
10.00 - 13.75 624,264 7.41 11.96 564,451 11.97
14.00 - 16.88 88,267 6.86 15.61 66,026 15.59
17.00 - 19.13 6,700 7.48 18.57 4,607 18.58
-------------------------------------------------------------------------------------
$ 0.00 - $ 19.13 1,636,354 7.20 $10.02 1,093,274 $ 10.39
=====================================================================================
</TABLE>
F-19
<PAGE> 43
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
In thousands of dollars 1998 1997 1996
----------------------- -----------------------------------
<S> <C> <C> <C>
Interest paid $ 198 $ 98 $ 1
Income taxes paid 1,290 1,310 4,176
Non-cash transactions:
Receipt of Class B Common Stock in
payment of exercise price of Common
Stock options 1 82 2,181
Additional acquisition cost
payable in common stock - 300 -
</TABLE>
F-20
<PAGE> 44
Directors and Executive Officers
J. Thomas Williams
Chief Executive Officer,
President, and Chief Operating Officer
Leland L. Grubb, Jr.
Vice President,
Chief Financial Officer,
Treasurer, and
President, Automotive Business Unit
Herbert D. Locke
Vice President
President, Asian/Pacific Business Unit
Philip Lovell
Vice President
President, European Business Unit
Alexander W. Young
Vice President
President, Utilities Business Unit
and Director
Roger A. Crabb
Legal Counsel and Secretary
John T. Chain, Jr.
Chairman of the Board of Directors
Retired Executive Vice President
Burlington Northern Railroad
James E. Dykes
Director,
Retired Executive Vice President,
Corporate Development
Thomas Group, Inc.
Richard A. Freytag
Director
Retired Vice Chairman
Citicorp Banking Corporation
David B. Mathis
Director
Chairman and Chief Executive Officer
Kemper Insurance Companies
<PAGE> 45
Corporate Information
Transfer Agent
Harris Trust and Savings Bank
5050 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telephone: (214) 658-0200
Fax: (214) 658-0222
Legal Counsel
Haynes & Boone, L.L.P.
901 Main Street
3100 NationsBank Plaza
Dallas, Texas 75202-3789
Auditor
BDO Seidman, L.L.P.
2323 Bryan Street
Suite 1800
Dallas, Texas 75201-2628
Form 10-K and Other Financial
Information Requests
A copy of the Annual Report on Form 10-K as filed with the Securities and
Exchange Commission and other financial information is available without charge
upon written request to Investor Relations, Thomas Group, Inc. 5221 N.
O'Connor Boulevard, Suite 500, Irving, Texas 75039-3714.
Annual Meeting
The Annual Meeting of Stockholders will be held on July 29, 1999 at 9:00 a.m.
Central Time in the Company's offices, 5221 N. O'Connor Boulevard, Suite 500,
Irving, Texas 75039-3714.
Stock Market Information
and Related Shareholder Matters
The Company's Common Stock trades on the NASDAQ National Market System under the
symbol TGIS. At January 31, 1999, the Company had approximately 130 holders of
record of its Common Stock. The Company has paid no cash dividends and the
Company intends to retain future earnings in order to provide funds for use in
the operation and expansion of the business.
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
<S> <C>
*3.1 Amended and Restated Certificate of Incorporation of
the Company.
*3.2 Amended and Restated By-Laws
*4.1 Specimen Certificate evidencing Common Stock (filed
as Exhibit 4.1 to the Company's 1993 Form S-1 (File
No. 33-64492) and incorporated herein by reference).
*4.2 Form of Warrant Certificate for the Purchase of
Shares (SRG & Associates, Ltd.)
*4.3 Form of Warrant Certificate for the Purchase of
Shares (Lyon Securities, Inc.)
*4.4 Amendment No. 1 to Rights Agreement dated March 1,
1999
*10.1 Employment Agreement between the Company and Leland
L. Grubb, Jr.
*10.2 Amended and Restated 1988 Stock Option Plan
*10.3 Amended and Restated 1992 Stock Option Plan
*10.4 Amended and Restated 1997 Stock Option Plan
*10.5 401(k) Plan
*10.6 First Amended and Restated Revolving Credit Loan
Agreement dated December 4, 1996 between Comerica
Bank-Texas and the Company.
*10.7 Commercial lease dated December 31, 1991 between
Philip R. Thomas and Wayne Heirtzler Thomas, as
owners, and the Company, as lessee
*10.8 Amendment No. 1 to Commercial Lease between Philip R.
Thomas and Wayne Heirtzler Thomas, as owners, and the
Company, as lessee, dated February 8, 1992
*10.9 Amendment No. 2 to Commercial Lease between Philip R.
Thomas and Wayne Heirtzler Thomas, as owners, and the
Company, as lessee, dated February 1, 1993
*10.10 Amendment No. 3 to Commercial Lease between Philip R.
Thomas and Wayne Heirtzler Thomas, as owners, and the
Company, as lessee
*10.11 Agreement re: Pre-Payment of rent
*10.12 Non-Employee Director Retainer Fee Plan
*10.13 Commercial Lease dated February 8, 1994 between
Philip R. Thomas and Wayne Heirtzler Thomas, as
owners, and the Company, as lessee
</TABLE>
<PAGE> 47
<TABLE>
<S> <C>
*13 1997 Annual Report to Stockholders. (Filed as
Exhibit 13 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (the "1997
Form 10-K") and incorporated herein by reference.)
*21 Subsidiaries of the Company.
24 Power of Attorney (set forth on the signature page of
this Form 10-K).
*27 Financial Data Schedule
</TABLE>
---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THOMAS GROUP, INC.
The undersigned, J. Thomas Williams, certifies that he is the President
of Thomas Group, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), and does hereby further certify as
follows:
(1) The name of the Corporation is Thomas Group, Inc.
(2) The name under which the Corporation was originally incorporated
was "Thomas Group, Inc." and the original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
June 12, 1978.
(3) This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
(4) This Amended and Restated Certificate of Incorporation restates and
integrates previous provisions and also amends the provisions of the
Corporation's Certificate of Incorporation.
(5) The text of the Amended and Restated Certificate of Incorporation
of the Corporation, as amended hereby, is restated to read in its entirety, as
follows:
First: The name of the Corporation is Thomas Group, Inc.
Second: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
Third: The purpose of the Corporation is to engage in any lawful act or
activity for which a Corporation may be organized under the General Corporation
Law of the State of Delaware, as amended (the "DGCL").
Fourth: 1. Authorized Shares. The total number of shares of stock which
the Corporation shall have authority to issue is 26,200,000, consisting of:
(a) 25,000,000 shares of Common Stock, par value $.01 per
share ("Common Stock"); and
(b) 1,200,000 shares of Class B Common Stock, par value $.01
per share ("Class B Stock").
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<PAGE> 2
2. Provisions Relating to the Common Stock and Class B
Stock.
(a) Except as otherwise required by law, and subject to
any special voting rights which may be conferred upon any class or
series of stock of the Corporation, each holder of Common Stock shall
be entitled to one vote for each share of the Common Stock standing in
such holder's name on the records of the Corporation on each matter
submitted to a vote of the stockholders. Except as required by law, the
holders of the Class B Stock shall have no voting rights whatsoever.
(b) Subject to the rights of the holders of any class
or series of stock of the Corporation, the holders of the Common Stock
shall be entitled to receive when, as, and if declared by the Board of
Directors of the Corporation, out of funds legally available therefor,
dividends payable in cash, stock, or otherwise.
(c) Upon any liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, and after the
holders of any class or series of stock of the Corporation having a
preference over the Common Stock and Class B Stock with respect to
distributions of assets upon any such liquidation, distribution or
winding up, and any bonds, debentures, or other obligations of the
Corporation shall have been paid in full the amounts to which they
shall be entitled (if any), or a sum sufficient for such payment in
full shall have been set aside, the remaining net assets of the
Corporation shall be distributed pro rata to the holders of the Common
Stock and Class B Stock, to the exclusion of the holders of shares of
any other class or series of stock and any bonds, debentures, or other
obligations of the Corporation.
Fifth: Any action required or permitted to be taken by the stockholders
of the Corporation (including without limitation the election of Directors)
shall be effected at an annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by such
stockholders.
Sixth: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
1. To make, alter or repeal the bylaws of the
Corporation;
2. To authorize and cause to be executed mortgages and
liens upon the real and personal property of the Corporation;
3. To set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any
proper purpose and to abolish any such reserve in the manner in which
it was created;
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<PAGE> 3
4. By a majority of the whole Board of Directors, to
designate one or more committees, each committee to consist of one or
more of the Directors of the Corporation. The Board of Directors may
designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution
or in the bylaws of the Corporation and permitted by law, shall have an
may exercise the powers of the Board of Directors in the management of
the business and affairs of the Corporation and may authorize the seal
of the Corporation to be affixed to all papers which may require it.
The bylaws may provide that in the absence or disqualification of any
member of such committee or committees the member or members thereof
present at any meeting and not disqualified from voting whether or not
he or they constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any
such absent or disqualified member; and
5. When and as authorized by the affirmative vote of
the holders of a majority of the stock issued and outstanding having
voting power given at a stockholders' meeting duly called upon such
notice as is required by statute, sell, lease or exchange all or
substantially all of the property and assets of the Corporation,
including its goodwill and its corporate franchises, upon such terms
and conditions and for such consideration, which may consist in whole
or in part of money or property including securities of any other
corporation or corporations, as the Board of Directors shall deem
expedient and for the best interests of the Corporation.
Seventh: No contract or transaction between the Corporation and one or
more of its Directors, officers or stockholders or between the Corporation and
any person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision or
instrumentality) or other organization in which one or more of its directors,
officers or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the Director or officer is present at or participates in the meeting of
the Board or committee which authorizes the contract or transaction, or solely
because his, her or their votes are counted for such purpose; if: (i) the
material facts as to his or her relationship or interest as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested Directors, even though the disinterested Directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (iii) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified by the Board of Directors, a committee thereof, or the
stockholders. Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Eighth: 1. Indemnification of Officers and Directors. The Corporation
shall indemnify
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<PAGE> 4
any person who was, is, or is threatened to be made a party to a
proceeding (as hereinafter defined) by reason of the fact that he or
she (i) is or was a Director or officer of the Corporation or (ii)
while a Director or officer of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation partnership, joint venture,
sole proprietorship, trust, employee benefit plan or other enterprise,
to the fullest extent permitted under the DGCL, as the same exists or
may hereafter be amended. Such right shall be a contract right and as
such shall run to the benefit of any Director or officer who is elected
and accepts the position of Director or officer of the Corporation or
elects to continue to serve as a Director or officer of the Corporation
or elects to continue to serve as a Director or officer of the
Corporation while this Article 10 is in effect. Any repeal or amendment
of this Article 10 shall be prospective only and shall not limit the
rights of any such Director or officer in any of the foregoing
capacities prior to any such repeal or amendment to this Article 10.
Such right shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its
final disposition to the maximum extent permitted under the DGCL, as
the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in
full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid
amount of the claim, and if successful in whole or in part, the
claimant shall also be entitled to be paid the expenses of prosecuting
such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted
under the DGCL, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its
Board of Directors or any committee thereof, independent legal counsel,
or stockholders to have made its determination prior to the
commencement of such action that indemnification of, or advancement of
costs of defense to, the claimant is permissible in the circumstances
nor an actual determination by the Corporation (including its Board of
Directors or any committee thereof, independent counsel, or
stockholders) that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure
to the benefit of his or her heirs, executors, administrators, and
personal representatives. The rights conferred above shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, by law, resolution of stockholders or
Directors, agreement, or otherwise.
2. Indemnification of Employees or Agents of the
Corporation. The Corporation may additionally indemnify any employee or
agent of the Corporation to the fullest extent permitted by law.
3. Judicial Proceedings. As used herein, the term
"proceeding" means any threatened, pending, or completed action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit or
4
<PAGE> 5
proceeding, and any inquiry or investigation that could lead to such an
action, suit, or proceeding; provided, however, "proceeding" shall not
include any proceeding, action or suit commenced by or on behalf of the
person seeking indemnification or advancement of expenses unless such
proceeding was approved in advance by the Corporation's Board of
Directors.
Ninth: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or the stockholders or class of stockholders of this Corporation,
as the case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application shall, if
sanctioned by the court to which the said application has been made, be binding
on all the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of this Corporation, as the case may be, and also on this
Corporation.
Tenth: Meetings of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designed from time to time by the
Board of Directors or in the bylaws of the Corporation. Elections of Directors
need not be by written ballot unless the bylaws of the Corporation shall so
provide.
Eleventh: The Corporation is to have perpetual existence.
Twelfth: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner, now or hereafter prescribed herein or by statute, and all rights
conferred upon stockholders herein are granted subject to this reservation.
Thirteenth: No Director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the Director
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<PAGE> 6
derived an improper personal benefit. If the DGCL hereafter is amended to
authorize the further elimination or limitation of the liability of Directors,
then the liability of a Director of the Corporation, in addition to the
limitation on personal liability provided herein , shall be limited to the
fullest extent permitted by the amended DGCL. Any repeal or modification of this
Article by the stockholders of the Corporation shall be prospective only and
shall not adversely affect any limitation on the personal liability of a
Director of the Corporation existing at the time of such repeal or modification.
Fourteenth: The Corporation expressly elects to be governed by Section
203 of the DGCL.
Fifteenth: Notwithstanding any provisions of the Corporation's bylaws
to the contrary, the affirmative vote of the holders of at least two-thirds
(2/3) of the outstanding shares of each class of capital stock of the
Corporation then entitled to vote thereon shall be required to amend, alter or
repeal, or adopt any provision inconsistent with, Article II, Section 3 of the
Corporation's bylaws; Article II, Section 10 of the Corporation's bylaws; or
Article III, Section 4 of the Corporation's bylaws.
Sixteenth: Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, the affirmative vote of the holders of at least two-thirds (2/3) of
the outstanding shares of each class of capital stock of the Corporation then
entitled to vote thereon shall be required to amend, alter or repeal, or adopt
any provisions inconsistent with any one or more of Articles Fifth, Eighth,
Twelfth, Thirteenth, Fourteenth, Fifteenth and Sixteenth of this Certificate of
Incorporation.
* * * * *
6
<PAGE> 7
IN WITNESS WHEREOF, Thomas Group, Inc. has caused its corporate seal to
be hereunto affixed and this Amended and Restated Certificate of Incorporation
to be signed by J. Thomas Williams, its President, and attested by Roger A.
Crabb, its Secretary, on July 9, 1998.
THOMAS GROUP, INC.
By:
----------------------------------
J. Thomas Williams, President
ATTEST:
- ------------------------------------
Roger A. Crabb, Secretary
7
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS OF
THOMAS GROUP, INC.
A Delaware Corporation
As of ____________________, 1993
<PAGE> 2
BYLAWS OF
THOMAS GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I OFFICES PAGE
Section 1. Registered Office............................................................ 1
Section 2. Other Offices................................................................ 1
ARTICLE II MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings............................................................ 1
Section 2. Annual Meetings.............................................................. 1
Section 3. Special Meetings............................................................. 1
Section 4. Notice of Meetings and Adjourned Meetings.................................... 2
Section 5. Quorum....................................................................... 2
Section 6. Certain Rules of Procedure Relating to
Stockholder Meetings......................................................... 3
Section 7. Voting....................................................................... 3
Section 8. Action of Stockholders by Written Consent
Without Meetings............................................................. 4
Section 9. Inspectors................................................................... 5
Section 10. New Business................................................................. 5
Section 11. Nominations for Director..................................................... 6
Section 12. Requests for Stockholder List and
Corporation Records.......................................................... 7
ARTICLE III DIRECTORS
Section 1. Powers....................................................................... 7
Section 2. Number of Directors; Term; Qualification..................................... 8
Section 3. Election..................................................................... 8
Section 4. Vacancies.................................................................... 8
Section 5. Place of Meetings............................................................ 8
Section 6. Regular Meetings............................................................. 9
Section 7. Special Meetings............................................................. 9
Section 8. Notice of Meetings........................................................... 9
Section 9. Quorum and Manner of Acting.................................................. 9
Section 10. Action by Consent; Participation by
Telephone or Similar Equipment............................................... 9
Section 11. Resignation; Removal......................................................... 10
Section 12. Compensation of Directors.................................................... 10
ARTICLE IV COMMITTEES OF THE BOARD
Section 1. Designation, Powers and Name................................................. 10
Section 2. Meetings; Minutes............................................................ 11
Section 3. Compensation................................................................. 12
Section 4. Action by Consent; Participation by
Telephone or Similar Equipment............................................... 12
Section 5. Changes in Committees; Resignations;
Removals..................................................................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE V OFFICERS
Section 1. Officers..................................................................... 12
Section 2. Election and Term of Office.................................................. 13
Section 3. Removal and Resignation...................................................... 13
Section 4. Vacancies.................................................................... 13
Section 5. Salaries..................................................................... 13
Section 6. Chairman of the Board........................................................ 14
Section 7. President/Chief Executive Officer............................................ 14
Section 8. Vice Presidents.............................................................. 14
Section 9. Secretary.................................................................... 15
Section 10. Treasurer.................................................................... 15
Section 11. Assistant Secretary or Treasurer............................................. 16
ARTICLE VI CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
Section 1. Contracts.................................................................... 17
Section 2. Checks, etc.................................................................. 17
Section 3. Loans........................................................................ 17
Section 4. Deposits..................................................................... 17
ARTICLE VII CAPITAL STOCK
Section 1. Stock Certificates........................................................... 17
Section 2. List of Stockholders Entitled to Vote........................................ 18
Section 3. Stock Ledger................................................................. 19
Section 4. Transfers of Capital Stock................................................... 19
Section 5. Lost Certificates............................................................ 19
Section 6. Fixing of Record Date........................................................ 19
Section 7. Beneficial Owners............................................................ 20
ARTICLE VIII DIVIDENDS
Section 1. Declaration.................................................................. 20
Section 2. Reserve...................................................................... 20
ARTICLE IX LIMITATION OF DIRECTORS' LIABILITY........................................... 20
ARTICLE X INDEMNIFICATION
Section 1. Indemnification.............................................................. 21
Section 2. Advancement of Expenses...................................................... 21
Section 3. Non-Exclusivity.............................................................. 21
Section 4. Insurance.................................................................... 22
Section 5. Continuity................................................................... 22
ARTICLE XI SEAL......................................................................... 22
ARTICLE XII WAIVER OF NOTICE............................................................. 22
ARTICLE XIII AMENDMENTS................................................................... 23
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
THOMAS GROUP, INC.
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Thomas Group,
Inc. (hereinafter called the "Corporation") within the State of Delaware shall
be located in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The Corporation may also have an office or
offices and keep the books and records of the Corporation, except as may
otherwise be required by law, in such other place or places, within or without
the State of Delaware, as the Board of Directors of the Corporation (hereinafter
sometimes called the "Board") may from time to time determine or the business of
the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of stockholders of the
Corporation shall be held at the office of the Corporation in the state of
Delaware or at such other place, within or without the State of Delaware, as may
from time to time be fixed by the Board or specified or fixed in the respective
notices or waivers of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders of the
Corporation for the election of Directors and for the transaction of such other
business as may properly come before the meeting shall be held annually on such
date and at such time as may be fixed by the Board.
Section 3. Special Meetings. Special meetings of stockholders, unless
otherwise provided by law, may be called at any time only by (i) the Board
pursuant to a resolution adopted by a majority of the then authorized number of
Directors (as determined in accordance with Section 2 of Article III of these
Bylaws), (ii) the Chairman of the Board, (iii) the President or (iv) the holders
of at least ten (10) percent of all shares entitled to vote at the proposed
special meeting. Any such call must specify the matter or matters to be acted
upon at such meeting and only such matter or matters shall be acted upon
thereat.
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Section 4. Notice of Meetings and Adjourned Meetings. Except as may
otherwise be required by law, notice of each meeting of stockholders, annual or
special, shall be in writing, shall state the purpose or purposes of the
meeting, the place, date and hour of the meeting and, unless it is the annual
meeting, shall indicate that the notice is being issued by or at the direction
of the person or persons calling the meeting, and a copy thereof shall be
delivered or sent by mail, not less than ten (10) or more than sixty (60) days
before the date of said meeting, to each stockholder entitled to vote at such
meeting. If mailed, such notice shall be directed to the stockholder at his
address as it appears on the stock record of the Corporation, unless he shall
have filed with the Secretary a written request that notices to him be mailed to
some other address, in which case it shall be directed to him at such other
address. Notice of any adjourned meeting need not be given if the time and place
to which the meeting shall be adjourned were announced at the meeting at which
the adjournment was taken unless (i) the adjournment is for more than thirty
(30) days, (ii) the Board shall fix a new record date for any adjourned meeting
after the adjournment or (iii) these Bylaws otherwise require.
Section 5. Quorum. At each meeting of stockholders of the Corporation,
the holders of a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote shall be present or represented by
proxy to constitute a quorum for the transaction of business, except as may
otherwise be provided by law or the Certificate of Incorporation.
If a quorum is present at a meeting of stockholders, the stockholders
represented in person or by proxy at the meeting may conduct such business as
may be properly brought before the meeting until it is finally adjourned, and
the subsequent withdrawal from the meeting of any stockholder or the refusal of
any stockholder represented in person or by proxy to vote shall not affect the
presence of a quorum at the meeting, except as may otherwise be provided by law
or the Certificate of Incorporation.
If, however, a quorum shall not be present or represented at any
meeting of the stockholders, the chairman of the meeting or holders of a
majority of the shares represented in person or by proxy shall have the power to
adjourn the meeting to another time, or to another time and place, without
notice (subject, however, to the requirements of Section 4 of Article II of
these Bylaws) other than announcement of adjournment at the meeting, and there
may be successive adjournments for like cause and in like manner until the
requisite amount of shares entitled to vote at such meeting shall be
represented. At such adjourned meeting at which the requisite amount of shares
entitled to vote thereat shall be represented, any business may be transacted
that might have been transacted at the original meeting so adjourned.
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<PAGE> 6
Section 6. Certain Rules of Procedure Relating to Stockholder Meetings.
All stockholder meetings, annual or special, shall be governed in accordance
with the following rules:
(i) Only stockholders of record will be permitted to present
motions from the floor at any meeting of stockholders.
(ii) The chairman of the meeting shall preside over and
conduct the meeting in a fair and reasonable manner, and all questions
of procedure or conduct of the meeting shall be decided solely by the
chairman of the meeting. The chairman of the meeting shall have all
power and authority vested in a presiding officer by law or practice to
conduct an orderly meeting. Among other things, the chairman of the
meeting shall have the power to adjourn or recess the meeting, to
silence or expel persons to insure the orderly conduct of the meeting,
to declare motions of persons out of order, to prescribe rules of
conduct and an agenda for the meeting, to impose reasonable time limits
on questions and remarks by any stockholder, to limit the number of
questions a stockholder may ask, to limit the nature of questions and
comments to one subject matter at a time as dictated by any agenda for
the meeting, to limit the number of speakers or persons addressing the
chairman of the meeting or the meeting, to determine when the polls
shall be closed, to limit the attendance at the meeting to stockholders
of record, beneficial owners of stock who present letters from the
record holders confirming their status as beneficial owners, and the
proxies of such record and beneficial holders, and to limit the number
of proxies a stockholder may name.
Section 7. Voting. Except as otherwise provided in the Certificate of
Incorporation, at each meeting of stockholders, every stockholder of the
Corporation shall be entitled to one (1) vote for every share of capital stock
standing in his name on the stock records of the Corporation (i) at the time
fixed pursuant to Section 6 of Article VII of these Bylaws as the record date
for the determination of stockholders entitled to vote at such meeting, or (ii)
if no such record date shall have been fixed, then at the close of business on
the date next preceding the day on which notice thereof shall be given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. At each such meeting, every stockholder shall be
entitled to vote in person, or by proxy appointed by an instrument in writing
executed by such stockholder or by his duly authorized agent and bearing a date
not more than three (3) years prior to the meeting in question, unless said
instrument provides for a longer period during which it is to remain in force.
At all meetings of stockholders at which a quorum is present, all
matters (except as otherwise provided in Section 3 of Article III of these
Bylaws and except in cases where a larger vote is required by law, the
Certificate of Incorporation or these Bylaws) shall be
3
<PAGE> 7
decided by a majority of the votes cast at such meeting by the holders of shares
present or represented by proxy and entitled to vote thereon.
At any meeting of stockholders, every stockholder having the right to
vote may vote either in person or by a proxy executed in writing by the
stockholder or by his duly authorized attorney-in-fact. Each such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy. If no date is stated in a
proxy, such proxy shall have been presumed to have been executed on the date of
the meeting at which it is to be voted. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by law.
Section 8. Action of Stockholders by Written Consent Without Meeting.
Unless otherwise provided by law or in the Certificate of Incorporation, any
action required or permitted to be taken by stockholders for or in connection
with any corporate action may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing setting forth the action
so taken shall be (i) signed by the holders of all of the outstanding stock and
(ii) delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder who
signs the consent.
If action is taken by unanimous consent of stockholders, the writing or
writings comprising such unanimous consent shall be filed with the records of
the meetings of stockholders.
In the event that such action which is consented to is such as would
have required the filing of a certificate under any of the provisions of the
DGCL, if such action had been voted upon by the stockholders at a meeting
thereof, the certificate filed under such provision shall state (i) that the
written consent has been given under Section 228 of the DGCL in lieu of stating
that the stockholders have voted upon the corporate action in question, if such
last mentioned statement is so required, and (ii) that written notice has been
given as provided in such Section 228.
Section 9. Inspectors. The Board of Directors shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and may designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If any inspector appointed or designated by the
Board shall be unwilling or
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unable to serve, or if the Board shall fail to appoint inspectors, the chairman
of the meeting shall appoint the necessary inspector or inspectors. The
inspectors so appointed, before entering upon the discharge of their duties,
shall be sworn faithfully to execute their duties with strict impartiality, and
according to the best of their ability, and the oath so taken shall be
subscribed by them. Such inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting, the existence of a quorum, and the validity of proxies and
ballots, (iii) count all votes and ballots, (iv) determine and retain for a
reasonable period a record of the disposition of any challenges made to any
determination by such inspectors, (v) certify that determination of the number
of shares represented at the meeting and their count of all votes and ballots
and (vi) perform such further acts as are proper to conduct any election or vote
with fairness to all stockholders. On request of the chairman of the meeting or
any stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question, or matter determined by them and shall
execute a certificate of any fact found by them. An inspector need not be a
stockholder of the Corporation, and any officer or Director of the Corporation
may be an inspector on any question other than a vote for or against his
election to any position with the Corporation or on any other question in which
he may be directly interested.
Section 10. New Business. Any new business to be taken up at any annual
meeting of stockholders shall be stated in writing and filed with the Secretary
by the Board of Directors or other person or persons proposing such new business
at least ten (10) days before the date of the annual meeting, and all business
so stated, proposed and filed shall be considered at the annual meeting, but no
other proposal shall be acted upon at the annual meeting of stockholders. Any
stockholder may make any other proposal at the annual meeting, and the proposal
may be discussed and considered, but unless stated in writing and filed with the
Secretary at least ten (10) days before the meeting such proposal shall be
postponed for action at an adjourned, special or annual meeting of stockholders
taking place thirty (30) days or more thereafter. This provision shall not
prevent the consideration and approval or disapproval at the annual meeting of
stockholders of reports of officers, Directors and committees of the Board of
Directors, but in connection with such reports no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
Section 11. Nominations for Director. Notwithstanding anything in these
Bylaws to the contrary, only persons who are nominated in accordance with the
procedures hereinafter set forth in this Section 11 shall be eligible for
election as Directors of the Corporation in accordance with Section 3 of Article
III of these Bylaws.
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Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders only (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation entitled to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section 11. Such
nominations, other than those made by or at the direction of the Board, shall be
made pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
thirty (30) days nor more than sixty (60) days prior to the meeting; provided,
however, that in the event that less than forty (40) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received not later than the close
of business on the tenth (10th) day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made. Any
adjournment(s) or postponement(s) of the original meeting whereby the meeting
will reconvene within thirty (30) days from the original date shall be deemed
for purposes of notice to be a continuation of the original meeting and no
nominations by a stockholder of persons to be elected Directors of the
Corporation may be made at any such reconvened meeting other than pursuant to a
notice that was timely for the meeting on the date originally scheduled. Such
stockholder's notice shall set forth: (i) as to each person whom the stockholder
proposes to nominate for election or re-election as a Director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or as otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, or any successor regulation thereto (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Director if elected); and (ii) as to the stockholder giving the notice (a) the
name and address, as they appear on the Corporation's books, of such
stockholder, and (b) the class and number of shares of the Corporation which are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board for election as a Director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 11, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 12. Requests for Stockholder List and Corporation Records.
Stockholders shall have those rights afforded under the General Corporation Law
of the State of Delaware (the "DGCL") to inspect for any proper purpose the
Corporation's stock ledger, list of stockholders and other books and records,
and make copies or extracts
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therefrom. Such request shall be in writing in compliance with Section 220 of
the DGCL. Information so requested shall be made available for inspecting,
copying or extracting during usual business hours at the principal executive
offices of the Corporation. Each stockholder desiring photostatic or other
duplicate copies of any of such information requested shall make arrangements to
provide the duplicating or other equipment necessary in the city where the
Corporation's principal executive offices are located. Alternative arrangements
with respect to this Section 12 may be permitted in the discretion of the
President of the Corporation or by vote of the Board of Directors.
ARTICLE III
DIRECTORS
Section 1. Powers. The business of the Corporation shall be managed by
or under the direction of the Board. The Board may exercise all such authority
and powers of the Corporation and do all such lawful acts and things as are not
by law or otherwise directed or required to be exercised or done by the
stockholders.
Section 2. Number of Directors; Term; Qualification. The number of
Directors which shall constitute the whole Board of Directors shall be not less
than one (1), and may be from time to time fixed and determined at a different
number only by resolution of the Board of Directors. No decrease in the number
of Directors constituting the Board shall shorten the term of any incumbent
Director.
Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, each Director shall hold office until the next annual meeting
and until his successor is elected and qualified, or until his earlier death,
resignation, disqualification or removal. Directors need not be residents of the
State of Delaware or stockholders of the Corporation. Each director must have
attained the age of majority.
Section 3. Election. At each meeting of stockholders for the election
of Directors at which a quorum is present, the persons receiving a plurality of
the votes of the shares represented in person or by proxy and entitled to vote
on the election of Directors shall be elected Directors. All elections of
Directors shall be by written ballot, unless otherwise provided in the
Certificate of Incorporation.
Section 4. Vacancies. Unless otherwise provided by law or by the
Certificate of Incorporation, in the case of any increase in the number of
Directors or any vacancy in the Board of Directors, such newly created
directorship or vacancy may be filled by the affirmative vote of the majority of
the remaining Directors then in office, although less than a quorum, or by the
sole remaining Director. Unless the Certificate of Incorporation or these Bylaws
provide otherwise, when one or more Directors shall resign from the Board of
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Directors, effective at a future date, the majority of Directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective. Any Director elected or chosen as provided
herein shall serve for the remaining term of the directorship to which appointed
and until his successor is elected and qualified or until his earlier death,
resignation or removal.
Section 5. Place of Meetings. Meetings of the Board shall be held at
the Corporation's office in the State of Delaware or at such other place, within
or without such State, as the Board may from time to time determine or as shall
be specified or fixed in the notice or waiver of notice of any such meeting.
Section 6. Regular Meetings. Regular meetings of the Board shall be
held on such days and at such times as the Board may from time to time
determine. Notice of regular meetings of the Board need not be given except as
otherwise required by law or these Bylaws.
Section 7. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board or the President and shall be called by the
Secretary at the request of any two of the other Directors.
Section 8. Notice of Meetings. Notice of each special meeting of the
Board (and of each regular meeting for which notice shall be required), stating
the time, place and purposes thereof, shall be mailed to each Director,
addressed to him at his residence or usual place of business, or shall be sent
to him by telex, cable, facsimile or telegram so addressed, or shall be given
personally or by telephone, on twenty-four (24) hours notice, or such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances. Notice of any such meeting need not be given
to any Director, however, if waived by him before or after the meeting in
writing or by telegraph, telex, cable, facsimile or other form of recorded
communication, or if he shall be present at the meeting, except when he is
present for the express purpose of objecting at the beginning of such meeting to
the transaction of any business because the meeting is not lawfully called or
convened.
Section 9. Quorum and Manner of Acting. The presence of at least a
majority of the authorized number of Directors shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of the
Board. If a quorum shall not be present at any meeting of the Board, a majority
of 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. Except where a different vote is required by law, the act of a majority
of the Directors present at any meeting at which a quorum shall be present shall
be the act of the Board.
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Section 10. Action by Consent; Participation by Telephone or Similar
Equipment. Any action required or permitted to be taken by the Board may be
taken without a meeting if all the Directors consent in writing to the adoption
of a resolution authorizing the action, unless otherwise restricted by the
Certificate of Incorporation or these Bylaws. The resolution and the written
consents thereto by the Directors shall be filed with the minutes of the
proceedings of the Board. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any one or more Directors may participate in any
meeting of the Board by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting of the Board.
Section 11. Resignation; Removal. Any Director may resign at any time
by giving written notice to the Corporation, provided, however, that written
notice to the Board, the Chairman of the Board, the President or the Secretary
shall be deemed to constitute notice to the Corporation. Such resignation shall
take effect upon receipt of such notice or at any later time specified therein,
and, unless otherwise specified therein, acceptance of such resignation shall
not be necessary to make it effective.
Any Director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of Directors; provided, however, that when the holders of any
class or series are entitled by the Certificate of Incorporation to elect one
(1) or more Directors, then, with respect to the removal without cause of a
Director or Directors so elected, the required majority vote shall be of the
holders of the outstanding shares of such class or series and not of the
outstanding shares as a whole.
Section 12. Compensation of Directors. The Board may, unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, provide for the
payment to any of the Directors of a specified amount for services as a Director
and/or member of a committee of the Board, or of a specified amount for
attendance at each regular or special Board meeting or committee meeting, or of
both, and all Directors shall be reimbursed for expenses of attendance at any
such meeting; provided, however, that nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES OF THE BOARD
Section 1. Designation, Powers and Name. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, including, if they shall so determine, an
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Executive Committee, each such committee to consist of one or more of the
Directors of the Corporation.
Except to the extent restricted by law, the Certificate of
Incorporation, or these Bylaws, each committee designated by the Board of
Directors shall have and may exercise such of the powers of the Board in the
management of the business and affairs of the Corporation as may be provided in
such resolution or in these Bylaws; provided, however, that no such committee
shall have the power or authority in reference to amending the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors pursuant to authority, if any, expressly vested in the
Board by the provisions of the Certificate of Incorporation, (i) fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation, or (ii) fix the number of shares of any
series of stock or authorize the increase or decrease of the shares of any
series), adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
Bylaws of the Corporation; and, provided further, that, unless the resolution
establishing the committee, the Certificate of Incorporation or these Bylaws
expressly so provide, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the DGCL. The Committee may
authorize the seal of the Corporation to be affixed to all papers which may
require it. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting.
Section 2. Meetings; Minutes. Unless the Board of Directors shall
otherwise provide, upon designation of any committee by the Board, such
committee shall elect one of its members as chairman and may elect one of its
members as vice chairman and shall adopt rules of proceeding providing for,
among other things, the manner of calling committee meetings, giving notices
thereof, quorum requirements for such meetings, and the methods of conducting
the same. Each committee of Directors shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required.
Section 3. Compensation. Members of special or standing committees may
be allowed compensation if the Board of Directors shall so determine pursuant to
Section 12 of Article III of these Bylaws.
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Section 4. Action by Consent; Participation by Telephone or Similar
Equipment. Unless the Board of Directors, the Certificate of Incorporation or
these Bylaws shall otherwise provide, any action required or permitted to be
taken by any committee may be taken without a meeting if all members of the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
committee shall be filed with the minutes of the proceedings of the committee.
Unless the Board of Directors, the Certificate of Incorporation or these Bylaws
shall otherwise provide, any one or more of the members of any such committee
may participate in any meeting of the committee by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other. Participation by such means shall constitute
presence in person at a meeting of the committee.
Section 5. Changes in Committees; Resignations; Removals. The Board
shall have power, by the affirmative vote of a majority of the authorized number
of Directors, at any time to change the members of, to fill vacancies in, and to
discharge any committee of the Board. Any member of any such committee may
resign at any time by giving notice to the Corporation, provided, however, that
notice to the Board, the Chairman of the Board, the President, the chairman of
such committee or the Secretary shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective. Any
member of any such committee may be removed at any time, with or without cause,
by the affirmative vote of a majority of the authorized number of Directors at
any meeting of the Board called for that purpose.
ARTICLE V
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, and Chief
Operating Officer (if such office is created by resolution adopted by the
Board), one or more Vice Presidents (any one or more of whom may be designated
Executive Vice President or Senior Vice President), a Secretary and a Treasurer.
The Board of Directors may appoint such other officers and agents, including
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, 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 by the
Board. Any two or more offices may be held by the same person. The Chairman of
the Board shall be elected from among the Directors. With the foregoing
exception, none of the other officers need be a Director, and none of the
officers need be a stockholder of the Corporation unless otherwise required by
the Certificate of Incorporation.
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Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at its first regular meeting
held after the annual meeting of stockholders or as soon thereafter as
conveniently practicable. Each officer shall hold office until his successor
shall have been elected or appointed and shall have been qualified or until his
death or the effective date of his resignation or removal, or until he shall
cease to be a Director in the case of the Chairman of the Board.
Section 3. Removal and Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed, with or without cause, by
the affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interest of the Corporation shall be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights. Any officer may resign at any time by giving
written notice to the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 4. Vacancies. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled by the
Board of Directors and, in the case of any vacancy in an office other than the
office of Chairman of the Board (if any) or President, by the President for the
unexpired portion of the term.
Section 5. Salaries. The salaries of all officers and agents of the
Corporation shall be fixed by the Board of Directors or pursuant to its
direction; and no officer shall be prevented from receiving such salary by
reason of his also being a Director.
Section 6. Chairman of the Board. The Chairman of the Board (who may
also hold the office of Chief Executive Officer and President or other offices)
shall have such duties as the Board of Directors may prescribe. The Chairman of
the Board shall preside at all meetings of the stockholders and of the Board of
Directors. The Chairman of the Board may sign all certificates for shares of
stock of the corporation. In the Chairman's absence, such duties shall be
attended to by the President or any Vice President.
Section 7. Chief Executive Officer. Unless and to the extent that such
powers and duties are expressly delegated to the Chairman of the Board or the
President by the Board of Directors, the Chief Executive Officer shall be the
Chief Executive Officer of the Corporation and, subject to the supervision of
the Board of Directors, shall, together with the Chairman of the Board and the
President, have general management and control of the business and property of
the Corporation in the ordinary course of its business with all such powers with
respect to such general management and control as may be
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reasonably incident to such responsibilities, including, but not limited to, the
power to employ, discharge, or suspend employees and agents of the Corporation,
to fix the compensation of employees and agents, and to suspend, with or without
cause, any officer of the Corporation pending final action by the Board of
Directors with respect to continued suspension, removal, or reinstatement of
such officer. The Chief Executive Officer may, without limitation, agree upon
and execute all division and transfer orders, bonds, contracts, and other
obligations in the name of the Corporation.
Section 8. President and Chief Operating Officer. Unless and to the
extent that such powers and duties are expressly delegated to the Chairman of
the Board or the Chief Executive Officer by the Board of Directors, the
President and Chief Operating Officer shall be an executive officer of the
Corporation and, subject to the supervision of the Board of Directors, shall,
together with the Chairman of the Board and the Chief Executive Officer, have
general management and control of the business and property of the Corporation
in the ordinary course of its business with all such powers with respect to such
general management and control as may be reasonably incident to such
responsibilities, including, but not limited to, the power to employ, discharge,
or suspend employees and agents of the Corporation pending final action by the
Board of Directors with respect to continued suspension, removal, or
reinstatement of such officer. The President and Chief Operating Officer may,
without limitation, agree upon and execute all division and transfer orders,
bonds, contracts, and other obligations in the name of the Corporation.
Section 9. Vice Presidents. Each Vice President shall have such powers
and duties as may be assigned to him by the Board of Directors, the Chairman of
the Board, or the President, and (in order of their seniority as determined by
the Board of Directors or, in the absence of such determination, as determined
by the length of time they have held the office of Vice President) shall
exercise the powers of the President during that officer's absence or inability
to act. As between the Corporation and third parties, any action taken by a Vice
President in the performance of the duties of the President shall be conclusive
evidence of the absence or inability to act of the President at the time such
action was taken.
Section 10. Treasurer. The Treasurer shall have custody of the
Corporation's funds and securities, shall keep full and accurate account of
receipts and disbursements, shall deposit all monies and valuable effects in the
name and to the credit of the Corporation in such depository or depositories as
may be designated by the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors, the Chairman of the Board, or
the President.
Section 11. Assistant Treasurer. Each Assistant Treasurer shall have
such powers and duties as may be assigned to him by the Board of Directors, the
Chairman of the Board, or the President. The Assistant Treasurers (in the order
of their seniority as determined by the Board of Directors or, in the absence of
such a determination, as determined by
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the length of time they have held the office of Assistant Treasurer) shall
exercise the powers of the Treasurer during that officer's absence or inability
to act.
Section 12. Secretary. Except as otherwise provided in these Bylaws,
the Secretary shall keep the minutes of all meetings of the Board of Directors
and of the stockholders in books provided for that purpose, and he shall attend
to the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with the
Chairman of the Board or the President all certificates for shares of stock of
the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the Board of Directors may direct, all of which shall
at all reasonable times be open to inspection by any director upon application
at the office of the Corporation during business hours. He shall in general
perform all duties incident to the office of the Secretary, subject to the
control of the Board of Directors, the Chairman of the Board, and the President.
Section 13. Assistant Secretaries. Each Assistant Secretary shall have
such powers and duties as may be assigned to him by the Board of Directors, the
Chairman of the Board, or the President. The Assistant Secretaries (in the order
of their seniority as determined by the Board of Directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Secretary) shall exercise the powers of the Secretary during
that officer's absence or inability to act.
ARTICLE VI
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
Section 1. Contracts. The Board may authorize any officer or officers,
agent or agents, in the name and on behalf of the Corporation, to enter into any
contract or to execute and deliver any instrument, which authorization may be
general or confined to specific instances; and, unless so authorized by the
Board, no agent or employee who is not an officer shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable pecuniarily for any purpose or for any amount.
Section 2. Checks, etc. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation in such manner as shall from time to
time be authorized by the Board, which authorization may be general or confined
to specific instances.
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Section 3. Loans. No loan shall be contracted on behalf of the
Corporation, and no negotiate paper shall be issued in its name, unless
authorized by the Board, which authorization may be general or confined to
specific instances. All bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board shall authorize.
Section 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as may be selected by or in
the manner designated by the Board. The Board or its designees may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as may be deemed expedient.
ARTICLE VII
CAPITAL STOCK
Section 1. Stock Certificates. Each stockholder of the Corporation
shall be entitled to have, in such form as shall be approved by the Board, a
certificate or certificates signed by the Chairman of the Board or the President
and by either the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary (except that, when any such certificate is countersigned by
a transfer agent or registered by a registrar other than the Corporation itself
or any employee, the signatures of any such officers may be facsimiles, engraved
or printed), which may be sealed with the seal of the Corporation (which seal
may be a facsimile, engraved or printed), certifying the number of shares of
capital stock of the Corporation owned by such stockholder. In case any officer
who has signed or whose facsimile signature has been placed upon any such
certificate shall have ceased to be such officer before such certificate is
issued, such certificate may be issued by the Corporation with the same effect
as if he were such officer at the date of its issue.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof, and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise stated in Section 202 of the DGCL, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent the class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each
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class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. List of Stockholders Entitled To Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make or cause to have prepared or made, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
Section 3. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 2 of this Article VII or the books and
records of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 4. Transfer of Capital Stock. Transfers of shares of capital
stock of the Corporation shall be made only on the stock record of the
Corporation by the holder of record thereof or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation or the transfer agent thereof, and only on surrender of the
certificate or certificates representing such shares, properly endorsed or
accompanied by a duly executed stock transfer power. The Board may make such
additional rules and transfer of certificates representing shares of uncertified
shares of the capital stock of the Corporation.
Section 5. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate.
Section 6. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any
16
<PAGE> 20
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividends or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board may fix, in
advance, a record date, which record date shall (i) not precede the date upon
which the resolution fixing the record date is adopted by the Board and (ii) not
be more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall (i) not precede the
date upon which the resolution fixing the record date is adopted by the Board
and (ii) not be more than ten days after the date upon which the resolution
fixing the record date is adopted by the Board.
Section 7. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, and shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
ARTICLE VIII
DIVIDENDS
Section 1. Declaration. 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
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. Reserve. Before 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 Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Board of Directors shall think conducive to the
interests of the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
17
<PAGE> 21
ARTICLE IX
INDEMNIFICATION
Section 1. Indemnification. The Corporation shall indemnify to the full
extent authorized or permitted by Section 145 of the DGCL any person (his heirs,
executors and administrators) made, or threatened to be made, a party to any
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reasons of the fact that he is or was a Director, officer,
employee or agent of the Corporation or by reason of the fact that as such
Director, officer, employee or agent, at the request of the Corporation, is or
was serving any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, in any capacity. Nothing contained herein
shall affect any rights to indemnification to which Directors, officers,
employees and agents of the Corporation may be entitled by law.
Section 2. Advancement of Expenses. Expenses (including attorneys'
fees) incurred by an officer or Director of the Corporation in defending any
civil, criminal, administrative or investigative action, suit or proceeding may
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of such Director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article IX. Such expenses incurred by
employees and agents of the Corporation other than Directors and officers may
be paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate.
Section 3. Non-Exclusivity. The indemnification and advancement of
expenses provided for hereby shall not be deemed exclusive of any other rights
to which a person seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
Directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 4. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against him and incurred by him in any such capacity, arising
out of his status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Article IX.
Section 5. Continuity. The indemnification and advancement of expenses
provided for in this Article IX shall, unless otherwise provided when authorized
or ratified, continue as to a person who as ceased to be a Director, officer,
employee or agent of the Corporation
18
<PAGE> 22
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
ARTICLE X
SEAL
The seal of the Corporation shall be such as from time to time may be
approved by the Board of Directors.
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice is required by law, the Certificate of
Incorporation or these Bylaws to be given to any Director, member of a committee
or stockholder, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. Attendance of a person at a meeting shall
constitute a waiver of notice for such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, Directors, or members of a
committee of Directors need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation or these Bylaws.
ARTICLE XII
AMENDMENTS
These Bylaws or any of them may be amended or supplemented in any
respect at any time, either (a) at any meeting of stockholders, provided that
any amendment or supplement proposed to be acted upon at any such meeting shall
have been described or referred to in the notice of such meeting, or (b) at any
meeting of the Board, provided that any amendment or supplement proposed to be
acted upon at any such meeting shall have been described or referred to in the
notice of such meeting or an announcement with respect thereto shall have been
made at the last previous Board meeting, and provided further that no amendment
or supplement adopted by the Board shall vary or conflict with any amendment or
supplement adopted by the stockholders. Notwithstanding the preceding sentence,
the affirmative vote of the holders of at least 66 2/3% of the voting power of
the then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal, or adopt any provisions inconsistent with
Article II, Section 3; Article II, Section 8; Article II, Section 11; Article
III, Section 4; or this sentence.
19
<PAGE> 23
I, the undersigned, being the Secretary of the Corporation DO HEREBY
CERTIFY THAT the foregoing are the Bylaws of said Corporation, as adopted by the
Board of Directors of said Corporation as of ___________________ _____, 1993.
-------------------------------------
Alex W. Young
Secretary
1d3450G
20
<PAGE> 1
EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT.
Warrant Certificate Warrant to Purchase
***________________*** ***37,500***
Number Shares
THOMAS GROUP, INC.
(Incorporated under the laws of the State of Delaware)
WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES OF
THE $0.01 PAR VALUE COMMON STOCK OF THOMAS GROUP, INC.
Warrant price: $9.125 per share subject to adjustment as provided below.
1. THIS IS TO CERTIFY that, for value received, ***SRG & Associates,
Ltd.,*** its registered assigns (either or both of whom are referred to herein
as the "Holder"), is entitled to purchase, subject to the terms and conditions
hereinafter set forth, at any time on or before ***October 28, 2003*** (the
"Warrant Period"), up to ***37,500*** shares of the $0.01 par value common stock
("Common Stock") of Thomas Group, Inc., a Delaware corporation (the "Company"),
and to receive certificate(s) for the Common Stock so purchased. This Warrant
may be exercised in whole or in part. Such exercise shall be accomplished by
tender to the Company of the purchase price set forth above as the warrant price
(the "Warrant Price"), either in cash or by certified check or bank cashier's
check, payable to the order of the Company, together with presentation and
surrender to the Company of this Warrant with an executed subscription in
substantially the form attached hereto as Exhibit A. Fractional shares of the
Common Stock will not be issued upon the exercise of this Warrant. In the event
this Warrant is exercised in part, the Company shall issue a new Warrant to the
Holder covering the aggregate number of shares of common stock as to which this
Warrant remains exercisable for.
2. The Company agrees at all times to reserve and hold available out of
the aggregate of its authorized but unissued Common Stock the number of shares
of its Common Stock issuable upon the exercise of this Warrant. The Company
further covenants and agrees that all shares of Common Stock that may be
delivered upon the exercise of this Warrant will, upon delivery, be fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
purchase thereof hereunder.
This Warrant and the Common Stock issuable upon the exercise hereof may
not be sold, transferred, pledged or hypothecated unless the Company shall have
been supplied with evidence reasonably satisfactory to it that such transfer is
not in violation of the Securities Act of 1933, as amended (the "Act") and any
applicable State securities laws. Subject to the satisfaction of the aforesaid
condition, this Warrant shall be freely transferable from time to time by the
Holder upon written notice to the Company.
<PAGE> 2
If this Warrant is transferred, in whole or in part, upon surrender of
this Warrant to the Company, the Company shall deliver to each transferee a
Warrant evidencing the rights of such transferee to purchase the number of
shares of Common Stock that such transferee is entitled to purchase pursuant to
such transfer.
The Company may place a legend on this Warrant or any replacement
Warrant and on each certificate representing shares issuable upon exercise of
this Warrant as to which the Company has not been supplied evidence that the
transfer of such security would not be in violation of the Act and any
applicable state securities laws.
Only the registered Holder may enforce the provisions of this Warrant
against the Company. A transferee of the original registered Holder becomes a
registered Holder only upon delivery to the Company of the original Warrant and
an original Assignment, substantially in the form set forth in Exhibit B
attached hereto.
3. This Warrant does not entitle the Holder to any voting rights or
other rights as a stockholder of the Company, nor to any other rights whatsoever
except the rights herein set forth, and no dividend shall be payable or accrue
by reason of this Warrant or the interest represented hereby, or the shares
purchasable hereunder, until or unless, and except to the extent that, this
warrant is exercised.
This Warrant is exchangeable upon its surrender by the Holder to the
Company for new Warrants of like tenor and date representing in the aggregate
the right to purchase the number of shares purchasable hereunder, each of such
new Warrants to represent the right to purchase such number of shares as may be
designated by the Holder at the time of such surrender.
At such time as the Common Stock is listed on any registered national
securities exchange, the Company shall, upon issuance of any shares for which
this Warrant is exercisable, at its expense, promptly obtain and maintain the
listing of such shares.
The Company shall comply with the reporting requirements of Sections 13
and 15(d) of the Securities Exchange Act of 1934, as amended, for so long as and
to the extent that such requirements apply to the Company.
In the event of (a) any fixing by the Company of a record date with
respect to the holders of any class of securities of the Company for the purpose
of determining which of such holders are entitled to dividends or other
distributions, or any rights to subscribe for, purchase or otherwise acquire any
shares of capital stock of any class or any other securities or property, or to
receive any other right, or (b) any capital reorganization of the Company, or
reclassification or recapitalization of the capital stock of the company or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other entity or person,
or (c) any voluntary or involuntary dissolution or winding up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (a) the record date for the
purpose of such dividend, distribution, or right, and stating the amount and
character of such dividend, distribution, or right; or (b) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, conveyance, dissolution, liquidation, or winding up is to
take place and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such capital stock or securities receivable upon the
exercise of the Warrants) shall be entitled to exchange their shares of Common
Stock (or such other stock securities) for securities or other property
deliverable upon such event. Any such notice shall be deposited in the United
States mail, postage prepaid, at least ten (10)
<PAGE> 3
days prior to the earliest date therein specified and the Holder(s) of the
Warrants may exercise the Warrants within the ten (10) day period from the date
of mailing of such notice.
The Company shall not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant. Without limiting the generality of the foregoing, the Company (a) will
at all times reserve and keep available, solely for issuance and delivery upon
exercise of this Warrant, shares of Common Stock issuable from time to time upon
exercise of this Warrant, (b) will not increase the par value of any shares of
capital stock receivable upon exercise of this Warrant above the amount payable
therefor upon such exercise, and (c) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable stock.
4. The Warrant Price and the number of shares purchasable upon the
exercise of this Warrant are subject to adjustment from time to time upon the
occurrence of any of the events specified in this Section 4.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock or other securities, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into smaller number of shares of Common Stock, or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder of this Warrant
shall be entitled to receive the kind and number of shares of Common Stock or
other securities of the Company that he would have owned or have been entitled
to receive after the happening of any of the events described above, had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(c) For the purpose of this Section 4, the term shares of
Common Stock shall mean (i) the class of stock designated as the Common Stock of
the Company at the date of this Warrant, or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares consisting
solely of change in par value, or from par value to no par value, or from no par
value to par value.
(d) If during the Warrant Period the Company consolidates with
or merges into another corporation or transfers all or substantially all of its
assets, the Holder shall thereafter be entitled upon exercise hereof to
purchase, with respect to each share of Common Stock purchasable hereunder
immediately prior to the date upon which such consolidation or merger becomes
effective, the securities or property to which a holder of shares of Common
Stock is entitled upon such consolidation or merger, without any change in, or
payment in addition to the Warrant Price in effect immediately prior to such
merger or consolidation, and the Company shall take such steps in connection
with such consolidation or merger as may be necessary to ensure that all of the
provisions of this Warrant shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable
<PAGE> 4
upon the exercise of this Warrant. The Company shall not effect any such
consolidation, merger or asset transfer unless prior to the consummation thereof
the successor corporation (if other than the Company) resulting therefrom shall
assume by written agreement executed and mailed to the registered Holder at his
address shown on the books and records of the Company, the obligation to deliver
to such Holder any such securities or property as in accordance with the
foregoing provisions such Holder shall be entitled to purchase.
(e) Upon the happening of any event requiring an adjustment of
the Warrant Price, the Company shall forthwith give written notice thereof to
the registered Holder of this Warrant, stating the adjusted Warrant Price and
the adjusted number of shares of Common Stock or other securities or property
purchasable upon the exercise hereof resulting from such event and setting forth
in reasonable detail the method of calculation and the facts upon which such
calculation is based. The Board of Directors of the Company shall determine the
adjusted Warrant Price and the securities or property purchasable upon exercise.
If any voluntary or involuntary dissolution, liquidation, or winding up of the
Company is proposed, the Company shall give at least ten (10) days prior written
notice of such proposal to the registered Holder hereof stating the date on
which such event is to take place and the date (which shall be at least ten (10)
days after giving of such notice) as of which the holders of shares of Common
Stock of record shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such dissolution, liquidation or winding up.
This Warrant and all rights hereunder shall terminate as of the date on which
such dissolution, liquidation, or winding up takes place. The notices pursuant
to this paragraph shall be given by first class mail, postage prepaid, addressed
to the registered holder of this Warrant at his address appearing in the records
of the Company.
(f) Irrespective of any adjustments pursuant to this Section 4
to the Warrant Price or to the number of shares or other securities or other
property obtainable upon exercise of this Warrant, this Warrant may continue to
state the Warrant Price and the number of shares obtainable upon exercise, as
the same price and number of shares stated herein.
5. (a) From and after October 28, 1999 [one year after the date of
issuance], the Holders of fifty percent (50%) of this Warrant and any shares of
Common Stock issued upon the exercise thereof (the "Registration Securities")
may notify the Company in writing that such Holders desire for the Company to
cause all or a portion of such notifying Holders' Registration Securities to be
registered for sale to the public under the Act. Upon receipt of such written
request, the Company will promptly notify in writing all other Holders of
Registration Securities of such request, which Holders shall have 20 days
following such notice from the Company to notify the Company in writing whether
such persons desire to have Registration Securities held by them included in
such offering. The Company will, promptly following the expiration of such 20
day period, prepare and file, and use its best efforts to prosecute to
effectiveness, an appropriate filing with the Securities and Exchange Commission
(the "Commission") of a registration statement covering such Registration
Securities and the proposed sale or distribution thereof under the Act.
Notwithstanding anything to the contrary contained herein, the Company shall not
be obligated to prepare or file any registration statement pursuant to this
subsection, or to prepare or file any supplement thereto, at any time when the
Company, in the good faith judgement of its board of directors, reasonably
believes that the filing thereof at the time requested, or the offering of
securities pursuant thereto (i) would materially adversely effect a pending or
proposed public offering of the Company's securities or an acquisition, merger,
recapitalization, consolidation, reorganization or similar transaction, or
negotiations, discussions, or pending proposals with thereto or (ii) would
materially adversely effect the business or prospects of the Company in view of
the disclosures that may be required thereby of information about the business,
assets, liabilities or operations of the Company not theretofore disclosed;
provided, however, that the filing of a registration statement, or any
supplement or amendment thereto, by the Company may be deferred for no longer
than the lesser of (1) if such
<PAGE> 5
deferment is pursuant to (i) above, 60 calendar days after the abandonment or
consummation of any of the foregoing proposals or transactions or, if such
deferment is pursuant to (ii) above, 45 calendar days beyond the date such
information is disclosed to the investing public or (2) 90 calendar days after
the delivery of such demand notice. The company shall use its best efforts to
cause such registration statement to remain effective for such period that may
be reasonably necessary to complete the distribution of securities so registered
for sale, provided that such period shall not be longer than eighteen (18)
months from the date of such registration statement unless the Company otherwise
agrees in its sole discretion.
If any registration pursuant to this subsection (a) is in the form of an
underwritten offering, the Company will select and obtain the investment banker
or investment bankers and manager or managers that will administer the offering;
provided, however, that such selection shall be subject to the approval of the
Holders of a majority of the shares of Registration Securities to be registered,
which shall not be unreasonably withheld. The Company shall (together with all
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting. If any Holder of Registration
Securities disapproves of the terms of the underwriting, such Holder may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. The Registration Securities so withdrawn shall also be withdrawn
from registration.
(b) In the event that the Company proposes, at any time
subsequent to ***October 28, 1998*** but prior to ***October 28, 2004,***
whether or not this Warrant has yet been exercised in whole or in part, to file
a registration statement on a general form (excluding forms S-8 and S-4) of
registration under the Act relating to securities issued or to be issued by it,
then it shall give written notice of such proposal to the Holder or Holders of
this Warrant and any shares of Common Stock issued upon the exercise thereof.
If, within 30 days after the giving of such notice, any Holder of any Warrant or
shares of Common Stock issued or issuable upon its exercise shall request in
writing that all or any of the shares of Common Stock issued or issuable upon
exercise of the Warrant be included in such proposed registration, the Company
will, at its own expense (except as set forth below), also register such shares
of Common Stock as shall have been requested in writing; provided, however, that
(i) the Company shall not be required to include any
of such shares of Common Stock if, by reason of such inclusion, the
Company shall be required to prepare and file a registration statement
on a form promulgated by the Securities and Exchange Commission
different from that which the Company otherwise would use;
(ii) the requesting Holders shall cooperate with the
Company in the preparation of such registration statement to the extent
required to furnish information concerning such requesting Holders
therein; and
(iii) if any underwriter or managing agent is
purchasing or arranging for the sale of the securities then being
offered by the Company under such registration statement, then such
requesting Holders (A) shall agree to have the securities being so
registered sold to or by such underwriter or managing agent on terms
substantially equivalent to the terms upon which the Company is selling
the securities so registered, or (B) shall delay the sale of any other
shares of Common Stock held by such Holders for the 90 day period
commencing with the effective date of the registration statement.
(iv) Notwithstanding the foregoing, no such
registration hereunder shall be required if the managing underwriter
for the proposed offering shall determine in good faith
<PAGE> 6
and for valid business reasons that the inclusion of the shares of
Common Stock issuable upon exercise of this Warrant requested to be
registered would have an adverse affect on the marketability or the
price of the securities proposed to be offered by the Company, in which
event the Company shall be obligated to include such limited number, if
any, of the Holder's shares in such offering, which securities will be
taken from those held by a group consisting of the Holder or Holders of
this Warrant and other holders of securities of the Company having
similar registration rights, on a pro rata basis.
(c) In connection with the filing of a registration statement
pursuant to this section 5, the Company shall:
(i) notify such owners as to the filing thereof and
of all amendments thereto filed prior to the effective date of
said registration statement;
(ii) notify such owners, promptly after it shall have
received notice thereof, of the time when the registration
statement becomes effective or any supplement to any prospectus
forming a part of the registration statement has been filed;
(iii) prepare and file without expense to such owners
any necessary amendment or supplement to such registration
statement or prospectus as may be necessary or advisable in
connection with the proposed distribution of the securities by
such owners;
(iv) take all reasonable steps to qualify the shares
of Common Stock being so registered for sale under the
securities or blue sky laws in such states, but only in such
states, as the Company would qualify the sales of its securities
absent any registration of the shares of Common Stock issued or
issuable hereunder; provided, however, that the Company shall
not be required (A) to qualify to do business in any
jurisdiction where it is not otherwise required to qualify, and
(B) to consent to general service of process in any such
jurisdiction;
(v) notify such registered owners of any stop order
suspending the effectiveness of the registration statement and
use its reasonable best efforts to remove such stop order;
(vi) undertake to keep said registration statement
and prospectus effective until the earlier of (A) nine months
from the effective date thereof, or (B) the date the shares of
Common Stock are sold or become available for public sale
without restriction under the Act; and
(vii) furnish each requesting Holder with reasonable
number of copies of the registration statement, each preliminary
prospectus, final prospectus, and any supplements or amendments
thereto.
(d) All expenses, disbursements and fees of any such
registration pursuant to this Section 5 (including, without limitation, the fees
and expenses of one (1) counsel selected by the requesting Holders, not to
exceed $5,000.00) shall be borne by the Company, except that the selling Holders
shall bear underwriting commission and discounts attributable to the common
stock so registered.
<PAGE> 7
6. In connection with the obligation of the Company to register shares
of Common Stock pursuant to the provisions of Section 5 hereof, the Company and
each Holder agree as follows:
(a) The Company hereby agrees to indemnify and hold harmless
each Holder and each person who controls each Holder within the meaning of
Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all losses, claims,
damages, liabilities or actions to which each Holder or they or any of them may
become subject under the Act, the Exchange Act or otherwise and to reimburse the
persons indemnified above for any legal or other expenses (including the cost of
any investigation and preparation) reasonably incurred by them in connection
with any litigation or proceeding or threatened litigation or proceeding,
whether or not resulting in any liabilities, but only insofar as such losses,
claims, damages, liabilities or actions arise out of, or are based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement with respect to the shares of Common Stock (or
incorporated therein by reference) or any amendment or supplement thereto (such
registration statement, together with any such amendments or supplements, is
referred to herein as the "Registration Statement"), or the omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (ii) the employment
of the Company of any device, scheme or artifice to defraud, or the engaging by
the Company in any act, practice or course of business which operates or would
operate as a fraud or deceit, or any conspiracy with respect thereto, in which
the Company shall participate, in connection with the sale pursuant to the
Registration Statement of any of the securities registered thereby; provided,
however, that the indemnity agreement contained in this paragraph (a) shall not
extend to any indemnified person in respect of any such losses, claims, damages,
liabilities or actions arising out of, or based upon, any such untrue statement
or alleged untrue statement or any such omission or alleged omission, if such
statement or omission was made in reliance upon information furnished in writing
to the Company by such person specifically for use in connection with the
preparation of the Registration Statement. The Company agrees to pay any legal
and other expenses for which it is liable under this paragraph (a) from time to
time (but not more frequently than monthly) within 30 days after its receipt of
a bill therefor.
(b) Each Holder agrees to indemnify and hold harmless the
Company, its directors, its officers who shall have signed the registration
statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the company to each Holder but in each case to the
extent, and only to the extent, that any statement in or omission from or
alleged omission from the registration statement, any preliminary prospectus,
the prospectus or any amendment or supplement thereto was made in reliance upon
information furnished in writing to the Company by such Holder specifically for
use in connection with the preparation of the registration statement, any
preliminary prospectus or the prospectus or any such amendment or supplement
thereto. Each Holder agrees to pay any legal and other expenses for which it is
liable under this paragraph (b) from time to time (but not more frequently than
monthly) within 30 days after its receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing paragraphs (a) or (b) (an "Indemnified
Party") in respect of which indemnity may be bought against a person granting
indemnification (an "Indemnifying Party") pursuant to such subsections, such
Indemnified Party shall promptly notify such Indemnifying Party in writing of
the commencement thereof; but the omission so to notify the Indemnifying Party
of any such action shall not release the Indemnifying Party from any liability
it may have to such Indemnified Party otherwise than on account of the indemnity
agreement contained in paragraphs (a) or (b). In case any such action is brought
against an Indemnified Party and it notifies an Indemnifying Party of the
commencement
<PAGE> 8
thereof, the Indemnifying Party against which a claim is to be made will be
entitled to participate therein, and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably satisfactory to such Indemnified
Party, provided, however, that if the defendants in any such action include both
the Indemnified Party and the Indemnifying Party and the Indemnified Party shall
have reasonably concluded based upon advice of counsel that there may be legal
defenses available to it and/or other Indemnified Parties which conflict with
those available to the Indemnifying Party, the Indemnified Party shall have the
right to select separate counsel to assume such legal defenses and otherwise to
participate in the defense of such action on behalf of such Indemnified Party or
Parties. Upon receipt of notice from the Indemnifying Party to such Indemnified
Party of its election so to assume the defense of such action and approval by
the Indemnified Party of counsel, the Indemnifying Party will not be liable to
such Indemnified Party under this agreement for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof unless (i) the Indemnified Party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
Indemnifying Party shall not be liable for the expenses of more than one
separate counsel), (ii) the Indemnifying Party shall not have employed counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party within a reasonable time after notice of commencement of the action or
(iii) the Indemnifying Party has authorized the employment of such counsel for
the Indemnified Party at the expense of the Indemnifying Party. An Indemnifying
Party shall not be liable for any settlement of any action or proceeding
effected without its written consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in paragraph (a) is
unavailable to a Holder in accordance with its terms, the Company and each
Holder shall contribute to the aggregate losses, claims, damages and liabilities
of the nature contemplated by said indemnity agreement incurred by each Holder
based on the relative fault of the Company on the one hand, and each Holder on
the other hand, in connection with the statements or omission which resulted in
such losses, claims, damages and liabilities. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact, such statement or omission relates to
information supplied by the Company or such Holder and the party's relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by the Indemnified
Party as a result of the losses, claims, damages, or liabilities referred to
above in this paragraph shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending against or appearing as a third party witness in any such action or
claim. Notwithstanding the provisions of this paragraph, if a Holder is found to
be guilty of fraudulent misrepresentation within the meaning of Section 11(f) of
the Act, it shall not be entitled to contribution from the Company unless the
Company is also found to be guilty of such fraudulent misrepresentation.
7. The Company stipulates that remedies at law, in money damages,
available to the Holder or a holder of Common Stock issued pursuant to exercise
of this Warrant, in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate. Therefore, the Company agrees that the
terms of this Warrant may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
8. This Agreement shall be binding upon and inure to the benefit of the
Holder and its successors and permitted assigns.
<PAGE> 9
9. Notices. The Company agrees to maintain a ledger of the ownership of
the Warrants (the "Warrant Ledger). Any notice hereunder shall be given by
registered or certified mail if to the Company, at its principal executive
office and, if to the Holder, to its address shown in the Warrant Ledger of the
Company, provided that Holder may at any time on three (3) days' written notice
to the Company designate or substitute another address where notice is to be
given. Notice shall be deemed given and received after a certified or registered
letter, properly addressed with postage prepaid, is deposited in the U.S. mail.
10. Severability. Every provision of this Warrant is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the remainder of this
Warrant.
11. Governing Law. This agreement shall be governed and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of choice of laws thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers, and the corporate seal hereunto affixed.
DATED: COMPANY
------------------ -----------------------------
By:
----------------------------------
Its:
---------------------------------
<PAGE> 10
Exhibit A
SUBSCRIPTION FORM
(To be Executed by the Holder to Exercise the Rights To Purchase Common Stock
Evidenced by the Within Warrant)
The undersigned hereby irrevocably subscribes for ___________
shares (the "Stock") of the Common Stock of _______________________ (the
"Company") pursuant to and in accordance with the terms and conditions of the
attached Warrant and hereby makes payment of $______________ therefore, and
requests that a certificate for such shares be issued in the name of the
undersigned and be delivered to the undersigned at the address stated below. If
such number of shares is not all of the shares purchasable pursuant to the
attached Warrant, the undersigned requests that a new Warrant of like tenor for
the balance of the remaining shares purchasable thereunder be delivered to the
undersigned at the address stated below.
In connection with the issuance of the Stock, I hereby represent to
the Company that I am acquiring the Stock for my own account for investment and
not with a view to, or for resale in connection with, a distribution of the
shares within the meaning of the Securities Act of 1933, as amended (the "Act").
I understand that because the Stock has not been registered under
the Act, I must hold such Stock indefinitely unless such Stock is subsequently
registered and qualified under the act or is exempt from such registration and
qualification. Before I make any transfer or disposition of any shares of the
Stock, I agree to give to the Company written notice of my intention to do so
and to describe briefly the manner of such proposed transfer or disposition. I
shall make no such transfer or disposition unless (a) such transfer or
disposition can be made without registration under the Act by reason of specific
exemptions from such registration and such qualification, or (b) a registration
statement has been filed pursuant to the Act and has been declared effective
with respect to such disposition.
I agree that each certificate representing the Stock delivered to
me shall bear substantially the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The shares
may not be sold or transferred in the absence of such registration
or an exemption therefrom under said Act."
I further agree that the Company may place stop orders on the
certificates evidencing the Stock with the transfer agent, if any, to the same
effect as the above legend. The legend and stop transfer notice referred to
above shall be removed only upon my furnishing to the company an opinion of
counsel (reasonably satisfactory to the Company) to the effect that such legend
may be removed.
Date: Signed:
---------------- ----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
<PAGE> 11
Exhibit B
ASSIGNMENT
(To be Executed by the Holder to Effect Transfer of the Within Warrant)
For Value Received __________________________ hereby sells, assigns and
transfers to _____________________________ this Warrant and the rights
represented hereby to purchase _________ shares of Common Stock in accordance
with the terms and conditions hereof, and does hereby irrevocably constitute and
appoint _____________________________ as attorney to transfer this Warrant on
the books of the Company with full power of substitution.
The undersigned also represents that, by accepting assignment hereof, the
assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof are being acquired for investment and that the assignee
will not offer, sell, or otherwise dispose of this Warrant or any shares of
stock to be issued upon exercise hereof in violation of the Securities Act of
1933, as amended, or any state securities laws. Further, by accepting assignment
hereof, the assignee acknowledges that upon exercise of this Warrant, the
assignee shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so purchased are being
acquired for investment and not with a view toward distribution or resale.
Dated: Signed:
----------------- --------------------------------
Please print or typewrite Please insert Social Security
name and address of or other Tax Identification
assignee: Number of Assignee:
- -
- -------------------------- ------- ------- --------
- --------------------------
- --------------------------
- --------------------------
<PAGE> 1
EXHIBIT 4.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT.
Warrant Certificate Warrant to Purchase
***________________*** ***12,500***
Number Shares
THOMAS GROUP, INC.
(Incorporated under the laws of the State of Delaware)
WARRANT CERTIFICATE FOR THE PURCHASE OF SHARES OF
THE $0.01 PAR VALUE COMMON STOCK OF THOMAS GROUP, INC.
Warrant price: $9.125 per share subject to adjustment as provided below.
1. THIS IS TO CERTIFY that, for value received, ***Lyon Securities,
Inc.,*** its registered assigns (either or both of whom are referred to herein
as the "Holder"), is entitled to purchase, subject to the terms and conditions
hereinafter set forth, at any time on or before ***October 28, 2003*** (the
"Warrant Period"), up to ***12,500*** shares of the $0.01 par value common stock
("Common Stock") of Thomas Group, Inc., a Delaware corporation (the "Company"),
and to receive certificate(s) for the Common Stock so purchased. This Warrant
may be exercised in whole or in part. Such exercise shall be accomplished by
tender to the Company of the purchase price set forth above as the warrant price
(the "Warrant Price"), either in cash or by certified check or bank cashier's
check, payable to the order of the Company, together with presentation and
surrender to the Company of this Warrant with an executed subscription in
substantially the form attached hereto as Exhibit A. Fractional shares of the
Common Stock will not be issued upon the exercise of this Warrant. In the event
this Warrant is exercised in part, the Company shall issue a new Warrant to the
Holder covering the aggregate number of shares of common stock as to which this
Warrant remains exercisable for.
2. The Company agrees at all times to reserve and hold available out of
the aggregate of its authorized but unissued Common Stock the number of shares
of its Common Stock issuable upon the exercise of this Warrant. The Company
further covenants and agrees that all shares of Common Stock that may be
delivered upon the exercise of this Warrant will, upon delivery, be fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
purchase thereof hereunder.
This Warrant and the Common Stock issuable upon the exercise hereof may
not be sold, transferred, pledged or hypothecated unless the Company shall have
been supplied with evidence reasonably satisfactory to it that such transfer is
not in violation of the Securities Act of 1933, as amended (the "Act") and any
applicable State securities laws. Subject to the satisfaction of the aforesaid
condition, this Warrant shall be freely transferable from time to time by the
Holder upon written notice to the Company.
<PAGE> 2
If this Warrant is transferred, in whole or in part, upon surrender of
this Warrant to the Company, the Company shall deliver to each transferee a
Warrant evidencing the rights of such transferee to purchase the number of
shares of Common Stock that such transferee is entitled to purchase pursuant to
such transfer.
The Company may place a legend on this Warrant or any replacement
Warrant and on each certificate representing shares issuable upon exercise of
this Warrant as to which the Company has not been supplied evidence that the
transfer of such security would not be in violation of the Act and any
applicable state securities laws.
Only the registered Holder may enforce the provisions of this Warrant
against the Company. A transferee of the original registered Holder becomes a
registered Holder only upon delivery to the Company of the original Warrant and
an original Assignment, substantially in the form set forth in Exhibit B
attached hereto.
3. This Warrant does not entitle the Holder to any voting rights or
other rights as a stockholder of the Company, nor to any other rights whatsoever
except the rights herein set forth, and no dividend shall be payable or accrue
by reason of this Warrant or the interest represented hereby, or the shares
purchasable hereunder, until or unless, and except to the extent that, this
warrant is exercised.
This Warrant is exchangeable upon its surrender by the Holder to the
Company for new Warrants of like tenor and date representing in the aggregate
the right to purchase the number of shares purchasable hereunder, each of such
new Warrants to represent the right to purchase such number of shares as may be
designated by the Holder at the time of such surrender.
At such time as the Common Stock is listed on any registered national
securities exchange, the Company shall, upon issuance of any shares for which
this Warrant is exercisable, at its expense, promptly obtain and maintain the
listing of such shares.
The Company shall comply with the reporting requirements of Sections 13
and 15(d) of the Securities Exchange Act of 1934, as amended, for so long as and
to the extent that such requirements apply to the Company.
In the event of (a) any fixing by the Company of a record date with
respect to the holders of any class of securities of the Company for the purpose
of determining which of such holders are entitled to dividends or other
distributions, or any rights to subscribe for, purchase or otherwise acquire any
shares of capital stock of any class or any other securities or property, or to
receive any other right, or (b) any capital reorganization of the Company, or
reclassification or recapitalization of the capital stock of the company or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other entity or person,
or (c) any voluntary or involuntary dissolution or winding up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (a) the record date for the
purpose of such dividend, distribution, or right, and stating the amount and
character of such dividend, distribution, or right; or (b) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, conveyance, dissolution, liquidation, or winding up is to
take place and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such capital stock or securities receivable upon the
exercise of the Warrants) shall be entitled to exchange their shares of Common
Stock (or such other stock securities) for securities or other property
deliverable upon such event. Any such notice shall be deposited in the United
States mail, postage prepaid, at least ten (10)
<PAGE> 3
days prior to the earliest date therein specified and the Holder(s) of the
Warrants may exercise the Warrants within the ten (10) day period from the date
of mailing of such notice.
The Company shall not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant. Without limiting the generality of the foregoing, the Company (a) will
at all times reserve and keep available, solely for issuance and delivery upon
exercise of this Warrant, shares of Common Stock issuable from time to time upon
exercise of this Warrant, (b) will not increase the par value of any shares of
capital stock receivable upon exercise of this Warrant above the amount payable
therefor upon such exercise, and (c) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable stock.
4. The Warrant Price and the number of shares purchasable upon the
exercise of this Warrant are subject to adjustment from time to time upon the
occurrence of any of the events specified in this Section 4.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of Common Stock or other securities, (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into smaller number of shares of Common Stock, or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of shares of Common Stock purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder of this Warrant
shall be entitled to receive the kind and number of shares of Common Stock or
other securities of the Company that he would have owned or have been entitled
to receive after the happening of any of the events described above, had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this paragraph
(a) shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(b) Whenever the number of shares of Common Stock purchasable
upon the exercise of this Warrant is adjusted, as herein provided, the Warrant
Price shall be adjusted by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
shares of Common Stock purchasable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares of Common Stock so purchasable immediately thereafter.
(c) For the purpose of this Section 4, the term shares of
Common Stock shall mean (i) the class of stock designated as the Common Stock of
the Company at the date of this Warrant, or (ii) any other class of stock
resulting from successive changes or reclassifications of such shares consisting
solely of change in par value, or from par value to no par value, or from no par
value to par value.
(d) If during the Warrant Period the Company consolidates with
or merges into another corporation or transfers all or substantially all of its
assets, the Holder shall thereafter be entitled upon exercise hereof to
purchase, with respect to each share of Common Stock purchasable hereunder
immediately prior to the date upon which such consolidation or merger becomes
effective, the securities or property to which a holder of shares of Common
Stock is entitled upon such consolidation or merger, without any change in, or
payment in addition to the Warrant Price in effect immediately prior to such
merger or consolidation, and the Company shall take such steps in connection
with such consolidation or merger as may be necessary to ensure that all of the
provisions of this Warrant shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable
<PAGE> 4
upon the exercise of this Warrant. The Company shall not effect any such
consolidation, merger or asset transfer unless prior to the consummation thereof
the successor corporation (if other than the Company) resulting therefrom shall
assume by written agreement executed and mailed to the registered Holder at his
address shown on the books and records of the Company, the obligation to deliver
to such Holder any such securities or property as in accordance with the
foregoing provisions such Holder shall be entitled to purchase.
(e) Upon the happening of any event requiring an adjustment of
the Warrant Price, the Company shall forthwith give written notice thereof to
the registered Holder of this Warrant, stating the adjusted Warrant Price and
the adjusted number of shares of Common Stock or other securities or property
purchasable upon the exercise hereof resulting from such event and setting forth
in reasonable detail the method of calculation and the facts upon which such
calculation is based. The Board of Directors of the Company shall determine the
adjusted Warrant Price and the securities or property purchasable upon exercise.
If any voluntary or involuntary dissolution, liquidation, or winding up of the
Company is proposed, the Company shall give at least ten (10) days prior written
notice of such proposal to the registered Holder hereof stating the date on
which such event is to take place and the date (which shall be at least ten (10)
days after giving of such notice) as of which the holders of shares of Common
Stock of record shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such dissolution, liquidation or winding up.
This Warrant and all rights hereunder shall terminate as of the date on which
such dissolution, liquidation, or winding up takes place. The notices pursuant
to this paragraph shall be given by first class mail, postage prepaid, addressed
to the registered holder of this Warrant at his address appearing in the records
of the Company.
(f) Irrespective of any adjustments pursuant to this Section 4
to the Warrant Price or to the number of shares or other securities or other
property obtainable upon exercise of this Warrant, this Warrant may continue to
state the Warrant Price and the number of shares obtainable upon exercise, as
the same price and number of shares stated herein.
5. (a) From and after October 28, 1999 [one year after the date of
issuance], the Holders of fifty percent (50%) of this Warrant and any shares of
Common Stock issued upon the exercise thereof (the "Registration Securities")
may notify the Company in writing that such Holders desire for the Company to
cause all or a portion of such notifying Holders' Registration Securities to be
registered for sale to the public under the Act. Upon receipt of such written
request, the Company will promptly notify in writing all other Holders of
Registration Securities of such request, which Holders shall have 20 days
following such notice from the Company to notify the Company in writing whether
such persons desire to have Registration Securities held by them included in
such offering. The Company will, promptly following the expiration of such 20
day period, prepare and file, and use its best efforts to prosecute to
effectiveness, an appropriate filing with the Securities and Exchange Commission
(the "Commission") of a registration statement covering such Registration
Securities and the proposed sale or distribution thereof under the Act.
Notwithstanding anything to the contrary contained herein, the Company shall not
be obligated to prepare or file any registration statement pursuant to this
subsection, or to prepare or file any supplement thereto, at any time when the
Company, in the good faith judgement of its board of directors, reasonably
believes that the filing thereof at the time requested, or the offering of
securities pursuant thereto (i) would materially adversely effect a pending or
proposed public offering of the Company's securities or an acquisition, merger,
recapitalization, consolidation, reorganization or similar transaction, or
negotiations, discussions, or pending proposals with thereto or (ii) would
materially adversely effect the business or prospects of the Company in view of
the disclosures that may be required thereby of information about the business,
assets, liabilities or operations of the Company not theretofore disclosed;
provided, however, that the filing of a registration statement, or any
supplement or amendment thereto, by the Company may be deferred for no longer
than the lesser of (1) if such
<PAGE> 5
deferment is pursuant to (i) above, 60 calendar days after the abandonment or
consummation of any of the foregoing proposals or transactions or, if such
deferment is pursuant to (ii) above, 45 calendar days beyond the date such
information is disclosed to the investing public or (2) 90 calendar days after
the delivery of such demand notice. The company shall use its best efforts to
cause such registration statement to remain effective for such period that may
be reasonably necessary to complete the distribution of securities so registered
for sale, provided that such period shall not be longer than eighteen (18)
months from the date of such registration statement unless the Company otherwise
agrees in its sole discretion.
If any registration pursuant to this subsection (a) is in the form of an
underwritten offering, the Company will select and obtain the investment banker
or investment bankers and manager or managers that will administer the offering;
provided, however, that such selection shall be subject to the approval of the
Holders of a majority of the shares of Registration Securities to be registered,
which shall not be unreasonably withheld. The Company shall (together with all
Holders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting. If any Holder of Registration
Securities disapproves of the terms of the underwriting, such Holder may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. The Registration Securities so withdrawn shall also be withdrawn
from registration.
(b) In the event that the Company proposes, at any time
subsequent to ***October 28, 1998*** but prior to ***October 28, 2004,***
whether or not this Warrant has yet been exercised in whole or in part, to file
a registration statement on a general form (excluding forms S-8 and S-4) of
registration under the Act relating to securities issued or to be issued by it,
then it shall give written notice of such proposal to the Holder or Holders of
this Warrant and any shares of Common Stock issued upon the exercise thereof.
If, within 30 days after the giving of such notice, any Holder of any Warrant or
shares of Common Stock issued or issuable upon its exercise shall request in
writing that all or any of the shares of Common Stock issued or issuable upon
exercise of the Warrant be included in such proposed registration, the Company
will, at its own expense (except as set forth below), also register such shares
of Common Stock as shall have been requested in writing; provided, however, that
(i) the Company shall not be required to include any
of such shares of Common Stock if, by reason of such inclusion, the
Company shall be required to prepare and file a registration statement
on a form promulgated by the Securities and Exchange Commission
different from that which the Company otherwise would use;
(ii) the requesting Holders shall cooperate with the
Company in the preparation of such registration statement to the extent
required to furnish information concerning such requesting Holders
therein; and
(iii) if any underwriter or managing agent is
purchasing or arranging for the sale of the securities then being
offered by the Company under such registration statement, then such
requesting Holders (A) shall agree to have the securities being so
registered sold to or by such underwriter or managing agent on terms
substantially equivalent to the terms upon which the Company is selling
the securities so registered, or (B) shall delay the sale of any other
shares of Common Stock held by such Holders for the 90 day period
commencing with the effective date of the registration statement.
(iv) Notwithstanding the foregoing, no such
registration hereunder shall be required if the managing underwriter
for the proposed offering shall determine in good faith
<PAGE> 6
and for valid business reasons that the inclusion of the shares of
Common Stock issuable upon exercise of this Warrant requested to be
registered would have an adverse affect on the marketability or the
price of the securities proposed to be offered by the Company, in which
event the Company shall be obligated to include such limited number, if
any, of the Holder's shares in such offering, which securities will be
taken from those held by a group consisting of the Holder or Holders of
this Warrant and other holders of securities of the Company having
similar registration rights, on a pro rata basis.
(c) In connection with the filing of a registration statement
pursuant to this section 5, the Company shall:
(i) notify such owners as to the filing thereof and
of all amendments thereto filed prior to the effective date of
said registration statement;
(ii) notify such owners, promptly after it shall have
received notice thereof, of the time when the registration
statement becomes effective or any supplement to any prospectus
forming a part of the registration statement has been filed;
(iii) prepare and file without expense to such owners
any necessary amendment or supplement to such registration
statement or prospectus as may be necessary or advisable in
connection with the proposed distribution of the securities by
such owners;
(iv) take all reasonable steps to qualify the shares
of Common Stock being so registered for sale under the
securities or blue sky laws in such states, but only in such
states, as the Company would qualify the sales of its securities
absent any registration of the shares of Common Stock issued or
issuable hereunder; provided, however, that the Company shall
not be required (A) to qualify to do business in any
jurisdiction where it is not otherwise required to qualify, and
(B) to consent to general service of process in any such
jurisdiction;
(v) notify such registered owners of any stop order
suspending the effectiveness of the registration statement and
use its reasonable best efforts to remove such stop order;
(vi) undertake to keep said registration statement
and prospectus effective until the earlier of (A) nine months
from the effective date thereof, or (B) the date the shares of
Common Stock are sold or become available for public sale
without restriction under the Act; and
(vii) furnish each requesting Holder with reasonable
number of copies of the registration statement, each preliminary
prospectus, final prospectus, and any supplements or amendments
thereto.
(d) All expenses, disbursements and fees of any such
registration pursuant to this Section 5 (including, without limitation, the fees
and expenses of one (1) counsel selected by the requesting Holders, not to
exceed $5,000.00) shall be borne by the Company, except that the selling Holders
shall bear underwriting commission and discounts attributable to the common
stock so registered.
<PAGE> 7
6. In connection with the obligation of the Company to register shares
of Common Stock pursuant to the provisions of Section 5 hereof, the Company and
each Holder agree as follows:
(a) The Company hereby agrees to indemnify and hold harmless
each Holder and each person who controls each Holder within the meaning of
Section 15 of the Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all losses, claims,
damages, liabilities or actions to which each Holder or they or any of them may
become subject under the Act, the Exchange Act or otherwise and to reimburse the
persons indemnified above for any legal or other expenses (including the cost of
any investigation and preparation) reasonably incurred by them in connection
with any litigation or proceeding or threatened litigation or proceeding,
whether or not resulting in any liabilities, but only insofar as such losses,
claims, damages, liabilities or actions arise out of, or are based upon (i) any
untrue statement or alleged untrue statement of a material fact contained in the
registration statement with respect to the shares of Common Stock (or
incorporated therein by reference) or any amendment or supplement thereto (such
registration statement, together with any such amendments or supplements, is
referred to herein as the "Registration Statement"), or the omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (ii) the employment
of the Company of any device, scheme or artifice to defraud, or the engaging by
the Company in any act, practice or course of business which operates or would
operate as a fraud or deceit, or any conspiracy with respect thereto, in which
the Company shall participate, in connection with the sale pursuant to the
Registration Statement of any of the securities registered thereby; provided,
however, that the indemnity agreement contained in this paragraph (a) shall not
extend to any indemnified person in respect of any such losses, claims, damages,
liabilities or actions arising out of, or based upon, any such untrue statement
or alleged untrue statement or any such omission or alleged omission, if such
statement or omission was made in reliance upon information furnished in writing
to the Company by such person specifically for use in connection with the
preparation of the Registration Statement. The Company agrees to pay any legal
and other expenses for which it is liable under this paragraph (a) from time to
time (but not more frequently than monthly) within 30 days after its receipt of
a bill therefor.
(b) Each Holder agrees to indemnify and hold harmless the
Company, its directors, its officers who shall have signed the registration
statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the company to each Holder but in each case to the
extent, and only to the extent, that any statement in or omission from or
alleged omission from the registration statement, any preliminary prospectus,
the prospectus or any amendment or supplement thereto was made in reliance upon
information furnished in writing to the Company by such Holder specifically for
use in connection with the preparation of the registration statement, any
preliminary prospectus or the prospectus or any such amendment or supplement
thereto. Each Holder agrees to pay any legal and other expenses for which it is
liable under this paragraph (b) from time to time (but not more frequently than
monthly) within 30 days after its receipt of a bill therefor.
(c) If any action is brought against a person entitled to
indemnification pursuant to the foregoing paragraphs (a) or (b) (an "Indemnified
Party") in respect of which indemnity may be bought against a person granting
indemnification (an "Indemnifying Party") pursuant to such subsections, such
Indemnified Party shall promptly notify such Indemnifying Party in writing of
the commencement thereof; but the omission so to notify the Indemnifying Party
of any such action shall not release the Indemnifying Party from any liability
it may have to such Indemnified Party otherwise than on account of the indemnity
agreement contained in paragraphs (a) or (b). In case any such action is brought
against an Indemnified Party and it notifies an Indemnifying Party of the
commencement
<PAGE> 8
thereof, the Indemnifying Party against which a claim is to be made will be
entitled to participate therein, and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably satisfactory to such Indemnified
Party, provided, however, that if the defendants in any such action include both
the Indemnified Party and the Indemnifying Party and the Indemnified Party shall
have reasonably concluded based upon advice of counsel that there may be legal
defenses available to it and/or other Indemnified Parties which conflict with
those available to the Indemnifying Party, the Indemnified Party shall have the
right to select separate counsel to assume such legal defenses and otherwise to
participate in the defense of such action on behalf of such Indemnified Party or
Parties. Upon receipt of notice from the Indemnifying Party to such Indemnified
Party of its election so to assume the defense of such action and approval by
the Indemnified Party of counsel, the Indemnifying Party will not be liable to
such Indemnified Party under this agreement for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof unless (i) the Indemnified Party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
Indemnifying Party shall not be liable for the expenses of more than one
separate counsel), (ii) the Indemnifying Party shall not have employed counsel
reasonably satisfactory to the Indemnified Party to represent the Indemnified
Party within a reasonable time after notice of commencement of the action or
(iii) the Indemnifying Party has authorized the employment of such counsel for
the Indemnified Party at the expense of the Indemnifying Party. An Indemnifying
Party shall not be liable for any settlement of any action or proceeding
effected without its written consent.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in paragraph (a) is
unavailable to a Holder in accordance with its terms, the Company and each
Holder shall contribute to the aggregate losses, claims, damages and liabilities
of the nature contemplated by said indemnity agreement incurred by each Holder
based on the relative fault of the Company on the one hand, and each Holder on
the other hand, in connection with the statements or omission which resulted in
such losses, claims, damages and liabilities. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact, such statement or omission relates to
information supplied by the Company or such Holder and the party's relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid or payable by the Indemnified
Party as a result of the losses, claims, damages, or liabilities referred to
above in this paragraph shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending against or appearing as a third party witness in any such action or
claim. Notwithstanding the provisions of this paragraph, if a Holder is found to
be guilty of fraudulent misrepresentation within the meaning of Section 11(f) of
the Act, it shall not be entitled to contribution from the Company unless the
Company is also found to be guilty of such fraudulent misrepresentation.
7. The Company stipulates that remedies at law, in money damages,
available to the Holder or a holder of Common Stock issued pursuant to exercise
of this Warrant, in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate. Therefore, the Company agrees that the
terms of this Warrant may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
8. This Agreement shall be binding upon and inure to the benefit of the
Holder and its successors and permitted assigns.
<PAGE> 9
9. Notices. The Company agrees to maintain a ledger of the ownership of
the Warrants (the "Warrant Ledger). Any notice hereunder shall be given by
registered or certified mail if to the Company, at its principal executive
office and, if to the Holder, to its address shown in the Warrant Ledger of the
Company, provided that Holder may at any time on three (3) days' written notice
to the Company designate or substitute another address where notice is to be
given. Notice shall be deemed given and received after a certified or registered
letter, properly addressed with postage prepaid, is deposited in the U.S. mail.
10. Severability. Every provision of this Warrant is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the remainder of this
Warrant.
11. Governing Law. This agreement shall be governed and construed in
accordance with the laws of the State of Texas without giving effect to the
principles of choice of laws thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers, and the corporate seal hereunto affixed.
DATED: COMPANY
------------------ -----------------------------
By:
----------------------------------
Its:
---------------------------------
<PAGE> 10
Exhibit A
SUBSCRIPTION FORM
(To be Executed by the Holder to Exercise the Rights To Purchase Common Stock
Evidenced by the Within Warrant)
The undersigned hereby irrevocably subscribes for ___________ shares
(the "Stock") of the Common Stock of _______________________ (the "Company")
pursuant to and in accordance with the terms and conditions of the attached
Warrant and hereby makes payment of $______________ therefore, and requests that
a certificate for such shares be issued in the name of the undersigned and be
delivered to the undersigned at the address stated below. If such number of
shares is not all of the shares purchasable pursuant to the attached Warrant,
the undersigned requests that a new Warrant of like tenor for the balance of the
remaining shares purchasable thereunder be delivered to the undersigned at the
address stated below.
In connection with the issuance of the Stock, I hereby represent to
the Company that I am acquiring the Stock for my own account for investment and
not with a view to, or for resale in connection with, a distribution of the
shares within the meaning of the Securities Act of 1933, as amended (the "Act").
I understand that because the Stock has not been registered under the
Act, I must hold such Stock indefinitely unless such Stock is subsequently
registered and qualified under the act or is exempt from such registration and
qualification. Before I make any transfer or disposition of any shares of the
Stock, I agree to give to the Company written notice of my intention to do so
and to describe briefly the manner of such proposed transfer or disposition. I
shall make no such transfer or disposition unless (a) such transfer or
disposition can be made without registration under the Act by reason of specific
exemptions from such registration and such qualification, or (b) a registration
statement has been filed pursuant to the Act and has been declared effective
with respect to such disposition.
I agree that each certificate representing the Stock delivered to me
shall bear substantially the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The shares
may not be sold or transferred in the absence of such registration or
an exemption therefrom under said Act."
I further agree that the Company may place stop orders on the
certificates evidencing the Stock with the transfer agent, if any, to the same
effect as the above legend. The legend and stop transfer notice referred to
above shall be removed only upon my furnishing to the company an opinion of
counsel (reasonably satisfactory to the Company) to the effect that such legend
may be removed.
Date: Signed:
---------------- ----------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
<PAGE> 11
Exhibit B
ASSIGNMENT
(To be Executed by the Holder to Effect Transfer of the Within Warrant)
For Value Received __________________________ hereby sells, assigns and
transfers to _____________________________ this Warrant and the rights
represented hereby to purchase _________ shares of Common Stock in accordance
with the terms and conditions hereof, and does hereby irrevocably constitute and
appoint _____________________________ as attorney to transfer this Warrant on
the books of the Company with full power of substitution.
The undersigned also represents that, by accepting assignment hereof, the
assignee acknowledges that this Warrant and the shares of stock to be issued
upon exercise hereof are being acquired for investment and that the assignee
will not offer, sell, or otherwise dispose of this Warrant or any shares of
stock to be issued upon exercise hereof in violation of the Securities Act of
1933, as amended, or any state securities laws. Further, by accepting assignment
hereof, the assignee acknowledges that upon exercise of this Warrant, the
assignee shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so purchased are being
acquired for investment and not with a view toward distribution or resale.
Dated: Signed:
----------------- --------------------------------
Please print or typewrite Please insert Social Security
name and address of or other Tax Identification
assignee: Number of Assignee:
- -
- -------------------------- ------- ------- --------
- --------------------------
- --------------------------
- --------------------------
<PAGE> 1
EXHIBIT 4.4
AMENDMENT NUMBER ONE TO RIGHTS AGREEMENT
AMENDMENT NUMBER ONE, dated as of March 1, 1999, to the Rights
Agreement dated as of July 9, 1998 (the "Rights Agreement") between Thomas
Group, Inc., a Delaware corporation (the "Company"), and Harris Trust and
Savings Bank, as Rights Agent (the "Rights Agent").
W I T N E S S E T H
WHEREAS, the parties hereto desire to amend the Rights Agreement in
certain respects;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms. Section 1(q) of the Rights Agreement is
hereby amended and restated to read in its entirety as follows:
"(q) `Exempt Person' shall mean Mr. Dorsey R. Gardner or his
Affiliates, so long as Mr. Gardner does not purchase or otherwise
become (as a result of actions taken by Mr. Gardner or his Affiliates
or Associates) the Beneficial Owner of additional shares of Common
Stock (in addition to those beneficially owned by Mr. Gardner and his
Affiliates and Associates on March 1, 1999) constituting 1% or more of
the then outstanding shares of Common Stock."
SECTION 2. Summary of Rights to Purchase Preferred Stock. The Summary
of Rights to Purchase Preferred Stock included in Exhibit 2 to the Rights
Agreement is hereby amended by:
(a) inserting the words "(other than Philip R. Thomas or Dorsey R.
Gardner)" after the word "person" in the second sentence of the second
paragraph thereof;
(b) replacing the word "has" in the first sentence of the sixteenth
paragraph thereof with the words "and a copy of Amendment Number One thereto
have";
(c) deleting the words "as an Exhibit to a Registration Statement on
Form 8-A filed on July 16, 1998" from the first sentence of the sixteenth
paragraph thereof;
(d) inserting the words "as amended" after the words "Rights
Agreement" in the second sentence of the sixteenth paragraph thereof; and
(e) inserting the words "as amended" after the words "Rights
Agreement" in the third sentence of the sixteenth paragraph thereof.
SECTION 3. Governing Law. This Amendment shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts made and to be performed entirely within such State.
<PAGE> 2
SECTION 4. Counterparts. This Amendment may be executed in any number
of counterparts and such counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
SECTION 5. Effectiveness. This Amendment is effective as of March 1,
1999.
* * * * *
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
Attest: THOMAS GROUP, INC.
By: By:
-------------------------- -------------------------------
Name: Name:
--------------------- --------------------------
Title: Title:
-------------------- -------------------------
HARRIS TRUST AND SAVINGS BANK
By: By:
-------------------------- -------------------------------
Name: Name:
--------------------- --------------------------
Title: Title:
-------------------- -------------------------
-3-
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
January 2, 1996, to be effective immediately prior to the Effective Time
(defined below), by and between THOMAS GROUP, INC., a Delaware corporation
("TGI") and LELAND L. GRUBB, JR., an individual residing in Bloomfield Hills,
Michigan ("Employee").
RECITALS
1. Employee is the Vice President and the Chief Financial Officer of TGI
and an integral part of its management who participates in the decision-making
process relative to short and long-term planning and policy for TGI. Employee
has served since April, 1995, in this capacity.
2. TGI has determined that it would be in the best interests of TGI and
its stockholders to assure continuity in the management of TGI's operations by
entering into an employment agreement to retain the services of Employee.
3. TGI wishes to assure itself of the continued services of Employee for
the period hereinafter provided, and Employee is willing to be employed by TGI
for said period, upon the terms and conditions set forth in this Agreement.
4. Employee is currently an at will employee of TGI, and both TGI and
Employee desire that Employee be under contract to TGI.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the obligations
undertaken by the parties pursuant hereto and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, TGI
and Employee agree as follows:
1. Definitions. The defined terms used in this Agreement shall have the
meanings ascribed to them in this Section 1.
1.1 Affiliate. "Affiliate" shall mean any corporation over which Employee
or TGI, as the case may be, can exercise effective management and control.
1.2 Board of Directors. "Board" or the "Board of Directors" shall mean
the Board of Directors of TGI or any committee of the Board empowered to act or
make decisions or determinations with respect to this Agreement.
<PAGE> 2
1.3 Cause. "Cause" shall mean that, as determined in good faith by the
Board of Directors, Employee has engaged in any act of gross misconduct which is
materially injurious to TGI or its business.
1.4 Change in Control. "Change in Control" shall mean:
(a) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person" which, for purposes of this
definition, excludes Employee or any of his Affiliates) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of shares
of common stock or other securities of TGI resulting in the beneficial ownership
by such individual, entity or group of 40% or more of either (1) the
then-outstanding shares of common stock of TGI (the "Outstanding TGI Common
Stock") or (2) the combined voting power of the then-outstanding voting
securities of TGI entitled to vote generally in the election of directors (the
"Outstanding TGI Voting Securities"); or
(b) if individual who, as of the date hereof, constitute the Board
(the "Incumbent Board) cease for any reason to constitute more than fifty
percent of the members of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by TGI's stockholders, was approved by a vote of at least
two-thirds of the directors then constituting the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) approval by the stockholders of TGI of a reorganization, merger
or consolidation unless following such reorganization, merger or consolidation
(1) more than 40% of, respectively, the then-outstanding shares of common stock
of the corporation resulting from such reorganization, merger or consolidation
(the "Outstanding Survivor Common Stock"), and the combined voting power of the
then-outstanding voting securities of such corporation entitled to vote
generally in the election of directors (the "Outstanding Survivor Voting
Securities"), is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding TGI Common Stock and Outstanding TGI
Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership
immediately prior to such reorganization, merger or consolidation, of the
Outstanding TGI Common Stock and Outstanding TGI Voting Securities, as the case
may be (for purposes of determining whether such percentage test is satisfied,
there shall be excluded from the number of shares of Outstanding Survivor Common
Stock and Outstanding Survivor Voting Securities owned by TGI's stockholders,
but not from the total number of shares of Outstanding Survivor Common Stock and
Outstanding Survivor Voting Securities, any shares or voting securities received
by any such stockholder in respect of any consideration other than shares or
voting securities of TGI), (2) no Person (excluding TGI, any
-2-
<PAGE> 3
employee benefit plan (or related trust) of TGI, any qualified employee benefit
plan of such Surviving Corporation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 40% or more of the Outstanding TGI Common Stock or Outstanding TGI
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 40% or more of, respectively, the shares of Outstanding Survivor
Common Stock or the Outstanding Survivor Voting Securities and (3) more than 50%
of the members of the board of directors of the Surviving Corporation were
members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) (1) approval by the stockholders of TGI of a complete liquidation
or dissolution of TGI or (2) the first to occur of (i) the sale or other
disposition (in one transaction or a series of related transactions) of all or
substantially all of the assets of TGI, or (ii) the approval by the stockholders
of TGI of any such sale or disposition, other than, in each case, any such sale
or disposition to a corporation, with respect to which immediately thereafter
(x) more than 40% of, respectively, the shares of Outstanding Survivor Common
Stock and the Outstanding Survivor Voting Securities is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding TGI
Common Stock and Outstanding TGI Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding TGI Common Stock and Outstanding TGI Voting Securities, as the case
may be (for purposes of determining whether such percentage test is satisfied,
there shall be excluded from the number of shares of Outstanding Survivor Common
Stock and Outstanding Survivor Voting Securities owned by TGI's stockholders,
but not from the total number of shares of Outstanding Survivor Common Stock and
Outstanding Survivor Voting Securities of the surviving corporation, any shares
or voting securities received by any such stockholder in respect of any
consideration other than shares or voting securities of TGI), (y) no Person
(excluding TGI and any employee benefit plan (or related trust) of TGI, any
qualified employee benefit plan of such transferee corporation and any Person
beneficially owning, immediately prior to such sale or other disposition,
directly or indirectly, 40% or more of the Outstanding TGI Common Stock or
Outstanding TGI Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 40% or more of, respectively, the shares of Outstanding
Survivor Common Stock and the Outstanding Survivor Voting Securities and (z)
more than 50% of the members of the board of directors of the surviving
corporation were members of the Incumbent Board at the time of the execution of
the initial agreement or action of the board providing for such sale or other
disposition of assets of TGI.
1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.6 Common Stock. "Common Stock" shall mean the common stock of TGI, par
value $.01 per share, that will be outstanding immediately following the
Effective Time.
-3-
<PAGE> 4
1.7 Disability. "Disability" shall mean the inability of Employee to
perform his material managerial duties and responsibilities as contemplated
under Section 3 during the Term of Employment, as determined in accordance with
Section 6.1(e).
1.8 Effective Time. "Effective Time" shall mean the date the Form S-1
Registration Statement relating to the initial public offering of Common Stock
pursuant to the Securities Act of 1933, as amended, is declared effective by the
Securities and Exchange Commission.
1.9 Good Reason. "Good Reason" shall mean Employee's decision to
terminate his employment under this Agreement if: (i) a significant diminution
occurs in the nature or scope of the authorities, powers, functions,
responsibilities or duties of Employee as the Vice President and Chief Financial
Officer described in Section 3, or the assignment to Employee of functions,
responsibilities or duties materially inconsistent with his position as Vice
President and Chief Financial Officer; provided, however, if Employee agrees in
writing to any such change in the nature or scope of his authorities, powers,
functions, responsibilities or duties, Good Reason shall not be deemed to exist;
or (ii) without limiting the generality or effect of the foregoing, TGI or any
successor thereto commits any material breach of this Agreement.
1.10 Term of Employment. "Term of Employment" shall mean the period of
time commencing on the effective date of this Agreement and continuing until the
fifth anniversary date of this Agreement; provided, however, that Employee and
TGI can agree, in writing, to extend the Term of Employment for an additional
five years, unless terminated earlier pursuant to the terms hereof.
2. Termination of Prior Agreements. TGI and Employee hereby acknowledge
and agree that, upon the occurrence of the Effective Time, this Agreement
supersedes any prior agreements.
3. Employment. TGI employs Employee and Employee accepts employment by
TGI as Vice President and Chief Financial Officer of TGI for the Term of
Employment on the terms and conditions and for the compensation hereinafter set
forth. Subject to the authority of the Board of Directors, Employee shall be
responsible for financial management of the business and affairs of TGI in the
ordinary course of its business with all such powers with respect to such
financial management and control as may be reasonably incident to such
responsibilities as its Vice President and Chief Financial Officer, with all of
the rights, powers and decision-making discretion appertaining thereto. Employee
shall devote his full time and effort to the discharge of his duties as TGI's
Vice President and Chief Financial Officer.
4. Compensation and Benefits During the Term of Employment.
4.1 Base Compensation. Employee shall receive base compensation in the
amount determined by the Compensation Committee of the Board of Directors ("Base
Compensation"). The amount of Employee's Base Compensation shall initially be
$300,000.00 annually and shall be reviewed and adjusted as appropriate at least
annually by the Compensation Committee. Base Compensation shall be paid in equal
monthly installments by TGI to Employee.
-4-
<PAGE> 5
4.2 Incentive Compensation Arrangement.
(a) In further consideration of Employee's performance of services
under Section 3 hereof, TGI agrees to compensate Employee under the incentive
compensation arrangement ("Incentive Compensation") set forth in Section 4.2(b).
Except as specifically provided herein, the computation of annual bonus will be
based upon the audited financial results of TGI.
(b) (1) General. Employee's Incentive Compensation is initially
based upon 16.5% (the "Entitled Percent") of the dollar value derived from a
formula sharing ratio of TGI's revenues. The sharing ratio is based upon TGI's
percentage increase in cumulative income before tax and incentive compensation
("IBTIC") for the current fiscal year compared to TGI's cumulative IBTIC for the
prior fiscal year, and upon certain targeted levels of TGI's IBTIC. For purposes
of determining IBTIC, Incentive Compensation includes CEO Incentive Compensation
as well as any Incentive Compensation paid under a plan which includes TGI
officers (as designated by TGI's Board of Directors) only. The Compensation and
Stock Option Committee of the Company's Board of Directors may review the
percent stated above from time to time and make appropriate changes..
(2) Incentive Compensation Calculation. The formula for
determining incentive compensation is as follows: Incentive Compensation equals
the product of TGI revenues for the applicable fiscal year multiplied by the
income growth sharing ratio expressed as a percentage ("IGSR") for the fiscal
year, the result multiplied by the Entitled Percent. The ISGR is determined with
reference to the following table:
INCOME GROWTH SHARING RATIO
<TABLE>
<CAPTION>
Income Before Tax and
Incentive Compensation Less
as a % of Revenues than 5%* 5%-9.99%* 10%-14.99%* 15%-24.99%* Over 25%*
------------------ -------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
0 - 8.99% 0 0 0 .2% .3%
9.00% - 14.99% .3% .4% .5% .6% .7%
15.00% - 19.25% .5% .6% .8% 1.0% 1.2%
Over 19.25% .8% 1.0% 1.3% 1.6% 1.8%
</TABLE>
*IBTIC Growth Rate
ISGR is determined by first determining the IBTIC as a percent of revenue for
the current fiscal year and then entering the table along that line until the
appropriate IBTIC Growth Rate is reached; the ISGR is shown at that intersection
in the table.
-5-
<PAGE> 6
For purposes of this table, IBTIC Growth Rate for each applicable fiscal year is
derived from the following formula:
IBTIC [Current Fiscal Year]
--------------------------- minus 1 x 100
IBTIC [Prior Fiscal Year]
In the event that either the IBTIC Growth Rate or the IBTIC, as
computed above, is zero or negative for a particular fiscal year, it shall be
treated as zero for purposes of the foregoing computation for such year.
(3) If Incentive Compensation, as calculated in accordance
with Section 4.2(b) hereof, exceeds 55 percent of Base Compensation in a fiscal
year, the excess of Incentive Compensation, as calculated, over 55 percent of
Base Compensation will not be paid to Employee but will be used to calculate the
award of a stock option to Employee. The number of shares to be awarded under
such option is determined using the following formula:
Excess Incentive Compensation
N = -----------------------------
P
Where:
N = Number of shares subject to such option
P = Market price of the Company's stock on the date of award
Excess Incentive Compensation = Excess of Incentive Compensation as calculated
minus 55 percent of base compensation in a fiscal year.
Options granted hereunder shall be granted pursuant to the
Corporation's 1992 Stock Option Plan and shall be subject to all limitations of
such plan, including the aggregate number of options which may be granted.
Options granted pursuant to this Section 4.2(b)(3) shall contain an option price
equal to the market price (average of the day's high and low prices) on the date
of award, shall be fully vested, and shall expire 10 years following date of
grant. This stock option award shall not preclude the Board of Directors from
granting additional options to Employee as it deems appropriate. Options granted
pursuant to this Agreement shall be administered by the Compensation and Stock
Option Committee of TGI's Board of Directors.
(4) Partial Fiscal Years. The computations set forth in
Section 4.2(b)(2) above shall be adjusted to take into account eligibility for
partial fiscal years by computing them based upon the entire fiscal year and
multiplying these results by the ratio of the number of days of such partial
fiscal year to the number of days in the complete fiscal year.
(5) (i) Payments. TGI shall pay the Incentive Compensation to
Employee on or before the fifteen (15) days after the completion of the audit of
TGI's financial statements by TGI's certified public accountants.
(ii) Eligibility Under Other Plans. Employee's eligibility
for bonuses or incentive compensation payments under plans in effect prior to
effectiveness of this
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Agreement shall terminate upon the effectiveness of this Agreement except that,
if the Effective Time is after the 16th day of any calendar month, any bonuses
or incentive payments earned under prior plans for the full calendar month will
be paid to Employee.
4.3 Travel Costs. TGI shall reimburse Employee for all travel
costs incurred by Employee in connection with TGI's business, together with all
other business expenses of Employee in performing his duties hereunder,
consistent with TGI's past practices.
4.4 Automobile Expenses. TGI shall provide automobile
transportation to employee for Employee's use in connection with TGI's business,
consistent with TGI's past practices.
4.5 Pension and Insurance Benefit Plan Participation; No Bonus
Plan Participation. Employee shall be entitled to participate in TGI's 401(k)
plan and profit sharing plan, subject to the terms and conditions of such plans.
TGI also shall provide medical, disability and life insurance coverage to
Employee on the terms and conditions of each of the plans TGI maintains with
respect thereto. In addition, TGI shall continue to pay premiums on all
insurance policies on Employee's life which name either TGI or TGI's creditors
as beneficiary. Employee shall not be entitled to participate in any of TGI's
bonus plans as in effect at the Effective Time or in any other bonus arrangement
instituted from time to time by TGI, unless approved in advance in writing by
the Board.
5. Term of the Agreement. The term of this Agreement, unless
terminated sooner pursuant to Section 5, shall be for the Term of Employment.
6. Termination; Disability; Death, Change in Control.
6.1 Basis. Employee's employment under this Agreement may be
terminated as described in this Section 6.1. In the event that Employee's
employment is terminated in accordance with this Section 6.1, Employee shall be
entitled to receive the benefits described in Section 6.2 that correspond with
the manner of such termination.
(a) Termination Without Cause. TGI may terminate
Employee's employment hereunder without Cause, as determined in the good faith
judgment of the Board of Directors, by written notice to Employee to that
effect. Unless otherwise specified in the notice, such termination shall be
effective immediately.
(b) Termination With Cause. TGI may terminate the
employment of Employee hereunder for Cause by written notice to Employee to that
effect. Unless otherwise specified in the notice, such termination shall be
effective immediately.
(c) Good Reason. Upon the occurrence of an event described
in Section 1.10 hereof, Employee may terminate his employment hereunder for Good
Reason within 30 days thereafter upon written notice to TGI to that effect. If
the effect of the occurrence of the event described in Section 1.10 may be
cured, TGI shall have the opportunity to cure any such effect for a
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period of 30 days following receipt of Employee's termination notice. If TGI
fails to cure any such effect, Employee's termination for Good Reason shall
become effective 360 days after the date of Employee's termination notice. If
Employee does not give such notice to TGI, this Agreement will remain in effect;
provided, however, that the failure of Employee to terminate this Agreement for
Good Reason shall not be deemed a waiver of Employee's right to terminate his
employment for Good Reason upon the occurrence of a subsequent event described
in Section 1.10 hereof in accordance with the terms of this subsection.
Notwithstanding the foregoing, the right of Employee to terminate his employment
for Good Reason under this Section 6.1(c) shall not limit TGI's ability to
terminate Employee for Cause under Section 6.1(b) hereof if Cause is determined
to exist prior to the time Employee delivers his written notice of termination
for Good Reason to TGI.
(d) Without Good Reason. Employee may voluntarily
terminate his employment hereunder without Good Reason upon 360 days written
notice to TGI to that effect.
(e) Disability. Employee or TGI may terminate Employee's
employment by reason of Disability upon written notice to the other party to
that effect. If the parties hereto are unable to agree as to the existence of
Disability or as to the date of commencement of Disability, each of Employee and
TGI shall select a physician licensed to practice medicine in the United States
and the determination as to any such question shall be made by such physicians;
provided, however, that if such two physicians are unable to agree, they shall
mutually select a third physician licensed to practice medicine in the United
States and the determination as to any such question shall be made by a majority
of such physicians. Any determination made by physicians in accordance with the
provisions of the immediately foregoing sentence shall be final and binding on
the parties hereto. Employee agrees to submit to any and all reasonable medical
examinations or procedures and to execute and deliver any and all consents to
release of medical information and records or otherwise as shall be reasonably
required by any of the physicians selected in accordance with this Section
6.1(e). Unless otherwise specified in the notice, such termination shall be
effective immediately.
(f) Death. This Employment Agreement shall automatically
terminate as of the date of Employee's death during the Term of Employment.
(g) Change in Control. If a Change in Control occurs
during the Term of Employment, TGI shall promptly give written notice to
Employee thereof. Following a Change in Control, Employee shall be required to
continue his employment hereunder for 90 days after the date of such Change in
Control, unless his employment is terminated sooner by TGI as set forth in
Section 6.1(h). In the event that Employee decides to resign or otherwise
voluntarily terminate his employment following the occurrence of a Change in
Control, Employee may do so by giving written notice to TGI to that effect on or
before 180 days after the occurrence of the Change in Control, which notice
shall be effective on the later to occur of (i) 180 days after the occurrence of
the Change in Control or (ii) 90 days after the date of such notice. If Employee
does not give such notice to TGI, this Agreement will remain in effect;
provided, however, that the failure of Employee to terminate this Agreement
following the occurrence of a Change in Control shall not be
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<PAGE> 9
deemed a waiver of Employee's right to terminate his employment upon a
subsequent occurrence of a Change in Control in accordance with the terms of
this subsection.
(h) Notwithstanding that Employee has given notice of
termination pursuant to subsections (c), (d) or (g) of this Section 6.1, TGI
may, in its sole discretion, thereafter require Employee to terminate his
employment prior to the expiration of the applicable notice period.
6.2 Benefits Upon Termination. Employee shall receive the
benefits described in the subsection below that corresponds with the manner of
termination of Employee's employment under Section 6.1.
(a) Without Cause. In the event TGI terminates Employee's
employment hereunder without Cause during the Term of Employment, Employee shall
be entitled to the payments and benefits set forth on Exhibit I.
(b) With Cause. In the event Employee's employment is
terminated with Cause, no further payments or benefits shall be paid or provided
by TGI to Employee hereunder except for reimbursement for expenses incurred
prior to the date of termination, the payment of any vested pension benefits or
vested portions of bonuses described in Section 4.7 hereof, or the payment of
Incentive Compensation that has become due and payable to Employee on or before
the date of such termination under Section 4.2 hereof. In addition, Employee
shall be entitled to exercise any vested but unexercised stock options for a
period of 90 days following the effective date of the termination of Employee
for Cause, and if any such options remain unexercised upon the expiration of
such 90-day period, they shall be determined forfeited by Employee and have no
further force and effect.
(c) Good Reason. In the event Employee terminates his
employment for Good Reason during the Term of Employment, Employee shall be
entitled to the payments and benefits set forth on Exhibit I.
(d) Without Good Reason. In the event Employee terminates
his employment without Good Reason pursuant to Section 6.1(d) hereof, Employee
shall be entitled to the benefits or payments provided for in Section 6.2(b)
hereof.
(e) Disability. In the event that Employee's employment is
terminated by reason of Disability, Employee shall be entitled to the payments
and benefits set forth on Exhibit I.
(f) Death. In the event Employee's employment is
terminated by reason of his death, TGI shall not be required to make any
payments or provide any benefits hereunder, except for (a) reimbursement for
expenses incurred prior to such termination date, (b) payment of Incentive
Compensation through such termination date as provided in Section 4.2, (c) the
use by TGI of its best efforts to remove any guaranties by Employee of
indebtedness of TGI, and (d)
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<PAGE> 10
payment of premiums to continue the medical and dental insurance coverage on
Employee's spouse as in effect at and as of the date of Employee's death for the
remainder of spouse's life, if available; provided, however, that nothing
contained herein shall limit or diminish any rights of Employee's estate or any
other person to payments under any life insurance policy maintained by TGI for
the benefit of Employee or his beneficiaries or any health, disability, pension
or other benefit plan provided pursuant to Section 4.7, in each case in
accordance with the terms thereof. If Employee's employment is terminated by
reason of his death, the benefits provided under this Section 6.2(f) shall be
paid to the beneficiary or beneficiaries designated in writing by Employee and
delivered during Employee's lifetime to an officer of TGI; however, if no such
beneficiary designation is made by Employee during his lifetime, the benefits
hereunder shall be paid to his estate. In addition, Employee's estate shall be
entitled to exercise any vested but unexercised stock options for a period of
180 days following the date of Employee's death, and if any such options remain
unexercised upon the expiration of such 180-day period, they shall be determined
forfeited by Employee's estate and have no further force and effect.
(g) Change in Control. In the event Employee terminates
his employment as provided in Section 6.1(g) following the occurrence of a
Change in Control, Employee shall be entitled to the payments and benefits
provided in Exhibit I.
7. Non-Competition, Non-Solicitation, and Confidentiality
Covenants.
7.1 Non-competition Covenant.
(a) In consideration for the execution of this Agreement
by TGI and the payments for services to be rendered by Employee hereunder,
Employee agrees that during the Term of Employment and, in the case of a
termination Without Good Reason or for Cause, for a period of three years after
the date of such termination, Employee shall not engage in competition with TGI
in any manner or capacity (e.g., as an advisor, principal, agent, partner,
officer, director, shareholder, employee, member of any association or
otherwise) that materially adversely affects TGI, including without limitation,
rendering time based management counseling services, soliciting customers of TGI
for any competitor of TGI, or soliciting any employee of TGI to leave the employ
of TGI to work for or on behalf of any competitor of TGI (the "Prohibited
Activities"). Employee further agrees that, during the Term of Employment, and,
in the case of a termination Without Good Reason or for Cause, for a period of
three years after the date of such termination, Employee will not assist or
encourage any other person in carrying out any activity that would be one of the
Prohibited Activities if such activity were carried out by Employee and, in
particular, Employee agrees that he will not induce any employee of TGI to carry
out any such activity.
(b) The obligations of Employee under this Section 7.1
shall apply to any geographic area in which TGI is competing. In addition to the
exclusion from Prohibited Activities set forth in Section 7.1(a) hereof,
ownership by Employee, as a passive investment, of less than 5% of the
outstanding shares of capital stock of any corporation listed on a national
securities exchange or publicly traded in the over-the-counter market shall not
constitute a breach of this Section 7.1.
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7.2 Right to Work Product and Confidentiality.
(a) TGI and Employee each acknowledge that performance of
this Agreement may result in the discovery, creation or development of
inventions, combinations, methods, formulae, techniques, processes,
improvements, software designs, computer programs, strategies, specific
computer-related know-how, course materials, seminar materials, computer models,
customer lists, data and original works of authorship (collectively, the "Work
Product"). Employee agrees that Employee will promptly and fully disclose to TGI
any and all Work Product generated, conceived, reduced to practice or learned by
Employee, either solely or jointly with others, during the Term of Employment,
which in any way relates to the business of TGI. Employee further agrees that
neither Employee, nor any party claiming through Employee will, other than in
the performance of this Agreement, make use of or disclose to others any
proprietary information relating to the Work Product.
(b) Employee agrees that, whether or not the services
performed by Employee hereunder are considered works made for hire or an
employment to invent, all Work Product discovered, created or developed under
this Agreement shall be and remain the sole property of TGI and its assigns.
Except as specifically set forth in writing and signed by both TGI and Employee,
Employee agrees that TGI shall have all copyright and patent rights with respect
to any Work Product discovered, created, or developed under this Agreement
without regard to the origin of the Work Product.
(c) If and to the extent that Employee may, under
applicable law, be entitled to claim any ownership interest in the Work Product,
Employee hereby transfers, grants, conveys, assigns and relinquishes exclusively
to TGI any and all right, title and interest it now has or may hereafter acquire
in and to the Work Product under patent, copyright, trade secret and trademark
law in perpetuity or for the longest period otherwise permitted by law. Employee
further agrees, as to the Work Product, to assist TGI in every reasonable way to
obtain and, from time to time, enforce patents, copyrights, trade secrets and
other rights and protection relating to said Work Product, and to that end,
Employee will execute all documents for use in applying for and obtaining such
patents, copyrights, trade secrets and other rights and protection with respect
to such Work Product as TGI may desire, together with any assignments thereof to
TGI or persons designated by it. Employee's obligations to assist TGI in
obtaining and enforcing patents, copyrights, trade secrets and other rights and
protection relating to the Work Product shall continue beyond the Term of
Employment.
(d) If and to the extent that any preexisting rights of
Employee are embodied or reflected in the Work Product, Employee hereby grants
to TGI the irrevocable, perpetual, non-exclusive, worldwide, royalty-free right
and license to (i) use, execute, reproduce, display, perform and distribute
copies of and prepare derivative works based upon such preexisting rights and
any derivative works thereof and (ii) authorize others to do any or all of the
foregoing.
(e) Employee acknowledges that much, if not all, of the
material and information related to the products, consulting techniques, or
other business affairs of TGI and its Affiliates, including, without limitation,
any and all Work Product discovered or created pursuant to
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<PAGE> 12
this Agreement, and the business affairs of TGI's clients and customers which
have or will come into Employee's possession or knowledge in connection with the
performance of this Agreement, consists of confidential and proprietary data of
TGI and its Affiliates (collectively, "Confidential Information"), disclosure of
which to, or use by, third parties would be damaging to TGI or its clients.
Employee agrees to hold such Confidential Information in strictest confidence
and agrees not to release such information to any other TGI employee unless such
employee has a need for such knowledge. Employee further agrees not to make use
of Confidential Information for Employee's own benefit or for the benefit of any
third parties, other than for the performance of this Agreement, and not to
release or disclose the Confidential Information to any other party either
during or after the Term of Employment. In the event of any breach of this
confidentiality obligation, Employee acknowledges that TGI would have no
adequate remedy at law, since the harm caused by such a breach would not be
easily measured and compensated for in the form of damages, and hereby waives
its right to contest any equitable relief sought by TGI, though not Employee's
right to contest the question of whether a breach has occurred, and Employee
waives the requirement of any bond being posted as security for such equitable
relief.
8. General Provisions.
8.1 Notices. All notices, requests, demands, or other
communications with respect to this Agreement shall be in writing and shall be
personally delivered, telecopied, or mailed, postage prepaid, certified or
registered mail, or delivered by a nationally recognized express courier
service, charges prepaid, to the following addresses (or such other addresses as
the parties may specify from time to time in accordance with this Section 8.1):
Employee: Leland L. Grubb, Jr.
5215 North O'Connor Boulevard
Suite 2500
Irving, TX 75039
TGI: Thomas Group, Inc.
5215 North O'Connor Boulevard
Suite 2500
Irving, TX 75039
Any such notice shall, when sent in accordance with the preceding
sentence, be deemed to have been given and received (i) on the day personally
delivered or telecopied, (ii) on the third day following the date mailed, or
(iii) 24 hours after shipment by such courier service.
8.2 Entire Agreement. This Agreement, together with the
exhibits hereto, supersedes any and all other agreements, either oral or written
between the parties hereto with respect to the employment of Employee by TGI and
contains all of the covenants and agreements between the parties with respect to
such employment. Any modification of this Agreement will be effective only if it
is in writing signed by each of the parties hereto.
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8.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
8.4 Waiver of Breach. The waiver by either party of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach.
8.5 Severability. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable and/or invalid by a court of competent jurisdiction, in whole or
in part, the remaining provisions shall nevertheless be binding, enforceable and
in full force and effect.
8.6 Titles and Headings. The titles and headings of the
various sections hereof are intended solely for convenience of reference and not
intended for any purpose whatsoever to explain, modify or place any construction
upon any of the provisions of this Agreement.
8.7 Attorney's Fees. In the event any one or more of the
parties hereto bring suit against any other part hereto, based upon or arising
out of a breach or violation of this Agreement, each party hereto agrees that
each party who is successful on the merits, upon final adjudication from which
no further appeal can be taken or is taken within the time allowed by law, shall
be entitled to recover his or its reasonable attorneys' fees and expenses from
the party or parties which is or are (as the case may be) not successful.
8.8 Benefit and Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns; provided, however, that nothing contained in this Section 8.8 shall
impair Employee's rights under Section 6.2(g), if the successor or assign of TGI
became such upon the occurrence of a Change in Control. Notwithstanding anything
herein to the contrary, Employee shall not assign any of his rights or
obligations under this Agreement.
8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, and all of which shall
together constitute one agreement.
8.10 Reliance on Authority of Person Signing Agreement. Each
individual signing this Agreement on behalf of a corporation warrants that such
execution has been duly authorized by the corporation for which he or she is
signing. The execution and performance of this Agreement by each party has been
duly authorized by all applicable laws and regulations and (in the case of a
corporation) all necessary corporate action, and this Agreement constitutes the
valid and enforceable obligation of each party in accordance with its terms.
8.11 Amendments. Amendments to any section of this Agreement
shall not be effective unless agreed to in writing by the parties hereto. This
Agreement, including this provision against oral modification, shall not be
amended, modified or terminated except in a writing signed
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<PAGE> 14
by each of the parties to this Agreement, and no waiver of any provision of this
Agreement shall be effective unless in a writing duly signed by the party sought
to be bound.
8.12 Waiver. No waiver of any provision of this Agreement
shall be deemed to operate as waiver of any past or future right.
9. Renewal Discussions. Unless Employee's employment hereunder
has been earlier terminated, the parties hereto agree that they will use their
reasonable best efforts to enter into discussions six months prior to the fifth
anniversary of the Effective Time (the "Fifth Anniversary") with respect to
whether and on what terms Employee's employment after such date, and the terms
thereof, this Agreement shall automatically terminate on such Fifth Anniversary.
10. Certain Tax Provisions. Employee acknowledges and agrees
that all payments and benefits made or provided to Employee pursuant to the
terms hereof which are required by applicable federal, state or local laws to be
subject to withholding for income taxes, shall be so subject.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on January 2, 1996, to be effective as of the Effective Time.
EMPLOYEE:
-----------------------------------------
LELAND L. GRUBB, JR.
THOMAS GROUP, INC.
By:
--------------------------------------
Name: PHILIP R. THOMAS
Title: Chairman and Chief Executive Officer
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<PAGE> 15
Exhibit I, Page Solo
EXHIBIT I
Severance Benefit Payments
1. A lump sum payment in cash, not later than 20 days after the
termination of Employee's employment, in an amount equal to 1.5 times Employee's
average "Annualized Includible Compensation" (Annualized Includible Compensation
has been defined by the Board of Directors of TGI as the total cash paid in Base
Compensation, salary, Incentive compensation, profit sharing, and incentive
payments to Leland L. Grubb during the period consisting of the preceding four
full taxable years, plus the year in which termination occurred [on an
annualized basis], all after date of this Agreement); provided, however, that
the amount of this cash payment plus the value of any compensation paid to
Employee pursuant to 2 and 3 below that is subject to the provisions of Section
280G of the Code shall in no event exceed $100 less than 3.00 times Employee's
Annualized Includible Compensation, and the amount of TGI's cash payment to
Employee under this paragraph 1 of Exhibit I shall be adjusted accordingly to
achieve this result.
2. The unvested portion of stock options granted to Employee shall
become fully vested and immediately exercisable on the effective date of such
termination and shall be exercisable for the maximum period specified in such
options.
3. Employee shall continue to be covered by TGI's medical insurance
plan after termination of employment.
<PAGE> 1
EXHIBIT 10.2
THOMAS GROUP, INC.
AMENDED AND RESTATED 1988 STOCK OPTION PLAN
SCOPE AND PURPOSE OF PLAN
Thomas Group, Inc., a Delaware corporation (the "Corporation"), has
amended and restated its 1988 Stock Option Plan as set forth herein (the "Plan")
to provide for the granting of:
(a) Incentive Options (hereafter defined) to certain Key Employees
(hereafter defined) and
(b) Nonstatutory Options (hereafter defined) to certain Key Employees
and other persons.
The purpose of the Plan is to provide an incentive for Key Employees,
directors, and certain consultants and advisors of the Corporation or its
Subsidiaries (hereafter defined) to remain in the service of the Corporation or
its Subsidiaries, to extend to them the opportunity to acquire a proprietary
interest in the Corporation so that they will apply their best efforts for the
benefit of the Corporation, and to aid the Corporation in attracting able
persons to enter the service of the Corporation and its Subsidiaries.
SECTION 1. DEFINITIONS
1.1 "Acquiring Person" means any Person other than the Corporation, any
of the Corporation's Subsidiaries, any employee benefit plan of the Corporation
or of a Subsidiary of the Corporation or of a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation, or any trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of stock of the Corporation.
1.2 "Award" means the grant of any form of Option, under the Plan,
whether granted singly, in combination, or in tandem, to a Holder pursuant to
the terms, conditions, and limitations that the Committee may establish in order
to fulfill the objectives of the Plan.
1.3 "Award Agreement" means the written agreement between the
Corporation and a Holder evidencing the terms, conditions, and limitations of
the Award granted to that Holder.
1.4 "Board of Directors" means the board of directors of the
Corporation.
1.5 "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the State of Texas are authorized or
obligated by law or executive order to close.
<PAGE> 2
1.6 "Change in Control" means the event that is deemed to have occurred
if:
(a) any Acquiring Person is or becomes the "beneficial owner" (as
defined in Rule l3d-3 under the Exchange Act), directly or indirectly,
of securities of the Corporation representing fifty percent or more of
the combined voting power of the then outstanding Voting Securities of
the Corporation; or
(b) members of the Incumbent Board cease for any reason to
constitute at least a majority of the Board of Directors; or
(c) a public announcement is made of a tender or exchange offer by
any Acquiring Person for fifty percent or more of the outstanding
Voting Securities of the Corporation, and the Board of Directors
approves or fails to oppose that tender or exchange offer in its
statements in Schedule 14D-9 under the Exchange Act; or
(d) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation or
partnership (or, if no such approval is required, the consummation of
such a merger or consolidation of the Corporation), other than a merger
or consolidation that would result in the Voting Securities of the
Corporation outstanding immediately before the consummation thereof
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity or of a parent
of the surviving entity) a majority of the combined voting power of the
Voting Securities of the surviving entity (or its parent) outstanding
immediately after that merger or consolidation; or
(e) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all the
Corporation's assets (or, if no such approval is required, the
consummation of such a liquidation, sale, or disposition in one
transaction or series of related transactions) other than a
liquidation, sale, or disposition of all or substantially all the
Corporation's assets in one transaction or a series of related
transactions to a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions
as their ownership of stock of the Corporation.
1.7 "Class B Stock" means the Corporation's authorized Class B common
stock, $.01 par value per share, as described in the Corporation's Amended and
Restated Certificate of Incorporation, as amended on August 13, 1993, or any
securities which are substituted for the Class B Stock as provided in Section 6.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
2
<PAGE> 3
1.9 "Committee" means the committee appointed pursuant to Section 3 by
the Board of Directors to administer this Plan.
1.10 "Corporation" means Thomas Group, Inc., a Delaware corporation.
1.11 "Date of Grant" has the meaning given it in Paragraph 4.3.
1.12 "Disability" has the meaning given it in Paragraph 7.5.
1.13 "Disinterested Person" has the meaning given it in Rule 16b-3.
1.14 "Eligible Individuals" means (a) Key Employees and (b) any other
Person that the Committee designates as eligible for an Award (other than for
Incentive Options) because the Person performs bona fide consulting or advisory
services for the Corporation or any of its Subsidiaries (other than services in
connection with the offer or sale of securities in a capital-raising
transaction) and the Committee determines that the Person has a direct and
significant effect on the financial development of the Corporation or any of its
Subsidiaries. Notwithstanding the foregoing provisions of this Paragraph 1.14,
to ensure that the requirements of the fourth sentence of Paragraph 3.1 are
satisfied, the Board of Directors may from time to time specify individuals who
shall not be eligible for the grant of Awards or equity securities under any
plan of the Corporation or its affiliates (as those terms are used in subsection
(c)(2)(i) of Rule 16b-3). Nevertheless, the Board of Directors may at any time
determine that an individual who has been so excluded from eligibility shall
become eligible for grants of Awards and grants of such other equity securities
under any plans of the Corporation or its affiliates so long as that eligibility
will not impair the Plan's satisfaction of the conditions of Rule 16b-3.
1.15 "Employee" means any employee of the Corporation or of any of its
Subsidiaries other than those employees who are also directors of the
Corporation.
1.16 "Exchange Act" means the Securities Exchange Act of 1934, or any
successor law, as it may be amended from time to time.
1.17 "Exercise Notice" has the meaning given it in Paragraph 5.5.
1.18 "Exercise Price" has the meaning given it in Paragraph 5.4.
1.19 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges on any national or regional securities
exchange at the date of determining the Fair Market Value, then the
last reported sale price, regular way, on
3
<PAGE> 4
the composite tape of that exchange on the last Business Day before the
date in question or, if no such sale takes place on that Business Day,
the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to unlisted
trading privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subparagraph
1.19(a) and if sales prices for shares of Stock of the same class in
the over-the-counter market are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National
Market System (or such other system then in use) at the date of
determining the Fair Market Value, then the last reported sales price
so reported on the last Business Day before the date in question or, if
no such sale takes place on that Business Day, the average of the high
bid and low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in subparagraph
1.19(a) and sales prices for shares of Stock of the same class are not
reported by the NASDAQ National Market System (or a similar system then
in use) as provided in subparagraph 1.19(b), and if bid and asked
prices for shares of Stock of the same class in the over-the-counter
market are reported by NASDAQ (or, if not so reported, by the National
Quotation Bureau Incorporated) at the date of determining the Fair
Market Value, then the average of the high bid and low asked prices on
the last Business Day before the date in question; or
(d) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in subparagraph
1.19(a) and sales prices or bid and asked prices therefor are not
reported by NASDAQ (or the National Quotation Bureau Incorporated) as
provided in subparagraph 1.19(b) or subparagraph 1.19(c) at the date of
determining the Fair Market Value, then the value determined in good
faith by the Committee, which determination shall be conclusive for all
purposes; or
(e) If shares of Stock of the same class are listed or admitted to
unlisted trading privileges as provided in subparagraph 1.19(a) or
sales prices or bid and asked prices therefor are reported by NASDAQ
(or the National Quotation Bureau Incorporated) as provided in
subparagraph 1.19(b) or subparagraph 1.19(c) at the date of determining
the Fair Market Value, but the volume of trading is so low that the
Board of Directors determines in good faith that such prices are not
indicative of the fair value of the Stock, then the value determined in
good faith by the Committee, which determination shall be conclusive
for all purposes notwithstanding the provisions of subparagraphs
1.19(a), (b), or (c).
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For purposes of valuing Incentive Options, the Fair Market Value of Stock shall
be determined without regard to any restriction other than one that, by its
terms, will never lapse. For purposes of the redemption provided for in
subparagraph 6.3(d)(v), Fair Market Value shall have the meaning and shall be
determined as provided above; provided, however, that the Committee, with
respect to any such redemption, shall have the right to determine that the Fair
Market Value for purposes of the redemption should be an amount measured by the
value of the shares of stock, other securities, cash, or property otherwise
being received by holders of shares of Stock in connection with the Restructure,
and upon that determination the Committee shall have the power and authority to
determine Fair Market Value for purposes of the redemption based upon the value
of such shares of stock, other securities, cash or property. Any such
determination by the Committee shall be conclusive for all purposes.
1.20 "Holder" means an Eligible Individual to whom an Award has been
granted.
1.21 "Incentive Option" means an incentive stock option as defined
under Section 422 of the Code and regulations thereunder.
1.22 "Incumbent Board" means the individuals who, as of the Effective
Date, constitute the Board of Directors and any other individual who becomes a
director of the Corporation after that date and whose election or appointment by
the Board of Directors or nomination for election by the Corporation's
stockholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board.
1.23 "Key Employee" means any Employee whom the Committee identifies as
having a direct and significant effect on the performance of the Corporation or
any of its Subsidiaries.
1.24 "Nonstatutory Option" means a stock option that does not satisfy
the requirements of Section 422 of the Code or that is designated at the Date of
Grant or in the applicable Award Agreement to be an option other than an
Incentive Option.
1.25 "Non-Surviving Event" means an event of Restructure as described
in either subparagraph (b) or (c) of Paragraph 1.31.
1.26 "Normal Retirement" means the separation of the Holder from
employment with the Corporation and its Subsidiaries on account of retirement at
any time on or after the date on which the Holder reaches age sixty.
1.27 "Option" means either an Incentive Option or a Nonstatutory
Option, or both.
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1.28 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a partnership, a trust or other entity. A Person, together with
that Person's affiliates and associates (as those terms are defined in Rule
12b-2 under the Exchange Act for purposes of this definition only), and any
Persons acting as a partnership, limited partnership, joint venture,
association, syndicate, or other group (whether or not formally organized), or
otherwise acting jointly or in concert or in a coordinated or consciously
parallel manner (whether or not pursuant to any express agreement), for the
purpose of acquiring, holding, voting, or disposing of securities of the
Corporation with that Person, shall be deemed a single "Person."
1.29 "Plan" means the Corporation's Amended and Restated 1988 Option
Plan, as it may be amended from time to time.
1.30 "Restructure" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with the Corporation remaining the continuing or
surviving entity of that merger or consolidation and the Stock
remaining outstanding and not changed into or exchanged for stock or
other securities of any other Person or of the Corporation, cash, or
other property;
(b) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger or consolidation or (ii) the
Corporation remaining the continuing or surviving entity of that merger
or consolidation but all or a part of the outstanding shares of Stock
are changed into or exchanged for stock or other securities of any
other Person or the Corporation, cash, or other property; or
(c) The transfer, directly or indirectly, of all or substantially
all of the assets of the Corporation (whether by sale, merger,
consolidation, liquidation, or otherwise) to any Person whether
effected as a single transaction or a series of related transactions.
1.31 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the Exchange
Act as adopted in Exchange Act Release No. 34-29131 (April 26, 1991), or any
successor rule, as it may be amended from time to time.
1.32 "Securities Act" means the Securities Act of 1933, or any
successor law, as it may be amended from time to time.
1.33 "Stock" means the Corporation's authorized common stock, par value
$.01 per share, as described in the Corporation's Amended and Restated
Certificate of Incorporation
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as it shall have been amended on August 13, 1993, or any other securities that
are substituted for the Stock as provided in Section 6.
1.34 "Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by that Person.
1.35 "Total Shares" has the meaning given it in Paragraph 6.2.
1.36 "Voting Securities" means any securities that are entitled to vote
generally in the election of directors, in the admission of general partners, or
in the selection of any other similar governing body.
SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 Maximum Amount of Shares. Subject to the provisions of Paragraph
2.6 and Section 6 of the Plan, the aggregate number of shares of Stock that may
be issued, transferred or exercised pursuant to Awards under the Plan shall be
800,000, unless amended by the Board of Directors, and the aggregate number of
shares of Class B Stock that may be issued, transferred or exercised pursuant to
Awards under the Plan shall be 600,000, unless amended by the Board of
Directors.
2.2 Reduction in Available Shares. In computing the total number of
shares available at a particular time for Awards under the Plan, there shall be
counted against the limitations stated in Paragraph 2.1 the number of shares of
Stock or Class B Stock, as the case may be, subject to issuance upon exercise or
settlement of Awards and the number of shares of Stock or Class B Stock, as the
case may be, that have been issued upon exercise or settlement of Awards (except
as otherwise provided in Paragraph 2.3).
2.3 Restoration of Unused and Surrendered Shares. If Stock or Class B
Stock, as the case may be, subject to any Award is not issued or transferred, or
ceases to be issuable or transferable for any reason, including (but not
exclusively) because an Award is forfeited, terminated, expires unexercised, or
is exchanged for other Awards, the shares of Stock or Class B Stock, as the case
may be, that were subject to that Award shall no longer be charged against the
number of available shares provided for in Paragraph 2.2 and shall again be
available for issue, transfer, or exercise pursuant to Awards under the Plan to
the extent of such forfeiture, termination, expiration, or other cessation of
its subjection to an Award.
2.4 Description of Shares. The shares to be delivered under the Plan
shall be made available from (a) authorized but unissued shares of Stock or
Class B Stock, as the case may be, (b) Stock or Class B Stock, as the case may
be, held in the treasury of the Corporation, or (c) previously issued shares of
Stock or Class B Stock, as the case may be,
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reacquired by the Corporation, including shares purchased on the open market, in
each situation as the Board of Directors or the Committee may determine from
time to time at its sole option.
2.5 Registration and Listing of Shares. From time to time, the Board of
Directors and appropriate officers of the Corporation shall and are authorized
to take whatever actions are necessary to file required documents with
governmental authorities, stock exchanges, and other appropriate Persons to make
shares of Stock or Class B Stock, as the case may be, available for issuance
pursuant to Awards.
2.6 Reduction in Outstanding Shares of Stock or Class B Stock. Nothing
in this Section 2 shall impair the right of the Corporation to reduce the number
of outstanding shares of Stock or Class B Stock, as the case may be, pursuant to
repurchases, redemptions, or otherwise; provided, however, that no reduction in
the number of outstanding shares of Stock or Class B Stock, as the case may be,
shall (a) impair the validity of any outstanding Award, whether or not that
Award is fully exercisable or fully vested or (b) impair the status of any
shares of Stock or Class B Stock, as the case may be, previously issued pursuant
to an Award or thereafter issued pursuant to a then-outstanding Award as duly
authorized, validly issued, fully paid, and nonassessable shares.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 Committee. The Committee shall administer the Plan with respect to
all Eligible Individuals who are subject to Section 16(b) of the Exchange Act,
but shall not have the power to appoint members of the Committee or to
terminate, modify, or amend the Plan. The Board of Directors may administer the
Plan with respect to all other Eligible Individuals or may delegate all or part
of that duty to the Committee. Except for references in Paragraphs 3.1, 3.2, and
3.3 and unless the context otherwise requires, references herein to the
Committee shall also refer to the Board of Directors as administrator of the
Plan for Eligible Individuals who are not subject to Section 16(b) of the
Exchange Act. The Committee shall be constituted so that, as long as Stock is
registered under Section 12 of the Exchange Act, each member of the Committee
shall be a Disinterested Person who is a member of the Board of Directors and so
that the Plan in all other applicable respects will qualify transactions related
to the Plan for the exemptions from Section 16(b) of the Exchange Act provided
by Rule 16b-3, to the extent exemptions thereunder may be available. No
discretion regarding Awards to Eligible Individuals who are subject to Section
16(b) of the Exchange Act shall be afforded to a person who is not a
Disinterested Person. The number of persons that shall constitute the Committee
shall be determined from time to time by a majority of all the members of the
Board of Directors, and, unless that majority of the Board of Directors
determines otherwise, shall be no less than two persons. Persons elected to
serve on the Committee as Disinterested Persons shall not be eligible to receive
Awards or equity securities under any plan of the Corporation or its affiliates
(as those terms are used in
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Rule 16b-3) while they are serving as members of the Committee; shall not have
been eligible to receive Awards or such equity securities under any plan of the
Corporation or its affiliates within one year before their appointment to the
Committee becomes effective; and shall not be eligible to receive Awards or such
equity securities under any plan of the Corporation or its affiliates for such
period following service on the Committee as may be required by Rule 16b-3 for
that person to remain a Disinterested Person, in each case except for Awards or
equity securities pursuant to paragraphs (c)(2)(i)(A), (B), (C), or (D) of Rule
16b-3.
3.2 Duration, Removal, Etc. The members of the Committee shall serve at
the pleasure of the Board of Directors, which shall have the power, at any time
and from time to time, to remove members from or add members to the Committee.
Removal from the Committee may be with or without cause. Any individual serving
as a member of the Committee shall have the right to resign from membership in
the Committee by at least three day's written notice to the Board of Directors.
The Board of Directors, and not the remaining members of the Committee, shall
have the power and authority to fill vacancies on the Committee, however caused.
The Board of Directors shall promptly fill any vacancy that causes the number of
members of the Committee to be below two or any other number that Rule 16b-3 may
require from time to time.
3.3 Meetings and Actions of Committee. The Board of Directors shall
designate which of the Committee members shall be the chairman of the Committee.
If the Board of Directors fails to designate a Committee chairman, the members
of the Committee shall elect one of the Committee members as chairman, who shall
act as chairman until he ceases to be a member of the Committee or until the
Board of Directors elects a new chairman. The Committee shall hold its meetings
at those times and places as the chairman of the Committee may determine. At all
meetings of the Committee, a quorum for the transaction of business shall be
required, and a quorum shall be deemed present if at least a majority of the
members of the Committee are present. At any meeting of the Committee, each
member shall have one vote. All decisions and determinations of the Committee
shall be made by the majority vote or majority decision of all of its members
present at a meeting at which a quorum is present; provided, however, that any
decision or determination reduced to writing and signed by all of the members of
the Committee shall be as fully effective as if it had been made at a meeting
that was duly called and held. The Committee may make any rules and regulations
for the conduct of its business that are not inconsistent with the provisions of
the Plan, the Certificate of Incorporation, the by-laws of the Corporation, and
Rule 16b-3 so long as it is applicable, as the Committee may deem advisable.
3.4 Committee's Powers. Subject to the express provisions of the Plan
and Rule 16b-3, the Committee shall have the authority, in its sole and absolute
discretion, (a) to adopt, amend, and rescind administrative and interpretive
rules and regulations relating to the Plan; (b) to determine the Eligible
Individuals to whom, and the time or times at which, Awards shall be granted;
(c) to determine the number of shares of Stock or Class B Stock that shall be
the
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subject of each Award; (d) to determine the terms and provisions of each Award
Agreement (which need not be identical), including provisions defining or
otherwise relating to (i) the term and the period or periods and extent of
exercisability of the Options, (ii) the extent to which the transferability of
shares of Stock or Class B Stock issued or transferred pursuant to any Award is
restricted, (iii) the effect of termination of employment on the Award, and (iv)
the effect of approved leaves of absence (consistent with any applicable
regulations of the Internal Revenue Service); (e) to accelerate, pursuant to
Section 6, the time of exercisability of any Option that has been granted; (f)
to construe the respective Award Agreements and the Plan; (g) to make
determinations of the Fair Market Value of Stock or Class B Stock pursuant to
the Plan; (h) to delegate its duties under the Plan to such agents as it may
appoint from time to time, provided that the Committee may not delegate its
duties with respect to making Awards to Eligible Individuals who are subject to
Section 16(b) of the Exchange Act; and (i) to make all other determinations,
perform all other acts, and exercise all other powers and authority necessary or
advisable for administering the Plan, including the delegation of those
ministerial acts and responsibilities as the Committee deems appropriate.
Subject to Rule 16b-3, the Committee may correct any defect, supply any
omission, or reconcile any inconsistency in the Plan, in any Award, or in any
Award Agreement in the manner and to the extent it deems necessary or desirable
to carry the Plan into effect, and the Committee shall be the sole and final
judge of that necessity or desirability. The determinations of the Committee on
the matters referred to in this Paragraph 3.4 shall be final and conclusive.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligible Individuals. Awards may be granted pursuant to the Plan
only to persons who are Eligible Individuals at the time of the grant thereof.
4.2 Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine which Eligible Individuals shall be granted Awards
from time to time. In making grants, the Committee shall take into consideration
the contribution the potential Holder has made or may make to the success of the
Corporation or its Subsidiaries and such other considerations as the Board of
Directors may from time to time specify. The Committee shall also determine the
number of shares subject to each of the Awards and shall authorize and cause the
Corporation to grant Awards in accordance with those determinations.
4.3 Date of Grant. The date on which the Committee completes all action
resolving to offer an Award to an individual, including the specification of the
number of shares of Stock to be subject to the Award, shall be the date on which
the Award covered by an Award Agreement is granted (the "Date of Grant"), even
though certain terms of the Award Agreement may not be determined at that time
and even though the Award Agreement may not be executed until a later time. In
no event shall a Holder gain any rights in addition to those specified by the
Committee in its grant, regardless of the time that may pass between
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the grant of the Award and the actual execution of the Award Agreement by the
Corporation and the Holder.
4.4 Award Agreements. Each Award granted under the Plan shall be
evidenced by an Award Agreement that is executed by the Corporation and the
Eligible Individual to whom the Award is granted and incorporating those terms
that the Committee shall deem necessary or desirable. More than one Award may be
granted under the Plan to the same Eligible Individual and be outstanding
concurrently. In the event an Eligible Individual is granted both one or more
Incentive Options and one or more Nonstatutory Options, those grants shall be
evidenced by separate Award Agreements, one for each of the Incentive Option
grants and one for each of the Nonstatutory Option grants.
4.5 Limitation for Incentive Options. Notwithstanding any provision
contained herein to the contrary, (a) a person shall not be eligible to receive
an Incentive Option unless he is an Employee of the Corporation or a corporate
Subsidiary (but not a partnership Subsidiary), and (b) a person shall not be
eligible to receive an Incentive Option if, immediately before the time the
Option is granted, that person owns (within the meaning of Sections 422 and 425
of the Code) stock possessing more than ten percent of the total combined voting
power or value of all classes of stock of the Corporation or a Subsidiary.
Nevertheless, subparagraph 4.5(b) shall not apply if, at the time the Incentive
Option is granted, the Exercise Price of the Incentive Option is at least one
hundred and ten percent of Fair Market Value and the Incentive Option is not, by
its terms, exercisable after the expiration of five years from the Date of
Grant.
4.6 No Right to Award. The adoption of the Plan shall not be deemed to
give any person a right to be granted an Award.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
All Options granted under the Plan shall comply with, and the related
Award Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 5 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Section 6 and Section 7; provided, however, that the Committee may authorize an
Award Agreement that expressly contains terms and provisions that differ from
the terms and provisions set forth in Paragraphs 6.2, 6.3, and 6.4 and any of
the terms and provisions of Section 7 (other than Paragraphs 7.10 and 7.11).
5.1 Number of Shares. Each Award Agreement shall state the total number
of shares of Stock or Class B Stock, as the case may be, to which it relates.
5.2 Vesting. Each Award Agreement shall state the time or periods in
which or the conditions upon, satisfaction of which the right to exercise the
Option or a portion thereof shall
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vest and the number of shares of Stock or Class B Stock, as the case may be, for
which the right to exercise the Option shall vest at each such time, period, or
fulfillment of condition.
5.3 Expiration of Options. Nonstatutory Options and Incentive Options
may be exercised during the term determined by the Committee and set forth in
the Award Agreement; provided that no Option shall be exercised after the
expiration of a period of ten years commencing on the Date of Grant of the
Incentive Option.
5.4 Exercise Price. Each Award Agreement shall state the exercise price
per share of Stock (the "Exercise Price"). The exercise price per share of Stock
subject to an Incentive Option shall not be less than the greater of (a) the par
value per share of the Stock or (b) 100% of the Fair Market Value per share of
the Stock on the Date of Grant of the Option. The exercise price per share of
Stock subject to a Nonstatutory Option shall not be less than the par value per
share of the Stock.
5.5 Method of Exercise. The Option shall be exercisable only by written
notice of exercise (the "Exercise Notice") delivered to the Corporation during
the term of the Option, which notice shall (a) state the number of shares of
Stock or Class B Stock, as the case may be, with respect to which the Option is
being exercised, (b) be signed by the Holder of the Option or, if the Holder is
dead or Disabled, by the person authorized to exercise the Option pursuant to
Paragraphs 7.3 and 7.4, (c) be accompanied by the Exercise Price for all shares
of Stock or Class B Stock, as the case may be, for which the Option is
exercised, and (d) include such other information, instruments, and documents as
may be required to satisfy any other condition to exercise contained in the
Award Agreement. The Option shall not be deemed to have been exercised unless
all of the requirements of the preceding provisions of this Paragraph 5.5 have
been satisfied.
5.6 Incentive Option Exercises. During the Holder's lifetime, only the
Holder may exercise an Incentive Option.
5.7 Medium and Time of Payment. The Exercise Price of an Option shall
be payable in full upon the exercise of the Option (a) in cash or by an
equivalent means acceptable to the Committee, (b) on the Committee's prior
consent, with shares of Stock or Class B Stock, as the case may be, owned by the
Holder (including shares received upon exercise of the Option or restricted
shares already held by the Holder) and having a Fair Market Value at least equal
to the aggregate Exercise Price payable in connection with such exercise, or (c)
by any combination of clauses (a) and (b). If the Committee elects to accept
shares of Stock or Class B Stock, as the case may be, in payment of all or any
portion of the Exercise Price, then (for purposes of payment of the Exercise
Price) those shares of Stock or Class B Stock, as the case may be, shall be
deemed to have a cash value equal to their aggregate Fair Market Value
determined as of the date of the delivery of the Exercise Notice. If the
Committee elects to accept shares of restricted Stock or Class B Stock, as the
case
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may be, in payment of all or any portion of the Exercise Price, then an equal
number of shares issued pursuant to the exercise shall be restricted on the same
terms and for the restriction period remaining on the shares used for payment.
5.8 Payment with Sale Proceeds. In addition, at the request of the
Holder and to the extent permitted by applicable law, the Committee may (but
shall not be required to) approve arrangements with a brokerage firm under which
that brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised, and the Corporation shall promptly
deliver the exercised shares to the brokerage firm. To accomplish this
transaction, the Holder must deliver to the Corporation an Exercise Notice
containing irrevocable instructions from the Holder to the Corporation to
deliver the stock certificates directly to the broker. Upon receiving a copy of
the Exercise Notice acknowledged by the Corporation, the broker shall sell that
number of shares of Stock or loan the Holder an amount sufficient to pay the
Exercise Price and any withholding obligations due. The broker shall then
deliver to the Corporation that portion of the sale or loan proceeds necessary
to cover the Exercise Price and any withholding obligations due. The Committee
shall not approve any transaction of this nature if the Committee believes that
the transaction would give rise to the Holder's liability for short-swing
profits under Section 16(b) of the Exchange Act.
5.9 Payment of Taxes. The Committee may, in its discretion, require a
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation), at the time of the exercise
of an Option, the amount that the Committee deems necessary to satisfy the
Corporation's or its Subsidiary's current or future obligation to withhold
federal, state or local income or other taxes that the Holder incurs by
exercising an Option. Upon the exercise of an Option requiring tax withholding,
a Holder may (a) direct the Corporation to withhold from the shares of Stock or
Class B Stock, as the case may be, to be issued to the Holder the number of
shares necessary to satisfy the Corporation's obligation to withhold taxes, that
determination to be based on the shares' Fair Market Value as of the date on
which tax withholding is to be made; (b) deliver to the Corporation sufficient
shares of Stock or Class B Stock, as the case may be (based upon the Fair Market
Value at date of withholding), to satisfy the Corporation's tax withholding
obligations, based on the shares' Fair Market Value as of the date of exercise;
or (c) deliver sufficient cash to the Corporation to satisfy its tax withholding
obligations. Holders who elect to use such a stock withholding feature must make
the election at the time and in the manner that the Committee prescribes. The
Committee may, at its sole option, deny any Holder's request to satisfy
withholding obligations through Stock or Class B Stock, as the case may be,
instead of cash. In the event the Committee subsequently determines that the
aggregate Fair Market Value (as determined above) of any shares of Stock or
Class B Stock, as the case may be, withheld as payment of any tax withholding
obligation is insufficient to discharge that tax withholding obligation, then
the Holder shall pay to the Corporation, immediately upon the Committee's
request, the amount of that deficiency.
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5.10 Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Option. Except as is
otherwise provided in Paragraph 6.2, with respect to any Incentive Option
granted under this Plan, the aggregate Fair Market Value of shares of Stock
subject to an Incentive Option and the aggregate Fair Market Value of shares of
Stock or stock of any Subsidiary (or a predecessor of the Corporation or a
Subsidiary) subject to any other incentive stock option (within the meaning of
Section 422 of the Code) of the Corporation or its Subsidiaries (or a
predecessor corporation of any such corporation) that first become purchasable
by a Holder in any calendar year may not (with respect to that Holder) exceed
$100,000, or such other amount as may be prescribed under Section 422 of the
Code or applicable regulations or rulings from time to time. As used in the
previous sentence, Fair Market Value shall be determined as of the date the
Incentive Option is granted. For purposes of this Paragraph 5.10 "predecessor
corporation" means (a) a corporation that was a party to a transaction described
in Section 425(a) of the Code (or which would be so described if a substitution
or assumption under that Section had been effected) with the Corporation, (b) a
corporation which, at the time the new incentive stock option (within the
meaning of Section 422 of the Code) is granted, is a Subsidiary of the
Corporation or a predecessor corporation of any such corporations, or (c) a
predecessor corporation of any such corporations. Failure to comply with this
provision shall not impair the enforceability or exercisability of any Option,
but shall cause the excess amount of shares to be reclassified in accordance
with the Code.
5.11 No Fractional Shares. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock or Class B
Stock, as the case may be, the Corporation shall pay to the Holder an amount in
cash equal to the same fraction (as the fractional Stock or Class B Stock, as
the case may be) of the Fair Market Value of a share of Stock or Class B Stock,
as the case may be, determined as of the date of the applicable Exercise Notice.
5.12 Modification, Extension, and Renewal of Options. Subject to the
terms and conditions of and within the limitations of the Plan, Rule 16b-3, and
any consent required by the last sentence of this Paragraph 5.12, the Committee
may (a) modify, extend, or renew outstanding Options granted under the Plan, (b)
accept the surrender of Options outstanding hereunder (to the extent not
previously exercised) and authorize the granting of new Options in substitution
for outstanding Options (to the extent not previously exercised), and (c) amend
the terms of an Incentive Option at any time to include provisions that have the
effect of changing the Incentive Option to a Nonstatutory Option. Nevertheless,
without the consent of the Holder, the Committee may not modify any outstanding
Options so as to specify a higher or lower Exercise Price or accept the
surrender of outstanding Incentive Options and authorize the granting of new
Options in substitution therefor specifying a higher or lower Exercise Price. In
addition, no modification of an Option granted hereunder shall, without the
consent of the Holder, alter or impair any rights or obligations under any
Option theretofore granted hereunder to such Holder under the Plan except, with
respect to Incentive Options,
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as may be necessary to satisfy the requirements of Section 422 of the Code or as
permitted in clause (c) of this Paragraph 5.12.
5.13 Other Agreement Provisions. The Award Agreements authorized under
the Plan shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee may deem advisable. Each Award Agreement shall
identify the Option evidenced thereby as an Incentive Option or Nonstatutory
Option, as the case may be, and no Award Agreement shall cover both an Incentive
Option and a Nonstatutory Option. Each Award Agreement relating to an Incentive
Option granted hereunder shall contain such limitations and restrictions upon
the exercise of the Incentive Option to which it relates as shall be necessary
for the Incentive Option to which such Award Agreement relates to constitute an
incentive stock option, as defined in Section 422 of the Code.
SECTION 6. ADJUSTMENT PROVISIONS
6.1 Adjustment Awards and Authorized Stock or Class B Stock. The terms
of an Award and the number of shares of Stock or Class B Stock, as the case may
be, authorized pursuant to Paragraph 2.1 for issuance under the Plan shall be
subject to adjustment, from time to time, in accordance with the following
provisions:
(a) If at any time or from time to time, the Corporation shall
subdivide as a whole (by reclassification, by a split of the Stock or
Class B Stock, as the case may be, by the issuance of a distribution on
Stock or Class B Stock payable in Stock or Class B Stock, as the case
may be, or otherwise) the number of shares of Stock then outstanding
into a greater number of shares of Stock, then (i) the maximum number
of shares of Stock or Class B Stock, as the case may be, available for
the Plan as provided in Paragraph 2.1 shall be increased
proportionately, and the kind of shares or other securities available
for the Plan shall be appropriately adjusted, (ii) the number of shares
of Stock or Class B Stock, as the case may be (or other kind of shares
or unit of other securities), subject to then outstanding Awards shall
be reduced proportionately, without changing the aggregate purchase
price or value as to which outstanding Awards remain exercisable or
subject to restrictions.
(b) If at any time or from time to time, the Corporation shall
consolidate as a whole (by reclassification, reverse split of Stock or
Class B Stock, as the case may be, or otherwise) the number of shares
of Stock or Class B Stock, as the case may be, then outstanding into a
lesser number of shares of Stock or Class B Stock, as the case may be,
(i) the maximum number of shares of Stock or Class B Stock, as the case
may be, available for the Plan as provided in Paragraph 2.1 shall be
decreased proportionately, and the kind of shares or other securities
available for the Plan shall
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be appropriately adjusted, (ii) the number of shares of Stock or Class
B Stock, as the case may be (or other kind of shares or securities),
that may be acquired under any Award shall be decreased
proportionately, and (iii) the price (including Exercise Price) for
each share of Stock or Class B Stock, as the case may be (or other kind
of shares or unit of other securities), subject to then outstanding
Awards shall be increased proportionately, without changing the
aggregate purchase price or value as to which outstanding Awards remain
exercisable or subject to restrictions.
(c) Whenever the number of shares of Stock or Class B Stock, as the
case may be, subject to outstanding Awards and the price for each share
of Stock or Class B Stock, as the case may be, subject to outstanding
Awards are required to be adjusted as provided in this Paragraph 6.1,
the Committee shall promptly prepare a notice setting forth, in
reasonable detail, the event requiring adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
change in price and the number of shares of Stock or Class B Stock, as
the case may be, other securities, cash or property purchasable subject
to each Award after giving effect to the adjustments. The Committee
shall promptly give each Holder such a notice.
(d) Adjustments under subparagraphs 6.1(a) and (b) shall be made by
the Committee, and its determination as to what adjustments shall be
made and the extent thereof shall be final, binding and conclusive. No
fractional interest shall be issued under the Plan on account of any
such adjustments.
6.2 Changes in Control. Any Award Agreement may provide that, upon the
occurrence of a Change in Control, all outstanding Options shall immediately
become fully vested and exercisable in full, including that portion of any
Option that pursuant to the terms and provisions of the applicable Award
Agreement had not yet become exercisable (the total number of shares of Stock or
Class B Stock, as the case may be, as to which an Option is exercisable upon the
occurrence of a Change in Control is referred to herein as the "Total Shares").
If a Change in Control involves a Restructure or occurs in connection with a
series of related transactions involving a Restructure and if such Restructure
is in the form of a Non-Surviving Event and as a part of such Restructure shares
of stock, other securities, cash or property shall be issuable or deliverable in
exchange for Stock, then the Holder of an Award shall be entitled to purchase
(in lieu of the Total Shares that the Holder would otherwise be entitled to
purchase) the number of shares of stock, other securities, cash, or property to
which that number of Total Shares would have been entitled in connection with
such Restructure (and at an aggregate exercise price equal to the Exercise Price
that would have been payable if that number of Total Shares had been purchased
on the exercise of the Option immediately before the consummation of the
Restructure). Nothing in this Paragraph 6.2 shall impose on a Holder the
obligation to exercise any Award immediately before or upon the Change of
Control, nor shall the Holder forfeit the right to exercise the Award during the
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remainder of the original term of the Award because of a Change in Control or
because the Holder's employment is terminated for any reason following a Change
in Control.
6.3 Restructure and No Change in Control. In the event a Restructure
should occur at any time while there is any outstanding Award hereunder and that
Restructure does not occur in connection with a Change in Control or in
connection with a series of related transactions involving a Change in Control,
then:
(a) no outstanding Option shall immediately become fully vested and
exercisable in full merely because of the occurrence of the
Restructure; and
(b) at the option of the Committee, the Corporation may (but shall
not be required to) take any one or more of the following actions:
(i) accelerate in whole or in part the time of the vesting and
exercisability of any one or more of the outstanding Options so as
to provide that those Options shall be exercisable before, upon, or
after the consummation of the Restructure;
(ii) if the Restructure is in the form of a Non-Surviving
Event, cause the surviving entity to assume in whole or in part any
one or more of the outstanding Awards upon such terms and
provisions as the Committee deems desirable; or
(iii) redeem in whole or in part any one or more of the
outstanding Awards (whether or not then exercisable) in
consideration of a cash payment, as such payment may be reduced for
tax withholding obligations as contemplated in Paragraph 5.9 in an
amount equal to the excess of (1) the Fair Market Value, determined
as of a date immediately preceding the consummation of the
Restructure, of the aggregate number of shares of Stock or Class B
Stock, as the case may be, subject to the Award and as to which the
Award is being redeemed over (2) the Exercise Price for that number
of shares of Stock or Class B Stock, as the case may be;
The Corporation shall promptly notify each Holder of any election or action
taken by the Corporation under this Paragraph 6.3. In the event of any election
or action taken by the Corporation pursuant to this Paragraph 6.3 that requires
the amendment or cancellation of any Award Agreement as may be specified in any
notice to the Holder thereof, that Holder shall promptly deliver that Award
Agreement to the Corporation in order for that amendment or cancellation to be
implemented by the Corporation and the Committee. The failure of the Holder to
deliver any such Award Agreement to the Corporation as provided in the preceding
sentence shall not in any manner effect the validity or enforceability of any
action taken by the
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Corporation and the Committee under this Paragraph 6.3, including, without
limitation, any redemption of an Award as of the consummation of a Restructure.
Any cash payment to be made by the Corporation pursuant to this Paragraph 6.3 in
connection with the redemption of any outstanding Awards shall be paid to the
Holder thereof currently with the delivery to the Corporation of the Award
Agreement evidencing that Award; provided, however, that any such redemption
shall be effective upon the consummation of the Restructure notwithstanding that
the payment of the redemption price may occur subsequent to the consummation. If
all or any portion of an outstanding Award is to be exercised or accelerated to
upon or after the consummation of a Restructure that is in the form of a
Non-Surviving Event and as a part of that Restructure shares of stock, other
securities, cash, or property shall be issuable or deliverable in exchange for
Stock or Class B Stock, as the case may be, then the Holder of the Award shall
thereafter be entitled to purchase (in lieu of the number of shares of Stock or
Class B Stock, as the case may be, that the Holder would otherwise be entitled
to purchase) the number of shares of stock, other securities, cash, or property
to which such number of shares of Stock or Class B Stock, as the case may be,
would have been entitled in connection with the Restructure (and, for Options,
at an aggregate exercise price equal to the Exercise Price that would have been
payable if that number of Total Shares had been purchased on the exercise of the
Option immediately before the consummation of the Restructure).
6.4 Notice of Change in Control or Restructure. The Corporation shall
attempt to keep all Holders informed with respect to any Change in Control or
Restructure or of any potential Change in Control or Restructure to the same
extent that the Corporation's stockholders are informed by the Corporation of
any such event or potential event.
SECTION 7. ADDITIONAL PROVISIONS
7.1 Loss of Eligibility.
A. If a Holder is an Eligible Individual because the Holder is an
Employee and if that capacity is terminated as a result of (i) the Holder's
voluntary termination (the employee elects to terminate his employment or
retires), (ii) dishonesty or other acts detrimental to the Company or (iii) the
employee's breach of his employment agreement, then each Nonstatutory Option
held by the Holder as of the date of termination that was granted because of
that capacity and that is not exercisable as of the date of termination shall
become null and void as of the date of termination; provided, however, that the
portion, if any, of each Nonstatutory Option held by the Holder that is
exercisable as of the date of termination shall remain exercisable for a period
equal to the lesser of (a) the remainder of the term of the Nonstatutory Option
or (b) 210 days following the date of the Holder's termination. Any portion of a
Nonstatutory Option not exercised upon the expiration of the periods specified
in (a) or (b) shall be null and void. If a Holder is terminated as described in
this Paragraph 7.1.A, each Incentive Option that is exercisable at the time of
such termination shall remain
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exercisable for the lesser of (a) the remainder of the term of the Incentive
Option or (b) 90 days. However, if after termination, the Holder commits acts
that are detrimental to the interest of the Company as determined by its Stock
Option Committee, all Awards held by such Holder shall become null and void
after the time such determination is made.
B. If a Holder is an Eligible Individual because the holder is an
Employee and if that employment relationship is terminated by the Company for a
reason other than as specified in (ii) or (iii) of subsection A of this
Paragraph 7.1, then each Nonstatutory Option held by the Holder as of the date
of termination that was granted because of that capacity and that is exercisable
as of the date of termination, shall remain exercisable by the Holder for a
period equal to the lesser of (a) the remainder of the term of the Nonstatutory
Option or (b) 210 days following the date of the Holder's termination. Despite a
Holder's termination, each Nonstatutory Option that is scheduled to vest during
the period specified in (a) in the preceding sentence, if applicable, or 90
days, whichever is less, shall vest; however, each such Nonstatutory Option
shall expire at the time that the Nonstatutory Option expires pursuant to (a) or
(b) in the preceding sentence, as applicable. Any portion of a Nonstatutory
Option not exercised upon the expiration of the periods specified in (a) or (b)
shall be null and void. If a Holder is terminated as described in this Paragraph
7.1.B, each Incentive Option that is exercisable at the time of such termination
shall remain exercisable for the lesser of (a) the remainder of the term of the
Incentive Option or (b) 210 days.
7.2 Other Loss of Eligibility. If a Holder is an Eligible Individual
because the Holder is serving in a capacity other than as an Employee and if
that capacity is terminated for any reason other than the Holder's death, then
any and all Awards held by the Holder that were granted because of that capacity
as of the date of the termination shall become null and void as of the date of
the termination. If a Holder is terminated as described in this Section, each
Incentive Option that is exercisable at the time of such termination shall
remain exercisable for the lesser of (a) the remainder of the term of the
Incentive Option or (b) 90 days.
7.3 Death. Upon the death of a Holder, each Nonstatutory Option held by
the Holder that was granted because of such capacity that is exercisable as of
the date of the Holder's death, shall remain exercisable by that Holder's legal
representatives, legatees or distributees for a period of the lesser of (a) the
remainder of the term of the Nonstatutory Option or (b) 210 days following the
date of the Holder's death. Despite a Holder's death, each Nonstatutory Option
that is scheduled to vest during the period specified in (a) in the preceding
sentence, if applicable, or 90 days, whichever is less, shall vest; however,
each such Nonstatutory Option shall expire at the time that the Nonstatutory
Option expires pursuant to (a) or (b) in the preceding sentence, as applicable.
Except as expressly provided in this Paragraph 7.3, no Award held by a Holder
shall be exercisable after the death of that Holder. Any portion of Nonstatutory
Options not exercised upon the expiration of the periods specified in (a) or (b)
shall be null and void. If a Holder is terminated as described in this
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Paragraph 7.3, each Incentive Option that is exercisable at the time of such
termination shall be exercisable for the lesser of (a) the remainder of the term
of the Incentive Option or (b) 210 days.
7.4 Retirement or Voluntary Termination. If a Holder is an Eligible
Individual because the Holder is an Employee and if that employment relationship
is terminated by reason of the Holder's Normal Retirement or other voluntary
termination, then the portion, if any, of any and all Nonstatutory Options held
by the Holder that are not yet exercisable as of the date of that retirement
shall become null and void as of the date of such retirement or other voluntary
termination; provided, however, that the portion, if any, of any and all Awards
held by the Holder that are exercisable as of the date of that retirement shall
remain exercisable for a period of the lesser of (a) the remainder of the term
of the Nonstatutory Option or (b) 210 days following the date of retirement or
other voluntary termination. Any portion of Nonstatutory Options not exercised
upon the expiration of the periods specified in (a) or (b) shall be null and
void. If a Holder is terminated as described in this Paragraph 7.4, each
Incentive Option that is exercisable at the time of such termination shall
remain exercisable for the lesser of (a) the remainder of the term of the
Incentive Option or (b) 90 days.
7.5 Disability. If a Holder is an Eligible Individual because the
Holder is an Employee and if that employment relationship is terminated by
reason of the Holder's Disability, then the portion, if any, of each
Nonstatutory Option held by the Holder that is exercisable as of the date of
that termination for Disability shall survive the termination for the lesser of
(a) the original term of the Nonstatutory Option or (b) 210 days following the
date of termination, and the Nonstatutory Option shall remain exercisable by the
Holder, his guardian, or his legal representative. Despite a Holder's
termination by reason of the Holder's disability, each Nonstatutory Option that
is scheduled to vest during the period specified in (a) in the preceding
sentence, if applicable, or 90 days, whichever is less, or (b), as applicable,
shall vest; however, each such Nonstatutory Option shall expire at the time that
the Nonstatutory Option expires pursuant to (a) or (b) in the preceding
sentence, as applicable. Any portion of a Nonstatutory Option not exercised upon
the expiration of the periods specified in (a) or (b) shall be null and void.
"Disability" shall have the meaning given it in the employment agreement of the
Holder; provided, however, that if that Holder has no employment agreement,
"Disability" shall mean a physical or mental impairment of sufficient severity
that, in the opinion of the Corporation, either the Holder is unable to continue
performing the duties he performed before such impairment or the Holder's
condition entitles him to disability benefits under any insurance or employee
benefit plan of the Corporation or its Subsidiaries and that impairment or
condition is cited by the Corporation as the reason for termination of the
Holder's employment. If a Holder is terminated as described in this Paragraph
7.5, each Incentive Option that is exercisable at the time of such termination
shall be exercisable for the lesser of (a) the remainder of the term of the
Incentive Option or (b) 210 days.
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7.6 Leave of Absence. With respect to an Award, the Committee may, in
its sole discretion, determine that any Holder who is on leave of absence for
any reason will be considered to still be in the employ of the Corporation,
provided that rights to that Award during a leave of absence will be limited to
the extent to which those rights were earned or vested when the leave of absence
began.
7.7 Transferability of Awards. In addition to such other terms and
conditions as may be included in a particular Award Agreement, an Award
requiring exercise shall be exercisable during a Holder's lifetime only by that
Holder or by that Holder's guardian or legal representative. An Award requiring
exercise shall not be transferable other than by will or the laws of descent and
distribution.
7.8 Forfeiture and Restrictions on Transfer. Each Award Agreement may
contain or otherwise provide for conditions giving rise to the forfeiture of the
Stock or Class B Stock, as the case may be, acquired pursuant to an Award or
otherwise and may also provide for those restrictions on the transferability of
shares of the Stock or Class B Stock, as the case may be, acquired pursuant to
an Award or otherwise that the Committee in its sole and absolute discretion may
deem proper or advisable. The conditions giving rise to forfeiture may include,
but need not be limited to, the requirement that the Holder render substantial
services to the Corporation or its Subsidiaries for a specified period of time.
The restrictions on transferability may include, but need not be limited to,
options and rights of first refusal in favor of the Corporation and stockholders
of the Corporation other than the Holder of such shares of Stock or Class B
Stock, as the case may be, who is a party to the particular Award Agreement or a
subsequent holder of the shares of Stock or Class B Stock, as the case may be,
who is bound by that Award Agreement.
7.9 Delivery of Certificates of Stock. Subject to Paragraph 7.10, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock or Class B Stock, as the case may be, as to which an
Option has been exercised after the Corporation receives an Exercise Notice and
upon receipt by the Corporation of the Exercise Price and any tax withholding as
may be requested. The value of the shares of Stock or Class B Stock, as the case
may be, transferable because of an Award under the Plan shall not bear any
interest owing to the passage of time, except as may be otherwise provided in an
Award Agreement. If a Holder is entitled to receive certificates representing
Stock or Class B Stock, as the case may be, received for more than one form of
Award under the Plan, separate certificates of Stock or Class B Stock, as the
case may be, shall be issued with respect to Incentive Options and Nonstatutory
Stock Options separately.
7.10 Conditions to Delivery of Stock. Nothing herein or in any Award
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Award if that issuance would, in the opinion of
counsel for the Corporation, constitute a violation of the Securities Act or any
similar or superseding statute or statutes,
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any other applicable statute or regulation, or the rules of any applicable
securities exchange or securities association, as then in effect. At the time of
any exercise of an Option, the Corporation may, as a condition precedent to the
exercise of such Option, require from the Holder of the Award (or in the event
of his death, his legal representatives, heirs, legatees, or distributees) such
written representations, if any, concerning the Holder's intentions with regard
to the retention or disposition of the shares of Stock or Class B Stock, as the
case may be, being acquired pursuant to the Award and such written covenants and
agreements, if any, as to the manner of disposal of such shares as, in the
opinion of counsel to the Corporation, may be necessary to ensure that any
disposition by that Holder (or in the event of the Holder's death, his legal
representatives, heirs, legatees, or distributees), will not involve a violation
of the Securities Act or any similar or superseding statute or statutes, any
other applicable state or federal statute or regulation, or any rule of any
applicable securities exchange or securities association, as then in effect.
7.11 Certain Directors and Officers. With respect to Holders who are
directors or officers of the Corporation or any Subsidiary and who are subject
to Section 16(b) of the Exchange Act, and if Rule 16b-3 requires the following
conditions at the time of the Award, Awards and all rights under the Plan,
contingent or otherwise, shall be exercisable during the Holder's lifetime only
by the Holder or the Holder's guardian or legal representative, but not for at
least six months after grant, unless death or Disability of the Holder occurs
before the expiration of the six-month period. In addition, no such officer or
director shall use shares to pay tax withholding obligations within the first
six months of the term of the Award. Any election by any such officer or
director to have tax withholding obligations satisfied by the withholding of
shares of Stock or Class B Stock, as the case may be, shall be irrevocable and
shall be communicated to the Committee during the period beginning on the third
day following the date of release of quarterly or annual summary statements of
sales and earnings and ending on the twelfth business day following such date
(the "Window Period") or by an irrevocable election communicated to the
Committee at least six months before the date of exercise of the Award for which
such withholding is desired.
7.12 Securities Act Legend. Certificates for shares of Stock or Class B
Stock, as the case may be, when issued, may have the following legend, or
statements of other applicable restrictions, endorsed thereon, and may not be
immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER)
THAT SUCH OFFER, SALE,
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PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE
FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Stock or Class B Stock, as the
case may be, issued pursuant to an effective registration statement under the
Securities Act.
7.13 Legend for Restrictions on Transfer. Each certificate representing
shares issued to a Holder pursuant to an Award granted under the Plan shall, if
such shares are subject to any transfer restriction, including a right of first
refusal, provided for under this Plan or an Award Agreement, bear a legend that
complies with applicable law with respect to the restrictions on transferability
contained in this Paragraph 7.13, such as:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT
ENTITLED "THOMAS GROUP, INC. AMENDED AND RESTATED 1988 STOCK OPTION
PLAN" AS ADOPTED BY THOMAS GROUP, INC. (THE "CORPORATION") ON MARCH 16,
1992, AND AN AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND [HOLDER]
DATED MARCH 16, 1992, AND MAY NOT BE TRANSFERRED, SOLD, OR OTHERWISE
DISPOSED OF EXCEPT AS THEREIN PROVIDED. THE CORPORATION WILL FURNISH A
COPY OF SUCH INSTRUMENT AND AGREEMENT TO THE RECORD HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE CORPORATION AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
7.14 Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares covered by his Award until a certificate
representing those shares is issued in his name. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is before the date that
certificate is issued, except as contemplated by Section 6. Nevertheless,
dividends and dividend equivalent rights may be extended to and made part of any
Award denominated in Stock or Class B Stock, as the case may be, or units of
Stock or Class B Stock, as the case may be, subject to such terms, conditions,
and restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents for deferred payment denominated in Stock or
Class B Stock, as the case may be, or units of Stock or Class B Stock, as the
case may be.
7.15 Furnish Information. Each Holder shall furnish to the Corporation
all information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
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7.16 Obligation to Exercise. The granting of an Award hereunder shall
impose no obligation upon the Holder to exercise the same or any part thereof.
7.17 Adjustments to Awards. Subject to the general limitations set
forth in Sections 5 and 6, the Committee may make any adjustment in the exercise
price of, the number of shares subject to or the terms of a Nonstatutory Option
by cancelling an outstanding Nonstatutory Option and regranting a Nonstatutory
Option. Such adjustment shall be made by amending, substituting, or regranting
an outstanding Nonstatutory Option. Such amendment, substitution, or regrant may
result in terms and conditions that differ from the terms and conditions of the
original Nonstatutory Option. The Committee may not, however, impair the rights
of any Holder to previously granted Nonstatutory Options without that Holder's
consent. If such action is effected by amendment, the effective date of such
amendment shall be the date of the original grant.
7.18 Remedies. The Corporation shall be entitled to recover from a
Holder reasonable attorneys' fees incurred in connection with the enforcement of
the terms and provisions of the Plan and any Award Agreement whether by an
action to enforce specific performance or for damages for its breach or
otherwise.
7.19 Information Confidential. As partial consideration for the
granting of each Award hereunder, the Holder shall agree with the Corporation
that he will keep confidential all information and knowledge that he has
relating to the manner and amount of his participation in the Plan; provided,
however, that such information may be disclosed as required by law and may be
given in confidence to the Holder's spouse, tax and financial advisors, or to a
financial institution to the extent that such information is necessary to secure
a loan. In the event any breach of this promise comes to the attention of the
Committee, it shall take into consideration that breach in determining whether
to recommend the grant of any future Award to that Holder, as a factor
militating against the advisability of granting any such future Award to that
individual.
7.20 Consideration. No Option shall be exercisable with respect to a
Holder unless and until the Holder shall have paid cash or property to, or
performed services for, the Corporation or any of its Subsidiaries that the
Committee believes is equal to or greater in value that the par value of the
Stock or Class B Stock, as the case may be, subject to such Award.
SECTION 8. DURATION AND AMENDMENT OF PLAN
8.1 Duration. No Awards may be granted hereunder after the date that is
ten (10) years from the earlier of (a) the date the Plan was originally adopted
by the Board of Directors and (b) the date the Plan is approved by the
stockholders of the Corporation.
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8.2 Amendment. The Board of Directors may, insofar as permitted by law,
with respect to any shares which, at the time, are not subject to Awards,
suspend, or discontinue the Plan or revise or amend it in any respect
whatsoever, and may amend any provision of the Plan or any Award Agreement to
make the Plan or the Award Agreement, or both, comply with Section 16(b) of the
Exchange Act and the exemptions from that Section in the regulations thereunder.
The Board of Directors may also amend, modify, suspend, or terminate the Plan
for the purpose of meeting or addressing any changes in other legal requirements
applicable to the Corporation or the Plan or for any other purpose permitted by
law. The Plan may not be amended without the consent of the holders of a
majority of the shares of Stock then outstanding to (a) increase materially the
aggregate number of shares of Stock that may be issued under the Plan (except
for adjustments pursuant to Section 6 of the Plan), (b) increase materially the
benefits accruing to Eligible Individuals under the Plan, or (c) modify
materially the requirements about eligibility for participation in the Plan;
provided, however, that such amendments may be made without the consent of
stockholders of the Corporation if changes occur in law or other legal
requirements (including 16b-3) that would permit otherwise.
SECTION 9. GENERAL
9.1 Application of Funds. The proceeds received by the Corporation from
the sale of shares pursuant to Awards may be used for any general corporate
purpose.
9.2 Right of the Corporation and Subsidiaries to Terminate Employment.
Nothing contained in the Plan, or in any Award Agreement, shall confer upon any
Holder the right to continue in the employ of the Corporation or any Subsidiary,
or interfere in any way with the rights of the Corporation or any Subsidiary to
terminate the Holder's employment at any time.
9.3 No Liability for Good Faith Determinations. Neither the members of
the Board of Directors nor any member of the Committee shall be liable for any
act, omission, or determination taken or made in good faith with respect to the
Plan or any Award granted under it, and members of the Board of Directors and
the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors and officers liability or similar insurance coverage that may from
time to time be in effect. This right to indemnification shall be in addition
to, and not a limitation on, any other indemnification rights any member of the
Board of Directors or the Committee may have.
9.4 Other Benefits. Participation in the Plan shall not preclude the
Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any
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old age benefit, insurance, pension, profit sharing retirement, bonus, or other
extra compensation plans that the Corporation or any Subsidiary has adopted, or
may, at any time, adopt for the benefit of its Employees. Neither the adoption
of the Plan by the Board of Directors nor the submission of the Plan to the
stockholders of the Corporation for approval shall be construed as creating any
limitations on the power of the Board of Directors to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and the awarding of stock and cash otherwise than
under the Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
9.5 Exclusion From Pension and Profit-Sharing Compensation. By
acceptance of an Award (whether in Stock or cash), as applicable, each Holder
shall be deemed to have agreed that the Award is special incentive compensation
that will not be taken into account in any manner as salary, compensation, or
bonus in determining the amount of any payment under any pension, retirement, or
other employee benefit plan of the Corporation or any Subsidiary. In addition,
each beneficiary of a deceased Holder shall be deemed to have agreed that the
Award will not affect the amount of any life insurance coverage, if any,
provided by the Corporation or a Subsidiary on the life of the Holder that is
payable to the beneficiary under any life insurance plan covering employees of
the Corporation or any Subsidiary.
9.6 Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock or Class B Stock, as the case may be, to
the Holder, or to his legal representative, heir, legatee, or distributee, in
accordance with the provisions hereof, shall, to the extent thereof, be in full
satisfaction of all claims of such persons hereunder. The Committee may require
any Holder, legal representative, heir, legatee, or distributee, as a condition
precedent to such payment, to execute a release and receipt therefor in such
form as it shall determine.
9.7 Unfunded Plan. Insofar as it provides for Awards of cash and Stock
or Class B Stock, as the case may be, the Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Holders who are entitled
to cash, Stock or Class B Stock, as the case may be, or rights thereto under the
Plan, any such accounts shall be used merely as a bookkeeping convenience. The
Corporation shall not be required to segregate any assets that may at any time
be represented by cash, Stock or Class B Stock, as the case may be, or rights
thereto, nor shall the Plan be construed as providing for such segregation, nor
shall the Corporation nor the Board of Directors nor the Committee be deemed to
be a trustee of any cash, Stock or Class B Stock, as the case may be, or rights
thereto to be granted under the Plan. Any liability of the Corporation to any
Holder with respect to a grant of cash, Stock or Class B Stock, as the case may
be, or rights thereto under the Plan shall be based solely upon any contractual
obligations that may be created by the Plan and any Award Agreement; no such
obligation of the Corporation shall be deemed to be secured by any pledge or
other
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encumbrance on any property of the Corporation. Neither the Corporation nor the
Board of Directors nor the Committee shall be required to give any security or
bond for the performance of any obligation that may be created by the Plan.
9.8 No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock or Class B Stock, as the case may be, of the
Corporation from loss or depreciation.
9.9 Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Subsidiaries; provided,
however, the Corporation or a Subsidiary may recover any and all damages, fees,
expenses, and costs arising out of any actions taken by the Corporation to
enforce its right to purchase Stock or Class B Stock, as the case may be, under
this Plan.
9.10 Corporation Records. Records of the Corporation or its
Subsidiaries regarding the Holder's period of employment, termination of
employment and the reason therefor, leaves of absence, re-employment, and other
matters shall be conclusive for all purposes hereunder, unless determined by the
Committee to be incorrect.
9.11 Information. The Corporation and its Subsidiaries shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished, all of the information or documentation which is necessary or
required by the Committee to perform its duties and functions under the Plan.
9.12 No Liability of Corporation. The Corporation assumes no obligation
or responsibility to the Holder or his legal representatives, heirs, legatees,
or distributees for any act of, or failure to act on the part of, the Committee.
9.13 Corporation Action. Any action required of the Corporation shall
be by resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.
9.14 Severability. If any provision of this Plan is held to be illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein. If any of the terms or provisions of this Plan
conflict with the requirements of Rule 16b-3 (as those terms or provisions are
applied to Eligible Individuals who are subject to Section 16(b) of the Exchange
Act) or Section 422 of the Code (with respect to Incentive Options), then those
conflicting terms or provisions shall be deemed inoperative to the extent they
so conflict with the requirements of Rule 16b-3 or Section 422 of the Code. With
respect to Incentive Options, if this Plan does not contain any
27
<PAGE> 28
provision required to be included herein under Section 422 of the Code, that
provision shall be deemed to be incorporated herein with the same force and
effect as if that provision had been set out at length herein; provided,
further, that, to the extent any Option that is intended to qualify as an
Incentive Option cannot so qualify, that Option (to that extent) shall be deemed
a Nonstatutory Option for all purposes of the Plan.
9.15 Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is personally delivered, or, whether actually
received or not, on the third Business Day after it is deposited in the United
States mail, certified or registered, postage prepaid, addressed to the person
who is to receive it at the address which such person has theretofore specified
by written notice delivered in accordance herewith. The Corporation or a Holder
may change, at any time and from time to time, by written notice to the other,
the address which it or he had previously specified for receiving notices. Until
changed in accordance herewith, the Corporation and each Holder shall specify as
its and his address for receiving notices the address set forth in the Award
Agreement pertaining to the shares to which such notice relates.
9.16 Waiver of Notice. Any person entitled to notice hereunder may
waive such notice.
9.17 Successors. The Plan shall be binding upon the Holder, his legal
representatives, heirs, legatees, and distributees, upon the Corporation, its
successors, and assigns, and upon the Committee, and its successors.
9.18 Headings. The titles and headings of Sections and Paragraphs are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
9.19 Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Delaware except to the extent Delaware law is preempted by federal law.
Questions arising with respect to the provisions of an Award Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Award Agreement, except to the extent Delaware corporate law conflicts with
the contract law of such state, in which event Delaware corporate law shall
govern. The obligation of the Corporation to sell and deliver Stock hereunder is
subject to applicable laws and to the approval of any governmental authority
required in connection with the authorization, issuance, sale, or delivery of
such Stock.
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9.20 Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
IN WITNESS WHEREOF, Thomas Group, Inc., acting by and through its
officer hereunto duly authorized, has executed this instrument, this the ___ day
of _______________, 1993.
THOMAS GROUP, INC.
By:
--------------------------------------
President
29
<PAGE> 1
EXHIBIT 10.3
THOMAS GROUP, INC.
AMENDED AND RESTATED
1992 STOCK OPTION PLAN
SCOPE AND PURPOSE OF PLAN
Thomas Group, Inc., a Delaware corporation (the "Corporation"), has
amended and restated the 1992 Stock Option Plan as set forth herein (the "Plan")
to provide for the granting of Nonstatutory Options and Incentive Stock Options
(hereafter defined) to certain Key Persons.
The purpose of the Plan is to provide an incentive for Key Persons of
the Corporation or its Subsidiaries (hereafter defined) to remain in the service
of the Corporation or its Subsidiaries, to extend to them the opportunity to
acquire a proprietary interest in the Corporation so that they will apply their
best efforts for the benefit of the Corporation, and to aid the Corporation in
attracting able persons to enter the service of the Corporation and its
Subsidiaries.
SECTION 1. DEFINITIONS
1.1 "Acquiring Person" means any Person other than the Corporation, any
of the Corporation's Subsidiaries, any employee benefit plan of the Corporation
or of a Subsidiary of the Corporation or of a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation, or any trustee or
other fiduciary holding securities under an employee benefit plan of the
Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of stock of the Corporation.
1.2 "Award" means the grant of any form of Option under the Plan,
whether granted singly, in combination, or in tandem, to a Holder pursuant to
the terms, conditions, and limitations that the Committee may establish in order
to fulfill the objectives of the Plan.
1.3 "Award Agreement" means the written agreement between the
Corporation and a Holder evidencing the terms, conditions, and limitations of
the Award granted to that Holder.
1.4 "Board of Directors" means the board of directors of the
Corporation.
1.5 "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in the State of Texas are authorized or
obligated by law or executive order to close.
1.6 "Change in Control" means the event that is deemed to have occurred
if:
(a) any Acquiring Person is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing fifty percent
or more of the combined voting power of the then outstanding Voting
Securities of the Corporation; or
(b) members of the Incumbent Board cease for any reason to
constitute at least a majority of the Board of Directors; or
(c) a public announcement is made of a tender or exchange
offer by any Acquiring Person for fifty percent or more of the
outstanding Voting Securities of the Corporation, and the Board of
Directors approves or fails to oppose that tender or exchange offer in
its statements in Schedule 14D-9 under the Exchange Act; or
(d) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation or
partnership (or, if no such approval is required, the consummation of
such a
<PAGE> 2
merger or consolidation of the Corporation), other than a merger or
consolidation that would result in the Voting Securities of the
Corporation outstanding immediately before the consummation thereof
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity or of a parent
of the surviving entity) a majority of the combined voting power of the
Voting Securities of the surviving entity (or its parent) outstanding
immediately after that merger or consolidation; or
(e) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all the
Corporation's assets (or, if no such approval is required, the
consummation of such a liquidation, sale, or disposition in one
transaction or series of related transactions) other than a
liquidation, sale, or disposition of all or substantially all the
Corporation's assets in one transaction or a series of related
transactions to a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions
as their ownership of stock of the Corporation.
1.7 "Class B Stock" means the Corporation's authorized Class B common
stock, $.01 par value per share, as described in the Corporation's Amended and
Restated Certificate of Incorporation, as amended on August 13, 1992, or any
securities which are substituted for the Class B Stock as provided in Section 7.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
1.9 "Committee" means the committee appointed pursuant to Section 3 by
the Board of Directors to administer this Plan.
1.10 "Corporation" means Thomas Group, Inc., a Delaware corporation.
1.11 "Date of Grant" has the meaning given it in Paragraph 4.3.
1.12 "Effective Date" means the closing date of the first sale of
shares of Stock to underwriters in a firm commitment underwriting pursuant to
the Registration Statement.
1.13 "Exchange Act" means the Securities Exchange Act of 1934, or any
successor law, as it may be amended from time to time.
1.14 "Exercise Notice" has the meaning given it in Paragraph 5.5.
1.15 "Exercise Price" has the meaning given it in Paragraph 5.4.
1.16 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges on any national or regional
securities exchange at the date of determining the Fair Market Value,
then the last reported sale price, regular way, on the composite tape
of that exchange on the last Business Day before the date in question
or, if no such sale takes place on that Business Day, the average of
the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to unlisted trading
privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in Subparagraph
1.16(a) and if sales prices for shares of Stock of the same class in
the over-the-counter market are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. ("NASDAQ") National
Market System (or such other system then in use) at the date of
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<PAGE> 3
determining the Fair Market Value, then the last reported sales price
so reported on the last Business Day before the date in question or, if
no such sale takes place on that Business Day, the average of the high
bid and low asked prices so reported; or
(c) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in subparagraph
1.16(a) and sales prices for shares of Stock of the same class are not
reported by the NASDAQ National Market System (or a similar system then
in use) as provided in subparagraph 1.16(b), and if bid and asked
prices for shares of Stock of the same class in the over-the-counter
market are reported by NASDAQ (or, if not so reported, by the National
Quotation Bureau Incorporated) at the date of determining the Fair
Market Value, then the average of the high bid and low asked prices on
the last Business Day before the date in question; or
(d) If shares of Stock of the same class are not listed or
admitted to unlisted trading privileges as provided in subparagraph
1.16(a) and sales prices or bid and asked prices therefor are not
reported by NASDAQ (or the National Quotation Bureau Incorporated) as
provided in subparagraph 1.16(b) or subparagraph 1.16(c) at the date of
determining the Fair Market Value, then the value determined in good
faith by the Committee, which determination shall be conclusive for all
purposes; or
(e) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges as provided in subparagraph
1.16(a) or sales prices or bid and asked prices therefor are reported
by NASDAQ (or the National Quotation Bureau Incorporated) as provided
in subparagraph 1.16(b) or subparagraph 1.16(c) at the date of
determining the Fair Market Value, but the volume of trading is so low
that the Board of Directors determines in good faith that such prices
are not indicative of the fair value of the Stock, then the value
determined in good faith by the Committee, which determination shall be
conclusive for all purposes notwithstanding the provisions of
subparagraphs 1.16(a), (b), or (c).
For purposes of the redemption provided for in subparagraph 7.3(d)(v), Fair
Market Value shall have the meaning and shall be determined as provided above;
provided, however, that the Committee, with respect to any such redemption,
shall have the right to determine that the Fair Market Value for purposes of the
redemption should be an amount measured by the value of the shares of stock,
other securities, cash, or property otherwise being received by holders of
shares of Stock in connection with the Restructure, and upon that determination
the Committee shall have the power and authority to determine Fair Market Value
for purposes of the redemption based upon the value of such shares of stock,
other securities, cash or property. Any such determination by the Committee
shall be conclusive for all purposes.
1.17 "Holder" means a Key Person to whom an Award has been granted.
1.18 "Incentive Stock Option" means an option to purchase shares of
Stock pursuant to this Plan and which is intended to qualify as an incentive
stock option under Section 422 of the Code.
1.19 "Incumbent Board" means the individuals who, as of the Effective
Date, constitute the Board of Directors and any other individual who becomes a
director of the Corporation after that date and whose election or appointment by
the Board of Directors or nomination for election by the Corporation's
stockholders was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board.
1.20 "Key Person" means any director of the Corporation or independent
contractor whom the Committee identifies as having a direct and significant
effect on the performance of the Corporation or any of its Subsidiaries.
1.21 "Nonstatutory Option" means an option to purchase shares of Stock
pursuant to this Plan and which is not intended to qualify as an incentive stock
option under Section 422 of the Code.
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1.22 "Non-Surviving Event" means an event of Restructure as described
in either subparagraph (b) or (c) of Paragraph 1.27.
1.23 "Normal Retirement" means the separation of the Holder from
employment with the Corporation and its Subsidiaries on account of retirement at
any time on or after the date on which the Holder reaches age sixty.
1.24 "Option" means a Nonstatutory Option or an Incentive Stock Option
granted pursuant to this Plan.
1.25 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a partnership, a trust or other entity. A Person, together with
that Person's affiliates and associates (as those terms are defined in Rule
12b-2 under the Exchange Act for purposes of this definition only), and any
Persons acting as a partnership, limited partnership, joint venture,
association, syndicate, or other group (whether or not formally organized), or
otherwise acting jointly or in concert or in a coordinated or consciously
parallel manner (whether or not pursuant to any express agreement), for the
purpose of acquiring, holding, voting, or disposing of securities of the
Corporation with that Person, shall be deemed a single "Person."
1.26 "Plan" means the Corporation's Amended and Restated 1992 Stock
Option Plan, as it may be amended from time to time.
1.27 "Restructure" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with the Corporation remaining the continuing or
surviving entity of that merger or consolidation and the Stock
remaining outstanding and not changed into or exchanged for stock or
other securities of any other Person or of the Corporation, cash, or
other property;
(b) The merger or consolidation of the Corporation with any
Person, whether effected as a single transaction or a series of related
transactions, with (i) the Corporation not being the continuing or
surviving entity of that merger or consolidation or (ii) the
Corporation remaining the continuing or surviving entity of that merger
or consolidation but all or a part of the outstanding shares of Stock
are changed into or exchanged for stock or other securities of any
other Person or the Corporation, cash, or other property; or
(c) The transfer, directly or indirectly, of all or
substantially all of the assets of the Corporation (whether by sale,
merger, consolidation, liquidation, or otherwise) to any Person whether
effected as a single transaction or a series of related transactions.
1.28 "Securities Act" means the Securities Act of 1933, or any
successor law, as it may be amended from time to time.
1.29 "Stock" means the Corporation's authorized common stock, $.01 par
value per share, as described in the Corporation's Amended and Restated
Certificate of Incorporation as it shall have been amended on August 13, 1993,
or any other securities that are substituted for the Stock as provided in
Section 7.
1.30 "Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by that Person.
1.31 "Total Shares" has the meaning given it in Paragraph 7.2.
1.30 "Voting Securities" means any securities that are entitled to vote
generally in the election of directors, in the admission of general partners, or
in the selection of any other similar governing body.
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SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 Maximum Amount of Shares. Subject to the provisions of Paragraph
2.6 and Section 7 of the Plan, the aggregate number of shares of Stock that may
be issued, transferred, or exercised pursuant to Awards under the Plan shall be
1,100,000, unless amended by the Board of Directors, and the aggregate number of
shares of Class B Stock that may be issued, transferred or exercised pursuant to
Awards under the Plan shall be 600,000, unless amended by the Board of
Directors.
2.2 Reduction in Available Shares. In computing the total number of
shares available at a particular time for Awards under the Plan, there shall be
counted against the limitations stated in Paragraph 2.1 the number of shares of
Stock or Class B Stock, as the case may be, subject to issuance upon exercise or
settlement of Awards and the number of shares of Stock or Class B Stock, as the
case may be, that have been issued upon exercise or settlement of Awards (except
as otherwise provided in Paragraph 2.3).
2.3 Restoration of Unused and Surrendered Shares. If Stock or Class B
Stock, as the case may be, subject to any Award is not issued or transferred, or
ceases to be issuable or transferable for any reason, including (but not
exclusively) because an Award is forfeited, terminated, expires unexercised, or
is exchanged for other Awards, the shares of Stock or Class B Stock, as the case
may be, that were subject to that Award shall no longer be charged against the
number of available shares provided for in Paragraph 2.2 and shall again be
available for issue, transfer, or exercise pursuant to Awards under the Plan to
the extent of such forfeiture, termination, expiration, or other cessation of
its subjection to an Award.
2.4 Description of Shares. The shares to be delivered under the Plan
shall be made available from (a) authorized but unissued shares of Stock or
Class B Stock, as the case may be, (b) Stock or Class B Stock, as the case may
be, held in the treasury of the Corporation, or (c) previously issued shares of
Stock or Class B Stock, as the case may be, reacquired by the Corporation,
including shares purchased on the open market, in each situation as the Board of
Directors or the Committee may determine from time to time at its sole option.
2.5 Registration and Listing of Shares. From time to time, the Board of
Directors and appropriate officers of the Corporation shall and are authorized
to take whatever actions are necessary to file required documents with
governmental authorities, stock exchanges, and other appropriate Persons to make
shares of Stock or Class B Stock, as the case may be, available for issuance
pursuant to Awards.
2.6 Reduction in Outstanding Shares of Stock or Class B Stock. Nothing
in this Section 2 shall impair the right of the Corporation to reduce the number
of outstanding shares of Stock or Class B Stock, as the case may be, pursuant to
repurchases, redemptions, or otherwise; provided, however, that no reduction in
the number of outstanding shares of Stock or Class B Stock, as the case may be,
shall (a) impair the validity of any outstanding Award, whether or not that
Award is fully exercisable or fully vested or (b) impair the status of any
shares of Stock or Class B Stock, as the case may be, previously issued pursuant
to an Award or thereafter issued pursuant to a then-outstanding Award as duly
authorized, validly issued, fully paid, and nonassessable shares.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 Committee. The Board of Directors or the Committee shall administer
the Plan. The number of persons that shall constitute the Committee shall be
determined from time to time by a majority of all the members of the Board of
Directors, and, unless that majority of the Board of Directors determines
otherwise, shall be no less than two persons.
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3.2 Duration, Removal, Etc. The members of the Committee shall serve at
the pleasure of the Board of Directors, which shall have the power, at any time
and from time to time, to remove members from or add members to the Committee.
Removal from the Committee may be with or without cause. Any individual serving
as a member of the Committee shall have the right to resign from membership in
the Committee by at least three day's written notice to the Board of Directors.
The Board of Directors, and not the remaining members of the Committee, shall
have the power and authority to fill vacancies on the Committee, however caused.
The Board of Directors shall promptly fill any vacancy.
3.3 Meetings and Actions of Committee. The Board of Directors shall
designate which of the Committee members shall be the chairman of the Committee.
If the Board of Directors fails to designate a Committee chairman, the members
of the Committee shall elect one of the Committee members as chairman, who shall
act as chairman until he ceases to be a member of the Committee or until the
Board of Directors elects a new chairman. The Committee shall hold its meetings
at those times and places as the chairman of the Committee may determine. At all
meetings of the Committee, a quorum for the transaction of business shall be
required, and a quorum shall be deemed present if at least a majority of the
members of the Committee are present. At any meeting of the Committee, each
member shall have one vote. All decisions and determinations of the Committee
shall be made by the majority vote or majority decision of all of its members
present at a meeting at which a quorum is present; provided, however, that any
decision or determination reduced to writing and signed by all of the members of
the Committee shall be as fully effective as if it had been made at a meeting
that was duly called and held. The Committee may make any rules and regulations
for the conduct of its business that are not inconsistent with the provisions of
the Plan, the Restated Certificate of Incorporation, and the by-laws of the
Corporation, as the Committee may deem advisable.
3.4 Committee's Powers. Subject to the express provisions of the Plan,
the Committee shall have the authority, in its sole and absolute discretion, (a)
to adopt, amend, and rescind administrative and interpretive rules and
regulations relating to the Plan; (b) to determine the Key Persons to whom, and
the time or times at which, Awards shall be granted; (c) to determine the number
of shares of Stock or Class B Stock, as the case may be, that shall be the
subject of each Award; (d) to determine the terms and provisions of each Award
Agreement (which need not be identical), including provisions defining or
otherwise relating to (i) the term and the period or periods and extent of
exercisability of the Options, (ii) the extent to which the transferability of
shares of Stock or Class B Stock, as the case may be, issued or transferred
pursuant to any Award is restricted, (iii) the effect of termination of
employment on the Award, and (iv) the effect of approved leaves of absence
(consistent with any applicable regulations of the Internal Revenue Service);
(e) to accelerate, pursuant to Section 7, the time of exercisability of any
Option that has been granted; (f) to construe the respective Award Agreements
and the Plan; (g) to make determinations of the Fair Market Value of Stock or
Class B Stock, as the case may be, pursuant to the Plan; (h) to delegate its
duties under the Plan to such agents as it may appoint from time to time; and
(i) to make all other determinations, perform all other acts, and exercise all
other powers and authority necessary or advisable for administering the Plan,
including the delegation of those ministerial acts and responsibilities as the
Committee deems appropriate. The Committee may correct any defect, supply any
omission, or reconcile any inconsistency in the Plan, in any Award, or in any
Award Agreement in the manner and to the extent it deems necessary or desirable
to carry the Plan into effect, and the Committee shall be the sole and final
judge of that necessity or desirability. The determinations of the Committee on
the matters referred to in this Paragraph 3.4 shall be final and conclusive.
SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Key Persons. Awards may be granted pursuant to the Plan only to
persons who are Key Persons at the time of the grant thereof. Only employees of
Corporation or any of its Subsidiaries, including employee-directors, shall be
eligible to receive grants of Incentive Stock Options.
4.2 Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine which Key Persons shall be granted Awards from time to
time. In making grants, the Committee shall take into consideration
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the contribution the potential Holder has made or may make to the success of the
Corporation or its Subsidiaries and such other considerations as the Board of
Directors may from time to time specify. The Committee shall also determine the
number of shares subject to each of the Awards and shall authorize and cause the
Corporation to grant Awards in accordance with those determinations.
4.3 Date of Grant. The date on which the Committee completes all action
resolving to offer an Award to an individual, including the specification of the
number of shares of Stock to be subject to the Award, shall be the date on which
the Award covered by an Award Agreement is granted (the "Date of Grant"), even
though certain terms of the Award Agreement may not be determined at that time
and even though the Award Agreement may not be executed until a later time. In
no event shall a Holder gain any rights in addition to those specified by the
Committee in its grant, regardless of the time that may pass between the grant
of the Award and the actual execution of the Award Agreement by the Corporation
and the Holder.
4.4 Award Agreements. Each Award granted under the Plan shall be
evidenced by an Award Agreement that is executed by the Corporation and the Key
Person to whom the Award is granted and incorporating those terms that the
Committee shall deem necessary or desirable. In the case of an Incentive Stock
Option, the Award Agreement shall also include provisions that may be necessary
to assure that the option is an incentive stock option under Section 422 of the
Code. More than one Award may be granted under the Plan to the same Key Person
and be outstanding concurrently.
4.5 No Right to Award. The adoption of the Plan shall not be deemed to
give any person a right to be granted an Award.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
All Options granted under the Plan shall comply with, and the related
Award Agreements shall be deemed to include and be subject to, the terms and
conditions set forth in this Section 5 (to the extent each term and condition
applies to the form of Option) and also to the terms and conditions set forth in
Section 7 and Section 8; provided, however, that the Committee may authorize an
Award Agreement that expressly contains terms and provisions that differ from
the terms and provisions set forth in Paragraphs 7.2, 7.3, and 7.4 and any of
the terms and provisions of Section 8 (other than Paragraph 8.6).
5.1 Number of Shares. Each Award Agreement shall state the total number
of shares of Stock or Class B Stock, as the case may be, to which it relates.
5.2 Vesting. Each Award Agreement shall state the time or periods in
which or the conditions upon, satisfaction of which the right to exercise the
Option or a portion thereof shall vest and the number of shares of Stock or
Class B Stock, as the case may be, for which the right to exercise the Option
shall vest at each such time, period, or fulfillment of condition.
5.3 Expiration of Options. Options may be exercised during the term
determined by the Committee and set forth in the Award Agreement; provided that
no Option shall be exercised after the expiration of a period of ten years
commencing on the Date of Grant of the Option.
5.4 Exercise Price. Each Award Agreement shall state the exercise price
per share of Stock (the "Exercise Price"). The exercise price per share of Stock
subject to a Nonstatutory Option shall not be less than the par value per share
of the Stock. The exercise price for an Incentive Stock Option shall be an
amount not less than the Fair Market Value per share of the Stock on the Date of
Grant.
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5.5 Method of Exercise. The Option shall be exercisable only by written
notice of exercise (the "Exercise Notice") delivered to the Corporation during
the term of the Option, which notice shall (a) state the number of shares of
Stock or Class B Stock, as the case may be, with respect to which the Option is
being exercised, (b) be signed by the Holder of the Option or, if the Holder is
dead or disabled, by the person authorized to exercise the Option pursuant to
Paragraphs 8.2, (c) be accompanied by the Exercise Price for all shares of Stock
or Class B Stock, as the case may be, for which the Option is exercised, and (d)
include such other information, instruments, and documents as may be required to
satisfy any other condition to exercise contained in the Award Agreement. The
Option shall not be deemed to have been exercised unless all of the requirements
of the preceding provisions of this Paragraph 5.5 have been satisfied.
5.6 Medium and Time of Payment. The Exercise Price of an Option shall
be payable in full upon the exercise of the Option (a) in cash or by an
equivalent means acceptable to the Committee, (b) on the Committee's prior
consent, with shares of Stock or Class B Stock, as the case may be, owned by the
Holder (including shares received upon exercise of the Option or restricted
shares already held by the Holder) and having a Fair Market Value at least equal
to the aggregate Exercise Price payable in connection with such exercise, or (c)
by any combination of clauses (a) and (b). If the Committee elects to accept
shares of Stock or Class B Stock, as the case may be, in payment of all or any
portion of the Exercise Price, then (for purposes of payment of the Exercise
Price) those shares of Stock or Class B Stock, as the case may be, shall be
deemed to have a cash value equal to their aggregate Fair Market Value
determined as of the date of the delivery of the Exercise Notice. If the
Committee elects to accept shares of restricted Stock or Class B Stock, as the
case may be, in payment of all or any portion of the Exercise Price, then an
equal number of shares issued pursuant to the exercise shall be restricted on
the same terms and for the restriction period remaining on the shares used for
payment.
5.7 Payment with Sale Proceeds. In addition, at the request of the
Holder and to the extent permitted by applicable law, the Committee may (but
shall not be required to) approve arrangements with a brokerage firm under which
that brokerage firm, on behalf of the Holder, shall pay to the Corporation the
Exercise Price of the Option being exercised, and the Corporation shall promptly
deliver the exercised shares to the brokerage firm. To accomplish this
transaction, the Holder must deliver to the Corporation an Exercise Notice
containing irrevocable instructions from the Holder to the Corporation to
deliver the stock certificates directly to the broker. Upon receiving a copy of
the Exercise Notice acknowledged by the Corporation, the broker shall sell that
number of shares of Stock or loan the Holder an amount sufficient to pay the
Exercise Price and any withholding obligations due. The broker shall then
deliver to the Corporation that portion of the sale or loan proceeds necessary
to cover the Exercise Price and any withholding obligations due.
5.8 Payment of Taxes. The Committee may, in its discretion, require a
Holder to pay to the Corporation (or the Corporation's Subsidiary if the Holder
is an employee of a Subsidiary of the Corporation), at the time of the exercise
of an Option, the amount that the Committee deems necessary to satisfy the
Corporation's or its Subsidiary's current or future obligation to withhold
federal, state, or local income or other taxes that the Holder incurs by
exercising an Option. Upon the exercise of an Option requiring tax withholding,
a Holder may (a) direct the Corporation to withhold from the shares of Stock or
Class B Stock, as the case may be, to be issued to the Holder the number of
shares necessary to satisfy the Corporation's obligation to withhold taxes, that
determination to be based on the shares' Fair Market Value as of the date on
which tax withholding is to be made; (b) deliver to the Corporation sufficient
shares of Stock or Class B Stock, as the case may be, (based upon the Fair
Market Value at date of withholding) to satisfy the Corporation's tax
withholding obligations, based on the shares' Fair Market Value as of the date
of exercise; or (c) deliver sufficient cash to the Corporation to satisfy its
tax withholding obligations. Holders who elect to use such a stock withholding
feature must make the election at the time and in the manner that the Committee
prescribes. The Committee may, at its sole option, deny any Holder's request to
satisfy withholding obligations through Stock or Class B Stock, as the case may
be, instead of cash. In the event the Committee subsequently determines that the
aggregate Fair Market Value (as determined above) of any shares of Stock or
Class B Stock, as the case may be, withheld as
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<PAGE> 9
payment of any tax withholding obligation is insufficient to discharge that tax
withholding obligation, then the Holder shall pay to the Corporation,
immediately upon the Committee's request, the amount of that deficiency.
5.9 No Fractional Shares. The Corporation shall not in any case be
required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock or Class B
Stock, as the case may be, the Corporation shall pay to the Holder an amount in
cash equal to the same fraction (as the fractional Stock or Class B Stock, as
the case may be) of the Fair Market Value of a share of Stock or Class B Stock,
as the case may be, determined as of the date of the applicable Exercise Notice.
5.10 Modification, Extension, and Renewal of Options. Subject to the
terms and conditions of and within the limitations of the Plan, and any consent
required by the last sentence of this Paragraph 5.10, the Committee may (a)
modify, extend, or renew outstanding Options granted under the Plan and (b)
accept the surrender of Options outstanding hereunder (to the extent not
previously exercised) and authorize the granting of new Options in substitution
for outstanding Options (to the extent not previously exercised). Nevertheless,
without the consent of the Holder, the Committee may not modify any outstanding
Options so as to specify a higher or lower Exercise Price. In addition, no
modification of an Option granted hereunder shall, without the consent of the
Holder, alter or impair any rights or obligations under any Option theretofore
granted hereunder to such Holder under the Plan.
5.11 Other Agreement Provisions. The Award Agreements authorized under
the Plan shall contain such provisions in addition to those required by the Plan
(including, without limitation, restrictions or the removal of restrictions upon
the exercise of the Option and the retention or transfer of shares thereby
acquired) as the Committee may deem advisable.
SECTION 6. LIMITATIONS OF INCENTIVE STOCK OPTIONS
Notwithstanding anything to the contrary, the following provisions of
this Section 6 shall apply to all Incentive Stock Options granted under this
Plan.
6.1 Stock Ownership Limitation. In the case of an Incentive Stock
Option, the Award Agreement shall include provisions that may be necessary to
assure that the option is an incentive stock option under the Code. No Incentive
Stock Option may be granted to an employee who owns more than 10% of the total
combined voting powers of all classes of stock of the Corporation or its
Subsidiaries. This limitation will not apply if the option price is at least
110% of the fair market value of the Stock on the Date of Grant and the
Incentive Stock Option is not exercisable more than five years from the Date of
Grant.
6.2 Option Period. Notwithstanding the provisions of Section 5.3
hereof, if a Key Person owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10% of the combined voting power
of all classes of stock of the Corporation (or any subsidiary of the
Corporation) and an Incentive Stock Option is granted to such employee, the term
of such Incentive Stock Option (to the extent required by the Code at the time
of grant) shall be no more than five years from the Date of Grant.
6.3 Limitation on Exercise of Incentive Stock Options. To the extent
required by the Code for incentive stock options, the exercise of Incentive
Stock Options granted under the Plan shall be subject to the $100,000 calendar
year limit as set forth in Section 422(d) of the Code.
6.4 Disqualifying Disposition. If Stock acquired upon exercise of an
Incentive Stock Option is disposed of by a Holder prior to the expiration of
either two years from the Date of Grant of such option or one year from the
transfer of shares to the Holder pursuant to the exercise of such option, or in
any other disqualifying disposition within the meaning of Section 422 of the
Code, such Holder shall notify the Corporation in writing of the date and terms
of
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such disposition. A disqualifying disposition by a Holder shall not affect the
status of any other option granted under the Plan as an incentive stock option
within the meaning of Section 422 of the Code.
SECTION 7. ADJUSTMENT PROVISIONS
7.1 Adjustment of Awards and Authorized Stock or Class B Stock. The
terms of an Award and the number of shares of Stock or Class B Stock, as the
case may be, authorized pursuant to Paragraph 2.1 for issuance under the Plan
shall be subject to adjustment, from time to time, in accordance with the
following provisions:
(a) If at any time or from time to time, the Corporation shall
subdivide as a whole (by reclassification, by a split of Stock or Class
B Stock, as the case may be, by the issuance of a distribution on Stock
or Class B Stock, as the case may be, payable in Stock or Class B
Stock, as the case may be, or otherwise) the number of shares of Stock
or Class B Stock, as the case may be, then outstanding into a greater
number of shares of Stock or Class B Stock, as the case may be, then
(i) the maximum number of shares of Stock or Class B Stock, as the case
may be, available for the Plan as provided in Paragraph 2.1 shall be
increased proportionately, and the kind of shares or other securities
available for the Plan shall be appropriately adjusted, (ii) the number
of shares of Stock or Class B Stock, as the case may be, (or other kind
of shares or securities) that may be acquired under any Award shall be
increased proportionately, and (iii) the price (including Exercise
Price) for each share of Stock or Class B Stock, as the case may be,
(or other kind of shares or unit of other securities) subject to then
outstanding Awards shall be reduced proportionately, without changing
the aggregate purchase price or value as to which outstanding Awards
remain exercisable or subject to restrictions.
(b) If at any time or from time to time, the Corporation shall
consolidate as a whole (by reclassification, reverse split of Stock or
Class B Stock, as the case may be, or otherwise) the number of shares
of Stock or Class B Stock, as the case may be, then outstanding into a
lesser number of shares of Stock or Class B Stock, as the case may be,
(i) the maximum number of shares of Stock or Class B Stock, as the case
may be, available for the Plan as provided in Paragraph 2.1 shall be
decreased proportionately, and the kind of shares or other securities
available for the Plan shall be appropriately adjusted, (ii) the number
of shares of Stock or Class B Stock, as the case may be (or other kind
of shares or securities), that may be acquired under any Award shall be
decreased proportionately, and (iii) the price (including Exercise
Price) for each share of Stock or Class B Stock, as the case may be (or
other kind of shares or unit of other securities), subject to then
outstanding Awards shall be increased proportionately, without changing
the aggregate purchase price or value as to which outstanding Awards
remain exercisable or subject to restrictions.
(c) Whenever the number of shares of Stock or Class B Stock,
as the case may be, subject to outstanding Awards and the price for
each share of Stock or Class B Stock, as the case may be, subject to
outstanding Awards are required to be adjusted as provided in this
Paragraph 7.1, the Committee shall promptly prepare a notice setting
forth, in reasonable detail, the event requiring adjustment, the amount
of the adjustment, the method by which such adjustment was calculated,
and the change in price and the number of shares of Stock or Class B
Stock, as the case may be, other securities, cash, or property
purchasable subject to each Award after giving effect to the
adjustments.
The Committee shall promptly give each Holder such a notice.
(d) Adjustments under subparagraphs 7.1(a) and (b) shall be
made by the Committee, and its determination as to what adjustments
shall be made and the extent thereof shall be final, binding, and
conclusive. No fractional interest shall be issued under the Plan on
account of any such adjustments.
7.2 Changes in Control. Any Award Agreement may provide that, upon the
occurrence of a Change in Control, all outstanding Options shall immediately
become fully vested and exercisable in full, including that portion of any
Option that pursuant to the terms and provisions of the applicable Award
Agreement had not yet become
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exercisable (the total number of shares of Stock or Class B Stock, as the case
may be, as to which an Option is exercisable upon the occurrence of a Change in
Control is referred to herein as the "Total Shares"). If a Change in Control
involves a Restructure or occurs in connection with a series of related
transactions involving a Restructure and if such Restructure is in the form of a
Non-Surviving Event and as a part of such Restructure shares of stock, other
securities, cash, or property shall be issuable or deliverable in exchange for
Stock or Class B Stock, as the case may be, then the Holder of an Award shall be
entitled to purchase (in lieu of the Total Shares that the Holder would
otherwise be entitled to purchase) the number of shares of stock, other
securities, cash, or property to which that number of Total Shares would have
been entitled in connection with such Restructure (and at an aggregate exercise
price equal to the Exercise Price that would have been payable if that number of
Total Shares had been purchased on the exercise of the Option immediately before
the consummation of the Restructure). Nothing in this Paragraph 7.2 shall impose
on a Holder the obligation to exercise any Award immediately before or upon the
Change of Control, nor shall the Holder forfeit the right to exercise the Award
during the remainder of the original term of the Award because of a Change in
Control or because the Holder's employment is terminated for any reason
following a Change in Control.
7.3 Restructure and No Change in Control. In the event a Restructure
should occur at any time while there is any outstanding Award hereunder and that
Restructure does not occur in connection with a Change in Control or in
connection with a series of related transactions involving a Change in Control,
then:
(a) no outstanding Option shall immediately become fully
vested and exercisable in full merely because of the occurrence of the
Restructure; and
(b) at the option of the Committee, the Corporation may (but
shall not be required to) take any one or more of the following
actions:
(i) accelerate in whole or in part the time of the
vesting and exercisability of any one or more of the
outstanding Options so as to provide that those Options shall
be exercisable before, upon, or after the consummation of the
Restructure;
(ii) if the Restructure is in the form of a
Non-Surviving Event, cause the surviving entity to assume in
whole or in part any one or more of the outstanding Awards
upon such terms and provisions as the Committee deems
desirable; or
(iii) redeem in whole or in part any one or more of
the outstanding Awards (whether or not then exercisable) in
consideration of a cash payment, as such payment may be
reduced for tax withholding obligations as contemplated in
Paragraph 5.8 in an amount equal to the excess of (1) the Fair
Market Value, determined as of a date immediately preceding
the consummation of the Restructure, of the aggregate number
of shares of Stock or Class B Stock, as the case may be,
subject to the Award and as to which the Award is being
redeemed over (2) the Exercise Price for that number of shares
of Stock or Class B Stock, as the case may be;
The Corporation shall promptly notify each Holder of any election or action
taken by the Corporation under this Paragraph 7.3. In the event of any election
or action taken by the Corporation pursuant to this Paragraph 7.3 that requires
the amendment or cancellation of any Award Agreement as may be specified in any
notice to the Holder thereof, that Holder shall promptly deliver that Award
Agreement to the Corporation in order for that amendment or cancellation to be
implemented by the Corporation and the Committee. The failure of the Holder to
deliver any such Award Agreement to the Corporation as provided in the preceding
sentence shall not in any manner effect the validity or enforceability of any
action taken by the Corporation and the Committee under this Paragraph 7.3,
including, without limitation, any redemption of an Award as of the consummation
of a Restructure. Any cash payment to be made by the Corporation pursuant to
this Paragraph 7.3 in connection with the redemption of any outstanding Awards
shall be paid to the Holder thereof currently with the delivery to the
Corporation of the Award Agreement evidencing that Award;
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provided, however, that any such redemption shall be effective upon the
consummation of the Restructure notwithstanding that the payment of the
redemption price may occur subsequent to the consummation. If all or any portion
of an outstanding Award is to be exercised or accelerated to upon or after the
consummation of a Restructure that is in the form of a Non-Surviving Event and
as a part of that Restructure shares of stock, other securities, cash, or
property shall be issuable or deliverable in exchange for Stock or Class B
Stock, as the case may be, then the Holder of the Award shall thereafter be
entitled to purchase (in lieu of the number of shares of Stock or Class B Stock,
as the case may be, that the Holder would otherwise be entitled to purchase) the
number of shares of stock, other securities, cash, or property to which such
number of shares of Stock or Class B Stock, as the case may be, would have been
entitled in connection with the Restructure (and, for Options, at an aggregate
exercise price equal to the Exercise Price that would have been payable if that
number of Total Shares had been purchased on the exercise of the Option
immediately before the consummation of the Restructure).
7.4 Notice of Change in Control or Restructure. The Corporation shall
attempt to keep all Holders informed with respect to any Change in Control or
Restructure or of any potential Change in Control or Restructure to the same
extent that the Corporation's stockholders are informed by the Corporation of
any such event or potential event.
SECTION 8. ADDITIONAL PROVISIONS
8.1 Loss of Eligibility. If a Holder is a key person because the Holder is
serving in a capacity other than as a director and if that capacity is
terminated for any reason other than the Holder's death, retirement, or
disability, then any and all Awards held by the Holder as of the date of the
termination that were granted because of that capacity shall be exercisable by
that Holder for a period of the lesser of (a) the remainder of the term of the
Award or (b) 210 days following the date of the Holder's termination. Despite a
Holder's termination, each Option that is scheduled to vest during the period
specified in (a) or (b) in the preceding sentence, as applicable, shall vest;
however, each such Option shall expire at the same time that all other Awards
expire pursuant to (a) or (b) in the preceding sentence, as applicable. Any
portion of an Award not exercised upon the expiration of the periods specified
in (a) or (b) shall be null and void. However, in the event the termination of
the Holder is for dishonesty or other acts detrimental to the interests of the
Corporation or its subsidiaries, or if after termination, the Holder commits
acts that are detrimental to the interests of the Corporation as determined by
its Stock Option Committee, all Awards held by such Holder shall become null and
void at and after the time such determination is made.
8.2 Other Loss of Eligibility. If a Holder is an Eligible Individual
because the Holder is serving in a capacity other than as an employee and if
that capacity is terminated for any reason other than the Holder's death, then
any and all Awards held by the Holder that were granted because of that capacity
as of the date of the termination shall become null and void as of the date of
the termination.
8.3 Death. Upon the death of a Holder, then any and all Awards held by the
Holder that are not yet exercisable as of the date of the Holder's death shall
become null and void as of the date of death; provided, however, that the
portion, if any, of any and all Awards held by the Holder that are exercisable
as of the date of death shall be exercisable by that Holder's legal
representatives, legatees or distributees for a period of the lesser of (a) the
remainder of the term of the Award or (b) 210 days following the date of the
Holder's death. Any portion of an Award not exercised upon the expiration of the
periods specified in (a) or (b) shall be null and void. Except as expressly
provided in this Paragraph 8.3, no Award held by a Holder shall be exercisable
after the death of that Holder.
8.4 Retirement. If a Holder is an Eligible Individual because the Holder
is an employee and if that employment relationship is terminated by reason of
the Holder's Normal Retirement, then the portion, if any, of any and all Awards
held by the Holder that are not yet exercisable as of the date of that
retirement shall become null and void as of the date of retirement; provided,
however, that the portion, if any, of any and all Awards held by the Holder that
are exercisable as of the date of that retirement shall be exercisable for a
period of the lesser of (a) the remainder of the term of the Award or (b) 90
days following the date of retirement.
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8.5 Disability. If a Holder is an Eligible Individual because the Holder
is an Employee and if that employment relationship is terminated by reason of
the Holder's Disability, then the portion, if any, of any and all Awards held by
the Holder that are not yet exercisable as of the date of that termination for
Disability shall become null and void as of the date of termination; provided,
however, that the portion, if any, of any and all Awards held by the Holder that
are exercisable as of the date of that termination shall survive the termination
for the lesser of (a) the original term of the Award and (b) 210 days following
the date of termination, and the Award shall be exercisable by the Holder, his
guardian, or his legal representative. "Disability" shall have the meaning given
it in the employment agreement of the Holder; provided, however, that if that
Holder has no employment agreement, "Disability" shall mean a physical or mental
impairment of sufficient severity that, in the opinion of the Corporation,
either the Holder is unable to continue performing the duties he performed
before such impairment or the Holder's condition entitles him to disability
benefits under any insurance or employee benefit plan of the Corporation or its
Subsidiaries and that impairment or condition is cited by the Corporation as the
reason for termination of the Holder's employment.
8.6 Leave of Absence. With respect to an Award, the Committee may, in its
sole discretion, determine that any Holder who is on leave of absence for any
reason will be considered to still be in the employ of the Corporation, provided
that rights to that Award during a leave of absence will be limited to the
extent to which those rights were earned or vested when the leave of absence
began.
8.7 Transferability of Awards. In addition to such other terms and
conditions as may be included in a particular Award Agreement, an Award
requiring exercise shall be exercisable during a Holder's lifetime only by that
Holder or by that Holder's guardian or legal representative. An Award requiring
exercise shall not be transferable other than by will or the laws of descent and
distribution.
8.8 Forfeiture and Restrictions on Transfer. Each Award Agreement may
contain or otherwise provide for conditions giving rise to the forfeiture of the
Stock or Class B Stock, as the case may be, acquired pursuant to an Award or
otherwise and may also provide for those restrictions on the transferability of
shares of the Stock or Class B Stock, as the case may be, acquired pursuant to
an Award or otherwise that the Committee in its sole and absolute discretion may
deem proper or advisable. The conditions giving rise to forfeiture may include,
but need not be limited to, the requirement that the Holder render substantial
services to the Corporation or its Subsidiaries for a specified period of time.
The restrictions on transferability may include, but need not be limited to,
options and rights of first refusal in favor of the Corporation and stockholders
of the Corporation other than the Holder of such shares of Stock or Class B
Stock, as the case may be, who is a party to the particular Award Agreement or a
subsequent holder of the shares of Stock or Class B Stock, as the case may be,
who is bound by that Award Agreement.
8.9 Delivery of Certificates of Stock. Subject to Paragraph 8.10, the
Corporation shall promptly issue and deliver a certificate representing the
number of shares of Stock or Class B Stock, as the case may be, as to which an
Option has been exercised after the Corporation receives an Exercise Notice and
upon receipt by the Corporation of the Exercise Price and any tax withholding as
may be requested. The value of the shares of Stock or Class B Stock, as the case
may be, transferable because of an Award under the Plan shall not bear any
interest owing to the passage of time, except as may be otherwise provided in an
Award Agreement. If a Holder is entitled to receive certificates representing
Stock or Class B Stock, as the case may be, received for more than one form of
Award under the Plan, separate certificates of Stock or Class B Stock, as the
case may be, shall be issued with respect to Incentive Options and Nonstatutory
Stock Options separately.
8.10 Conditions to Delivery of Stock. Nothing herein or in any Award
granted hereunder or any Award Agreement shall require the Corporation to issue
any shares with respect to any Award if that issuance would, in the opinion of
counsel for the Corporation, constitute a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable statute or
regulation, or the rules of any applicable securities exchange or securities
association, as then in effect. At the time of any exercise of an Option, the
Corporation may, as a condition precedent
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to the exercise of such Option, require from the Holder of the Award (or in the
event of his death, his legal representatives, heirs, legatees, or distributees)
such written representations, if any, concerning the Holder's intentions with
regard to the retention or disposition of the shares of Stock or Class B Stock,
as the case may be, being acquired pursuant to the Award and such written
covenants and agreements, if any, as to the manner of disposal of such shares
as, in the opinion of counsel to the Corporation, may be necessary to ensure
that any disposition by that Holder (or in the event of the Holder's death, his
legal representatives, heirs, legatees, or distributees), will not involve a
violation of the Securities Act or any similar or superseding statute or
statutes, any other applicable state or federal statute or regulation, or any
rule of any applicable securities exchange or securities association, as then in
effect.
8.11 Certain Directors and Officers. With respect to Holders who are
directors or officers of the Corporation or any Subsidiary and who are subject
to Section 16(b) of the Exchange Act, and if Rule 16b-3 requires the following
conditions at the time of the Award, Awards and all rights under the Plan,
contingent or otherwise, shall be exercisable during the Holder's lifetime only
by the Holder or the Holder's guardian or legal representative, but not for at
least six months after grant, unless death or Disability of the Holder occurs
before the expiration of the six-month period. In addition, no such officer or
director shall use shares to pay tax withholding obligations within the first
six months of the term of the Award. Any election by any such officer or
director to have tax withholding obligations satisfied by the withholding of
shares of Stock or Class B Stock, as the case may be, shall be irrevocable and
shall be communicated to the Committee during the period beginning on the third
day following the date of release of quarterly or annual summary statements of
sales and earnings and ending on the twelfth business day following such date
(the "Window Period") or by an irrevocable election communicated to the
Committee at least six months before the date of exercise of the Award for which
such withholding is desired.
8.12 Securities Act Legend. Certificates for shares of Stock or Class B
Stock, as the case may be, when issued, may have the following legend, or
statements of other applicable restrictions, endorsed thereon, and may not be
immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES
EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT
SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Stock or Class B Stock, as the
case may be, issued pursuant to an effective registration statement under the
Securities Act.
8.13 Legend for Restrictions on Transfer. Each certificate representing
shares issued to a Holder pursuant to an Award granted under the Plan shall, if
such shares are subject to any transfer restriction, including a right of first
refusal, provided for under this Plan or an Award Agreement, bear a legend that
complies with applicable law with respect to the restrictions on transferability
contained in this Paragraph 8.13, such as:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT
ENTITLED "THOMAS GROUP, INC. 1992 STOCK OPTION PLAN" AS ADOPTED BY THOMAS
GROUP, INC. (THE "CORPORATION") ON MARCH 16, 1992 AS AMENDED, AND AN
AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND [HOLDER] DATED , 199 ,
AND MAY NOT BE TRANSFERRED, SOLD, OR OTHERWISE DISPOSED OF EXCEPT AS
THEREIN PROVIDED. THE CORPORATION WILL FURNISH A COPY OF SUCH INSTRUMENT
AND AGREEMENT TO THE RECORD HOLDER OF THIS
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<PAGE> 15
CERTIFICATE WITHOUT CHARGE ON REQUEST TO THE CORPORATION AT ITS PRINCIPAL
PLACE OF BUSINESS OR REGISTERED OFFICE.
8.14 Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares covered by his Award until a certificate
representing those shares is issued in his name. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is before the date that
certificate is issued, except as contemplated by Section 7. Nevertheless,
dividends and dividend equivalent rights may be extended to and made part of any
Award denominated in Stock or Class B Stock, as the case may be, or units of
Stock or Class B Stock, as the case may be, subject to such terms, conditions,
and restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents for deferred payment denominated in Stock or
Class B Stock, as the case may be, or units of Stock or Class B Stock, as the
case may be.
8.15 Furnish Information. Each Holder shall furnish to the Corporation all
information requested by the Corporation to enable it to comply with any
reporting or other requirement imposed upon the Corporation by or under any
applicable statute or regulation.
8.16 Obligation to Exercise. The granting of an Award hereunder shall
impose no obligation upon the Holder to exercise the same or any part thereof.
8.17 Adjustments to Awards. Subject to the general limitations set forth
in Sections 5 and 7, the Committee may make any adjustment in the exercise price
of, the number of shares subject to or the terms of an Option by cancelling an
outstanding Option and regranting an Option. Such adjustment shall be made by
amending, substituting, or regranting an outstanding Option. Such amendment,
substitution, or regrant may result in terms and conditions that differ from the
terms and conditions of the original Option. The Committee may not, however,
impair the rights of any Holder to previously granted Options without that
Holder's consent. If such action is effected by amendment, the effective date of
such amendment shall be the date of the original grant.
8.18 Remedies. The Corporation shall be entitled to recover from a Holder
reasonable attorneys' fees incurred in connection with the enforcement of the
terms and provisions of the Plan and any Award Agreement whether by an action to
enforce specific performance or for damages for its breach or otherwise.
8.19 Information Confidential. As partial consideration for the granting
of each Award hereunder, the Holder shall agree with the Corporation that he
will keep confidential all information and knowledge that he has relating to the
manner and amount of his participation in the Plan; provided, however, that such
information may be disclosed as required by law and may be given in confidence
to the Holder's spouse, tax and financial advisors, or to a financial
institution to the extent that such information is necessary to secure a loan.
In the event any breach of this promise comes to the attention of the Committee,
it shall take into consideration that breach in determining whether to recommend
the grant of any future Award to that Holder, as a factor militating against the
advisability of granting any such future Award to that individual.
8.20 Consideration. No Option shall be exercisable with respect to a
Holder unless and until the Holder shall have paid cash or property to, or
performed services for, the Corporation or any of its Subsidiaries that the
Committee believes is equal to or greater in value that the par value of the
Stock or Class B Stock, as the case may be, subject to such Award.
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<PAGE> 16
SECTION 9. DURATION AND AMENDMENT OF PLAN
9.1 Duration. No Awards may be granted hereunder after the date that is
ten (10) years from the earlier of (a) the date the Plan was originally adopted
by the Board of Directors and (b) the date the Plan is approved by the
stockholders of the Corporation.
9.2 Amendment. The Board of Directors may, insofar as permitted by law,
with respect to any shares which, at the time, are not subject to Awards,
suspend, or discontinue the Plan or revise or amend it in any respect
whatsoever. The Board of Directors may not alter, amend, revise, suspend or
discontinue the Plan without obtaining approval of the Corporation's
stockholders if such action would (i) materially increase the benefits accruing
to Holders under the Plan, (ii) materially increase the number of securities
which may be issued under the Plan, or (iii) materially modify the requirements
as to eligibility for participation in the Plan. The Board of Directors may also
amend, modify, suspend, or terminate the Plan for the purpose of meeting or
addressing any changes in other legal requirements applicable to the Corporation
or the Plan or for any other purpose permitted by law.
SECTION 10. GENERAL
10.1 Application of Funds. The proceeds received by the Corporation from
the sale of shares pursuant to Awards may be used for any general corporate
purpose.
10.2 No Liability for Good Faith Determinations. Neither the members of
the Board of Directors nor any member of the Committee shall be liable for any
act, omission, or determination taken or made in good faith with respect to the
Plan or any Award granted under it, and members of the Board of Directors and
the Committee shall be entitled to indemnification and reimbursement by the
Corporation in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Corporation, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of bad
faith) arising therefrom to the full extent permitted by law and under any
directors and officers liability or similar insurance coverage that may from
time to time be in effect. This right to indemnification shall be in addition
to, and not a limitation on, any other indemnification rights any member of the
Board of Directors or the Committee may have.
10.3 Other Benefits. Participation in the Plan shall not preclude the
Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any old age benefit, insurance, pension, profit
sharing retirement, bonus, or other extra compensation plans that the
Corporation or any Subsidiary has adopted, or may, at any time, adopt for the
benefit of its Employees. Neither the adoption of the Plan by the Board of
Directors nor the submission of the Plan to the stockholders of the Corporation
for approval shall be construed as creating any limitations on the power of the
Board of Directors to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options and the
awarding of stock and cash otherwise than under the Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
10.4 Exclusion From Pension and Profit-Sharing Compensation. By acceptance
of an Award (whether in Stock or cash), as applicable, each Holder shall be
deemed to have agreed that the Award is special incentive compensation that will
not be taken into account in any manner as salary, compensation, or bonus in
determining the amount of any payment under any pension, retirement, or other
employee benefit plan of the Corporation or any Subsidiary. In addition, each
beneficiary of a deceased Holder shall be deemed to have agreed that the Award
will not affect the amount of any life insurance coverage, if any, provided by
the Corporation or a Subsidiary on the life of the Holder that is payable to the
beneficiary under any life insurance plan covering employees of the Corporation
or any Subsidiary.
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<PAGE> 17
10.5 Execution of Receipts and Releases. Any payment of cash or any
issuance or transfer of shares of Stock or Class B Stock, as the case may be, to
the Holder, or to his legal representative, heir, legatee, or distributee, in
accordance with the provisions hereof, shall, to the extent thereof, be in full
satisfaction of all claims of such persons hereunder. The Committee may require
any Holder, legal representative, heir, legatee, or distributee, as a condition
precedent to such payment, to execute a release and receipt therefor in such
form as it shall determine.
10.6 Unfunded Plan. Insofar as it provides for Awards of cash and Stock or
Class B Stock, as the case may be, the Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Holders who are entitled
to cash, Stock or Class B Stock, as the case may be, or rights thereto under the
Plan, any such accounts shall be used merely as a bookkeeping convenience. The
Corporation shall not be required to segregate any assets that may at any time
be represented by cash, Stock or Class B Stock, as the case may be, or rights
thereto, nor shall the Plan be construed as providing for such segregation, nor
shall the Corporation nor the Board of Directors nor the Committee be deemed to
be a trustee of any cash, Stock or Class B Stock, as the case may be, or rights
thereto to be granted under the Plan. Any liability of the Corporation to any
Holder with respect to a grant of cash, Stock or Class B Stock, as the case may
be, or rights thereto under the Plan shall be based solely upon any contractual
obligations that may be created by the Plan and any Award Agreement; no such
obligation of the Corporation shall be deemed to be secured by any pledge or
other encumbrance on any property of the Corporation. Neither the Corporation
nor the Board of Directors nor the Committee shall be required to give any
security or bond for the performance of any obligation that may be created by
the Plan.
10.7 No Guarantee of Interests. Neither the Committee nor the Corporation
guarantees the Stock or Class B Stock, as the case may be, of the Corporation
from loss or depreciation.
10.8 Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Corporation or its Subsidiaries; provided,
however, the Corporation or a Subsidiary may recover any and all damages, fees,
expenses, and costs arising out of any actions taken by the Corporation to
enforce its right to purchase Stock or Class B Stock, as the case may be, under
this Plan.
10.9 Corporation Records. Records of the Corporation or its Subsidiaries
regarding the Holder's period of employment, termination of employment and the
reason therefor, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes hereunder, unless determined by the Committee to be
incorrect.
10.10 Information. The Corporation and its Subsidiaries shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished, all of the information or documentation which is necessary or
required by the Committee to perform its duties and functions under the Plan.
10.11 No Liability of Corporation. The Corporation assumes no obligation
or responsibility to the Holder or his legal representatives, heirs, legatees,
or distributees for any act of, or failure to act on the part of, the Committee.
10.12 Corporation Action. Any action required of the Corporation shall be
by resolution of its Board of Directors or by a person authorized to act by
resolution of the Board of Directors.
10.13 Severability. If any provision of this Plan is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions hereof, but such provision shall be fully severable and the
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein.
10.14 Notices. Whenever any notice is required or permitted hereunder,
such notice must be in writing and personally delivered or sent by mail. Any
notice required or permitted to be delivered hereunder shall be deemed to be
delivered on the date on which it is personally delivered, or, whether actually
received or not, on the third Business Day
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<PAGE> 18
after it is deposited in the United States mail, certified or registered,
postage prepaid, addressed to the person who is to receive it at the address
which such person has theretofore specified by written notice delivered in
accordance herewith. The Corporation or a Holder may change, at any time and
from time to time, by written notice to the other, the address which it or he
had previously specified for receiving notices. Until changed in accordance
herewith, the Corporation and each Holder shall specify as its and his address
for receiving notices the address set forth in the Award Agreement pertaining to
the shares to which such notice relates.
10.15 Waiver of Notice. Any person entitled to notice hereunder may waive
such notice.
10.16 Successors. The Plan shall be binding upon the Holder, his legal
representatives, heirs, legatees, and distributees, upon the Corporation, its
successors, and assigns, and upon the Committee, and its successors.
10.17 Headings. The titles and headings of Sections and Paragraphs are
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
10.18 Governing Law. All questions arising with respect to the provisions
of the Plan shall be determined by application of the laws of the State of
Delaware except to the extent Delaware law is preempted by federal law.
Questions arising with respect to the provisions of an Award Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Award Agreement, except to the extent Delaware corporate law conflicts with
the contract law of such state, in which event Delaware corporate law shall
govern. The obligation of the Corporation to sell and deliver Stock hereunder is
subject to applicable laws and to the approval of any governmental authority
required in connection with the authorization, issuance, sale, or delivery of
such Stock.
10.19 Word Usage. Words used in the masculine shall apply to the feminine
where applicable, and wherever the context of this Plan dictates, the plural
shall be read as the singular and the singular as the plural.
IN WITNESS WHEREOF, Thomas Group, Inc., acting by and through its officer
hereunto duly authorized, has executed this instrument, this the day of , 1995.
THOMAS GROUP, INC.
By:
----------------------------------
President
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<PAGE> 1
EXHIBIT 10.4
THOMAS GROUP, INC.
1997 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 PURPOSE
ARTICLE 2 DEFINITIONS
ARTICLE 3 ADMINISTRATION
ARTICLE 4 ELIGIBILITY
ARTICLE 5 SHARES SUBJECT TO PLAN
ARTICLE 6 GRANT OF AWARDS
6.1 In General
6.2 Maximum ISO Grants
ARTICLE 7 OPTION PRICE
ARTICLE 8 AWARD PERIOD; VESTING
8.1 Award Period
8.2 Vesting
ARTICLE 9 TERMINATION OF SERVICE
9.1 Death
9.2 Retirement
9.3 Disability
9.4 Leave of Absence
ARTICLE 10 EXERCISE OF INCENTIVE
10.1 In General
10.2 Disqualifying Disposition of ISO
ARTICLE 11 AMENDMENT OR DISCONTINUANCE
ARTICLE 12 TERM
ARTICLE 13 CAPITAL ADJUSTMENTS
ARTICLE 14 RECAPITALIZATION, MERGER AND CONSOLIDATION; CHANGE IN
CONTROL
ARTICLE 15 LIQUIDATION OR DISSOLUTION
ARTICLE 16 INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER
CORPORATIONS
ARTICLE 17 MISCELLANEOUS PROVISIONS
17.1 Investment Intent
17.2 No Right to Continued Employment
17.3 Indemnification of Board and Committee
17.4 Effect of the Plan
17.5 Compliance With Other Laws and Regulations
17.6 Tax Requirements
17.7 Assignability
17.8 Use of Proceeds
<PAGE> 3
THOMAS GROUP, INC.
1997 STOCK OPTION PLAN
The name of the plan is the THOMAS GROUP, INC. 1997 STOCK OPTION PLAN (the
"PLAN"). The Plan was adopted by the Board of Directors of THOMAS GROUP, INC., a
Delaware corporation (hereinafter called the "COMPANY"), effective as of April
3, 1997.
ARTICLE 1
PURPOSE
The purpose of the Plan is to attract and retain the services of key
employees of the Company and its Subsidiaries and to provide such persons with a
proprietary interest in the Company through the granting of incentive stock
options and non-qualified stock options that will
(a) increase the interest of such persons in the Company's welfare;
(b) furnish an incentive to such persons to continue their services for
the Company; and
(c) provide a means through which the Company may attract able persons
as employees.
With respect to Reporting Participants, the Plan and all transactions under
the Plan are intended to comply with all applicable conditions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void ab initio, to the extent permitted by law and
deemed advisable by the Committee.
ARTICLE 2
DEFINITIONS
For the purpose of the Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:
2.1 "AWARD" means the grant of any Incentive Stock Option or Non-qualified
Stock Option, whether granted singly, in combination or in tandem (each
individually referred to herein as an "Incentive").
2.2 "AWARD AGREEMENT" means a written agreement between a Participant and
the Company which sets out the terms of an Award.
2.3 "AWARD PERIOD" means the period during which one or more Incentives
granted under an Award may be exercised.
2.4 "BOARD" means the board of directors of the Company.
<PAGE> 4
2.5 "CHANGE OF CONTROL" means any of the following: (i) any consolidation,
merger or share exchange of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other property, other
than a consolidation, merger or share exchange of the Company in which the
holders of the Company's Common Stock immediately prior to such transaction have
the same proportionate ownership of Common Stock of the surviving corporation
immediately after such transaction; (ii) any sale, lease, exchange or other
transfer (excluding transfer by way of pledge or hypothecation) in one
transaction or a series of related transactions, of all or substantially all of
the assets of the Company; (iii) the stockholders of the Company approve any
plan or proposal for the liquidation or dissolution of the Company; (iv) the
cessation of control (by virtue of their not constituting a majority of
directors) of the Board by the individuals (the "CONTINUING DIRECTORS") who (x)
at the date of this Plan were directors or (y) become directors after the date
of this Plan and whose election or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the directors
then in office who were directors at the date of this Plan or whose election or
nomination for election was previously so approved; (v) the acquisition of
beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of an
aggregate of twenty percent (20%) of the voting power of the Company's
outstanding voting securities by any person or group (as such term is used in
Rule 13d-5 under the 1934 Act) who beneficially owned less than 15% of the
voting power of the Company's outstanding voting securities on the date of this
Plan, or the acquisition of beneficial ownership of an additional 5% of the
voting power of the Company's outstanding voting securities by any person or
group who beneficially owned at least 15% of the voting power of the Company's
outstanding voting securities on the date of this Plan, provided, however, that
notwithstanding the foregoing, an acquisition shall not constitute a Change of
Control hereunder if the acquirer is (x) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company and acting in such
capacity, (y) a Subsidiary of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of voting securities of the Company or (z) any
other person whose acquisition of shares of voting securities is approved in
advance by a majority of the Continuing Directors; or (vi) in a Title 11
bankruptcy proceeding, the appointment of a trustee or the conversion of a case
involving the Company to a case under Chapter 7.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended.
2.7 "COMMITTEE" means the Compensation and Stock Option Committee or another
committee appointed or designated by the Board to administer the Plan.
2.8 "COMMON STOCK" means the common stock, par value $.01 per share, which
the Company is currently authorized to issue or may in the future be authorized
to issue.
2.9 "COMPANY" means THOMAS GROUP, INC., a Delaware corporation, and any
successor entity.
2.10 "DATE OF GRANT" means the effective date on which an Award is made to a
Participant as set forth in the applicable Award Agreement; provided, however,
that solely for purposes of
<PAGE> 5
Section 16 of the 1934 Act and the rules and regulations promulgated thereunder,
the Date of Grant of an Award shall be the date of stockholder approval of the
Plan if such date is later than the effective date of such Award as set forth in
the Award Agreement.
2.11 "EMPLOYEE" means common law employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company or any Subsidiary of the Company.
2.12 "FAIR MARKET VALUE" of a share of Common Stock is the mean of the
highest and lowest prices per share on the New York Stock Exchange Consolidated
Tape, or such reporting service as the Committee may select, on the appropriate
date, or in the absence of reported sales on such day, the most recent previous
day for which sales were reported.
2.13 "INCENTIVE STOCK OPTION" or "ISO" means an incentive stock option
within the meaning of Section 422 of the Code, granted pursuant to this Plan.
2.14 "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
Employee and who satisfies the requirements of Rule 16b-3(b)(3) promulgated
under the 1934 Act or any successor provision.
2.15 "NON-QUALIFIED STOCK OPTION" or "NQSO" means a non-qualified stock
option granted pursuant to this Plan.
2.16 "OPTION PRICE" means the price which must be paid by a Participant upon
exercise of a Stock Option to purchase a share of Common Stock.
2.17 "PARTICIPANT" shall mean an Employee of the Company or a Subsidiary to
whom an Award is granted under this Plan.
2.18 "PLAN" means this THOMAS GROUP, INC. 1997 Stock Option Plan, as amended
from time to time.
2.19 "REPORTING PARTICIPANT" means a Participant who is subject to the
reporting requirements of Section 16 of the 1934 Act.
2.20 "RETIREMENT" means any Termination of Service solely due to retirement
upon attainment of age 60, or permitted early retirement as determined by the
Committee.
2.21 "STOCK OPTION" means a Non-qualified Stock Option or an Incentive Stock
Option.
2.22 "SUBSIDIARY" means (i) any corporation or limited liability company in
an unbroken chain of corporations or limited liability companies beginning with
the Company, if each of the corporations or limited liability companies other
than the last corporation or limited liability company in the unbroken chain
owns equity securities possessing a majority of the total combined voting power
of all classes of equity securities in one of the other corporations or
<PAGE> 6
limited liability companies in the chain, and (ii) any limited partnership, if
the Company or any corporation or limited liability company described in item
(i) above owns a majority of the general partnership interest and a majority of
the limited partnership interests entitled to vote on the removal and
replacement of the general partner. "SUBSIDIARIES"means more than one of any
such corporations, limited partnerships or limited liability companies.
2.23 "TERMINATION OF SERVICE" occurs when a Participant who is an Employee
of the Company or any Subsidiary shall cease to serve as an Employee of the
Company and its Subsidiaries, for any reason.
2.24 "DISABILITY" shall have the meaning given it in the employment
agreement of the Participant; provided, however, that if that Participant has no
employment agreement, "Disability" shall mean a physical or mental impairment of
sufficient severity that, in the opinion of the Company, either the Participant
is unable to continue performing the duties he performed before such impairment
or the Participant's condition entitles him to disability benefits under any
insurance or employee benefit plan of the Company or its Subsidiaries and that
impairment or condition is cited by the Company as the reason for termination of
the Participant's employment; provided, however, with respect to any Incentive
Stock Option, Disability shall have the meaning given it under the rules
governing Incentive Stock Options under the Code.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by the Committee appointed by the Board. The
Committee shall consist of not fewer than two persons. Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board. Any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board.
Membership on the Committee shall be limited to those members of the Board
who are Non-employee Directors and who are "OUTSIDE DIRECTORS" under Section
162(m) of the Code. The Committee shall select one of its members to act as its
Chairman. A majority of the Committee shall constitute a quorum, and the act of
a majority of the members of the Committee present at a meeting at which a
quorum is present shall be the act of the Committee.
The Committee shall determine and designate from time to time the eligible
persons to whom Awards will be granted and shall set forth in each related Award
Agreement the Award Period, the Date of Grant, and such other terms, provisions,
limitations, and performance requirements, as are approved by the Committee, but
not inconsistent with the Plan. The Committee shall determine whether an Award
shall include one type of Incentive, or two or more Incentives granted in
combination.
The Committee, in its discretion, shall (i) interpret the Plan, (ii)
prescribe, amend, and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, and (iii) make such other determinations and
take such other action as it deems necessary or advisable in
<PAGE> 7
the administration of the Plan. Any interpretation, determination, or other
action made or taken by the Committee shall be final, binding, and conclusive on
all interested parties.
With respect to restrictions in the Plan that are based on the requirements
of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the Code, Section
162(m) of the Code, the rules of any exchange or inter-dealer quotation system
upon which the Company's securities are listed or quoted, or any other
applicable law, rule or restriction (collectively, "APPLICABLE LAW"), to the
extent that any such restrictions are no longer required by applicable law, the
Committee shall have the sole discretion and authority to grant Awards that are
not subject to such mandated restrictions and/or to waive any such mandated
restrictions with respect to outstanding Awards.
ARTICLE 4
ELIGIBILITY
Any Employee (including an Employee who is also a director or an officer)
whose judgment, initiative, and efforts contributed or may be expected to
contribute to the successful performance of the Company is eligible to
participate in the Plan; provided that only Employees shall be eligible to
receive Incentive Stock Options. The Committee, upon its own action, may grant,
but shall not be required to grant, an Award to any Employee of the Company or
any Subsidiary. Awards may be granted by the Committee at any time and from time
to time to new Participants, or to then Participants, or to a greater or lesser
number of Participants, and may include or exclude previous Participants, as the
Committee shall determine. Except as required by this Plan, Awards granted at
different times need not contain similar provisions. The Committee's
determinations under the Plan (including without limitation determinations of
which Employees, if any, are to receive Awards, the form, amount and timing of
such Awards, the terms and provisions of such Awards and the agreements
evidencing same) need not be uniform and may be made by it selectively among
Employees who receive, or are eligible to receive, Awards under the Plan.
ARTICLE 5
SHARES SUBJECT TO PLAN
Subject to adjustment as provided in ARTICLES 13 AND 14, the maximum number
of shares of Common Stock that may be delivered pursuant to Awards granted under
the Plan is (a) one hundred twenty-five thousand (125,000) shares; plus (b)
shares of Common Stock previously subject to Awards which are forfeited,
terminated, or expired unexercised; plus (c) without duplication for shares
counted under the immediately preceding clause, a number of shares of Common
Stock equal to the number of shares repurchased by the Company in the open
market or otherwise and having an aggregate repurchase price no greater than the
amount of cash proceeds received by the Company from the sale of shares of
Common Stock under the Plan; plus (d) any shares of Common Stock surrendered to
the Company in payment of the exercise price of options issued under the Plan.
Shares to be issued may be made available from authorized but unissued
Common Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the
<PAGE> 8
Company on the open market or otherwise. During the term of this Plan, the
Company will at all times reserve and keep available the number of shares of
Common Stock that shall be sufficient to satisfy the requirements of this Plan.
ARTICLE 6
GRANT OF AWARDS
6.1 IN GENERAL. The grant of an Award shall be authorized by the Committee
and shall be evidenced by an Award Agreement setting forth the Incentive or
Incentives being granted, the total number of shares of Common Stock subject to
the Incentive(s), the Option Price (if applicable), the Award Period, the Date
of Grant, and such other terms, provisions, limitations, and performance
objectives, as are approved by the Committee, but not inconsistent with the
Plan. The Company shall execute an Award Agreement with a Participant after the
Committee approves the issuance of an Award. Any Award granted pursuant to this
Plan must be granted within ten (10) years of the date of adoption of this Plan.
The Plan shall be submitted to the Company's stockholders for approval; however,
the Committee may grant Awards under the Plan prior to the time of stockholder
approval. Any such Award granted prior to such stockholder approval shall be
made subject to such stockholder approval. The grant of an Award to a
Participant shall not be deemed either to entitle the Participant to, or to
disqualify the Participant from, receipt of any other Award under the Plan.
6.2 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock Options
under the Plan to any Employee which would permit the aggregate Fair Market
Value (determined on the Date of Grant) of the Common Stock with respect to
which Incentive Stock Options (under this and any other plan of the Company and
its Subsidiaries) are exercisable for the first time by such Employee during any
calendar year to exceed $100,000. To the extent any Stock Option granted under
this Plan which is designated as an Incentive Stock Option exceeds this limit or
otherwise fails to qualify as an Incentive Stock Option, such Stock Option shall
be a Non-qualified Stock Option.
ARTICLE 7
OPTION PRICE
The Option Price for any share of Common Stock which may be purchased under
a Stock Option shall be at least one hundred percent (100%) of the Fair Market
Value of the share on the Date of Grant. If an Incentive Stock Option is granted
to an Employee who owns or is deemed to own (by reason of the attribution rules
of Section 424(d) of the Code) more than ten percent (10%) of the combined
voting power of all classes of stock of the Company (or any parent or
Subsidiary), the Option Price shall be at least one hundred and ten percent
(110%) of the Fair Market Value of the Common Stock on the Date of Grant.
<PAGE> 9
ARTICLE 8
AWARD PERIOD; VESTING
8.1 AWARD PERIOD. Subject to the other provisions of this Plan, the
Committee may, in its discretion, provide that an Incentive may not be exercised
in whole or in part for any period or periods of time or beyond any date
specified in the Award Agreement. Except as provided in the Award Agreement, an
Incentive may be exercised in whole or in part at any time during its term. The
Award Period for an Incentive shall be reduced or terminated upon Termination of
Service in accordance with this ARTICLE 8 AND ARTICLE 9. No Incentive granted
under the Plan may be exercised at any time after the end of its Award Period.
No portion of any Incentive may be exercised after the expiration of ten (10)
years from its Date of Grant. However, if an Employee owns or is deemed to own
(by reason of the attribution rules of Section 424(d) of the Code) more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company (or any parent or Subsidiary) and an Incentive Stock Option is granted
to such Employee, the term of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no more than five (5) years
from the Date of Grant.
8.2 VESTING. Except as otherwise provided in the Award, vesting of all
Awards shall be annually, with monthly incremental vesting. The Committee, in
its sole discretion, may determine that an Incentive will be immediately
exercisable, in whole or in part, or that all or any portion may not be
exercised until a date, or dates, subsequent to its Date of Grant, or until the
occurrence of one or more specified events, subject in any case to the terms of
the Plan. Subsequent to the Date of Grant, the Committee may, in its sole
discretion, accelerate the date on which all or any portion of an Incentive may
be exercised.
ARTICLE 9
TERMINATION OF SERVICE
9.1 DEATH. Upon the death of a Participant, then any and all Awards held by
the Participant that are not yet exercisable as of the date of the Participant's
death shall be fully vested as of the date of death, and shall be exercisable by
that Participant's legal representatives, legatees or distributees for a period
of the lesser of (a) the remainder of the term of the Award or (b) 180 days
following the date of the Participant's death. Any portion of an Award not
exercised upon the expiration of the periods specified in (a) or (b) shall be
null and void.
9.2 RETIREMENT. If a Participant's employment relationship is terminated by
reason of the Participant's Retirement, then the portion, if any, of any and all
Awards held by the Participant that are not yet exercisable as of the date of
that Retirement shall become null and void as of the date of Retirement;
provided, however, that the portion, if any, of any and all Awards held by the
Participant that are exercisable as of the date of that Retirement shall be
exercisable for the lesser of (a) the remainder of the term of the Award or (b)
90 days following the date of Retirement.
9.3 DISABILITY. If a Participant's employment relationship is terminated by
reason of the Participant's Disability, then the portion, if any, of any and all
Awards held by the Participant that are not yet exercisable as of the date of
that termination for Disability shall become null and void as of the date of
termination; provided, however, that the portion, if any, of any and all Awards
held by the Participant that are exercisable as of the date of that termination
shall survive the termination for the lesser of (a) the original term of the
Award and (b) 180 days following the
<PAGE> 10
date of termination, and the Award shall be exercisable by the Participant, his
guardian, or his legal representative.
9.4 LEAVE OF ABSENCE. With respect to an Award, the Committee may, in its
sole discretion, determine that any Participant who is on leave of absence for
any reason will be considered to still be in the employ of the Company for
vesting and other purposes.
ARTICLE 10
EXERCISE OF INCENTIVE
10.1 IN GENERAL. A vested Incentive may be exercised during its Award
Period, subject to limitations and restrictions set forth therein and in ARTICLE
9. A vested Incentive may be exercised at such times and in such amounts as
provided in this Plan and the applicable Award Agreement, subject to the terms,
conditions, and restrictions of the Plan.
In no event may an Incentive be exercised or shares of Common Stock be
issued pursuant to an Award if a necessary listing or quotation of the shares of
Common Stock on a stock exchange or inter-dealer quotation system or any
registration under state or federal securities laws required under the
circumstances has not been accomplished. No Incentive may be exercised for a
fractional share of Common Stock. The granting of an Incentive shall impose no
obligation upon the Participant to exercise that Incentive.
STOCK OPTIONS. Subject to such administrative regulations as the Committee
may from time to time adopt, a Stock Option may be exercised by the delivery of
written or telephonic notice to the Company setting forth the number of shares
of Common Stock with respect to which the Stock Option is to be exercised and
the date of exercise thereof (the "EXERCISE DATE"), which shall be at least
three (3) days after giving such notice unless an earlier time shall have been
mutually agreed upon. On the Exercise Date, the Participant shall deliver to the
Company consideration with a value equal to the total Option Price of the shares
to be purchased, payable as follows: (a) cash, check, bank draft, or money order
payable to the order of the Company, (b) Common Stock owned by the Participant
on the Exercise Date, valued at its Fair Market Value on the Exercise Date,
and/or (c) by delivery (including by FAX) to the Company or its designated agent
of an executed irrevocable option exercise form together with irrevocable
instructions from the Participant to a broker or dealer, reasonably acceptable
to the Company, to sell certain of the shares of Common Stock purchased upon
exercise of the Stock Option or to pledge such shares as collateral for a loan
and promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price.
Upon payment of all amounts due from the Participant, the Company shall
cause certificates for the Common Stock then being purchased to be delivered as
directed by the Participant (or the person exercising the Participant's Stock
Option in the event of his death) at its principal business office promptly
after the Exercise Date. The obligation of the Company to deliver shares of
Common Stock shall, however, be subject to the condition that if at any time the
Committee shall determine in its discretion that the listing, registration, or
qualification of the Stock Option or the Common Stock upon any securities
exchange or inter-dealer quotation system or under any state
<PAGE> 11
or federal law, or the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition of, or in connection with, the Stock
Option or the issuance or purchase of shares of Common Stock thereunder, the
Stock Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
10.2 DISQUALIFYING DISPOSITION OF ISO. If shares of Common Stock acquired
upon exercise of an Incentive Stock Option are disposed of by a Participant
prior to the expiration of either two (2) years from the Date of Grant of such
Stock Option or one (1) year from the transfer of shares of Common Stock to the
Participant pursuant to the exercise of such Stock Option, or in any other
disqualifying disposition within the meaning of Section 422 of the Code, such
Participant shall notify the Company in writing of the date and terms of such
disposition. A disqualifying disposition by a Participant shall not affect the
status of any other Stock Option granted under the Plan as an Incentive Stock
Option within the meaning of Section 422 of the Code.
ARTICLE 11
AMENDMENT OR DISCONTINUANCE
Subject to the limitations set forth in this ARTICLE 11, the Board may at
any time and from time to time, without the consent of the Participants, alter,
amend, revise, suspend, or discontinue the Plan in whole or in part; provided,
however, that no amendment which requires stockholder approval in order for the
Plan and Incentives awarded under the Plan to continue to comply with Section
162(m) of the Code, including any successors to such Section, shall be effective
unless such amendment shall be approved by the requisite vote of the
stockholders of the Company entitled to vote thereon. Any such amendment shall,
to the extent deemed necessary or advisable by the committee, be applicable to
any outstanding Incentives theretofore granted under the Plan, notwithstanding
any contrary provisions contained in any stock option agreement. Notwithstanding
anything contained in this Plan to the contrary, unless required by law, no
action contemplated or permitted by this ARTICLE 11 shall adversely affect any
rights of Participants or obligations of the Company to Participants with
respect to any Incentive theretofore granted under the Plan without the consent
of the affected Participant.
ARTICLE 12
TERM
The Plan shall be effective from the date that this Plan is approved by the
Board. Unless sooner terminated by action of the Board, the Plan will terminate
on March 31, 2007, but Incentives granted before that date will continue to be
effective in accordance with their terms and conditions.
ARTICLE 13
CAPITAL ADJUSTMENTS
If at any time while the Plan is in effect, or Incentives are outstanding,
there shall be any increase or decrease in the number of issued and outstanding
shares of Common Stock resulting
<PAGE> 12
from (1) the declaration or payment of a stock dividend, (2) any
recapitalization resulting in a stock split-up, combination, or exchange of
shares of Common Stock, or (3) other increase or decrease in such shares of
Common Stock effected without receipt of consideration by the Company, then and
in such event:
(i) An appropriate adjustment shall be made in the maximum number of
shares of Common Stock then subject to being awarded under the Plan and in
the maximum number of shares of Common Stock that may be awarded to a
Participant to the end that the same proportion of the Company's issued and
outstanding shares of Common Stock shall continue to be subject to being so
awarded.
(ii) Appropriate adjustments shall be made in the number of shares of
Common Stock and the Option Price thereof then subject to purchase pursuant
to each such Stock Option previously granted and unexercised, to the end
that the same proportion of the Company's issued and outstanding shares of
Common Stock in each such instance shall remain subject to purchase at the
same aggregate Option Price.
Except as otherwise expressly provided herein, the issuance by the Company
of shares of its capital stock of any class, or securities convertible into
shares of capital stock of any class, either in connection with direct sale or
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to the number of or Option Price of shares of Common Stock
then subject to outstanding Stock Options granted under the Plan.
Upon the occurrence of each event requiring an adjustment with respect to
any Incentive, the Company shall mail to each affected Participant its
computation of such adjustment which shall be conclusive and shall be binding
upon each such Participant.
ARTICLE 14
RECAPITALIZATION, MERGER AND
CONSOLIDATION; CHANGE IN CONTROL
(a) The existence of this Plan and Incentives granted hereunder shall
not affect in any way the right or power of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital structure and its
business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or preference stocks ranking prior to or
otherwise affecting the Common Stock or the rights thereof (or any rights,
options, or warrants to purchase same), or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
(b) Subject to any required action by the stockholders, if the Company
shall be the surviving or resulting corporation in any merger, consolidation
or share exchange, any
<PAGE> 13
Incentive granted hereunder shall pertain to and apply to the securities or
rights (including cash, property, or assets) to which a holder of the number
of shares of Common Stock subject to the Incentive would have been entitled.
(c) In the event of any merger, consolidation or share exchange pursuant
to which the Company is not the surviving or resulting corporation, there
shall be substituted for each share of Common Stock subject to the
unexercised portions of such outstanding Incentives, that number of shares
of each class of stock or other securities or that amount of cash, property,
or assets of the surviving, resulting or consolidated company which were
distributed or distributable to the stockholders of the Company in respect
to each share of Common Stock held by them, such outstanding Incentives to
be thereafter exercisable for such stock, securities, cash, or property in
accordance with their terms. Notwithstanding the foregoing, however, all
such Incentives may be canceled by the Company as of the effective date of
any such reorganization, merger, consolidation, share exchange or any
dissolution or liquidation of the Company by giving notice to each holder
thereof or his personal representative of its intention to do so and by
permitting the purchase during the thirty (30) day period next preceding
such effective date of all of the shares of Common Stock subject to such
outstanding Incentives.
(d) In the event of a Change of Control, then, notwithstanding any other
provision in this Plan to the contrary, all unmatured installments of
Incentives outstanding shall thereupon automatically be accelerated and
exercisable in full. The determination of the Committee that any of the
foregoing conditions has been met shall be binding and conclusive on all
parties.
ARTICLE 15
LIQUIDATION OR DISSOLUTION
In case the Company shall, at any time while any Incentive under this Plan
shall be in force and remain unexpired, (i) sell all or substantially all of its
property, or (ii) dissolve, liquidate, or wind up its affairs, then each
Participant shall be thereafter entitled to receive, in lieu of each share of
Common Stock of the Company which such Participant would have been entitled to
receive under the Incentive, the same kind and amount of any securities or
assets as may be issuable, distributable, or payable upon any such sale,
dissolution, liquidation, or winding up with respect to each share of Common
Stock of the Company. If the Company shall, at any time prior to the expiration
of any Incentive, make any partial distribution of its assets, in the nature of
a partial liquidation, whether payable in cash or in kind (but excluding the
distribution of a cash dividend payable out of earned surplus and designated as
such) then in such event the Option Prices then in effect with respect to each
Stock Option shall be reduced, on the payment date of such distribution, in
proportion to the percentage reduction in the tangible book value of the shares
of the Company's Common Stock (determined in accordance with generally accepted
accounting principles) resulting by reason of such distribution.
<PAGE> 14
ARTICLE 16
INCENTIVES IN SUBSTITUTION FOR
INCENTIVES GRANTED BY OTHER CORPORATIONS
Incentives may be granted under the Plan from time to time in substitution
for similar instruments held by employees of a corporation who become or are
about to become management Employees of the Company or any Subsidiary as a
result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of stock of the employing corporation.
The terms and conditions of the substitute Incentives so granted may vary from
the terms and conditions set forth in this Plan to such extent as the Board at
the time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the Incentives in substitution for which they are granted.
ARTICLE 17
MISCELLANEOUS PROVISIONS
17.1 INVESTMENT INTENT. The Company may require that there be presented to
and filed with it by any Participant under the Plan, such evidence as it may
deem necessary to establish that the Incentives granted or the shares of Common
Stock to be purchased or transferred are being acquired for investment and not
with a view to their distribution.
17.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any Incentive
granted under the Plan shall confer upon any Participant any right with respect
to continuance of employment by the Company or any Subsidiary.
17.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or the
Committee, nor any officer or Employee of the Company acting on behalf of the
Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in respect of any such
action, determination, or interpretation.
17.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any action of
the Board or the Committee shall be deemed to give any person any right to be
granted an Award or any other rights except as may be evidenced by an Award
Agreement, or any amendment thereto, duly authorized by the Committee and
executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.
17.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Notwithstanding anything
contained herein to the contrary, the Company shall not be required to sell or
issue shares of Common Stock under any Incentive if the issuance thereof would
constitute a violation by the Participant or the Company of any provisions of
any law or regulation of any governmental authority or any national securities
exchange or inter-dealer quotation system or other forum in which shares of
Common Stock are quoted or traded (including without limitation Section 16 of
the 1934 Act and Section 162(m) of the Code); and, as a condition of any sale or
issuance of shares of Common Stock under an Incentive, the Committee may require
such agreements or undertakings, if any, as the Committee may deem necessary or
advisable to assure compliance with any such
<PAGE> 15
law or regulation. The Plan, the grant and exercise of Incentives hereunder, and
the obligation of the Company to sell and deliver shares of Common Stock, shall
be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any government or regulatory agency as may be required.
17.6 TAX REQUIREMENTS. The Company shall have the right to deduct from all
amounts hereunder paid in cash or other form, any Federal, state, or local taxes
required by law to be withheld with respect to such payments. The Participant
receiving shares of Common Stock issued under the Plan shall be required to pay
the Company the amount of any taxes which the Company is required to withhold
with respect to such shares of Common Stock. Notwithstanding the foregoing, in
the event of an assignment of a Non-qualified Stock Option pursuant to Section
17.7, the Participant who assigns the Non-qualified Stock Option shall remain
subject to withholding taxes upon exercise of the Non-qualified Stock Option by
the transferee to the extent required by the Code or the rules and regulations
promulgated thereunder. Such payments shall be required to be made prior to the
delivery of any certificate representing such shares of Common Stock. Such
payment may be made in cash, by check, or through the delivery of shares of
Common Stock owned by the Participant (which may be effected by the actual
delivery of shares of Common Stock by the Participant or by the Company's
withholding a number of shares to be issued upon the exercise of a Stock Option,
if applicable), which shares have an aggregate Fair Market Value equal to the
required minimum withholding payment, or any combination thereof.
17.7 ASSIGNABILITY. Incentive Stock Options may not be transferred or
assigned other than by will or the laws of descent and distribution and may be
exercised during the lifetime of the Participant only by the Participant or the
Participant's legally authorized representative. The designation by a
Participant of a beneficiary will not constitute a transfer of the Stock Option.
The Committee may waive or modify any limitation contained in the preceding
sentences of this Section 17.7 that is not required for compliance with Section
422 of the Code. Unless the Committee provides otherwise, all or a portion of a
Non-qualified Stock Option to be granted to a Participant may be transferred by
such Participant to (i) the spouse, children or grandchildren of the Participant
("IMMEDIATE FAMILY MEMBERS"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, (iv) an entity exempt from federal income
tax pursuant to Section 501(c)(3) of the Code or any successor provision, or (v)
a split interest trust or pooled income fund described in Section 2522(c)(2) of
the Code or any successor provision, provided that (x) there shall be no
consideration for any such transfer, and (y) subsequent transfers of transferred
Non-qualified Stock Options shall be prohibited except those by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended. Following transfer, any such Non-qualified Stock Option
shall continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of ARTICLES 10, 11,
13, 15 AND 17 hereof the term "PARTICIPANT" shall be deemed to include the
transferee. The events of Termination of Service shall continue to be applied
with respect to the original Participant, following which the Non-qualified
Stock Options shall be exercisable by the transferee only to the extent and for
the periods specified in the Award Agreement. The Committee and the
<PAGE> 16
Company shall have no obligation to inform any transferee of a Non-qualified
Stock Option of any expiration, termination, lapse or acceleration of such
Option. The Company shall have no obligation to register with any federal or
state securities commission or agency any Common Stock issuable or issued under
a Non-qualified Stock Option that has been transferred by a Participant under
this Section 17.7.
17.8 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock
pursuant to Incentives granted under this Plan shall constitute general funds of
the Company.
<PAGE> 17
A copy of this Plan shall be kept on file in the principal office of the
Company in Dallas, Texas.
* * * * * * * * * * * * * * *
IN WITNESS WHEREOF, the Company has caused this instrument to be executed as
of April 3, 1997 by its duly authorized representative.
THOMAS GROUP, INC.
By:
--------------------------
<PAGE> 1
EXHIBIT 10.5
THOMAS GROUP, INC.
401(K) SAVINGS PLAN
as amended and restated
effective July 1, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
ARTICLE 1 - DEFINITIONS 1-1
ARTICLE 2 - PARTICIPATION 2-1
ARTICLE 3 - PARTICIPANT ACCOUNTS 3-1
ARTICLE 4 - ACCOUNTING AND VALUATION 4-1
ARTICLE 5 - RETIREMENT BENEFITS 5-1
ARTICLE 6 - DEATH BENEFIT 6-1
ARTICLE 7 - LIMITATIONS ON BENEFITS 7-1
ARTICLE 8 - MISCELLANEOUS 8-1
ARTICLE 9 - ADMINISTRATION 9-1
ARTICLE 10 - AMENDMENT OR TERMINATION OF PLAN 10-1
ARTICLE 11 - TRUSTEE AND TRUST FUND 11-1
</TABLE>
<PAGE> 3
ARTICLE 1
DEFINITIONS
As used in this document, unless otherwise defined or required by the
context, the following terms have the meanings set forth in this Article 1. Some
of the terms used in this document are not defined in Article 1, but for
convenience are defined as they are introduced in the text.
1.01 Account
Account means a separate account maintained for each Participant reflecting
applicable contributions, applicable forfeitures, investment income (loss)
allocated to the account and distributions.
1.02 Accounting Date, Valuation Date
The term Accounting Date means the last day of each Accounting Period and
any other days within the Accounting Period upon which, consistent with
established methods and guidelines, the Plan Administrator applies the
accounting procedures specified in Section 4.02. The term Valuation Date,
unless otherwise specified, means any business day on which the New York
Stock Exchange is open.
1.03 Accounting Period
Accounting Period means each of the 3-month periods which end on March
31st, June 30th, September 30th and December 31st.
1.04 Accrued Benefit
A Participant's Accrued Benefit means the total value, as of a given date,
of his Accounts determined as of the Valuation Date immediately preceding
the date of determination. A Participant's Accrued Benefit will not be
reduced solely on account of any increase in the Participant's age or
service or on account of an amendment to the Plan.
A Participant's Vested Accrued Benefit is equal to his Vested Percentage of
that portion of his Accrued Benefit which is subject to the Vesting
Schedule plus 100% of the remaining portion of his Accrued Benefit.
1.05 Beneficiary
Beneficiary means the person, persons, trust or other entity who is
designated to receive any amount payable upon the death of a Participant.
1.06 Cash-Out Distribution
Cash-Out Distribution means, as described in Article 5, a distribution to a
Participant upon termination of employment of his Vested Accrued Benefit.
1.07 Code and ERISA
Code means the Internal Revenue Code of 1986, as it may be amended from
time to time, and all regulations issued thereunder. Reference to a section
of the Code includes that section and any comparable section or sections of
any future legislation that amends, supplements or supersedes such section
and any regulations issued thereunder.
ERISA means Public Law No. 93-406, the Employee Retirement Income Security
Act of 1974, as it may be amended from time to time, and all regulations
issued thereunder. Reference to a section of ERISA includes that section
and any comparable section or sections of any future legislation that
amends, supplements or supersedes such section and any regulations issued
thereunder.
1-1
<PAGE> 4
1.08 Compensation
Except where otherwise specifically provided in this Plan, Compensation
means base or regular wages, overtime and bonuses.
Compensation also includes any amounts contributed by the Employer or any
Related Employer on behalf of any Employee pursuant to a salary reduction
agreement which are not includable in the gross income of the Employee due
to Code Section 125, 402(a)(8), 402(h) or 403(b).
Notwithstanding the foregoing, for all purposes under this Plan,
Compensation in excess of the Statutory Compensation Limit will be
disregarded. For purposes of applying this compensation limit, a Family
Member of a Highly Compensated Employee is subject to the single aggregate
compensation limit imposed on the Highly Compensated Employee if the Family
Member is either the Employee's spouse or is a lineal descendant who has
not attained the age of 19 by the end of the Plan Year.
Statutory Compensation Limit means $150,000 ($200,000 for Plan Years
beginning before 1994), as adjusted in accordance with Code Section
401(a)(17)(B).
1.09 Effective Date
The Effective Date of the Plan is January 1, 1990.
Except as specified elsewhere in this document, the effective date of this
restatement of the Plan is July 1, 1995.
Section 4.05 is effective January 1, 1990.
1.10 Eligible Employee Classification
An Eligible Employee Classification is a classification of Employees, the
members of which are eligible to participate in the Plan. The Plan covers
all employee classifications except Hourly Employees and Leased Employees.
1.11 Eligible Participant
An Eligible Participant is a Participant who is eligible to share in the
allocation of a given Employer contribution; Eligible Participant means any
Participant who:
o is actively employed or on an approved Leave of Absence on the
last day of the Plan Year; or
o retires, dies or becomes disabled during the Plan Year.
1.12 Employee
(a) In General
An Employee is any person who is employed by the Employer or a
Participating Employer.
(b) Leased Employee
A Leased Employee means any person who, pursuant to an agreement
between the Employer or any Related Employer ("Recipient Employer")
and any other person ("leasing organization"), has performed services
for the Recipient Employer on a substantially full-time basis for a
period of at least one year and such services are of a type
historically performed by employees in the business field of the
Recipient Employer.
Any Leased Employee will be treated as an Employee of the Recipient
Employer; however,
amended September 1995 1-2
<PAGE> 5
contributions or benefits provided by the leasing organization which
are attributable to the services performed for the Recipient Employer
will be treated as provided by the Recipient Employer. If all Leased
Employees constitute less than 20% of the Employer's
non-highly-compensated work force within the meaning of Code Section
414(n)(1)(C)(ii), then the preceding sentence will not apply to any
Leased Employee if such Employee is covered by a money purchase
pension plan ("Safe Harbor Plan") which provides: (1) a nonintegrated
employer contribution rate of at least 10% of compensation, (2)
immediate participation, and (3) full and immediate vesting.
Years of Eligibility Service for purposes of eligibility to
participate in the Plan and Years of Vesting Service for purposes of
determining a Participant's Vested Percentage include service by an
Employee as a Leased Employee.
1.13 Employer
The Employer and Plan Sponsor is Thomas Group, Inc. A Participating
Employer is any organization which has adopted this Plan and Trust in
accordance with Section 8.07.
The term Predecessor Employer means any prior employer to which the
Employer is the successor, including any Predecessor Employer for which the
Employer maintains the obligations of a Predecessor Plan established by the
Predecessor Employer. Service with a Predecessor Employer will be included
as Service with the Employer for all purposes under this Plan.
1.14 Employment Commencement Date
The date an Employee first performs an Hour of Service for the Employer is
his Employment Commencement Date.
1.15 Entry Date
Entry Date means the January 1st or July 1st which coincides with or next
follows the date upon which the eligibility requirements are met.
1.16 Fiscal Year
Fiscal Year means the taxable year of the Plan Sponsor. The Fiscal Year of
the Plan Sponsor is the 12 month period beginning January 1 and ending
December 31.
1.17 Forfeiture
The term Forfeiture refers to that portion, if any, of a Participant's
Accrued Benefit which is in excess of his Vested Accrued Benefit following
the termination of the Participant's employment.
A Forfeiture is considered to occur as of the earlier of (a) the date of
the occurrence of the fifth of 5 consecutive One Year Breaks-in-Service or
(b) the date a Cash-Out Distribution occurs in accordance with the
provisions of Article 5.
1.18 Highly Compensated Definitions
(a) Compensation
For purposes of this Section, Compensation means Aggregate
Compensation as defined in Section 7.03(a) plus amounts contributed by
the Employer pursuant to a salary reduction agreement which are
excludable from the gross income of the Employee under Code Section
125, 402(a)(8), 402(h) or 403(b). Compensation in excess of the
Statutory Compensation Limit will be disregarded.
1-3
<PAGE> 6
(b) Determination Year
Determination Year means the Plan Year for which the determination of
who is Highly Compensated is being made.
(c) Family Member
Family Member means an Employee who is the spouse, a lineal ascendant
or descendant, or the spouse of a lineal ascendant or descendant of:
o a 5-percent owner (within the meaning of Code Section
416(i)) of the Employer or any Related Employer who is an
active or former Employee; or
o a Highly Compensated Employee who is one of the 10 most
highly compensated employees ranked on the basis of
Compensation paid by the Employer during the Determination
Year or the Lookback Year.
For purposes of this Section, the Family Member and the Highly
Compensated Employee will be considered one Employee. A Family
Member's Compensation and benefits will be aggregated with those of
the Highly Compensated Employee irrespective of whether the Family
Member would otherwise be treated as a Highly-Compensated Employee or
is in a category of Employees which may be excluded in determining the
number of Employees in the Top-Paid Group.
If an Employee is required to be aggregated as a member of more than
one family group, all eligible employees who are members of those
family groups which include that employee will be aggregated as one
family group.
For purposes of applying the compensation limit under Code Section
401(a)(17), a Family Member is subject to the single aggregate
compensation limit imposed on the Highly Compensated Employee if the
Family Member is either the Employee's spouse or is a lineal
descendant who has not attained the age of 19 by the end of the Plan
Year.
(d) Highly Compensated Employee
Highly Compensated Employee means any individual who is a Highly
Compensated Active Employee or a Highly Compensated Former Employee
within the meaning of Code Section 414(q) and the regulations
thereunder.
(e) Highly Compensated Active Employee
Highly Compensated Active Employee means any individual who during the
Determination Year or the Lookback Year:
(1) Was at any time a 5-percent Owner (within the meaning of Code
Section 416(i)) of the Employer or any Related Employer;
(2) Received Compensation from the Employer and all Related Employers
in excess of $75,000 (or any greater amount determined by
regulations issued by the Secretary of the Treasury under Code
Section 415(d));
(3) Received Compensation from the Employer and all Related Employers
in excess of $50,000 (or any greater amount determined by
regulations issued by the Secretary of the Treasury under Code
Section 415(d)) and was in the Top-Paid Group of Employees; or
(4) Was an Officer of the Employer or any Related Employer (as that
term is defined in the regulations under Code Section 416(i)) and
received Compensation greater than 50% of the Defined Benefit
Dollar Limit described in Section 7.03(f) for the applicable
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<PAGE> 7
year. For this purpose, if no Officer received enough
Compensation to be a Highly Compensated Employee under the
preceding sentence, the highest-paid Officer will be treated as a
Highly Compensated Employee. The maximum number of Officers who
will be treated as Highly Compensated Active Employees under this
paragraph is equal to 10% of all Employees determined without
regard to statutory or other exclusions, subject to a minimum of
3 Employees and a maximum of 50 Employees.
No individual described in subparagraphs (2), (3) or (4) above will be
treated as a Highly Compensated Active Employee for the Determination
Year unless he (i) was a Highly Compensated Active Employee for the
Lookback Year (or would have been except that he was not among the 100
most highly compensated Employees of the Employer and all Related
Employers for the Lookback Year) or (ii) was among the 100 most highly
compensated Employees of the Employer and all Related Employers for
the Determination Year.
(f) Highly Compensated Former Employee
Highly Compensated Former Employee means any Former Employee who had a
Separation Year (within the meaning of Treasury Regulation Section
1.414(q)-1T Q&A-5) and was a Highly Compensated Active Employee for
either the Separation Year or any Determination Year ending on or
after the Employee's 55th birthday.
(g) Highly Compensated Group
Highly Compensated Group means all Highly Compensated Employees.
(h) Lookback Year
Lookback Year means the 12-month period immediately preceding the
Determination Year.
(i) Non-Highly Compensated Employee
Non-Highly Compensated Employee means an Employee who is neither a
Highly Compensated Employee nor a Family Member.
(j) Non-Highly Compensated Group
Non-Highly Compensated Group means all Non-Highly Compensated
Employees.
(k) Top-Paid Group
Top-Paid Group means those individuals who are among the top 20
percent of Employees of the Employer and all Related Employers when
ranked on the basis of Compensation received during the year. In
determining the number of individuals in the Top-Paid Group (but not
the identity of those individuals), the following individuals may be
excluded:
(1) Employees who have not completed 6 months of Service by the end
of the year. For this purpose, an Employee who has completed One
Hour of Service in any calendar month will be credited with one
month of Service;
(2) Employees who normally work fewer than 17 1/2 hours per week;
(3) Employees who normally work fewer than 6 months during any year.
For this purpose, an Employee who has worked on one day of a
month is treated as having worked for the whole month;
(4) Employees who have not reached age 21 by the end of the year;
(5) Nonresident aliens who received no earned income (which
constitutes income from sources within the United States) within
the year from the Employer or any Related Employer; and
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<PAGE> 8
(6) Employees covered by a collective bargaining agreement negotiated
in good faith between the employee representatives and the
Employer or a group of employers of which the Employer is a
member if (i) 90% or more of all employees of the Employer and
all Related Employers are covered by collective bargaining
agreements, and (ii) this Plan covers only Employees who are not
covered under a collective bargaining agreement.
1.19 Hour of Service
An Hour of Service means:
(a) Each hour for which an Employee is paid, or entitled to payment, for
the performance of duties for the Employer. These hours will be
credited to the Employee for the computation period in which the
duties are performed;
(b) Each hour for which an Employee is paid, or entitled to payment, by
the Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No
more than 501 Hours of Service will be credited under this paragraph
for any 12-month period. Hours under this paragraph will be calculated
and credited pursuant to Section 2530.200b-2 of the Department of
Labor Regulations which are incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer. The same Hours of
Service will not be credited both under paragraphs (a) or (b), as the
case may be, and under this paragraph (c). These hours will be
credited to the Employee for the computation period or periods to
which the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made.
Hours of Service for all Employees will be determined on the basis of
actual hours for which an Employee is paid or is entitled to payment. Hours
of Service will be credited for employment with any Related Employer or any
Predecessor Employer. Hours of Service will be credited for any individual
considered an employee under Code Section 414(n) or 414(o) and the
regulations thereunder.
Solely for purposes of determining whether a One Year Break-in-Service has
occurred, a Participant who is absent from work on an authorized Leave of
Absence or by reason of the Participant's pregnancy, birth of the
Participant's child, placement of a child with the Participant in
connection with the adoption of such child, or for the purpose of caring
for such child for a period immediately following such birth or placement,
will receive credit for the Hours of Service which otherwise would have
been credited to the Participant but for such absence. The Hours of Service
credited under this paragraph will be credited in the Plan Year in which
the absence begins if such crediting is necessary to prevent a One Year
Break-in-Service in such Plan Year; otherwise, such Hours of Service will
be credited in the following Plan Year. The Hours of Service credited under
this paragraph are those which would normally have been credited but for
such absence; in any case in which the Plan Administrator is unable to
determine such hours normally credited, 8 Hours of Service per day will be
credited. No more than 501 Hours of Service will be credited under this
paragraph for any 12-month period. The Date of Severance is the second
anniversary of the date on which the absence begins. The period between the
initial date of absence and the first anniversary of the initial date of
absence is deemed to be a period of Service. The period between the first
and second anniversaries of the initial date of absence is neither a period
of service nor a period of severance.
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<PAGE> 9
1.20 Investment Fund
An Investment Fund means any portion of the assets of the Trust Fund which
the Plan Administrator designates as an Investment Fund and for which the
Plan Administrator maintains a set of accounts separate from the remaining
assets of the Trust Fund.
(a) Specific Investment Fund means an Investment Fund which is designated
as a Specific Investment Fund by the Plan Administrator in a manner
and form acceptable to the Trustee.
(b) General Investment Fund means all assets of the Trust Fund excluding
the assets of any Specific Investment Funds.
1.21 Leave of Absence
An authorized Leave of Absence means a period of time of one year or less
granted to an Employee by the Employer due to illness, injury, temporary
reduction in work force, or other appropriate cause or due to military
service during which the Employee's reemployment rights are protected by
law, provided the Employee returns to the service of the Employer on or
before the expiration of such leave, or in the case of military service,
within the time his reemployment rights are so protected or within 60 days
of his discharge from military service if no federal law is applicable. All
authorized Leaves of Absence are granted or denied by the Employer in a
uniform and nondiscriminatory manner, treating Employees in similar
circumstances in a like manner.
If the Participant does not return to active service with the Employer on
or prior to the expiration of his authorized Leave of Absence he will be
considered to have had a Date of Severance as of the earlier of the date on
which his authorized Leave of Absence expired, the first anniversary of the
last date he worked at least one hour as an Active Participant, or the date
on which he resigned or was discharged.
1.22 Reserved
1.23 Normal Retirement Age
A Participant's Normal Retirement Age is age 65.
1.24 Normal Retirement Date
A Participant's Normal Retirement Date is the date on which the Participant
attains Normal Retirement Age.
1.25 One Year Break-in-Service
One Year Break-in-Service means any 365-day period following a
Participant's Date of Termination in which an Employee does not complete at
least one Hour of Service.
1.26 Participant
The term Participant means an Employee or former Employee who is eligible
to participate in this Plan and who is or who may become eligible to
receive a benefit of any type from this Plan or whose Beneficiary may be
eligible to receive any such benefit.
(a) Active Participant means a Participant who is currently an Employee in
an Eligible Employee Classification.
(b) Disabled Participant means a Participant who has terminated his
employment with the Employer due to his Disability and who is
receiving or is entitled to receive benefits from the Plan.
1-7
<PAGE> 10
(c) Retired Participant means a Participant who has terminated his
employment with the Employer after meeting the requirements for his
Normal Retirement Date and who is receiving or is entitled to receive
benefits from the Plan.
(d) Vested Terminated Participant means a Participant who has terminated
his employment with the Employer and who has a nonforfeitable right to
all or a portion of his or her Accrued Benefit and who has not
received a distribution of the value of his or her Vested Accrued
Benefit.
(e) Inactive Participant means a Participant who has (i) interrupted his
status as an Active Participant without becoming a Disabled, Retired
or Vested Terminated Participant and (ii) has a non-forfeitable right
to all or a portion of his Accrued Benefit and has not received a
complete distribution of his benefit.
(f) Former Participant means a Participant who has terminated his
employment with the Employer and who currently has no nonforfeitable
right to any portion of his or her Accrued Benefit.
1.27 Payroll Withholding Agreement
If a written Payroll Withholding Agreement is required pursuant to the
provisions of Article 3, then each Participant who elects to participate in
the Plan will file such agreement on or before the first day of the payroll
period for which the agreement is applicable (or at some other time as
specified by the Plan Administrator). Such agreement will be effective for
each payroll period thereafter until modified or amended.
The terms of such agreement will provide that the Participant agrees to
have the Employer withhold, each payroll period, any whole percentage of
his Compensation (or such other amount as allowed by the Plan Administrator
under rules applied on a uniform and nondiscriminatory basis), not to
exceed the limitations of Article 7. In consideration of such agreement,
the Employer periodically will make a contribution to the Participant's
proper Account(s) in an amount equal to the total amount by which the
Participant's Compensation from the Employer was reduced during applicable
payroll periods pursuant to the Payroll Withholding Agreement.
Notwithstanding the above, Payroll Withholding Agreements will be governed
by the following general guidelines:
(a) A Payroll Withholding Agreement will apply to each payroll period
during which an effective agreement is on file with the Employer. Upon
termination of employment, such agreement will become void.
(b) The Plan Administrator will establish and apply guidelines concerning
the frequency and timing of amendments or changes to Payroll
Withholding Agreements. Notwithstanding the foregoing, a Participant
may revoke his Payroll Withholding Agreement at any time and
discontinue all future withholding.
(c) The Plan Administrator may amend or revoke its Payroll Withholding
Agreement with any Participant at any time, if the Employer determines
that such revocation or amendment is necessary to insure that a
Participant's Annual Additions for any Plan Year will not exceed the
limitations of Article 7 or to insure that the requirements of
Sections 401(k) and 401(m) of the Code have been satisfied with
respect to the amount which may be withheld and contributed on behalf
of the Highly Compensated Group.
(d) Except as provided above, a Payroll Withholding Agreement may not be
revoked or amended by the Participant or the Employer.
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<PAGE> 11
1.28 Plan, Plan and Trust, Trust
The terms Plan, Plan and Trust and Trust mean Thomas Group, Inc. 401(k)
Savings Plan. The Plan Identification Number is 003. The Plan is a profit
sharing plan.
The term Predecessor Plan means any qualified plan previously established
and maintained by the Employer and to which this Plan is the successor.
1.29 Plan Administrator
The Plan Administrator is the Thomas Group, Inc. 401(k) Plan Investment
Committee.
1.30 Plan Year
The Plan Year is the 12 month period beginning January 1 and ending
December 31. The Limitation Year coincides with the Plan Year.
1.31 Reserved
1.32 Qualified Election
Qualified Election means the designation of a specific Beneficiary other
than the Participant's Surviving Spouse. Such Qualified Election must be in
writing and must be consented to by the Participant's spouse. The spouse's
written consent to a Qualified Election must be witnessed by a
representative of the Plan Administrator or a notary public. Such consent
will not be required if the Participant establishes to the satisfaction of
the Plan Administrator that such written consent may not be obtained
because there is no spouse, the spouse cannot be located or other
circumstances that may be prescribed by Treasury Regulations. Any consent
necessary under this provision will be valid only with respect to the
spouse who signs the consent (or in the event of a deemed Qualified
Election, the designated spouse). Additionally, a revocation of a prior
Qualified Election may be made by a Participant without the consent of the
spouse at any time before the commencement of benefits; however, any
Qualified Election which follows such revocation must be in writing and
must be consented to by the Participant's spouse. The number of Qualified
Elections or revocations of such Qualified Elections will not be limited.
1.33 Related Employer
The terms Related Employer and Affiliated Employer are used interchangeably
and mean any other corporation, association, company or entity on or after
the Effective Date which is, along with the Employer, a member of a
controlled group of corporations (as defined in Code Section 414(b)), a
group of trades or businesses which are under common control (as defined in
Code Section 414(c)), an affiliated service group (as defined in Code
Section 414(m)), or any organization or arrangement required to be
aggregated with the Employer by Treasury Regulations issued under Code
Section 414(o).
1.34 Required Beginning Date
A Participant's Required Beginning Date for the commencement of benefit
payments from the Plan is the April 1 immediately following the calendar
year in which he attains age 70-1/2.
1.35 Surviving Spouse
Surviving Spouse means a deceased Participant's spouse who was married to
the Participant on the Participant's date of death. The Plan Administrator
and the Trustee may rely conclusively on a Participant's written statement
of his marital status. Neither the Plan Administrator nor the Trustee is
required at any time to inquire into the validity of any marriage, the
effectiveness of a common-law relationship or the claim of any alleged
spouse which is inconsistent with the Participant's report of his marital
status and the identity of his spouse.
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<PAGE> 12
1.36 Top-Heavy Definitions
(a) Aggregate Account
Aggregate Account means, with respect to each Participant, the value
of all accounts maintained on behalf of the Participant, whether
attributable to Employer or Employee contributions, used to determine
Top-Heavy Plan status under the provisions of a defined contribution
plan. A Participant's Aggregate Account as of the Determination Date
will be the sum of:
o the balance of his Account(s) as of the most recent valuation
date occurring within a 12-month period ending on the
Determination Date (excluding any amounts attributable to
deductible voluntary employee contributions); plus
o contributions that would be allocated as of a date not later
than the Determination Date, even though those amounts are not
yet made or required to be made; plus
o any Plan Distributions made within the Plan Year that includes
the Determination Date or within the four preceding Plan Years.
(b) Aggregation Group Aggregation Group means either a Required
Aggregation Group or a Permissive Aggregation Group as hereinafter
determined.
(1) Required Aggregation Group Each plan of the Employer in which a
Key Employee is a Participant, and each other plan of the
Employer which enables any plan in which a Key Employee
participates to meet the requirements of Code Section 401(a)(4)
or 410, will be aggregated and the resulting group will be known
as a Required Aggregation Group.
Each plan in the Required Aggregation Group will be considered a
Top-Heavy Plan if the Required Aggregation Group is a Top-Heavy
Group. No plan in the Required Aggregation Group will be
considered a Top-Heavy Plan if the Required Aggregation Group is
not a Top-Heavy Group.
(2) Permissive Aggregation Group The Employer may also include any
other plan not required to be included in the Required
Aggregation Group, provided the resulting group (to be known as a
Permissive Aggregation Group), taken as a whole, would continue
to satisfy the provisions of Code Sections 401(a)(4) and 410.
Only a plan that is part of the Required Aggregation Group will
be considered a Top-Heavy Plan if the Permissive Aggregation
Group is a Top-Heavy Group. No plan in the Permissive Aggregation
Group will be considered a Top-Heavy Plan if the Permissive
Aggregation Group is not a Top-Heavy Group.
Only those plans of the Employer in which the Determination Dates
fall within the same calendar year will be aggregated in order to
determine whether the plans are Top-Heavy Plans.
(c) Determination Date
Determination Date means the last day of the preceding Plan Year, or,
in the case of the first Plan Year, the last day of the first Plan
Year.
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<PAGE> 13
(d) Key Employee
Key Employee means any Employee or former Employee (and his
Beneficiary) who, at any time during the Plan Year or any of the
preceding four Plan Years, was:
(1) A "Five Percent Owner" of the Employer. "Five Percent Owner"
means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than 5% of the value of the
outstanding stock of the Employer or stock possessing more than
5% of the total combined voting power of all stock of the
Employer. If the Employer is not a corporation, Five Percent
Owner means any person who owns more than 5% of the capital or
profits interest in the Employer. In determining percentage
ownership hereunder, Related Employers will be treated as
separate Employers; or
(2) A "One Percent Owner" of the Employer having Compensation from
the Employer of more than $150,000. "One Percent Owner" means any
person who owns (or is considered as owning within the meaning of
Code Section 318) more than 1% of the value of the outstanding
stock of the Employer or stock possessing more than 1% of the
total combined voting power of all stock of the Employer. If the
Employer is not a corporation, One Percent Owner means any person
who owns more than 1% of the capital or profits interest in the
Employer. In determining percentage ownership hereunder, Related
Employers will be treated as separate Employers. However, in
determining whether an individual has Compensation of more than
$150,000, Compensation from each Related Employer will be taken
into account.
(3) One of the 10 Employees having Compensation not less than the
Defined Contribution Dollar Limit (as defined in Section 7.03(j)
for the Plan Year) who owns (or is considered as owning within
the meaning of Code Section 318) both greater than 1/2% interest
and the largest interests in all Employers required to be
aggregated under Code Sections 414(b), (c), (m) and (o);
(4) An officer (within the meaning of the regulations under Code
Section 416) of the Employer having Compensation greater than 50%
of the Defined Benefit Dollar Limit as defined in Section 7.03(f)
for the Plan Year;
For purposes of this Section, Compensation means Aggregate
Compensation as defined in Section 7.03(a) plus any amounts
contributed by the Employer pursuant to a salary reduction agreement
which are excludable from the gross income of the Employee under Code
Section 125, 402(a)(8), 402(h) or 403(b). Compensation in excess of
the Statutory Compensation Limit is disregarded.
(e) Non-Key Employee
Non-Key Employee means any Employee (and his Beneficiaries) who is not
a Key Employee.
(f) Plan Distributions
Plan distributions include distributions made before January 1, 1984,
and distributions under a terminated plan which, if it had not been
terminated, would have been required to be included in an aggregation
group. However, distributions made after the valuation date and before
the Determination Date are not included to the extent that they are
already included in the Participant's Single Sum Benefit as of the
valuation date.
With respect to "unrelated" rollovers and plan-to-plan transfers
(those which are both initiated by an employee and made from a plan
maintained by one employer to a plan maintained by another employer),
if such a rollover or plan-to-plan transfer is made from this Plan, it
will be considered as a distribution for purposes of this Section. If
such a rollover or plan-to-plan transfer is made to this Plan, it will
not be considered as
1-11
<PAGE> 14
part of the Participant's Single Sum Benefit. However, an unrelated
rollover or plan-to-plan transfer accepted before January 1, 1984,
will be considered as part of the Participant's Single Sum Benefit.
With respect to "related" rollovers and plan-to-plan transfers (those
which are either not initiated by an employee or are made from one
plan to another plan maintained by the same employer), if such a
rollover or plan-to-plan transfer is made from this Plan, it will not
be considered as a distribution for purposes of this Section. If such
a rollover or plan-to-plan transfer is made to this Plan, it will be
considered as part of the Participant's Single Sum Benefit.
(g) Present Value of Accrued Benefit
In the case of the defined benefit plan, a Participant's Present Value
of Accrued Benefit, for Top-Heavy determination purposes, will be
determined using the following rules:
(1) The Present Value of Accrued Benefit will be determined as of the
most recent "valuation date" within a 12-month period ending on
the Determination Date.
(2) For the first Plan Year, the Present Value of Accrued Benefit
will be determined as if (A) the Participant terminated service
as of the Determination Date; or (B) the Participant terminated
service as of the valuation date, but taking into account the
estimated Present Value of Accrued Benefits as of the
Determination Date.
(3) For any other Plan Year, the Present Value of Accrued Benefit
will be determined as if the Participant terminated service as of
the valuation date.
(4) The valuation date must be the same date used for computing the
defined benefit plan minimum funding costs, regardless of whether
a calculation is performed that plan year.
(5) A Participant's Present Value of Accrued Benefit as of a
Determination Date will be the sum of:
o the present value of his Accrued Benefit determined
using the actuarial assumptions which are specified
below; plus
o any Plan Distributions made within the Plan Year that
includes the Determination Date or within the four
preceding Plan Years; plus
o any employee contributions, whether voluntary or
mandatory. However, amounts attributable to qualified
voluntary employee contributions, as defined in Code
Section 219(e)(2) will not be considered to be a part
of the Participant's Present Value of Accrued Benefit.
For purposes of this Section, the present value of a
Participant's Accrued Benefit will be equal to the greater of the
present value determined using the actuarial assumptions which
are specified for Actuarial Equivalent purposes or the present
value determined using the "Applicable Interest Rate." The
Applicable Interest Rate is the rate or rates that would be used
by the Pension Benefit Guaranty Corporation for a trusteed
single-employer plan to value a Participant's or Beneficiary's
benefit on the date of distribution (the "PBGC Rate"). If the
present value using the PBGC Rate exceeds $25,000, the Applicable
Interest Rate is 120% of the PBGC Rate. However, the use of 120%
of the PBGC Rate will never result in a present value less than
$25,000.
1-12
<PAGE> 15
(6) Solely for the purpose of determining if this Plan (or any other
plan included in a Required Aggregation Group of which this Plan
is a part) is Top- Heavy, the Accrued Benefit of any Employee
other than a Key Employee will be determined under
(A) the method, if any, that uniformly applies for accrual
purposes under all plans maintained by the Employer or any
Related Employer, or
(B) if there is no such method, as if the benefit accrued no
more rapidly than the slowest accrual rate permitted under
the fractional accrual rate of Code Section 411(b)(1)(C).
(h) Single Sum Benefit
The Single Sum Benefit for any Participant in a defined benefit
pension plan will be equal to his Present Value of Accrued Benefit.
The Single Sum Benefit for any Participant in a defined contribution
plan will be equal to his Aggregate Account.
(i) Top-Heavy Group
Top-Heavy Group means an Aggregation Group in which, as of the
Determination Date, the Single Sum Benefits of all Key Employees under
all plans included in the group exceeds 60% of a similar sum
determined for all Participants.
Super Top-Heavy Group means an Aggregation Group in which, as of the
Determination Date, the sum of (1) the Single Sum Benefits of all Key
Employees under all defined benefit plans included in the group, plus
(2) the Single Sum Benefit of all Key Employees under all defined
contribution plans included in the group exceeds 90% of a similar sum
determined for all Participants.
(j) Top-Heavy Plan
This Plan will be a Top-Heavy Plan for any Plan Year beginning after
December 31, 1983, in which, as of the Determination Date, the Single
Sum Benefits of all Key Employees exceed 60% of the Single Sum
Benefits of all Participants under this Plan.
This Plan will be a Super Top-Heavy Plan for any Plan Year beginning
after December 31, 1983, in which, as of the Determination Date, the
Single Sum Benefits of all Key Employees exceed 90% of the Single Sum
Benefits of all Participants under this Plan.
If any Participant is a Non-Key Employee for a given Plan Year, but
was a Key Employee for any prior Plan Year, the Participant's Single
Sum Benefit will not be taken into account for purposes of determining
whether this Plan is a Top-Heavy or Super Top-Heavy Plan (or whether
any Aggregation Group which includes this Plan is a Top-Heavy or Super
Top-Heavy Group).
If an individual has performed no services for the Employer at any
time during the 5-year period ending on the Determination Date, any
Single Sum Benefit of such individual will not be taken into account
for purposes of determining whether this Plan is a Top-Heavy or Super
Top-Heavy Plan (or whether any Aggregation Group which includes this
Plan is a Top-Heavy Group or Super Top-Heavy Group).
1.37 Trust Fund, Trust
These terms mean the total cash, securities, real property, insurance
contracts and any other property held by the Trustee.
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<PAGE> 16
1.38 Trustee
The Trustee is Charles Schwab Trust Company (CSTC) or any successor
Trustee, except that Lee Grubb and Alex Young or a successor trustee
appointed by the Plan Sponsor is appointed as Trustee of certain GIC
contracts that are not controlled by CSTC.
1.39 Vested Percentage
A Participant's Vested Percentage as of a given date will be that
percentage determined in accordance with the Vesting Schedule.
Notwithstanding the preceding, a Participant will be 100% vested upon
reaching the earlier of (a) his Normal Retirement Age or (b) the later of
the date upon which the Participant attains age 65 or reaches the 5th
anniversary of the date he commenced participation in the Plan.
1.40 Vesting Schedule
A Participant's Vested Percentage will be determined in accordance with the
following table:
<TABLE>
<CAPTION>
Years of Vesting Service Vested Percentage
------------------------ -----------------
<S> <C>
Less than 1 Year 0%
1 Year 20%
2 Years 40%
3 Years 60%
4 Years 80%
5 Years or more 100%
</TABLE>
1.41 Written Resolution
The terms Written Resolution and Written Consent are used interchangeably
and reflect decisions, authorizations, etc. by the Employer. A Written
Resolution will be evidenced by a resolution of the Board of Directors of
the Employer.
1.42 Year of Service
(a) Crediting Years of Service Years of Service are determined under the
Elapsed Time Method. Under the Elapsed Time Method, Years of Service
are based upon an Employee's Elapsed Time of employment irrespective
of the number of hours actually worked during such period; a Year of
Service (including a fraction thereof) will be credited for each
completed 365 days of Elapsed Time which need not be consecutive. The
following terms are used in determining Years of Service under the
Elapsed Time Method:
(1) Date of Severance (Termination) - means the earlier of (A) the
actual date an Employee resigns, is discharged, dies or retires,
or (B) the first anniversary of the date an Employee is absent
from work (with or without pay) for any other reason, e.g.,
disability, vacation, leave of absence, layoff, etc.
(2) Elapsed Time - means the total period of service which has
elapsed between a Participant's Employment Commencement Date and
Date of Termination including Periods of Severance where a One
Year Break-in-Service does not occur.
(3) Employment Commencement Date - means the date an Employee first
performs one Hour of Service for the Employer.
(4) One Year Break-in-Service - means any 365-day period following an
Employee's Date of Termination as defined above in which the
Employee does not complete at least one Hour of Service.
(5) Period of Severance - is the time between the actual Date of
Severance as defined
amended September 1995 1-14
<PAGE> 17
above and the subsequent date, if any, on which the Employee
performs an Hour of Service.
All periods of employment will be aggregated including Periods of
Severance unless there is a One Year Break-in-Service.
Years of Eligibility Service for purposes of determining eligibility
to participate in the Plan and Years of Vesting Service for purposes
of determining a Participant's Vested Percentage include service with
any organization which is a Related Employer with respect to the
Employer.
(b) For Eligibility Purposes
Years of Service for purposes of eligibility to participate in the
Plan are referred to as Years of Eligibility Service and are
determined using the Elapsed Time Method.
All of an Employee's Years of Eligibility Service are taken into
account in determining his eligibility to participate.
(c) For Vesting Purposes
Years of Service for purposes of computing a Participant's Vested
Percentage are referred to as Years of Vesting Service and are
determined using the Elapsed Time Method.
All of a Participant's Years of Vesting Service are taken into account
in determining his Vested Percentage.
1-15
<PAGE> 18
ARTICLE 2
PARTICIPATION
2.01 Participation
An Employee will become eligible to participate in the Plan on the Entry
Date which coincides with or next follows the attainment of age 21.
An Employee who is eligible to participate as of the Effective Date or as
of a given Entry Date will automatically become a Participant as of such
date. An Employee who is otherwise eligible to participate may irrevocably
elect not to participate in the Plan. Any election under this paragraph
must be in writing and according to guidelines established by the Plan
Administrator.
2.02 Participation After Reemployment
An Employee who has satisfied all of the eligibility requirements but
terminates employment prior to his Entry Date will participate in the Plan
immediately upon returning to the employ of the Employer.
A Participant or Former Participant who has terminated employment will
participate as an Active Participant in the Plan immediately upon returning
to the employ of the Employer.
2.03 Change in Employment Classification
In the event a Participant becomes ineligible to participate because he is
no longer a member of an Eligible Employee Classification, the Participant
will participate immediately upon his return to an Eligible Employee
Classification.
In the event an Employee who is not a member of an Eligible Employee
Classification becomes a member of such a classification, such Employee
will begin to participate immediately if he has satisfied the eligibility
requirements which are specified in Section 2.01.
2-1
<PAGE> 19
ARTICLE 3
PARTICIPANT ACCOUNTS
3.01 Employee Pre-tax Account
Employee Pre-tax Account means the Account of a Participant reflecting
applicable contributions, investment income or loss allocated thereto and
distributions. A Participant's Employee Pre-tax Account is 100% vested at
all times.
(a) Employee Pre-tax Contributions
(1) Amount of Contribution Each Participant may elect to make an
Employee Pre-tax Contribution each Contribution Period of not
more than 15% of the Participant's Compensation.
(2) Payroll Withholding All Employee Pre-tax Contributions will be
made pursuant to a Payroll Withholding Agreement in accordance
with Section 1.27.
(3) Nondiscrimination Requirements All Employee Pre-tax Contributions
are Elective Contributions within the meaning of Section 4.05(a)
and must satisfy the Nondiscrimination Requirements of Section
4.05.
(4) Excess Deferrals
The maximum amount of Employee Pre-tax Contribution which can be
made under the Plan on behalf of any Participant during any
calendar year will be limited to that amount which would not
constitute an Excess Deferral as defined in Section 4.05. The
Plan Administrator will distribute any Excess Deferral, together
with the income allocable to it, to the Participant no later than
April 15 of the calendar year immediately following the year of
the Excess Deferral. If a Participant notifies the Plan
Administrator before March 1 of any calendar year that Excess
Deferrals have been made on his account for the previous calendar
year by reason of participation in a Cash or Deferred Arrangement
maintained by another employer or employers, and if the
Participant requests that the Plan Administrator distribute a
specific amount to him on account of Excess Deferrals and
certifies that the requested amount is an Excess Deferral, the
Plan Administrator will designate the amount requested together
with the income allocable to it as a distribution of Excess
deferrals and distribute such amount no later than April 15 of
that calendar year. The amount of Excess Deferrals to be
distributed will be reduced by any Excess Contributions
previously distributed or recharacterized with respect to the
Plan Year beginning with or within the calendar year. The amount
of income allocable to the Excess Deferral will be determined as
described in Section 4.05.
(5) Timing of Deposits
The Employer will deposit all Employee Pre-tax Contributions no
later than 90 days after the date on which the amounts withheld
would otherwise have been paid to the Participant in cash.
The Contribution Period for Employee Pre-tax Contributions is
each month.
3-1
<PAGE> 20
(b) Distributions
No distribution may be made from the Participant's Employee Pre-tax
Account or any account comprised of Matching Contributions or
Nonelective Contributions which are treated as Elective Contributions
in accordance with the provisions of Section 4.05(h) except under one
of the following circumstances:
o the Participant's attaining age 59 1/2;
o the Participant's retirement, death, disability or
termination of employment;
o the avoidance or alleviation of a Financial Hardship;
o the termination of this Plan without the establishment of a
successor plan within the meaning of Treasury Regulation
Section 1.401(k)-1(d)(3);
o the sale or other disposition by the Employer of at least 85
percent of the assets used by the Employer in a trade or
business to an unrelated corporation which does not maintain
the plan, but only if the Participant continues employment
with the corporation acquiring the assets and only if the
Employer continues to maintain this Plan; or
o the sale or other disposition by the Employer of its
interest in a subsidiary to an unrelated entity which does
not maintain the plan, but only if the Participant continues
employment with the subsidiary and only if the Employer
continues to maintain this Plan.
This paragraph does not apply to distributions of Excess Deferrals,
Excess Contributions, or excess Annual Additions.
(c) Financial Hardship Withdrawals
A Participant may file with the Plan Administrator a written request
to withdraw, in order to avoid or alleviate a Financial Hardship, any
amount not to exceed that portion of his Employee Pre-tax Account
which represents his total Employee Pre-tax Contributions.
The Plan Administrator will allow Financial Hardship withdrawals only
if they are necessary to satisfy a Participant's immediate and heavy
financial need.
(1) Immediate and Heavy Financial Need A withdrawal will be deemed to
be made due to an immediate and heavy financial need of the
Participant if it is made because of:
o Expenses for medical care described in Code Section 213(d)
previously incurred by the Participant, his spouse or any of
his dependents (as defined in Code Section 152) or necessary
for these persons to obtain medical care described in Code
Section 213(d);
o Costs directly related to the purchase (excluding mortgage
payments) of a principal residence for the Participant;
o Payment of tuition or educational fees for the next 12
months of post-secondary education for the Participant, his
spouse, children or dependents (as defined in Code Section
152);
o Prevention of the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
3-2
<PAGE> 21
(2) Necessary To Satisfy Financial Need No withdrawal may exceed the
amount necessary to satisfy the Participant's immediate and heavy
financial need. However, the amount of an immediate and heavy
financial need may include any amounts necessary to pay any
federal, state or local income taxes or penalties reasonably
anticipated to result from the distribution. The Plan
Administrator will allow the withdrawal if it determines, after a
full review of the Participant's written request and evidence
presented by the Participant showing immediate and heavy
financial need as well as the Participant's lack of other
reasonably available resources, that the withdrawal is necessary
to satisfy the need. No withdrawal will be treated as necessary
to the extent it can be satisfied from other resources which are
reasonably available to the Participant, including those of the
Participant's spouse and minor children. A withdrawal will be
treated as necessary to the extent the Participant demonstrates
to the satisfaction of the Plan Administrator that the need
cannot be relieved by any of the following:
o Reimbursement or compensation by insurance or otherwise;
o Reasonable liquidation of assets to the extent the
liquidation would not itself cause an immediate and heavy
financial need;
o Cessation of Employee Pre-tax Contributions or Employee
Contributions (as defined in Section 4.05(a)) or both under
any plan maintained by any employer;
o Other distributions or nontaxable (at the time of the loan)
loans from plans maintained by any employer;
o Borrowing from commercial sources on reasonable commercial
terms.
Unless the Plan Administrator has evidence to the contrary, it
may rely upon the Participant's written representation that the
need cannot be relieved by any of the foregoing.
(3) Safe Harbor
The Plan Administrator will not allow any withdrawal until the
Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available to
the Participant under all plans maintained by the Employer. Upon
the withdrawal of any portion of a Participant's Employee Pre-tax
Account, the Participant will become ineligible for any Elective
Contribution to this Plan or any other plan maintained by the
Employer, or to make any contribution to this Plan or any other
plan maintained by the Employer until the first day of the first
payroll period which begins not less than 12 months following the
date of withdrawal. For this purpose the phrase "any other plan
maintained by the Employer" means all qualified and nonqualified
plans of deferred compensation maintained by the Employer. The
phrase includes stock option, stock purchase, or similar plans,
or a cash or deferred arrangement that is part of a cafeteria
plan within the meaning of Code Section 125. It does not include
the mandatory employee contribution portion of a defined benefit
plan, nor does it include a health or welfare benefit plan
(including one that is part of a cafeteria plan within the
meaning of Code Section 125). Furthermore, the maximum amount of
Employee Pre-tax Contributions which can be made under the Plan
on behalf of any Participant during the calendar year which
follows the calendar year in which the withdrawal was made will
be limited to the amount which would not be treated as an Excess
Deferral for that year reduced by the amount of Employee Pre-tax
Contributions made on behalf of the Participant in the calendar
year of withdrawal.
3-3
<PAGE> 22
The withdrawal of any portion of a Participant's Employee Pre-tax
Account will interrupt the Participant's status as an Active
Participant in the Plan, reinstatement of which may not be
established until the first day of the Accounting Period next
following the date of withdrawal.
3.02 Employer Matching Account
Employer Matching Account means the Account of a Participant reflecting
applicable contributions, forfeitures, investment income or loss allocated
thereto and distributions. A Participant's Employer Matching Account is
subject to the Vesting Schedule.
(a) Matching Contributions Each Plan Year, the Employer may, within the
time prescribed by law for making a deductible contribution, make a
Matching Contribution to the Trust.
For a given Plan Year, the total Matching Contribution, if any, made
by the Employer will be an amount determined and authorized by the
Employer for such Plan Year; however, the Employer will not authorize
Matching Contributions at such times or in such amounts that the Plan,
in operation, discriminates in favor of Highly Compensated Employees.
The Matching Contribution to be made to an Eligible Participant's
Employer Matching Account will be in accordance with the following
schedule:
<TABLE>
<CAPTION>
Matching Contribution
Years of as a Percentage of the
Benefit Service Employee Pre-tax Contribution
--------------- -----------------------------
<S> <C>
0-3 10%
>4-5 25%
>6-10 50%
>11+ 75%
</TABLE>
If the sum of the target Matching Contributions to be made for all
Participants is less than or greater than the total Matching
Contribution made by the Employer in accordance with the provisions of
this Section, then the actual Matching Contribution allocated to each
Eligible Participant's Employer Matching Account will be adjusted
proratably so that the sum of the actual Matching Contributions made
for all Participants is equal to the total Matching Contribution made
by the Employer.
All Matching Contributions are Matching Contributions within the
meaning of Section 4.05(a) and must satisfy the Nondiscrimination
Requirements of Section 4.05.
(b) Contribution Period
The Contribution Period for Matching Contributions is each calendar
year.
amended September 1995 3-4
<PAGE> 23
(c) Application of Forfeitures
Forfeitures from a Participant's Employer Matching Account will be
used to reduce Matching Contributions in the Plan Year in which the
Forfeitures are determined to occur.
(d) Withdrawals
A Participant who is 100% vested in his Employer Matching Account and
has attained age 59-1/2 may withdraw all or any portion of his
Employer Matching Account subject to the limitations of this Section.
A Participant who is less than 100% vested in his Employer Matching
Account or has not attained age 59-1/2 may not withdraw any portion of
his Employer Matching Account prior to the time when benefits
otherwise become payable in accordance with the provisions of Article
5.
3.03 Profit Sharing Account
Profit Sharing Account means the Account of a Participant reflecting
applicable contributions, forfeitures, investment income or loss allocated
thereto and distributions. A Participant's Profit Sharing Account is
subject to the Vesting Schedule.
(a) Profit Sharing Contributions
Each Plan Year, the Employer may, within the time prescribed by law
for making a deductible contribution, make a Profit Sharing
Contribution to the Trust.
For a given Plan Year, the total Profit Sharing Contribution, if any,
made by the Employer will be an amount determined and authorized by
the Employer for such Plan Year; however, the Employer will not
authorize Profit Sharing Contributions at such times or in such
amounts that the Plan, in operation, discriminates in favor of Highly
Compensated Employees.
The total Profit Sharing Contribution made by the Employer will be
allocated by the ratio which each Eligible Participant's Compensation
bears to the total Compensation of all Eligible Participants.
(b) Contribution Period
The Contribution Period for Profit Sharing Contributions is each
calendar year.
(c) Application of Forfeitures
Forfeitures from a Participant's Profit Sharing Account will be added
to and allocated along with Profit Sharing Contributions in the Plan
Year in which the Forfeitures are determined to occur.
(d) Minimum Allocation for Top-Heavy Plan
Notwithstanding anything contained herein to the contrary, for any
Plan Year in which this Plan is determined to be Top-Heavy, a
Participant (including any Employee who is excluded from the Plan
because his Compensation is less than a stated amount) will be
entitled to a minimum allocation of Profit Sharing Contributions equal
to 3% of the Participant's Aggregate Compensation received during the
Plan Year. This minimum allocation will be provided to each
Participant who is employed by the Employer on the last day of the
Plan Year whether or not he or she is an otherwise Eligible
Participant or fails to make any mandatory Employee contribution to
the Plan.
The percentage referred to in the preceding paragraph will not exceed
the percentage of Aggregate Compensation at which Profit Sharing
Contributions are made or allocated to the Key Employee for whom such
percentage is the largest; provided, however, this sentence will not
apply if the Plan is required to be included in an Aggregation Group
to meet the requirements of Code Sections 401(a)(4) or 410.
3-5
<PAGE> 24
(e) Withdrawals
A Participant who is 100% vested in his Profit Sharing Account and has
attained age 59-1/2 may withdraw all or any portion of his Profit
Sharing Account subject to the limitations of this Section. A
Participant who is less than 100% vested in his Profit Sharing Account
or has not attained age 59-1/2 may not withdraw any portion of his
Profit Sharing Account prior to the time when benefits otherwise
become payable in accordance with the provisions of Article 5.
3.04 Rollover Account
Rollover Account means the Account of a Participant reflecting applicable
contributions, investment income or loss allocated thereto and
distributions. A Participant's Rollover Account is 100% vested at all
times.
(a) Rollover Contributions
Rollover Contribution means a contribution to the Plan by a
Participant where such contribution is the result of a prior
distribution from an Individual Retirement Account, an Individual
Retirement Annuity or another qualified plan. Such prior contribution
must be a rollover amount described in Section 402(c)(4) of the Code
or a contribution described in Section 408(d)(3) of the Code.
Each Employee who is a member of an Eligible Employee Classification,
regardless of whether he is a Participant in the Plan, will have the
right to make a Rollover Contribution of cash (or other property of a
form acceptable to the Plan Administrator and the Trustee) into the
Plan from another qualified plan. If the Employee is not a Participant
hereunder, his Rollover Account will constitute his entire interest in
the Plan. In no event will the existence of a Rollover Account entitle
the Employee to participate in any other benefit provided by the Plan.
If specifically provided for in a Written Resolution, Rollover
Contribution will also mean the amount of assets transferred, pursuant
to Section 10.05, to this Plan from another plan which is qualified
under Code Sections 401(a) and 501(a).
(b) Withdrawals
A Participant may withdraw all or any portion of his Rollover Account
prior to the time in accordance with the provisions of Article 5.
3-6
<PAGE> 25
ARTICLE 4
ACCOUNTING AND VALUATION
4.01 General Powers of the Plan Administrator
The Plan Administrator will have the power to establish rules and
guidelines, which will be applied on a uniform and non-discriminatory
basis, as it deems necessary, desirable or appropriate with regard to
accounting procedures and to the timing and method of contributions to
and/or withdrawals from the Plan.
4.02 Valuation Procedure
As of each Valuation Date, the Plan Administrator will determine from the
Trustee the fair market value of Trust assets and will, subject to the
provisions of this Article, determine the allocation of such value among
the Accounts of the Participants; in doing so, the Plan Administrator will
in the following order:
(a) Credit or charge, as appropriate, to the proper Accounts all
contributions, payments, transfers, forfeitures, withdrawals or other
distributions made to or from such Accounts since the last preceding
Valuation Date and that have not been previously credited or charged.
(b) Credit or charge, as applicable, each Account with its pro rata
portion of the appreciation or depreciation in the fair market value
of the Trust Fund since the prior Valuation Date. Such appreciation or
depreciation will reflect investment income, realized and unrealized
gains and losses, other investment transactions and expenses paid from
the Trust Fund.
4.03 Reserved
4.04 Participant Direction of Investment
(a) Application of this Section Subject to the provisions of this Section,
each Participant will have the right to direct the investment of all
of his Accounts among the Specific Investment Funds which are made
available by the Plan Administrator.
(b) General Powers of the Trustee The Trustee will have the power to
establish rules and guidelines as it deems necessary, desirable or
appropriate with regard to the directed investment of contributions in
accordance with this Section. Such rules and guidelines are intended
to comply with Section 404(c) of ERISA and the regulations thereunder.
Included in such powers, but not by way of limitation, are the
following powers and rights.
(1) To temporarily invest those contributions which are pending
directed investment in a Specific Investment Fund, in the General
Investment Fund or in some other manner as determined by the
Trustee.
(2) To establish rules with regard to the transfer of all or any part
of the balance of an Account or Accounts of a given Participant
from one Investment Fund to another.
(3) To maintain any part of the assets of any Investment Fund in
cash, or in demand or short-term time deposits bearing a
reasonable rate of interest, or in a short-term investment fund
that provides for the collective investment of cash balances or
in
4-1
<PAGE> 26
other cash equivalents having ready marketability, including, but
not limited to, U.S. Treasury Bills, commercial paper,
certificates of deposit, and similar types of short-term
securities, as may be deemed necessary by the Trustee in its sole
discretion.
The Trustee will not be liable for any loss that results from a
Participant's exercise of control over the investment of the
Participant's Accounts. If the Participant fails to provide adequate
directions, the Plan Administrator will direct the investment of the
Participant's Account. The Trustee will have no duty to review or make
recommendations regarding a Participant's investment directions.
(c) Accounting
The Plan Administrator will maintain a set of accounts for each
Investment Fund. The accounts of the Plan Administrator for each
Investment Fund will indicate separately the dollar amounts of all
contributions made to such Investment Fund by or on behalf of each
Participant from time to time. The Plan Administrator will compute the
net income from investments; net profits or losses arising from the
sale, exchange, redemption, or other disposition of assets, and the
prorata share attributable to each Investment Fund of the expenses of
the administration of the Plan and Trust and will debit or credit, as
the case may be, such income, profits or losses, and expenses to the
unsegregated balance in each Investment Fund from time to time. To the
extent that the expenses of the administration of the Plan and Trust
are not directly attributable to a given Investment Fund, such
expenses, as of a given Valuation Date, will be prorated among each
Investment Fund; such allocation of expenses will, in general, be
performed in accordance with the guidelines which are specified in
this Article.
(d) Future Contributions
Each Participant who chooses to participate in the Plan will elect the
percentage of those contributions which are subject to Participant
direction of investment which is to be deposited to each available
Investment Fund. Such election will be in effect until modified. If
any Participant fails to make an election by the appropriate date, he
will be deemed to have elected an Investment Fund(s) as determined by
the Plan Administrator. Elections will be limited to multiples of one
percent (or such other reasonable increments as determined by the Plan
Administrator).
(e) Change in Investment of Past Contributions
A Participant may file an election with the Plan Administrator to
shift the aggregate amount or reasonable increments (as determined by
the Plan Administrator) of the balance of his existing Account or
Accounts which are subject to Participant direction of investment
among the various Investment Funds as of the first day of each
Accounting Period (or such other time or times as determined by the
Plan Administrator). Elections will be limited to multiples of one
percent (or such other reasonable increments as determined by the Plan
Administrator).
(f) Changes in Investment Elections
Elections with respect to future contributions and/or with respect to
changes in the investment of past contributions will be in writing on
a form provided by the Plan Administrator, except that each
Participant may authorize the Plan Administrator in writing on an
authorization form provided by the Plan Administrator to accept such
directions as may be made by the Participant by use of a telephone
voice response system maintained for such purpose.
The Plan Administrator may establish additional rules and procedures
with respect to investment election changes including, for example,
the number of allowed changes per
4-2
<PAGE> 27
specified period, the amount of reasonable fee, if any, which will be
charged to the Participant for making a change, specified dates or
cutoff dates for making a change, etc.
(g) Addition and Deletion of Specific Investment Funds
Specific Investment Funds may be made available from time to time by
the Trustee. Specific Investment Funds, as are from time to time made
available by the Trustee, may be deleted or added from time to time by
the Plan Administrator. The Plan Administrator will establish
guidelines for the proper administration of affected Accounts when a
Specific Investment Fund is added or deleted.
4.05 Nondiscrimination Requirements
(a) Definitions Applicable to the Nondiscrimination Requirements
The following definitions apply to this Section:
(1) Aggregate Limit
With respect to a given Plan Year, Aggregate Limit means the
greater of the sum of [(A) + (B)] or the sum of [(C) + (D)]
where:
(A) is equal to 125% of the greater of DP or CP;
(B) is equal to 2 percentage points plus the lesser of DP or CP,
not to exceed 2 times the lesser of DP or CP;
(C) is equal to 125% of the lesser of DP or CP;
(D) is equal to 2 percentage points plus the greater of DP or
CP, not to exceed 2 times the greater of DP or CP;
DP represents the Deferral Percentage for the Non-highly
Compensated Group eligible under the Cash or Deferred
Arrangement for the Plan Year; and
CP represents the Contribution Percentage for the Non-highly
Compensated Group eligible under the plan providing for the
Employee Contributions or Employer Matching Contributions
for the Plan Year beginning with or within the Plan Year of
the Cash or Deferred Arrangement.
(2) Cash or Deferred Arrangement (CODA)
A Cash or Deferred Election is any election (or modification of
an earlier election) by an Employee to have the Employer either:
o provide an amount to the Employee in the form of cash
or some other taxable benefit that is not currently
available, or
o contribute an amount to the Plan (or provide an accrual
or other benefit) thereby deferring receipt of
Compensation.
A Cash or Deferred Election will only be made with respect to an
amount that is not currently available to the Employee on the
date of election. Further, a Cash or Deferred Election will only
be made with respect to amounts that would have (but for the Cash
or Deferred Election) become currently available after the later
of the date on which the Employer adopts the Cash or Deferred
Arrangement or the date on which the arrangement first becomes
effective.
4-3
<PAGE> 28
A Cash or Deferred Election does not include a one-time
irrevocable election upon the Employee's commencement of
employment or first becoming an Eligible Employee.
(3) Compensation
For purposes of this Section, Compensation means Aggregate
Compensation as defined in Section 7.03(a) plus amounts
contributed by the Employer pursuant to a salary reduction
agreement which are excludable from the gross income of the
Employee under Code Section 125, 402(a)(8), 402(h) or 403(b).
Compensation in excess of the Statutory Compensation Limit is
disregarded.
The period used to determine an Employee's Compensation for a
Plan Year may be limited to that portion of the Plan Year in
which the Employee was an Eligible Employee, provided that this
method is applied uniformly to all Eligible Employees under the
Plan for the Plan Year.
(4) Contribution Percentage
Contribution Percentage means, for any specified group, the
average of the ratios calculated (to the nearest one-hundredth of
one percent) separately for each Participant in the group, of the
amount of Employee Contributions and Matching Contributions which
are made by or on behalf of each Participant for a Plan Year to
each Participant's Compensation for the Plan Year.
For purposes of determining the Contribution Percentage, each
Employee who is eligible under the terms of the Plan to make or
to have contributions made on his behalf is treated as a
Participant. The Contribution Percentage of an eligible Employee
who makes no Employee Contribution and receives no Matching
Contribution is zero.
For purposes of determining the Contribution Percentage of a
Participant who is a Highly Compensated Employee, the
Compensation of and all Employee Contributions and Matching
Contributions for the Participant include, in accordance with the
provisions of Section 4.05(d), the Compensation of and all
Employee Contributions and Matching Contributions for any Family
Member of the Participant.
The Contribution Percentage of a Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to
make Employee Contributions or receive an allocation of Matching
Contributions (including Elective Contributions and Nonelective
Contributions which are treated as Employee or Matching
Contributions for purposes of the Contribution Percentage Test)
allocated to his accounts under two or more plans which are
sponsored by the Employer will be determined as if the Employee
and Matching Contributions were made under a single plan. For
purposes of this paragraph, if a Highly Compensated Employee
participates in two or more such plans which have different Plan
Years, all plans ending with or within the same calendar year
will be treated as a single plan.
(5) Contribution Percentage Test
The Contribution Percentage Test is a test applied on a Plan Year
basis to determine whether a plan meets the requirements of Code
Section 401(m). The Contribution Percentage Test may be met by
either satisfying the General Contribution Percentage Test or the
Alternative Contribution Percentage Test.
The General Contribution Percentage Test is satisfied if the
Contribution Percentage for the Highly Compensated Group does not
exceed 125% of the Contribution Percentage for the Non-highly
Compensated Group.
4-4
<PAGE> 29
The Alternative Contribution Percentage Test is satisfied if the
Contribution Percentage for the Highly Compensated Group does not
exceed the lesser of:
o the Contribution Percentage for the Non-highly
Compensated Group plus 2 percentage points, or
o the Contribution Percentage for the Non-highly
Compensated Group multiplied by 2.0.
If (i) one or more Highly Compensated Employees of the Employer
or any Related Employer are eligible to participate in both a
Cash or Deferred Arrangement and a plan which provides for
Employee Contributions or Matching Contributions, (ii) the
Deferral Percentage for the Highly Compensated Group does not
satisfy the General Deferral Percentage Test, and (iii) the
Contribution Percentage for the Highly Compensated Group does not
satisfy the General Contribution Percentage Test, then the
Contribution Percentage Test will be deemed to be satisfied only
if the sum of the Deferral Percentage and the Contribution
Percentage for the Highly Compensated Group does not exceed the
Aggregate Limit.
The Plan will not fail to satisfy the Contribution Percentage
test merely because all of the Eligible Employees under the Plan
for a Plan Year are Highly Compensated Employees.
(6) Deferral Percentage
Deferral Percentage means, for any specified group, the average
of the ratios calculated (to the nearest one-hundredth of one
percent) separately for each Participant in the group, of the
amount of Elective Contributions which are made on behalf of each
Participant for a Plan Year to each Participant's Compensation
for the Plan Year.
For purposes of determining the Deferral Percentage, each
Employee who is eligible under the terms of the Plan to have
contributions made on his behalf is treated as a Participant. The
Deferral Percentage of an eligible Employee who makes no Elective
Contribution is zero.
For purposes of determining the Deferral Percentage of a
Participant who is a Highly Compensated Employee, the
Compensation of and Elective Contributions for the Participant
include, in accordance with the provisions of Section 4.05(d),
the Compensation and all Elective Contributions for any Family
Member of the Participant.
The Deferral Percentage of a Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to
have Elective Contributions (including Nonelective Contributions
or Matching Contributions which are treated as Elective
Contributions for purposes of the Deferral Percentage Test)
allocated to his accounts under two or more Cash or Deferred
Arrangements which are maintained by the Employer will be
determined as if the Elective Contributions were made under a
single Arrangement. For purposes of this paragraph, if a Highly
Compensated Employee participates in two or more Cash or Deferred
Arrangements which have different Plan Years, all Cash or
Deferred Arrangements ending with or within the same calendar
year will be treated as a single Arrangement.
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(7) Deferral Percentage Test
The Deferral Percentage Test is a test applied on a Plan Year
basis to determine whether a plan meets the requirements of Code
Section 401(k). The Deferral Percentage Test may be met by either
satisfying the General Deferral Percentage Test or the
Alternative Deferral Percentage Test.
The General Deferral Percentage Test is satisfied if the Deferral
Percentage for the Highly Compensated Group does not exceed 125%
of the Deferral Percentage for the Non-highly Compensated Group.
The Alternative Deferral Percentage Test is satisfied if the
Deferral Percentage for the Highly Compensated Group does not
exceed the lesser of:
o the Deferral Percentage for the Non-highly Compensated
Group plus 2 percentage points, or
o the Deferral Percentage for the Non-highly Compensated
Group multiplied by 2.0.
If (i) one or more Highly Compensated Employees of the Employer
or any Related Employer are eligible to participate in both a
Cash or Deferred Arrangement and a plan which provides for
Employee Contributions or Matching Contributions, (ii) the
Deferral Percentage for the Highly Compensated Group does not
satisfy the General Deferral Percentage Test, and (iii) the
Contribution Percentage for the Highly Compensated Group does not
satisfy the General Contribution Percentage Test, then the
Deferral Percentage Test will be deemed to be satisfied only if
the sum of the Deferral Percentage and the Contribution
Percentage for the Highly Compensated Group does not exceed the
Aggregate Limit.
The Plan will not fail to satisfy the Deferral Percentage test
merely because all of the Eligible Employees under the Plan for a
Plan Year are Highly Compensated Employees.
(8) Elective Contribution
Elective Contribution means any contribution made by the Employer
to a Cash or Deferred Arrangement on behalf of and at the
election of an Employee. An Elective Contribution will be taken
into account for a given Plan Year only if:
o The Elective Contribution is allocated to the
Participant's Account as of a date within the Plan Year
to which it relates;
o The allocation is not contingent upon the Employee's
participation in the Plan or performance of services on
any date after the allocation date;
o The Elective Contribution is actually paid to the trust
no later than 12 months after the end of the Plan Year
to which the Elective Contribution relates; and
o The Elective Contribution relates to Compensation which
either (i) but for the Participant's election to defer,
would have been received by the Participant in the Plan
Year or (ii) is attributable to services performed by
the Participant in the Plan Year and, but for the
Participant's election to defer,
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<PAGE> 31
would have been received by the Participant within two
and one-half months after the close of the Plan Year.
Elective Contributions will be treated as Employer Contributions
for purposes of Code Sections 401(a), 401(k), 402(a), 404, 409,
411, 412, 415, 416, and 417.
(9) Elective Deferral
Elective Deferral means the sum of the following:
o Any Elective Contribution to any Cash or Deferred
Arrangement to the extent it is not includable in the
Participant's gross income for the taxable year of
contribution;
o Any employer contribution to a simplified employee
pension as defined in Code Section 408(k) to the extent
not includable in the Participant's gross income for
the taxable year of contribution;
o Any employer contribution to an annuity contract under
Code Section 403(b) under a salary reduction agreement
to the extent not includable in the Participant's gross
income for the taxable year of contribution; plus
o Any employee contribution designated as deductible
under a trust described in Code Section 501(c)(18) for
the taxable year of contribution.
(10) Eligible Employee
Eligible Employee means an Employee who is directly or indirectly
eligible to make a Cash or Deferred Election under the Plan for
all or a portion of the Plan Year. An Employee who is unable to
make a Cash or Deferred Election because the Employee has not
contributed to another plan is also an Eligible Employee. An
Employee who would be eligible to make Elective Contributions but
for a suspension due to a distribution, a loan, or an election
not to participate in the Plan, is treated as an Eligible
Employee for purposes of Code Section 401(k)(3) and 401(m) for a
Plan Year even though the Employee may not make a Cash or
Deferred Election due to the suspension. Also, an Employee will
not fail to be treated as an Eligible Employee merely because the
employee may receive no additional Annual Additions because of
Code Section 415(c)(1) or 415(e).
(11) Employee Contribution
Employee Contribution means any contribution made by an Employee
to any plan maintained by the Employer or any Related Employer
which is other than an Elective Contribution and which is
designated or treated at the time of contribution as an after-tax
contribution. Employee Contributions include amounts attributable
to Excess Contributions which are recharacterized as Employee
Contributions.
(12) Excess Contribution
Excess Contribution means, for each member of the Highly
Compensated Group, the amount of Elective Contribution (including
any Qualified Nonelective Contributions and Qualified Matching
Contributions which are treated as Elective Contributions) which
exceeds the maximum contribution which could be made if the
Deferral Percentage Test were to be satisfied.
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<PAGE> 32
(13) Excess Aggregate Contribution
Excess Aggregate Contribution means, for each member of the
Highly Compensated Group, the amount of Employee and Matching
Contributions (including any Qualified Nonelective Contributions
and Elective Contributions which are treated as Matching
Contributions) which exceeds the maximum contribution which could
be made if the Contribution Percentage Test were to be satisfied.
(14) Excess Deferral
Excess Deferral means, for a given calendar year, that amount by
which each Participant's total Elective Deferrals under all plans
of all employers exceed the dollar limit in effect under Code
Section 402(g) for the calendar year.
(15) Matching Contribution
Matching Contribution means any contribution made by the Employer
to any plan maintained by the Employer or any Related Employer
which is based on an Elective Contribution or an Employee
Contribution together with any forfeiture allocated to the
Participant's Account on the basis of Elective Contributions,
Employee Contributions or Matching Contributions. A Matching
Contribution will be taken into account for a given Plan Year
only if:
o The Matching Contribution is allocated to a
Participant's Account as of a date within the Plan Year
to which it relates;
o The allocation is not contingent upon the Employee's
participation in the Plan or performance of services on
any date after the allocation date;
o The Matching Contribution is actually paid to the Trust
no later than 12 months after the end of the Plan Year
to which the Matching Contribution relates; and
o The Matching Contribution is based on an Elective or
Employee Contribution for the Plan Year.
Any contribution or allocation, other than a Qualified
Nonelective Contribution, which is used to meet the minimum
contribution or benefit requirement of Code Section 416 is not
treated as being based on Elective Contributions or Employee
Contributions and therefore is not treated as a Matching
Contribution.
Qualified Matching Contribution means a Matching Contribution
which is 100% vested and may be withdrawn or distributed only
under the conditions described in Treasury Regulation
1.401(k)-1(d).
(16) Nonelective Contribution
Nonelective Contribution means any Employer Contribution, other
than a Matching Contribution, which meets all of the following
requirements:
o The Nonelective Contribution is allocated to a
Participant's Account as of a date within the Plan Year
to which it relates;
o The allocation is not contingent upon the Employee's
participation in the Plan or performance of services on
any date after the allocation date;
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<PAGE> 33
o The Nonelective Contribution is actually paid to the
Trust no later than 12 months after the end of the Plan
Year to which the Nonelective Contribution relates; and
o The Employee may not elect to have the Nonelective
Contribution paid in cash in lieu of being contributed
to the Plan.
Qualified Nonelective Contribution means a Nonelective
Contribution which is 100% vested and may be withdrawn or
distributed only under the conditions described in Treasury
Regulation 1.401(k)-1(d).
(b) Application of Deferral Percentage Test
All Elective Contributions, including any Elective Contributions which
are treated as Employee or Matching Contributions with respect to the
Contribution Percentage Test, must satisfy the Deferral Percentage
Test. Furthermore, any Elective Contributions which are not treated as
Employee or Matching Contributions with respect to the Contribution
Percentage Test must satisfy the Deferral Percentage Test. The Plan
Administrator will determine as soon as administratively feasible
after the end of the Plan Year whether the Deferral Percentage Test
has been satisfied. If the Deferral Percentage Test is not satisfied,
the Employer may elect to make an additional contribution to the Plan
on account of the Non-highly Compensated Group. The additional
contribution will be treated as a Nonelective Contribution.
If the Deferral Percentage Test is not satisfied after any Nonelective
Contributions, the Plan Administrator may, in its sole discretion,
recharacterize all or any portion of the Excess Contribution of each
Highly Compensated Employee as an Employee Contribution if Employee
Contributions are otherwise allowed by the Plan. If so, the Plan
Administrator will notify all affected Participants and the Internal
Revenue Service of the amount recharacterized no later than the 15th
day of the third month following the end of the Plan Year in which the
Excess Contribution was made. Excess Contributions will be includable
in the Participant's gross income on the earliest date any Elective
Contribution made on behalf of the Participant during the Plan Year
would have been received by the Participant had the Participant
elected to receive the amount in cash. Recharacterized Excess
Contributions will continue to be treated as Employer Contributions
that are Elective Contributions for all other purposes under the Code,
including Code Sections 401(a) (other than 401(a)(4) and 401(m)), 404,
409, 411, 412, 415, 416, 417 and 401(k)(2). With respect to the Plan
Year for which the Excess Contribution was made, the Plan
Administrator will treat the recharacterized amount as an Employee
Contribution for purposes of the Deferral Percentage Test and the
Contribution Percentage Test and for purposes of determining whether
the Plan meets the requirements of Code Section 401(a)(4), but not for
any other purposes under this Plan. Therefore, recharacterized amounts
will remain subject to the nonforfeiture requirements and distribution
limitations which apply to Elective Contributions.
If the Deferral Percentage Test is still not satisfied, then after the
close of the Plan Year in which the Excess Contribution arose but
within 12 months after the close of that Plan Year, the Plan
Administrator will distribute the Excess Contributions, together with
allocable income, to the affected Participants of the Highly
Compensated Group to the extent necessary to satisfy the Deferral
Percentage Test. Failure to do so will cause the Plan to not satisfy
the requirements of Code Section 401(a)(4) for the Plan Year for which
the Excess Contribution was made and for all subsequent Plan Years for
which the Excess Contribution remains uncorrected.
The amount of Excess Contribution to be distributed to a Highly
Compensated Employee for a
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<PAGE> 34
Plan Year will be reduced by any Excess Deferrals previously
distributed to the Participant for the calendar year ending with or
within the Plan Year in accordance with Code Section 402(g)(2).
Excess Contributions will be treated as Employer Contributions for
purposes of Code Sections 404 and 415 even if distributed from the
Plan.
(c) Application of Contribution Percentage Test
Employee Contributions and Matching Contributions, disregarding any
Matching Contributions which are treated as Elective Contributions
with respect to the Deferral Percentage Test, must satisfy the
Contribution Percentage Test. The Plan Administrator will determine as
soon as administratively feasible after the end of the Plan Year
whether the Contribution Test has been satisfied. If the Contribution
Percentage Test is not satisfied, the Employer may elect to make an
additional contribution to the Plan for the benefit of the Non-Highly
Compensated Group. The additional contribution will be treated as a
Nonelective Contribution.
If the Contribution Percentage Test is still not satisfied, then after
the close of the Plan Year in which the Excess Aggregate Contribution
arose but within 12 months after the close of that Plan Year, the Plan
Administrator will distribute (or forfeit, to the extent not vested)
the Excess Aggregate Contributions, together with allocable income, to
the affected Participants of the Highly Compensated Group to the
extent necessary to satisfy the Contribution Percentage Test. Failure
to do so will cause the Plan to not satisfy the requirements of Code
Section 401(a)(4) for the Plan Year for which the Excess Aggregate
Contribution was made and for all subsequent Plan Years for which the
Excess Aggregate Contribution remains uncorrected.
The determination of any Excess Aggregate Contributions will be made
after the recharacterization of any Excess Contributions as Employee
Contributions.
Excess Aggregate Contributions, including forfeited Matching
Contributions, will be treated as Employer Contributions for purposes
of Code Sections 404 and 415 even if they are distributed from the
Plan.
Forfeited Matching Contributions that are reallocated to the Accounts
of other Participants are treated as Annual Additions under Code
Section 415 for the Participant whose Accounts they are reallocated to
and for the Participants from whose Accounts they are forfeited.
(d) Family Aggregation
The Deferral Percentage or the Contribution Percentage (the "Relevant
Percentage") for any Highly Compensated Employee who is subject to the
family aggregation rules of Section 1.18(c) will be determined by
combining the Elective Contributions, Employee Contributions, Matching
Contribution, amounts treated as Elective or Matching Contributions
and Compensation of all the eligible Family Members.
The determination and correction of Excess Contributions and Excess
Aggregate Contributions of a Highly Compensated Employee whose
Relevant Percentage is determined under the family aggregation rules
is accomplished by reducing the Relevant Percentage as provided for in
Sections 4.05(b) and 4.05(c) and Excess Contributions or Excess
Aggregate Contributions for the family group are allocated among the
Family Members whose contributions were combined to determine the
Relevant Percentage in proportion to the Elective Contributions or
Nonelective and Matching Contributions of each Family Member.
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<PAGE> 35
For all purposes under this Section, the contributions and
compensation of eligible Family Members who are not Highly Compensated
Employees without regard to family aggregation are disregarded when
determining the Relevant Percentage for the Non-highly Compensated
Group.
(e) Reduction of Excess Amounts
The total Excess Contribution or total Excess Aggregate Contribution
will be reduced in a manner so that the Deferral Percentage or the
Contribution Percentage (Relevant Percentage) of the affected
Participant(s) with the highest Relevant Percentage will first be
lowered to a point not less than the level of the affected
Participant(s) with the next highest Relevant Percentage. If further
overall reductions are required to satisfy the relevant test, each of
the above Participants' (or groups of Participants') Relevant
Percentage will be lowered to a point not less than the level of the
affected Participant(s) with the next highest Relevant Percentage, and
so on continuing until sufficient total reductions have occurred to
achieve satisfaction of the relevant test.
(f) Priority of Reductions
The Plan Administrator will determine the method and order of
correcting Excess Contributions and Excess Aggregate Contributions.
The method of correcting Excess Contributions and Excess Aggregate
Contributions must meet the requirements of Code Section 401(a)(4).
The determination of whether a rate of Matching Contribution
discriminates under Code Section 401(a)(4) will be made after making
any corrective distributions of Excess Deferrals, Excess Contributions
and Excess Aggregate Contributions.
Excess Aggregate Contributions (and any attributable income) will be
corrected first, by distributing any excess Employee Contributions
(and any attributable income); then by distributing vested excess
Matching Contributions (and any attributable income); and finally, by
forfeiting or distributing non-vested Matching Contributions (and any
attributable income). The Plan will not distribute Employee
Contributions while the Matching Contributions based upon those
Employee Contributions remain allocated.
(g) Income
The income allocable to any Excess Contribution made to a given
Account for a given Plan Year will be equal to the total income
allocated to the Account for the Plan Year, multiplied by a fraction,
the numerator of which is the amount of the Excess Contribution and
the denominator of which is equal to the sum of the balance of the
Account at the beginning of the Plan Year plus the Participant's
Elective Contributions and amounts treated as Elective Contributions
for the Plan Year.
The income allocable to any Excess Aggregate Contribution made to a
given Account for a given Plan Year will be equal to the total income
allocated to the Account for the Plan Year, multiplied by a fraction,
the numerator of which is the amount of the Excess Aggregate
Contribution and the denominator of which is equal to the sum of the
balance of the Account at the beginning of the Plan Year plus the
Participant's Employee and Matching Contributions and amounts treated
as Employee and Matching Contributions for the Plan Year.
Notwithstanding the foregoing, the Plan may use any reasonable method
for computing the income allocable to any Excess Contribution or
Excess Aggregate Contribution provided the method does not violate
Code Section 401(a)(4), is used consistently for all corrective
distributions under the Plan for the Plan Year, and is used by the
Plan for allocating income to the Participants' Accounts.
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<PAGE> 36
Income includes all earnings and appreciation, including interest,
dividends, rents, royalties, gains from the sale of property, and
appreciation in the value of stocks, bonds, annuity and life insurance
contracts and other property, regardless of whether the appreciation
has been realized.
(h) Treatment as Elective Contributions
The Plan Administrator may, in its discretion, treat all or any
portion of Qualified Nonelective Contributions or Qualified Matching
Contributions or both, whether to this Plan or to any other qualified
plan which has the same Plan Year and is maintained by the Employer or
a Related Employer, as Elective Contributions for purposes of
satisfying the Deferral Percentage Test if they meet all of the
following requirements:
o All Nonelective Contributions, including the Qualified
Nonelective Contributions treated as Elective Contributions
for purposes of the Deferral Percentage Test, satisfy the
requirements of Code Section 401(a)(4);
o Any Nonelective Contributions which are not treated as
Elective Contributions for purposes of the Deferral
Percentage Test or as Matching Contributions for purposes of
the Contribution Percentage Test satisfy the requirements of
Code Section 401(a)(4);
o The Qualified Matching Contributions which are treated as
Elective Contributions for purposes of the Deferral
Percentage Test are not taken into account in determining
whether any Employee Contributions or other Matching
Contributions satisfy the Contribution Percentage Test;
o Any Matching Contributions which are not treated as Elective
Contributions for purposes of the Deferral Percentage Test
satisfy the requirements of Code Section 401(m); and
o The plan which includes the Cash or Deferred Arrangement and
the plan or plans to which the Qualified Nonelective
Contributions and Qualified Matching Contributions are made
could be aggregated for purposes of Code Section 410(b).
(i) Treatment as Matching Contributions
The Plan Administrator may, in its discretion, treat all or any
portion of Qualified Nonelective Contributions or Elective
Contributions or both, whether to this Plan or to any other qualified
plan which has the same Plan Year and is maintained by the Employer or
a Related Employer, as Matching Contributions for purposes of
satisfying the Contribution Percentage Test if they meet all of the
following requirements:
o All Nonelective Contributions, including the Qualified
Nonelective Contributions treated as Matching Contributions
for purposes of the Contribution Percentage Test, satisfy
the requirements of Code Section 401(a)(4);
o Any Nonelective Contributions which are not treated as
Elective Contributions for purposes of the Deferral
Percentage Test or as Matching Contributions for purposes of
the Contribution Percentage Test satisfy the requirements of
Code Section 401(a)(4);
o The Elective Contributions which are treated as Matching
Contributions for purposes of the Contribution Percentage
Test are not taken into account in determining whether any
other Elective Contributions satisfy the Deferral Percentage
Test;
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<PAGE> 37
o The Qualified Nonelective Contributions and Elective
Contributions which are treated as Matching Contributions
for purposes of the Contribution Percentage Test are not
taken into account in determining whether any other
contributions or benefits satisfy Code Section 401(a); and
o All Elective Contributions, including those treated as
Matching Contributions for purposes of the Contribution
Percentage Test, satisfy the requirements of Code Section
401(k)(3); and
o The plan that takes Qualified Nonelective Contributions and
Elective Contributions into account in determining whether
Employee and Matching Contributions satisfy the requirements
of Code Section 401(m)(2)(A) and the plan or plans to which
the Qualified Nonelective Contributions and Elective
Contributions are made could be aggregated for purposes of
Code Section 410(b).
(j) Aggregation of Plans
If the Employer or a Related Employer sponsors one or more other plans
which include a Cash or Deferred Arrangement, the Employer may elect
to treat any two or more of such plans as an aggregated single plan
for purposes of satisfying Code Sections 401(a)(4), 401(k) and 410(b).
The Cash of Deferred Arrangements included in such aggregated plans
will be treated as a single Arrangement for purposes of this Section.
However, only those plans that have the same plan year may be so
aggregated.
If the Employer or a Related Employer sponsors one or more other plans
to which Employee Contributions or Matching Contributions are made,
the Employer may elect to treat any two or more of such plans as an
aggregated single plan for purposes of satisfying Code Sections
401(a)(4), 401(m) and 410(b). However, only those plans that have the
same plan year may be so aggregated.
Any such aggregation must be made in accordance with Treasury
Regulation 1.401(k)-1(b)(3). For example, contributions and
allocations under the portion of a plan described in Code Section
4975(e)(7) (an ESOP) may not be aggregated with the portion of a plan
not described in Code Section 4975(e)(7) (a non-ESOP) for purposes of
determining whether the ESOP or non-ESOP satisfies the requirements of
Code Sections 401(a)(4), 401(k), 401(m) and 410(b).
Plans that could be aggregated under Code Section 410(b) but that are
not actually aggregated for a Plan Year for purposes of Code Section
410(b) may not be aggregated for purposes of Code Sections 401(k) and
401(m).
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<PAGE> 38
ARTICLE 5
RETIREMENT BENEFITS
5.01 Valuation of Accounts
For purposes of this Article, the value of a Participant's Accrued Benefit
will be determined as of the Valuation Date immediately preceding the date
that benefits are to be distributed.
5.02 Normal Retirement
After an Active Participant reaches his Normal Retirement Date, he may
elect to retire. Upon such retirement he will become a Retired Participant
and his Accrued Benefit will become distributable to him. A Participant's
Accrued Benefit will become nonforfeitable no later than the date upon
which he attains his Normal Retirement Age. The form and timing of benefit
payment will be governed by the provisions of Section 5.05.
5.03 Disability Retirement
In the event of a Participant's termination due to Disability, he will be
entitled to begin to receive a distribution of his Accrued Benefit which
will become nonforfeitable as of his date of termination. The form and
timing of benefit payment will be governed by the provisions of Section
5.05.
Disability means the determination by the Plan Administrator that a
Participant is unable by reason of any medically determinable physical or
mental impairment to perform the usual duties of his employment or of any
other employment for which he is reasonably qualified based upon his
education, training and experience.
5.04 Termination of Employment
(a) In General
If a Participant's employment terminates for any reason other than
retirement, death, or disability, his Accrued Benefit will become
distributable to him as of the last day of the month which coincides
with or next follows the last date upon which any contributions on the
Participant's behalf are made to the Trust following the Participant's
date of termination of employment (or as of such earlier date as
determined by the Plan Administrator in a uniform and
nondiscriminatory manner). The form and timing of benefit payment will
be governed by the provisions of Section 5.05.
(b) Cash-Out Distribution
If a Participant terminates employment and receives a distribution
equal to the Vested Percentage of his Accounts which are subject to
the Vesting Schedule (such Accounts are hereinafter referred to as
Employer Contribution Accounts), a Cash-Out Distribution will be
deemed to have occurred if the following conditions are met:
(1) The Participant was less than 100% vested in his Employer
Contribution Accounts; and
(2) The entire distribution is made before the last day of the second
Plan Year following the Plan Year in which the Participant
terminated employment.
(c) Restoration of Employer Contribution Accounts If, following the date
of a Cash-Out Distribution, a Participant returns to an Eligible
Employee Classification prior to incurring 5 consecutive One Year
Breaks-in-Service, then the Participant will have the right to repay
to the Trustee, within 5 years after his return date, the portion of
the Cash-Out Distribution which was attributable to his
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<PAGE> 39
Employer Contribution Accounts which were less than 100% vested in
order to restore such Accounts to their value as of the date of the
Cash-Out Distribution.
The Plan Administrator will restore an eligible Participant's Employer
Contribution Accounts as of the Accounting Date coincident with or
immediately following the complete repayment of the Cash-Out
Distribution. To restore the Participant's Employer Contribution
Accounts, the Plan Administrator, to the extent necessary, will, under
rules and guidelines applied in a uniform and nondiscriminatory
manner, first allocate to the Participant's Employer Contribution
Accounts the amount, if any, of Forfeitures which would otherwise be
allocated under Article 3. To the extent such Forfeitures for a
particular Accounting Period are insufficient to enable the Plan
Administrator to make the required restoration, the Employer will
contribute such additional amount as is necessary to enable the Plan
Administrator to make the required restoration. The Plan Administrator
will not take into account the allocation under this Section in
applying the limitation on allocations under Article 7.
(d) Non-Vested Participant
If a Participant who is zero percent vested in his Employer
Contribution Accounts terminates employment, a Cash-Out Distribution
will be deemed to have occurred as of the Participant's date of
termination of employment.
If the Participant subsequently returns to an Eligible Employee
Classification prior to incurring five consecutive One Year
Breaks-in-Service, then the Participant will immediately become
entitled to a complete restoration of his Employer Contribution
Accounts as of the Accounting Date coincident with or next following
his date of re-employment. Such restoration will be made in accordance
with the provisions of Section 5.04(c).
5.05 Form of Benefit Payment
Subject to the provisions of Section 5.06, the Plan Administrator will
direct the Trustee to make the payment of any benefit provided under this
Plan upon the event giving rise to such benefit within 60 days following
the receipt of a Participant's written request for the payment of benefits
on a form provided by the Plan Administrator. The Plan Administrator may
temporarily suspend such processing in the event of unusual or
extraordinary circumstances such as the conversion of Plan records from one
recordkeeper to another.
The form of benefit will be a lump sum payment, unless the Participant
elects a direct transfer pursuant to Section 5.07.
If a Participant's Vested Accrued Benefit is in excess of $3,500, any
payment of benefits prior to the Participant's Normal Retirement Date will
be subject to the Participant's written consent. If the value of his Vested
Accrued Benefit at the time of any distribution exceeds $3,500, the value
of his Vested Accrued Benefit at any later time will be deemed to also
exceed $3,500.
5.06 Commencement of Benefit
Subject to the provisions of this Article, commencement of a benefit will,
unless the Participant elects otherwise in writing, begin not later than
the 60th day after the later of the close of the Plan Year in which the
Participant attains Normal Retirement Age or the close of the Plan Year
which contains the date the Participant terminates his service with the
Employer.
Payment of a Participant's benefits must begin no later than his Required
Beginning Date.
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<PAGE> 40
All distributions required under this Section will be determined and made
in accordance with the regulations issued under Code Section 401(a)(9),
including those dealing with minimum distribution requirements.
Notwithstanding the provisions of Section 5.05, an Active Participant who
has reached his Required Beginning Date will receive an annual distribution
of his Accrued Benefit equal to the minimum required distribution
determined under Code Section 401(a)(9).
For purposes of this Section, life expectancy and joint and last survivor
expectancy are to be computed by the use of the return multiples contained
in Section 1.72-9 of the Income Tax Regulations.
If the Participant dies after distribution of his interest has begun, the
remaining portion of the interest will continue to be distributed at least
as rapidly as under the method of distribution being used before the
Participant's death.
5.07 Directed Transfer of Eligible Rollover Distributions
(a) General
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.
(b) Eligible Rollover Distribution
An Eligible Rollover Distribution is any distribution of all or any
portion of the balance to the credit of the Distributee, except that
an Eligible Rollover Distribution does not include: any distribution
that is one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the Distributee or the joint lives (or joint life expectancies) of
the Distributee and the Distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent
such distribution is required under section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(c) Eligible Retirement Plan
An Eligible Retirement Plan is an individual retirement account
described in section 408(a) of the Code, an individual retirement
annuity described in section 408(b) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the
Distributee's Eligible Rollover Distribution. However, in the case of
an Eligible Rollover Distribution to the surviving spouse, an Eligible
Retirement Plan is an individual retirement account or individual
retirement annuity.
(d) Distributee
A Distributee includes an Employee or Former Employee. In addition,
the Employee's or Former Employee's surviving spouse and the
Employee's or Former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined
in section 414(p) of the Code, are Distributees with regard to the
interest of the spouse or former spouse.
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(e) Direct Rollover
A Direct Rollover is a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
(f) Waiver of 30-Day Notice
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 required under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that:
o the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable,
a particular distribution option); and
o the Participant, after receiving the notice, affirmatively
elects to receive a distribution.
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ARTICLE 6
DEATH BENEFIT
6.01 Valuation of Accounts
For purposes of this Article, the value of a Participant's Accrued Benefit
will be determined as of the Valuation Date immediately preceding the date
that benefits are to be distributed.
6.02 Death Benefit
In the event of the death of a Participant prior to the date on which he
receives a complete distribution of his benefit under the Plan, the
Participant's Beneficiary will be entitled to receive the value of the
Participant's Accrued Benefit.
6.03 Designation of Beneficiary
Each Participant will be given the opportunity to designate a Beneficiary
or Beneficiaries, and from time to time the Participant may file with the
Plan Administrator a new or revised designation on the form provided by the
Plan Administrator. If a Participant is married, any designation of a
Beneficiary other than the Participant's spouse must be consented to by the
Participant's spouse pursuant to a Qualified Election.
If a Participant dies without designating a Beneficiary, or if the
Participant is predeceased by all designated Beneficiaries and contingent
Beneficiaries, the Plan Administrator will distribute all benefits which
are payable in the event of the Participant's death in the following manner
and to the first of the following (who are listed in order of priority) who
survive the Participant by at least 30 days:
o All to the Participant's Surviving Spouse;
o Equally among the then living children of the Participant (by
birth or adoption);
o Among the Participant's then living lineal descendants, by right
of representation; or
o The Participant's estate.
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ARTICLE 7
LIMITATIONS ON BENEFITS
7.01 Limitation on Annual Additions
The amount of the Annual Addition which may be allocated under this Plan to
any Participant's Account as of any Allocation Date will not exceed the
Defined Contribution Limit (based upon his Aggregate Compensation up to
such Valuation Date) reduced by the sum of any allocations of annual
additions made to Participant's Accounts under this Plan as of any
preceding Allocation Date within the Limitation Year.
If the Annual Addition under this Plan on behalf of a Participant is to be
reduced as of any Allocation Date as a result of the next preceding
paragraph, the reduction will be, to the extent required, effected by first
reducing Participant contributions (which increase the annual addition),
then Forfeitures (if any), and then Employer contributions to be allocated
under this Plan on behalf of the Participant as of the Allocation Date.
Any necessary reduction will be made as follows:
(a) The amount of the reduction consisting of nondeductible Participant
contributions will be paid to the Participant as soon as
administratively feasible.
(b) The amount of the reduction consisting of any other Participant
contributions will be paid to the Participant as soon as
administratively feasible.
(c) The amount of the reduction consisting of Forfeitures will be
allocated and reallocated to other Accounts in accordance with the
Plan formula for allocating Forfeitures to the extent that such
allocations do not cause the additions to any other Participant's
Accounts to exceed the lesser of the Defined Contribution Limit or any
other limitation provided in the Plan.
(d) The amount of the reduction consisting of Employer contributions will
be allocated and reallocated to other Accounts in accordance with the
Plan formula for Employer Contributions to the extent that such
allocations do not cause the additions to any other Participant's
Accounts to exceed the lesser of the Defined Contribution Limit or any
other limitation provided in the Plan.
(e) To the extent that the reductions described in paragraph (d) cannot be
allocated to other Participant's Accounts, the reductions will be
allocated to a suspense account as Forfeitures and held therein until
the next succeeding Allocation Date on which Forfeitures could be
applied under the provisions of the Plan. All amounts held in a
suspense account must be applied as Forfeitures before any additional
contributions, which would constitute annual additions, may be made to
the Plan. If the Plan terminates, the suspense account will revert to
the Employer to the extent it may not be allocated to any
Participant's Accounts.
(f) If a suspense account is in existence at any time during a Limitation
Year pursuant to this Section, it will not participate in the
allocation of the Trust Fund's investment gains and losses.
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7.02 Where Employer Maintains Another Qualified Plan
(a) Where Employer Maintains Another Qualified Defined Contribution Plan
If the Employer maintains this Plan and one or more other qualified
defined contribution plans, one or more welfare benefit funds (as
defined in Code Section 419(e)), or one or more individual medical
accounts (as defined in Code Section 415(l)(2)), all of which are
referred to in this Article 7 as "qualified defined contribution
plans", the annual additions allocated under this Plan to any
Participant's Accounts will be limited in accordance with the
allocation provisions of this Section 7.02(a).
The amount of the Annual Additions which may be allocated under this
Plan to any Participant's Accounts as of any Allocation Date will not
exceed the Defined Contribution Limit (based upon Aggregate
Compensation up to the allocation date) reduced by the sum of any
allocations of Annual Additions made to the Participant's Accounts
under this Plan and any other qualified defined contribution plans
maintained by the Employer as of any earlier Allocation Date within
the Limitation Year.
If a Allocation Date of this Plan coincides with a Allocation Date of
any other plan described in the above paragraph, the amount of Annual
Additions to be allocated on behalf of a Participant under this Plan
as of such date will be an amount equal to the product of the amount
described in the next preceding paragraph multiplied by a fraction
(not to exceed 1.0), the numerator of which is the amount to be
allocated under this Plan without regard to this Article during the
Limitation Year and the denominator of which is the amount that would
otherwise be allocated on this Allocation Date under all plans without
regard to this Article 7.
If the Annual Addition under this Plan on behalf of a Participant is
to be reduced as of any Allocation Date as a result of the next
preceding two paragraphs, the reduction will be, to the extent
required, effected by first reducing Participant contributions (which
increase the annual addition), then Forfeitures (if any), and then any
Employer contributions, to be allocated under this Plan on behalf of
the Participant as of the Allocation Date.
If as a result of the first four paragraphs of this Section 7.02 the
allocation of additions is reduced, the reduction will be treated in
the manner described in the third paragraph of Section 7.01.
(b) Where Employer Maintains a Qualified Defined Benefit Plan
(1) In General
If the Employer maintains (or has ever maintained), in addition
to this Plan, one or more qualified defined benefit plans, then
for any Limitation Year, the sum of the Defined Benefit Plan
Fraction and the Defined Contribution Plan Fraction will not
exceed 1.0. If, in any Limitation Year, the sum of the Defined
Benefit Plan Fraction and the Defined Contribution Plan Fraction
for a Participant would exceed 1.0 without adjustment to the
amount of the annual benefit that can be paid to the Participant
under the defined benefit plan, then the amount of annual benefit
that would otherwise be paid to the Participant under the defined
benefit plan will be reduced to the extent necessary to reduce
the sum of the Defined Benefit Plan Fraction and the Defined
Contribution Plan Fraction for the Participant to 1.0.
(2) Transition Rule under TRA '86
If a plan was in existence on May 6, 1986, the numerator of the
Defined Contribution Plan Fraction will be reduced (to not less
than zero) as prescribed by the Secretary
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of the Treasury by subtracting the amount required to decrease
the sum of the Defined Contribution Plan Fraction plus the
Defined Benefit Plan Fraction to 1.0. Such amount is determined
(as of the first day of the first Limitation Year beginning on or
after January 1, 1987) as the product of:
(A) The amount by which, without this adjustment, the sum of the
Defined Contribution Plan Fraction plus the Defined Benefit
Plan Fraction exceeds 1.0, multiplied by
(B) The denominator of the Defined Contribution Plan Fraction,
as computed through the last Limitation Year beginning
before January 1, 1987, disregarding any changes in the
terms and conditions of the plan after May 5, 1986.
This subparagraph applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of
Code Section 415 for all Limitation Years beginning before
January 1, 1987.
(3) Transition Rule under TEFRA
In the case of a plan which met the limitation of Section 415 of
the Code for the last Limitation Year beginning before January 1,
1983, the numerator of the Defined Contribution Plan Fraction
will be reduced (to not less than zero) as prescribed by the
Secretary of the Treasury by subtracting the amount required to
decrease the sum of the Defined Contribution Plan Fraction plus
the Defined Benefit Plan Fraction to 1.0. Such amount is
determined (as of the first day of the first Limitation Year
beginning on or after January 1, 1983) as the product of:
(A) The amount by which, without this adjustment, the sum of the
Defined Contribution Plan Fraction plus the Defined Benefit
Plan Fraction exceeds 1.0, multiplied by
(B) The denominator of the Defined Contribution Plan Fraction,
as computed through the last Limitation Year beginning
before January 1, 1983.
7.03 Definitions Applicable to Article 7
(a) Aggregate Compensation
Aggregate Compensation means a Participant's earned income, wages,
salaries, and fees for professional services, and other amounts
received for personal services actually rendered in the course of
employment with the employer maintaining the plan (including, but not
limited to, commissions paid to salesmen, compensation for services on
the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses), and excluding the following:
o Employer contributions to a plan of deferred compensation
which are not included in the employee's gross income for
the taxable year in which contributed or employer
contributions under a simplified employee pension plan to
the extent the contributions are deductible by the employee,
or any distributions from a plan of deferred compensation;
o Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the
employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
o Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
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o Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a
salary reduction agreement) toward the purchase of an
annuity described in Code Section 403(b) (whether or not the
amounts are actually excludable from the gross income of the
employee).
Aggregate Compensation excludes any amounts contributed by the
Employer or any Related Employer on behalf of any Employee pursuant to
a salary reduction agreement which are not includable in the gross
income of the Employee due to Code Section 125, 402(a)(8), 402(h) or
403(b).
Aggregate Compensation in excess of the Statutory Compensation Limit
is disregarded.
Aggregate Compensation for any Limitation Year is the Aggregate
Compensation actually paid or includable in gross income in such year.
(b) Allocation Date
Allocation Date means the date with respect to which all or a portion
of employer contributions, employee contributions or forfeitures or
both are allocated to participant accounts under a defined
contribution plan.
(c) Annual Additions
For Plan Years beginning after December 31, 1986, Annual Additions are
the sum of the following amounts allocated to any defined contribution
plan maintained by the Employer (including voluntary contributions to
any defined benefit plan maintained by the Employer) on behalf of a
Participant for a Limitation Year:
o All Employee and Employer contributions;
o All reallocated forfeitures;
o Amounts allocated after March 31, 1984, to an individual
medical account, as defined in Code Section 415(l)(2) which
is part of a pension or annuity plan maintained by the
Employer, and amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending
after that date, which are attributable to post-retirement
medical benefits required by Code Section 401(h)(6) to be
allocated to the separate account of a Key Employee under a
welfare benefit plan (as defined in Code Section 419(e))
maintained by the Employer.
Contributions or forfeitures will be treated as Annual Additions
regardless of whether they constitute Excess Deferrals, Excess
Contributions or Excess Aggregate Contributions within the meaning of
the regulations under Code Section 401(k) or 401(m) and regardless of
whether they are corrected through distribution or recharacterization.
Excess deferrals distributed in accordance with Treasury Regulation
1.402(g)-1(e)(2) or (3) are not Annual Additions. The Annual Addition
for any Limitation Year beginning before January 1, 1987, will not be
recomputed to treat all Employee contributions as Annual Additions.
(d) Annual Benefit
Annual Benefit means a benefit payable annually in the form of a
straight life annuity (with no ancillary benefits) under a plan to
which employees do not contribute and under which no rollover
contributions are made.
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(e) Defined Benefit Compensation Limit
The Defined Benefit Compensation Limit is equal to 100% of the
Participant's average Aggregate Compensation for the three consecutive
calendar years (or other twelve consecutive month periods adopted by
the Employer pursuant to a Written Resolution and applied on a uniform
and consistent basis) of service during which the Participant had the
greatest Aggregate Compensation.
Where the annual benefit is payable to a Participant in a form other
than a straight life annuity or a Qualified Joint and Survivor
Annuity, the Defined Benefit Compensation Limit will be the Actuarial
Equivalent of a straight life annuity beginning at the same age. No
adjustment is required for the following: pre-retirement disability
benefits, pre-retirement death benefits and post-retirement medical
benefits. For purposes of this paragraph, the interest rate used in
adjusting the Defined Benefit Compensation Limit will be the greater
of (1) 5%, or (2) the post-retirement interest rate specified in the
plan for Actuarial Equivalent purposes.
Where the annual benefit is payable to a Participant who has fewer
than 10 years of service with the Employer or any Related or
Predecessor Employer, the Defined Benefit Compensation Limit will be
multiplied by a fraction, the numerator of which is the Participant's
number of years of service with the Employer or Related or Predecessor
Employer, and the denominator of which is 10.
With regard to a Participant who has separated from service with a
nonforfeitable right to an Accrued Benefit, the Defined Benefit
Compensation Limit will be adjusted effective January 1 of each
Calendar year. For any Limitation Year beginning after the separation
occurs, the Defined Benefit Compensation Limit will be equal to the
Defined Benefit Compensation Limit which was applicable to the
Participant in the Limitation Year in which he separated from service
multiplied by a fraction, the numerator of which is the Defined
Benefit Dollar Limit for the Limitation Year in which the Defined
Benefit Compensation Limit is being adjusted and the denominator of
which is the Defined Benefit Dollar Limit for the Limitation Year in
which the Participant separated from service.
(f) Defined Benefit Dollar Limit
The Defined Benefit Dollar Limit is equal to $90,000 for calendar
years 1984 through 1987. As of January 1, 1988 and as of January 1 of
each subsequent calendar year, the dollar limitation (described in
Code Section 415(b)(1)(A)) as determined by the Secretary of the
Treasury for that calendar year will become effective as the Defined
Benefit Dollar Limit for the calendar year. For calendar years between
1976 and 1983, the Defined Benefit Dollar Limit is $75,000 as adjusted
by the Secretary of the Treasury under Code Section 415(d) for that
calendar year. The Defined Benefit Dollar Limit for a calendar year
applies to Limitation Years ending with or within that calendar year.
Where the annual benefit is payable to a Participant in a form other
than a straight life annuity or a Qualified Joint and Survivor
Annuity, the Defined Benefit Dollar Limit will be the Actuarial
Equivalent of a straight life annuity beginning at the same age. No
adjustment is required for the following: pre-retirement disability
benefits, pre-retirement death benefits, and post-retirement medical
benefits. For purposes of this paragraph, the interest rate used for
adjusting the Defined Benefit Dollar Limit will be the greater of (1)
5%, or (2) the post-retirement interest rate specified for Actuarial
Equivalent purposes.
Where the annual benefit is payable to a Participant who has fewer
than 10 years of participation in the Plan, the Defined Benefit Dollar
Limit will be multiplied by a fraction, the numerator of which is the
Participant's number of years (or part thereof) of
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<PAGE> 48
participation in the Plan, and the denominator of which is 10. To the
extent provided by the Secretary of the Treasury, this paragraph will
be applied to each change in the benefit structure of the Plan.
For a benefit commencing before a Participant's Social Security
Retirement Age but at or after age 62, the Defined Benefit Dollar
Limit will be adjusted in a manner which is consistent with the
reduction for old-age insurance benefits commencing before Social
Security Retirement Age under the Social Security Act. The reduction
will be 5/9 of 1% for each of the first 36 months and 5/12 of 1% for
each additional month (up to 24 months) by which benefits commence
before the month of the Participant's Social Security Retirement Age.
The Defined Benefit Dollar Limit for a benefit commencing before age
62 will be adjusted to the Actuarial Equivalent of the Defined Benefit
Dollar Limit for a benefit commencing at age 62 based on an interest
rate equal to the greater of (1) 5%, or (2) the interest rate
specified in the plan for determining actuarial equivalence for early
retirement.
For a benefit commencing after a Participant's Social Security
Retirement Age, the Defined Benefit Dollar Limit will be adjusted to
the actuarial equivalent of the Defined Benefit Dollar Limit for a
benefit commencing at the Participant's Social Security Retirement
Age. For purposes of this paragraph, the interest rate used for
adjusting the Defined Benefit Dollar Limit will be the lesser of (1)
5%, or (2) the interest rate specified in the plan for determining
actuarial equivalence for early retirement.
(g) Defined Benefit Limit
The Defined Benefit Limit is the lesser of the Defined Benefit Dollar
Limit or the Defined Benefit Compensation Limit.
(h) Defined Benefit Plan Fraction Denominator
The Defined Benefit Plan Fraction Denominator with respect to any
Participant is the lesser of (1) the product of the Defined Benefit
Dollar Limit multiplied by 1.25, or (2) the product of the Defined
Benefit Compensation Limit multiplied by 1.4. However, for purposes of
determining the Defined Benefit Plan Fraction Denominator, "years of
service with the Employer or any Related or Predecessor Employer" will
be substituted for "years of participation in the Plan" wherever it
appears in Section 7.03(f).
(i) Defined Benefit Plan Fraction
The Defined Benefit Plan Fraction is a fraction determined as of the
close of a Limitation Year, the numerator of which is the Projected
Annual Benefit payable to a Participant under this Plan and the
denominator of which is the Defined Benefit Fraction Denominator. If a
Participant has participated in more than one defined benefit plan
maintained by the Employer, the numerator of the Defined Benefit Plan
Fraction is the sum of the projected annual benefits payable to the
Participant under all of the defined benefit plans, whether or not
terminated.
(j) Defined Contribution Limit
The Defined Contribution Limit for a given Limitation Year is equal to
the lesser of (1) the Defined Contribution Compensation Limit, which
is 25% of Aggregate Compensation applicable to the Limitation Year, or
(2) the Defined Contribution Dollar Limit, which, for calendar years
after 1983 is the greater of $30,000 or one-fourth of the Defined
Benefit Dollar Limit for the Limitation Year, and for calendar years
between 1976 and 1983 is one-third of the Defined Benefit Dollar
Limit. If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different 12 consecutive month
period, the Defined Contribution Dollar Limit is multiplied by a
fraction, the numerator of which is equal to the number of months in
the short Limitation Year and the denominator of which is 12.
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<PAGE> 49
(k) Defined Contribution Plan Fraction
The Defined Contribution Plan Fraction is a fraction determined as of
the close of a Limitation Year, the numerator of which is the sum of
the Annual Additions to the Participant's Accounts under all defined
contribution plans of the Employer for the current and all prior
Limitation Years and the denominator of which is the sum of the Annual
Additions which would have been made for the Participant for the
current and all prior Limitation Years (for all prior years of service
with the Employer or any predecessor Employer) if in each Limitation
year the Annual Additions equaled the lesser of (1) the product of the
Defined Contribution Compensation Limit for the Limitation Year
multiplied by 1.4, or (2) the product of the Defined Contribution
Dollar Limit for the Limitation Year multiplied by 1.25. The aggregate
amount in the numerator of this fraction due to years beginning before
January 1, 1976 may not exceed the aggregate amount in the denominator
of this fraction for all such years.
For purposes of this Section 7.03(k), the Annual Addition for any
Limitation Year beginning before January 1, 1987 will not be
recomputed to treat all Employee contributions as Annual Additions.
(l) Employer
The Employer is the Employer that adopts this Plan together with all
Related Employers. For this purpose, the definition of Related
Employer in Section 1.33 of this Plan is modified by Code Section
415(h).
(m) Limitation Year
The Limitation Year will be the 12 consecutive month period which is
specified in Article 1 of this Plan and which is adopted for all
qualified plans maintained by the Employer pursuant to a Written
Resolution adopted by the Employer. In the event of a change in the
Limitation Year, the additional limitations of Treasury Regulation
Section 1.415-2(b)(4)(iii) will also apply.
(n) Projected Annual Benefit
For purposes of this Section, a Participant's Projected Annual Benefit
is equal to the annual benefit to which a Participant in a defined
benefit Plan would be entitled under the terms of the plan based on
the following assumptions:
o The Participant will continue employment until reaching
normal retirement age as determined under the terms of the
plan (or current age, if that is later);
o The Participant's compensation for the Limitation Year under
consideration will remain the same for all future years;
o All other relevant factors used to determine benefits under
the plan for the Limitation Year under consideration will
remain constant for all future Limitation Years; and
o The benefits resulting from any Participant Contributions or
Rollover Contributions are disregarded.
(o) Social Security Retirement Age
Social Security Retirement Age means age 65 for a Participant born
before January 1, 1938; age 66 for a Participant born after December
31, 1937, but before January 1, 1955; and age 67 for a Participant
born after December 31, 1954.
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7.04 Effect of Top-Heavy Status
Notwithstanding the provisions of Section 7.03, "1.0" will be substituted
for "1.25" wherever it appears in Sections 7.03(h) and 7.03(k) for any
Limitation Year in which the Plan is found to be Top-Heavy for the Plan
Year which coincides with or ends within such Limitation Year.
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<PAGE> 51
ARTICLE 8
MISCELLANEOUS
8.01 Employment Rights of Parties Not Restricted
The adoption and maintenance of this Plan will not be deemed a contract
between the Employer and any Employee. Nothing in this Plan will give any
Employee or Participant the right to be retained in the employ of the
Employer or to interfere with the right of the Employer to discharge any
Employee or Participant at any time, nor will it give the Employer the
right to require any Employee or Participant to remain in its employ, or to
interfere with any Employee's or Participant's right to terminate his
employment at any time.
8.02 Alienation
(a) General
No person entitled to any benefit under this Plan will have any right
to sell, assign, transfer, hypothecate, encumber, commute, pledge,
anticipate or otherwise dispose of his interest in the benefit, and
any attempt to do so will be void. No benefit under this Plan will be
subject to any legal process, levy, execution, attachment or
garnishment for the payment of any claim against such person.
(b) Exceptions
Section 8.02(a) will not apply to the extent a Participant or
Beneficiary is indebted to the Plan under the provisions of the Plan.
At the time a distribution is to be made to or for a Participant's or
Beneficiary's benefit, the portion of the amount distributed which
equals the indebtedness will be withheld by the Trustee to apply
against or discharge the indebtedness. Before making a payment,
however, the Participant or Beneficiary must be given written notice
by the Plan Administrator that the indebtedness is to be so paid in
whole or part from his Participant's Accrued Benefit. If the
Participant or Beneficiary does not agree that the indebtedness is a
valid claim against his Vested Accrued Benefit, he will be entitled to
a review of the validity of the claim in accordance with procedures
established by the Plan Administrator.
Section 8.02(a) will not apply to a qualified domestic relations order
(QDRO) as defined in Code Section 414(p), and those other domestic
relations orders permitted to be so treated by the Plan Administrator
under the provisions of the Retirement Equity Act of 1984. The Plan
Administrator will establish a written procedure to determine the
qualified status of domestic relations orders and to administer
distributions under such qualified orders. Further, to the extent
provided under a QDRO, a former spouse of a Participant will be
treated as the spouse or Surviving Spouse for all purposes under the
Plan. Where, however, because of a QDRO, more than one individual is
to be treated as a Surviving Spouse, the total amount to be paid in
the form of a Qualified Survivor Annuity or the survivor portion of a
Qualified Joint and Survivor Annuity may not exceed the amount that
would be paid if there were only one Surviving Spouse. All rights and
benefits, including elections, provided to a Participant under this
Plan will be subject to the rights afforded to any alternate payee as
such term is defined in Code Section 414(p).
This Plan specifically permits distribution to an alternate payee
under a QDRO (without regard to whether the Participant has attained
his or her earliest retirement age as that term is defined under Code
Section 414(p)) in the same manner that is provided for a Vested
Terminated Participant.
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8.03 Qualification of Plan
The Employer will have the sole responsibility for obtaining and retaining
qualification of the Plan under the Code with respect to the Employer's
individual circumstances.
8.04 Construction
To the extent not preempted by ERISA, this Plan will be construed according
to the laws of the state in which the Employer's principal place of
business is located. Words used in the singular will include the plural,
the masculine gender will include the feminine, and vice versa, whenever
appropriate.
8.05 Named Fiduciaries
(a) Allocation of Functions
The authority to control and manage the operation and administration
of the Plan and Trust created by this instrument will be allocated
between the Plan Sponsor, the Trustee, and the Plan Administrator, all
of whom are designated as Named Fiduciaries with respect to the Plan
and Trust as provided for by Section 402(a)(2) of ERISA. The Plan
Sponsor reserves the right to allocate the various responsibilities
for the present execution of the functions of the Plan, other than the
Trustees' responsibilities, among its Named Fiduciaries. Any person or
group of persons may serve in more than one fiduciary capacity with
regard to the Plan.
(b) Responsibilities of the Plan Sponsor
The Plan Sponsor, in its capacity as a Named Fiduciary, will have only
the following authority and responsibility:
o To appoint or remove the Plan Administrator and furnish the
Trustee with certified copies of any resolutions of the Plan
Sponsor with regard thereto;
o To appoint and remove the Trustee;
o To appoint a successor Trustee or additional Trustees;
o To communicate information to the Plan Administrator and the
Trustee as needed for the proper performance of the duties
of each;
o To appoint an investment manager (or to refrain from such
appointment), to monitor the performance of the investment
manager so appointed, and to terminate such appointment
(more than one investment manger may be appointed and in
office at any time); and
o To establish and communicate to the Trustee a funding policy
for the Plan.
(c) Limitation on Obligations of Named Fiduciaries
No Named Fiduciary will have authority or responsibility to deal with
matters other than as delegated to it under this Plan or by operation
of law. A Named Fiduciary will not in any event be liable for breach
of fiduciary responsibility or obligation by another fiduciary
(including Named Fiduciaries) if the responsibility or authority of
the act or omission deemed to be a breach was not within the scope of
the Named Fiduciary's authority or delegated responsibility.
(d) Standard of Care and Skill
The duties of each fiduciary will be performed with the care, skill,
prudence and diligence under the circumstances then prevailing that a
prudent person acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of like character
and with like objectives.
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8.06 Status of Insurer
The term Insurer refers to any legal reserve life insurance company
licensed to do business in the state within which the Employer maintains
its principal office. The Insurer will file such returns, keep such
records, make such reports and supply such information as required by
applicable law or regulation.
8.07 Adoption and Withdrawal by Other Organizations
(a) Procedure for Adoption
Subject to the provisions of this Section 8.07, any organization now
in existence or hereafter formed or acquired, which is not already a
Participating Employer under this Plan and which is otherwise legally
eligible may, in the future, with the consent and approval of the Plan
Sponsor, by formal Written Resolution (referred to in this Section as
an Adoption Resolution), adopt the Plan and Trust hereby created for
all or any classification of persons in its employment and thereby,
from and after the specified effective date, become a Participating
Employer under this Plan. Such consent will be effected by and
evidenced by a formal Written Resolution of the Plan Sponsor. The
Adoption Resolution may contain such specific changes and variations
in Plan terms and provisions applicable to the adopting Participating
Employer and its Employees as may be acceptable to the Plan Sponsor
and the Trustee. However, the sole, exclusive right of any other
amendment of whatever kind or extent to the Plan is reserved to the
Plan Sponsor. The Adoption Resolution will become, as to the adopting
organization and its Employees, a part of this Plan as then amended or
thereafter amended. It will not be necessary for the adopting
organization to sign or execute the original or then amended Plan and
Trust Agreement or any future amendment to the Plan and Trust
Agreement. The effective date of the Plan for the adopting
organization will be that stated in the Adoption Resolution and from
and after such effective date the adopting organization will assume
all the rights, obligations and liabilities as a Participating
Employer under this Plan. The administrative powers of and control by
the Plan Sponsor as provided in the Plan, including the sole right of
amendment or termination of the Plan, of appointment and removal of
the Plan Administrator and the Trustee, and of appointment and removal
of an investment manager will not be diminished by reason of the
participation of the adopting organization in the Plan.
(b) Withdrawal
Any Participating Employer may withdraw from the Plan at any time,
without affecting the Plan Sponsor or other Participating Employers
not withdrawing, by complying with the provisions of the Plan. A
withdrawing Participating Employer may arrange for the continuation by
itself or its successor of this Plan in separate forms for its own
employees, with such amendments, if any, as it may deem proper, and
may arrange for continuation of the Plan by merger with an existing
plan and transfer of plan assets. The Plan Sponsor may, it its
absolute discretion, terminate a Participating Employer's
participation at any time when in its judgment the Participating
Employer fails or refuses to discharge its obligations under the Plan.
(c) Adoption Contingent Upon Initial and Continued Qualifications
The adoption of this Plan by an organization as provided is hereby
made contingent and subject to the condition precedent that said
adopting organization meets all the statutory requirements for
qualified plans, including, but not limited to, Sections 401(a) and
501(a) of the Internal Revenue Code for its Employees. If the Plan or
the Trust, in its operation, becomes disqualified, for any reason, as
to the adopting organization and its Employees, the portion of the
Plan assets allocable to them will be segregated as soon as
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is administratively feasible, pending either the prompt (1)
requalification of the Plan as to the organization and its employees
to the satisfaction of the Internal Revenue Service so as not to
affect the continued qualified status thereof as to other Employers,
(2) withdrawal of the organization from this Plan and a continuation
by itself or its successor of its plan separately from this Plan, or
by merger with another existing plan, with a transfer of its said
segregated portion of Plan assets, or (3) termination of the Plan as
to itself and its Employees.
8.08 Employer Contributions
Employer contributions made to the Plan and Trust are made and will be held
for the sole purpose of providing benefits to Participants and their
Beneficiaries.
In no event will any contribution made by the Employer to the Plan and
Trust or income therefrom revert to the Employer except as provided in
Section 7.01(e) or as provided below.
(a) Any contribution made to the Plan and Trust by the Employer because of
a mistake of fact may be returned to the Employer within one year of
such contribution.
(b) Notwithstanding any other provision of the Plan and Trust, if the
Internal Revenue Service determines initially that the Plan, as
adopted by the Employer, does not qualify under applicable sections of
the Code and applicable Treasury Department Regulations, and the
Employer does not wish to amend this Plan and Trust so that it does
qualify, the value of all assets will be distributed by the Trustee to
the Employer within one year after the date such initial qualification
is denied. Thereafter, the Employer's participation in this Plan and
Trust will be considered rescinded and of no force or effect.
(c) Any contribution made by the Employer will be conditioned on the
deductibility of such contribution and may be refunded to the
Employer, to the extent the contribution is determined not to be
deductible, within one year after such determination is made.
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ARTICLE 9
ADMINISTRATION
9.01 Plan Administrator
The Plan Administrator will have the responsibility for the general
supervision and administration of the Plan and will be a fiduciary of the
Plan. The Employer may, by Written Resolution, appoint one or more
individuals to serve as Plan Administrator. If the Employer does not
appoint an individual or individuals as Plan Administrator, the Employer
will function as Plan Administrator. The Employer may at any time, with or
without cause, remove an individual as Plan Administrator or substitute
another individual therefor.
9.02 Powers and Duties of the Plan Administrator
The Plan Administrator will be charged with and will have delegated to it
the power, duty, authority and discretion to interpret and construe the
provisions of this Plan, to determine its meaning and intent and to make
application thereof to the facts of any individual case; to determine in
its discretion the rights and benefits of Participants or the eligibility
of Employees; to give necessary instructions and directions to the Trustee
and the Insurer as herein provided or as may be requested by the Trustee
and the Insurer from time to time; to resolve all questions of fact
relating to any of the foregoing; and to generally direct the
administration of the Plan according to its terms. All decisions of the
Plan Administrator in matters properly coming before it according to the
terms of this Plan, and all actions taken by the Plan Administrator in the
proper exercise of its administrative powers, duties and responsibilities,
will be final and binding upon all Employees, Participants and
Beneficiaries and upon any person having or claiming any rights or interest
in this Plan. The Employer and the Plan Administrator will make and receive
any reports and information, and retain any records necessary or
appropriate to the administration of this Plan or to the performance of
duties hereunder or to satisfy any requirements imposed by law. In the
performance of its duties, the Plan Administrator will be entitled to rely
on information duly furnished by any Employee, Participant or Beneficiary
or by the Employer or Trustee.
9.03 Actions of the Plan Administrator
The Plan Administrator may adopt such rules as it deems necessary,
desirable or appropriate with respect to the conduct of its affairs and the
administration of the Plan. Whenever any action to be taken in accordance
with the terms of the Plan requires the consent or approval of the Plan
Administrator, or whenever an interpretation is to be made of the terms of
the Plan, the Plan Administrator will act in a uniform and
non-discriminatory manner, treating all Employees and Participants in
similar circumstances in a like manner. If the Plan Administrator is a
group of individuals, all of its decisions will be made by a majority vote.
The Plan Administrator will have the authority to employ one or more
persons to render advice or services with regard to the responsibilities of
the Plan Administrator, including but not limited to attorneys, actuaries,
and accountants. Any persons employed to render advice or services will
have no fiduciary responsibility for any ministerial functions performed
with respect to this Plan.
9.04 Reliance on Plan Administrator and Employer
Until the Employer gives notice to the contrary, the Trustee and any
persons employed to render advice or services will be entitled to rely on
the designation of Plan Administrator that has been furnished to them. In
addition, the Trustee and any persons employed to render advice or services
will be fully protected in acting upon the written directions and
instructions of the Plan Administrator made in accordance with the terms of
this Plan. If the Plan Administrator is a group of individuals, unless
otherwise specified, any one of such individuals will be authorized to sign
documents on behalf of the Plan Administrator and such authorized
signatures will be recognized by all person dealing with the Plan
Administrator.
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The Trustee and any persons employed to render advice or services may take
cognizance of any rules established by the Plan Administrator and rely upon
them until notified to the contrary. The Trustee and any persons employed
to render advice or services will be fully protected in taking any action
upon any paper or document believed to be genuine and to have been properly
signed and presented by the Plan Administrator, Employer or any agent of
the Plan Administrator acting on behalf of the Plan Administrator.
9.05 Reports to Participants
The Plan Administrator will report in writing to a Participant his Accrued
Benefit under the Plan and the Vested Percentage of such benefit when the
Participant terminates his employment or requests such a report in writing
from the Plan Administrator. To the extent required by law or regulation,
the Plan Administrator will annually furnish to each Participant, and to
each Beneficiary receiving benefits, a report which fairly summarizes the
Plan's most recent report.
9.06 Bond
The Plan Administrator and other fiduciaries of the Plan will be bonded to
the extent required by ERISA or other applicable law. No additional bond or
other security for the faithful performance of any duties under this Plan
will be required.
9.07 Compensation of Plan Administrator
The Compensation of the Plan Administrator will be left to the discretion
of the Plan Sponsor; no person who is receiving full pay from the Employer
will receive compensation for services as Plan Administrator. All
reasonable and necessary expenses incurred by the Plan Administrator in
supervising and administering the Plan will be paid from the Plan assets by
the Trustee at the direction of the Plan Administrator to the extent not
paid by the Plan Sponsor.
9.08 Claims Procedure
The Plan Administrator will make all determinations as to the rights of any
Employee, Participant, Beneficiary or other person under the terms of this
Plan. Any Employee, Participant or Beneficiary, or person claiming under
them, may make claim for benefit under this Plan by filing written notice
with the Plan Administrator setting forth the substance of the claim. If a
claim is wholly or partially denied, the claimant will have the opportunity
to appeal the denial upon filing with the Plan Administrator a written
request for review within 60 days after receipt of notice of denial. In
making an appeal the claimant may examine pertinent Plan documents and may
submit issues and comments in writing. Denial of a claim or a decision on
review will be made in writing by the Plan Administrator delivered to the
claimant within 60 days after receipt of the claim or request for review,
unless special circumstances require an extension of time for processing
the claim or review, in which event the Plan Administrator's decision must
be made as soon as possible thereafter but not beyond an additional 60
days. If no action on an initial claim is taken within 120 days, the claims
will be deemed denied for purposes of permitting the claimant to proceed to
the review stage. The denial of a claim or the decision on review will
specify the reasons for the denial or decision and will make reference to
the pertinent Plan provisions upon which the denial or decision is based.
The denial of a claim will also include a description of any additional
material or information necessary for the claimant to perfect the claim and
an explanation of the claim review procedure herein described. The Plan
Administrator will serve as an agent for service of legal process with
respect to the Plan unless the Employer, through written resolution,
appoints another agent.
If a Participant or Beneficiary is entitled to a distribution from the
Plan, the Participant or Beneficiary will be responsible for providing the
Plan Administrator with his current address. If the Plan Administrator
notifies the Participant or Beneficiary by registered mail
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(return receipt requested) at his last known address that he is entitled to
a distribution and also notifies him of the provisions of this paragraph,
and the Participant or Beneficiary fails to claim his benefits under the
Plan or provide his current address to the Plan Administrator within one
year after such notification, the distributable amount will be forfeited
and used to reduce the cost of the Plan. If the Participant or Beneficiary
is subsequently located, such benefit will be restored.
9.09 Liability of Fiduciaries
Except for a breach of fiduciary responsibility due to gross negligence or
willful misconduct, the Plan Administrator will not incur any individual
liability for any decision, act, or failure to act hereunder. The Plan
Administrator may engage agents to assist it and may engage legal counsel
who may be counsel for the Employer. The Plan Administrator will not be
responsible for any action taken or omitted to be taken on the advice of
counsel.
If there is more than one person serving as a fiduciary in any capacity
(for example, co-Trustees), each will use reasonable care to prevent the
other or others from committing a breach of this Plan. Nothing contained in
this Section will preclude any agreement allocating specific
responsibilities or obligations among the co-fiduciaries provided that the
agreement does not violate any of the terms and provisions of this Plan. In
those instances where any duties have been allocated between
co-fiduciaries, a fiduciary will not be liable for any loss resulting to
the Plan arising from any act or omission on the part of another
co-fiduciary to whom responsibilities or obligations have been allocated
except under the following circumstances:
o If he participates knowingly in, or knowingly undertakes to
conceal, an act or omission of a co-fiduciary knowing the act or
omission is a breach; or
o If by his failure to comply with his specific responsibilities
which give rise to his status as a fiduciary, he has enabled the
other fiduciary to commit a breach; or
o If he has knowledge of a breach by a co-fiduciary, unless he
makes reasonable efforts under the circumstances to remedy the
breach.
9.10 Expenses of Administration
The Employer does not and will not guarantee the Plan assets against loss.
The Employer may in its sole discretion, but will not be obligated to, pay
the ordinary expenses of establishing the Plan, including the fees of
consultants, accountants and attorneys in connection therewith. The
Employer may, in its sole discretion (but will not be obligated to), pay
other costs and expenses of administering the Plan, the taxes imposed upon
the Plan, if any, and the fees, charges or commissions with respect to the
purchase and sale of Plan assets. Unless paid by the Employer, such costs
and expenses, taxes (if any), and fees, charges and commissions will be a
charge upon Plan assets and deducted by the Trustee.
9.11 Distribution Authority
If any person entitled to receive payment under this Plan is a minor,
declared incompetent or is under other legal disability, the Plan
Administrator may, in its sole discretion, direct the Trustee to:
o Distribute directly to the person entitled to the payment;
o Distribute to the legal guardian or, if none, to a parent of the
person entitled to payment or to a responsible adult with whom
the person entitled to payment maintains his residence;
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o Distribute to a custodian for the person entitled to payment
under the Uniform Gifts to Minors Act if permitted by the laws of
the state in which the person entitled to payment resides; or
o Withhold distribution of the amount payable until a court of
competent jurisdiction determines the rights of the parties
thereto or appoints a guardian of the estate of the person
entitled to payment.
If there is any dispute, controversy or disagreement between any
Beneficiary or person and any other person as to who is entitled to receive
the benefits payable under this Plan, or if the Plan Administrator is
uncertain as to who is entitled to receive benefits, or if the Plan
Administrator is unable to locate the person who is entitled to benefits,
the Plan Administrator may with acquittance interplead the funds into a
court of competent jurisdiction in the judicial district in which the
Employer maintains its principal place of business and, upon depositing the
funds with the clerk of the court, be released from any further
responsibility for the payment of the benefits. If it is necessary for the
Plan Administrator to retain legal counsel or incur any expense in
determining who is entitled to receive the benefits, whether or not it is
necessary to institute court action, the Plan Administrator will be
entitled to reimbursement from the benefits for the amount of its
reasonable costs, expenses and attorneys' fees incurred.
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ARTICLE 10
AMENDMENT OR TERMINATION OF PLAN
10.01 Right of Plan Sponsor to Amend or Terminate
The Plan Sponsor reserves the right to alter, amend, revoke or terminate
this Plan. No amendment will deprive any Participant or Beneficiary of any
vested right nor will it reduce the present value (determined upon an
actuarial equivalent basis) of any Accrued Benefit to which he is then
entitled with respect to Employer contributions previously made, except as
may be required to maintain the Plan as a qualified plan under the Code.
No amendment will change the duties or responsibilities of the Trustee
without its express written consent thereto.
A plan amendment which has the effect of (a) eliminating or reducing an
early retirement benefit or a retirement-type subsidy, or (b) eliminating
an optional benefit form, will, with respect to benefits attributable to
service before the amendment be treated as reducing Accrued Benefits. In
the case of a retirement-type subsidy, the preceding sentence will apply
only with respect to a Participant who satisfies (either before or after
the amendment) the preamendment conditions for the subsidy. In general, a
retirement-type subsidy is a subsidy that continues after retirement but
does not include a disability retirement benefit, a medical benefit, a
social security supplement, a pre-retirement death benefit, or a plant
shutdown benefit (that does not continue after retirement).
A minimum Accrued Benefit value will apply if this Plan is or becomes a
successor to a profit sharing plan, a defined contribution pension plan, a
target benefit plan, or a defined benefit pension plan which was fully
insured, or any plan under which the accrued benefit of a Participant was
determined as a lump sum or account balance. The actuarial equivalent
value of a Participant's Accrued Benefit will not be less than the
actuarial equivalent value of his Accrued Benefit on the Effective Date of
the Plan.
10.02 Allocation of Assets Upon Termination of Plan
If this Plan is revoked or terminated (in whole or in part) or if
contributions are completely discontinued the Accounts of all affected
Participants will become non-forfeitable. The Employer will then arrange
for allocation of all assets among Participants so affected by the total
or partial termination in accordance with the requirements of all
applicable law and the regulations and requirements of the Internal
Revenue Service. All allocated amounts will be retained in the Plan to the
credit of the individual Participants until distribution as directed by
the Employer. Distribution to Participants may be in the form of cash or
other Plan assets or partly in each.
10.03 Exclusive Benefit
At no time will any part of the principal or income of the Plan assets be
used or diverted for purposes other than the exclusive benefit of
Participants in the Plan and their Beneficiaries, nor may any portion of
the Plan assets revert to the Employer except as provided in Sections
7.01(e) and 8.08.
10.04 Failure to Qualify
Notwithstanding any of the foregoing provisions, if this Plan, upon
adoption by the Employer, is submitted to the Internal Revenue Service
which then determines that the Plan as initially adopted by the Employer
is not a qualified plan under the Code, the Employer may elect to
terminate this Plan by giving written notice thereof. Such termination
will have the same effect as if the Plan were never adopted, all policies
and contracts will be cancelled, and all contributions, to the extent
recoverable from the Trustee, will be returned to their
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source. If any amendment to this Plan is submitted to the Internal Revenue
Service within the period allowed under Code Section 401(b) which then
determines that the Plan as amended is not a qualified plan under the
Code, the Employer may cancel or modify any or all provisions of the
amendment retroactive to the effective date of the amendment in order to
maintain the qualified status of the Plan, whereupon written notice
thereof will be furnished to all affected Employees, Participants and
Beneficiaries.
10.05 Mergers, Consolidations or Transfers of Plan Assets
In the event this Plan is merged or consolidated with another plan which
is qualified under Code Sections 401(a) (and 501(a) if applicable), or in
the event of a transfer of the assets or liabilities of this Plan to
another plan which is qualified under Code Sections 401(a) (and 501(a) if
applicable), the benefit which each Participant would be entitled to
receive under the successor plan or other plan if it were terminated
immediately after the merger, consolidation or transfer will be equal to
or greater than the benefit which the Participant would have received
immediately before the merger, consolidation or transfer if this Plan had
then terminated.
Any transfer of assets and/or liabilities to (or from) this Plan from (or
to) another plan qualified under Code Sections 401(a) (and 501(a) if
applicable) will be evidenced by a Written Resolution by the Plan Sponsor
of each affected plan which specifically authorizes such transfer of
assets and/or liabilities.
Any transfer of assets to this Plan will be allowed under the provisions
of this Section if such transferred assets are not required to be paid in
the form of a qualified joint & survivor annuity or a qualified survivor
annuity in accordance with Code Section 401(a)(11).
10.06 Effect of Plan Amendment on Vesting Schedule
No amendment to the Vesting Schedule will deprive a Participant of his
nonforfeitable right to his Vested Accrued Benefit as of the date of the
amendment. Further, if the Vesting Schedule of the Plan is amended, or if
the Plan is amended in any way that directly or indirectly affects the
computation of a Participant's non-forfeitable percentage, each
Participant with at least 3 Years of Vesting Service as of the last day of
the election period described below may elect, within a reasonable period
after the adoption of the amendment, to have his Vested Percentage
computed under the Plan without regard to such amendment. The period
during which such election may be made will commence with the date the
amendment is adopted and will end 60 days after the latest of:
(a) the date the amendment is adopted;
(b) the date the amendment becomes effective; or
(c) the date the Participant is issued written notice of the amendment by
the Employer.
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ARTICLE 11
TRUSTEE AND TRUST FUND
11.01 Acceptance of Trust
The Trustee, by signing this Agreement, accepts this Trust and agrees to
perform the duties of the Trustee in accordance with the terms and
conditions set forth herein.
11.02 Trust Fund
(a) Purpose and Nature
The Trustee will establish and maintain a Trust Fund for purposes of
providing a means of accumulating the assets necessary to provide the
benefits which become payable under the Plan. The Trustee will
receive, hold and invest all contributions made by the Employer, any
Participating Employers, and the Participants, including the
investment earnings thereon. The Trust Fund arising from such
contributions and earnings will consist of all assets held by the
Trustee under the Plan and Trust. All benefits payable under the Plan
will be paid by the Trustee from the Trust Fund.
Any person having any claim under the Plan will look solely to the
assets of the Trust Fund for satisfaction. In no event will the Plan
Administrator, the Employer, any Employees, any officer of the
Employer or any agents of the Employer or the Plan Administrator be
liable in their individual capacities to any person whomsoever, under
the provisions of this Plan and Trust, except as provided by law.
The Trust Fund will be used and applied only in accordance with the
provisions of the Plan and Trust, to provide the benefits thereof,
and no part of the corpus or income of the Trust Fund will be used
for, or diverted to, purposes other than for the exclusive benefit of
the Participants or their Beneficiaries entitled to benefits under
the Plan, except to the extent specifically provided elsewhere
herein.
(b) Investments
The Trustee will invest the Trust Fund in accordance with the
investment policy for the Trust Fund considering the fiduciary
requirements of law, the objectives of the Plan, and the liquidity
needs of the Plan.
(c) Investment Policy
The Plan Sponsor (or the Plan Administrator or an Investment
Committee appointed by the Plan Sponsor) will have the right to
periodically provide the Trustee with a written investment policy
which, in consideration of the needs of the Plan, sets forth the
investment objectives, policies, and guidelines which the Plan
Sponsor judges to be appropriate and prudent.
If a written investment policy is not so provided, then the Trustee
will set forth the investment policy for the Plan. In doing so, the
Trustee may consult with the Plan Sponsor (or the Plan Administrator
or an Investment Committee appointed by the Plan Sponsor) to secure
information with regard to Plan Sponsor investment objectives and
general investment policy.
(d) Operation of Trust Fund
The Trust Fund will be maintained in accordance with the accounting
requirements of the Plan. No Participant will have any right to any
specific asset or any specific portion of the Trust Fund prior to
distribution of benefits. Withdrawals from the Trust Fund
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will be made to provide benefits to Participants and Beneficiaries in
the amounts specified by the Plan, and to pay expenses authorized by
the Plan Administrator.
(e) Plan Sponsor Direction of Investment
The Plan Sponsor will have the right to direct the Trustee with
respect to the investment and reinvestment of assets comprising the
Trust Fund. The Trustee and the Plan Sponsor (or the Plan
Administrator or an Investment Committee appointed by the Plan
Sponsor) will execute a letter of agreement as a part of this Plan
containing such conditions, limitations and other provisions they deem
appropriate before the Trustee will follow any Plan Sponsor direction
with respect to the investment or reinvestment of any part of the
Trust Fund.
11.03 Receipt of Contributions
The Trustee will be accountable to the Employer for the funds contributed
to it, but will have no duty to see that the contributions received comply
with the provisions of the Plan. The Trustee will not be obligated to
collect any contributions from the Employer or the Participants.
11.04 Powers of the Trustee
Subject to the provisions and limitations contained elsewhere in this
Plan, the Trustee will have full discretion and authority with regard to
the investment of the Trust Fund. The Trustee is authorized and empowered,
but not by way of limitation, with the following powers, rights and
duties:
(a) To invest any part or all of the Trust Fund in any common or
preferred stocks, open-end or closed-end mutual funds, United States
retirement plan bonds, corporate bonds, debentures, convertible
debentures, commercial paper, U.S. Treasury bills, book entry
deposits with the United States Federal Reserve Bank or System,
Master Notes or similar arrangements sponsored by the Trustee or any
other financial institution as permitted by law, improved or
unimproved real estate situated in the United States, mortgages,
notes or other property of any kind, real or personal, as a prudent
man would so invest under like circumstances with due regard for the
purposes of this Plan;
(b) To maintain any part of the assets of the Trust Fund in cash, or in
demand or short-term time deposits bearing a reasonable rate of
interest (including demand or short-term time deposits of or with
the Trustee), or in a short-term investment fund or in other cash
equivalents having ready marketability, including, but not limited
to, U.S. Treasury Bills, commercial paper, certificates of deposit
(including such certificates of deposit of or with the Trustee), and
similar types of short-term securities, as may be deemed necessary
by the Trustee in its sole discretion;
(c) To manage, sell, contract to sell, grant options to purchase,
convey, exchange, transfer, abandon, improve, repair, insure, lease
for any term even though commencing in the future or extending
beyond the term of the Trust, and otherwise deal with all property,
real or personal, in such manner, for such considerations and on
such terms and conditions as the Trustee will decide;
(d) To credit and distribute the Trust as directed by the Plan
Administrator or any agent of the Plan Administrator. The Trustee
will not be obliged to inquire as to whether any payee or
distributee is entitled to any payment or whether the distribution
is proper or within the terms of the Plan, or as to the manner of
making any payment or distribution. The Trustee will be accountable
only to the Plan Administrator for any payment or distribution made
by it in good faith on the order or direction of the Plan
Administrator or any agent of the Plan Administrator;
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(e) To borrow money, assume indebtedness, extend mortgages and encumber
by mortgage or pledge;
(f) To compromise, contest, arbitrate, or abandon claims and demands, in
its discretion;
(g) To have with respect to the Trust all of the rights of an individual
owner, including the power to give proxies, to participate in any
voting trusts, mergers, consolidations or liquidations, and to
exercise or sell stock subscriptions or conversion rights;
(h) To hold any securities or other property in the name of the Trustee
or its nominee, or in another form as it may deem best, with or
without disclosing the trust relationship;
(i) To perform any and all other acts in its judgment necessary or
appropriate for the proper and advantageous management, investment
and distribution of the Trust;
(j) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make
payment or delivery of the funds or property until final
adjudication is made by a court of competent jurisdiction;
(k) To file all tax forms or returns required of the Trustee;
(l) To begin, maintain or defend any litigation necessary in connection
with the administration of the Plan, except that the Trustee will
not be obligated to or required to do so unless indemnified to its
satisfaction; and
(m) To keep any or all of the Trust property at any place or places
within the United States or abroad, or with a depository or
custodian at such place or places; provided, however, that the
Trustee may not maintain the indicia of ownership of any assets of
the Plan outside the jurisdiction of the District Courts of the
United States, except as may be expressly authorized in U.S.
Treasury or U.S. Department of Labor regulations.
11.05 Investment in Common or Collective Trust Funds
Notwithstanding the provisions of Section 11.04, the Plan Sponsor
specifically authorizes the Trustee to invest all or any portion of the
assets comprising the Trust Fund in any common or collective trust fund
which at the time of the investment provides for the pooling of the assets
of plans qualified under Code Section 401(a). The authorization applies
only if such common or collective trust fund: (a) is exempt from taxation
under Code Section 584 or 501(a); (b) if exempt under Code Section 501(a),
expressly limits participation to pension and profit sharing trusts which
are exempt under Code Section 501(a) by reason of qualifying under Code
Section 401(a); (c) prohibits that part of its corpus or income which
equitably belongs to any participating trust from being used for or
diverted to any purposes other than for the exclusive benefit of the
Employees or their Beneficiaries who are entitled to benefits under such
participating trust; (d) prohibits assignment by participating trust of
any part of its equity or interest in the group trust; and (e) the sponsor
of the group trust created or organized the group trust in the United
States and maintains the group trust at all times as a domestic trust in
the United States. The provisions of the common or collective trust fund
agreement, as amended by the Trustee from time to time, are by this
reference incorporated within this Plan and Trust. The provisions of the
common or collective trust fund will govern any investment of Plan assets
in that fund. This provision constitutes the express permission required
by Section 408(b)(8) of ERISA.
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11.06 Investment in Insurance Company Contracts
The Trustee may invest any portion of the Trust Fund in a deposit
administration, guaranteed investment or similar type of investment
contract (hereinafter referred to as Contract); provided, however, that no
such Contract may provide for an optional form of benefit which would not
be provided for under the provisions hereof. The Trustee will be the
complete and absolute owner of Contracts held in the Trust Fund.
The Trustee may convert from one form to another any Contract held in the
Trust Fund; designate any mode of settlement; sell or assign any Contract
held in the Trust Fund; surrender for cash any Contract held in the Trust
Fund; agree with the insurance company issuing any Contract to any
release, reduction, modification or amendment thereof; and, without
limitation of any of the foregoing, exercise any and all of the rights,
options and privileges that belong to the absolute owner of any Contract
held in the Trust Fund that are granted by the terms of any such Contract
or by the terms of this Agreement.
The Trustee will hold in the Trust Fund the proceeds of any sale,
assignment or surrender of any Contract held in the Trust Fund and any and
all dividends and other payments of any kind received in respect to any
Contract held in the Trust Fund.
No insurance company which may issue any Contract based upon the
application of the Trustee will be responsible for the validity of this
Plan, be required to look into the terms of this Plan, be required to
question any act of the Plan Administrator or the Trustee hereunder or be
required to verify that any action of the Trustee is authorized by this
Plan. If a conflict should arise between the terms of the Plan and any
such Contract, the terms of the Plan will govern.
11.07 Fees and Expenses from Fund
The Trustee will be entitled to receive reasonable annual compensation as
may be mutually agreed upon from time to time between the Plan Sponsor and
the Trustee. The Trustee will pay all expenses reasonably incurred by it
in its administration and investment of the Trust Fund from the Trust Fund
unless the Plan Sponsor pays the expenses. No person who is receiving full
pay from the Plan Sponsor will receive compensation for services as
Trustee.
11.08 Records and Accounting
The Trustee will keep full and complete records of the administration of
the Trust Fund which the Employer and the Plan Administrator may examine
at any reasonable time. As soon as practical after the end of each Plan
Year and at such other reasonable times as the Employer may direct, the
Trustee will prepare and deliver to the Employer and the Plan
Administrator an accounting of the administration of the Trust, including
a report on the fair market value of all assets of the Trust Fund.
11.09 Distribution Directions
If no one claims a payment or distribution made from the Trust, the
Trustee will notify the Plan Administrator and will dispose of the payment
in accordance with the subsequent direction of the Plan Administrator.
11.10 Third Party
No person dealing with the Trustee will be obliged to see to the proper
application of any money paid or property delivered to the Trustee, or to
inquire whether the Trustee has acted pursuant to any of the terms of the
Plan. Each person dealing with the Trustee may act upon any notice,
request or representation in writing by the Trustee, or by the Trustee's
duly authorized agent, and will not be liable to any person whomsoever in
so doing. The certification of the Trustee that it is acting in accordance
with the Plan will be conclusive in favor of any person relying on the
certification.
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11.11 Professional Agents, Affiliates and Arbitration
(a) Professional Agents
The Trustee may employ and pay from the Trust Fund reasonable
compensation to agents, attorneys, accountants and other persons to
advise the Trustee as in its opinion may be necessary. The Trustee may
delegate to any agent, attorney, accountant or other person selected
by it any non-Trustee power or duty vested in it by the Plan; the
Trustee may act or refrain from acting on the advice or opinion of any
agent, attorney, accountant or other person so selected.
(b) Use of Affiliates
(1) Charles Schwab Trust Company (CSTC) is authorized to contract or
make other arrangements with The Charles Schwab Corporation,
Charles Schwab & Co., Inc., their affiliates and subsidiaries,
successors and assigns (collectively referred to as Schwab), and
any other organizations affiliated with or subsidiaries of CSTC
or related entities, for the provision of services to the Trust
Fund or Plan, except where such arrangements are prohibited by
law or regulation.
(2) CSTC is authorized to place securities orders, settle securities
trades, hold securities in custody and other related activities
on behalf of the Trust Fund through or by Schwab whenever
possible unless the Authorized Person specifically instructs the
use of another Broker. Trades and related activities conducted
through the Broker will be subject to fees and commissions
established by the Broker, which may be paid from the Trust Fund
or netted form the proceeds of trades.
(3) Trades will not be executed through Schwab unless the Plan
Administrator and the Authorized Person have received disclosure
concerning the relationship of Schwab to CSTC, and the fees and
commissions which may be paid to Schwab, CSTC and any affiliate
or subsidiary of any of them as a result of using Schwab to
execute trades or for other services.
(4) CSTC is authorized to disclose such information as is necessary
to the operation and administration of the Trust Fund to Schwab
and to such other persons or organizations that CSTC determines
have a legitimate business purpose for obtaining such
information.
(5) At the direction of the Authorized Person, CSTC may purchase
shares of regulated investment companies (or other investment
vehicles) advised by Schwab or CSTC ("Schwab Funds"), except to
the extent that such investment is prohibited by law or
regulation. Schwab Fund shares may not be purchased for or held
by the Trust Fund unless the Plan Administrator has received
disclosure concerning the relationship of Schwab or CSTC to the
Schwab Funds, and any fees which may be paid to such entities.
(6) To the extent permitted under applicable laws, CSTC may invest in
deposits, long and short term debt instruments, stocks and other
securities, including those of CSTC or Schwab.
(7) CSTC and Schwab are authorized to tape record conversations
between CSTC or Schwab and persons acting on behalf of the Plan
or a Participant in order to verify data on transactions.
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(c) Arbitration
Any dispute under this agreement will be resolved by submission of
the issue to a member of the American Arbitration Association who is
chosen by the Employer and the Trustee. If the Employer and the
Trustee cannot agree on such a choice, each will nominate a member of
the American Arbitration Association, and the two nominees will then
select an arbitrator. Expenses of the arbitration will be paid as
decided by the arbitrator.
11.12 Valuation of Trust
The Trustee will value the Trust Fund as of the last day of each Plan Year
to determine the fair market value of the Trust, and the Trustee will
value the Trust Fund on such other date(s) as may be necessary to carry
out the provisions of the Plan.
11.13 Liability of Trustee
The Trustee will be liable only for the safeguarding and administration of
the assets of this Trust Fund in accordance with the provisions hereof and
any amendments hereto and no other duties or responsibilities will be
implied. The Trustee will not be required to pay any interest on funds
paid to or deposited with it or to its credit under the provisions of this
Trust, unless pursuant to a written agreement between the Employer and the
Trustee. The Trustee will not be responsible for the adequacy of the Trust
Fund to meet and discharge any liabilities under the Plan and will not be
required to make any payment of any nature except from funds actually
received as Trustee. The Trustee may consult with legal counsel (who may
be legal counsel for the Employer) selected by the Trustee and will be
fully protected for any action taken, suffered or omitted in good faith in
accordance with the opinion of said legal counsel. It will not be the duty
of the Trustee to determine the identity or mailing address of any
Participant or any other person entitled to benefits hereunder, such
identity and mailing addresses to be furnished by the Employer, the Plan
Administrator or an agent of the Plan Administrator. The Trustee will be
under no liability in making payments in accordance with the terms of this
Plan and the certification of the Plan Administrator or an agent of the
Plan Administrator who has been granted such powers by the Plan
Administrator.
Except to the extent required by any applicable law, no bond or other
security for the faithful performance of duty hereunder will be required
of the Trustee.
11.14 Removal or Resignation and Successor Trustee
A Trustee may resign at any time upon giving 30 days prior written notice
to the Plan Sponsor or, with the consent of the Plan Sponsor, a Trustee
may resign with less than 30 days prior written notice.
The Plan Sponsor may remove a Trustee by giving at least 30 days prior
written notice to the Trustee.
Upon the removal or resignation of a Trustee, the Plan Sponsor will
appoint and designate a successor Trustee which will be one or more
individual successor Trustees or a corporate Trustee organized under the
laws of the United Sates or of any state thereof with authority to accept
and execute trusts. Any successor Trustee must accept and acknowledge in
writing its appointment as a successor Trustee before it can act in such
capacity.
Title to all property and records or true copies of such records necessary
to the current operation of the Trust Fund held by the Trustee hereunder
will vest in any successor Trustee acting pursuant to the provisions
hereof, without the execution or filing of any further instrument. Any
resigning or removed Trustee will execute all instruments and do all acts
necessary to vest such title in any successor Trustee of record. Each
successor Trustee will have, exercise and enjoy all the powers, both
discretionary and ministerial, herein conferred upon his predecessor. No
successor Trustee will be obligated to examine the accounts,
11-6
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records and acts of any previous Trustee or Trustees, and each successor
Trustee in no way or manner will be responsible for any action or omission
to act on the part of any previous Trustee.
Any corporation which results from any merger, consolidation or purchase
to which the Trustee may be a party, or which succeeds to the trust
business of the Trustee, or to which substantially all the trust assets of
the Trustee may be transferred, will be the successor to the Trustee
hereunder without any further act or formality with like effect as if the
successor Trustee had originally been named Trustee herein; and in any
such event it will not be necessary for the Trustee or any successor
Trustee to give notice thereof to any person, and any requirement,
statutory or otherwise, that notice will be given is hereby waived.
11.15 Appointment of Investment Manager
One or more Investment Managers may be appointed by the Plan Sponsor (or
the Plan Administrator) to exercise full investment management authority
with respect to all or a portion of the Trust assets. Authorized payment
of the fees and expenses of the Investment Manager(s) may be made from the
Trust assets. For purposes of this agreement, any Investment Manager so
appointed will, during the period of his appointment, possess fully and
absolutely those powers, rights and duties of the Trustee (to the extent
delegated by the Plan Sponsor or the Plan Administrator) with respect to
the investment or reinvestment of that portion of the Trust assets over
which the Investment Manager has investment management authority. The
Investment Manager must be one of the following:
(a) Registered as an investment advisor under the Investment Advisors
Act of 1940;
(b) A bank, as defined in the Investment Advisors Act of 1940; or
(c) An insurance company qualified to manage, acquire, or dispose of
such Plan assets under the laws of more than one state.
Any Investment Manager will acknowledge in writing to the Plan Sponsor or
the Plan Administrator and to the Trustee that he or it is a fiduciary
with respect to the Plan. During any period of time when the Investment
Manager is so appointed and serving, and with respect to those assets in
the Plan over which the Investment Manager exercises investment management
authority, the Trustee's responsibility will be limited to holding such
assets as a custodian, providing accounting services, disbursing benefits
as authorized, and executing such investment instructions only as directed
by the Investment Manager. The Trustee will not be responsible for any
acts or omissions of the Investment Manager. Any certificates or other
instruments duly signed by the Investment Manager (or the authorized
representative of the Investment Manager), purporting to evidence any
instruction, direction or order of the Investment Manager with respect to
the investment of those assets of the Plan over which the Investment
Manager has investment management authority, will be accepted by the
Trustee as conclusive proof thereof. The Trustee will also be fully
protected in acting in good faith upon any notice, instruction, direction,
order, certificate, opinion, letter, telegram or other document believed
by the Trustee to be genuine and from the Investment Manager (or the
authorized representative of the Investment Manager). The Trustee will not
be liable for any action taken or omitted by the Investment Manager or for
any mistakes of judgment or other action made, taken or omitted by the
Trustee in good faith upon direction of the Investment Manager.
11.16 Loans to Participants
The Plan Administrator may authorize the Trustee to lend on a
nondiscriminatory basis to a Participant an amount from the Plan as
specified herein; provided, a reasonable rate of interest will be charged
on the loan, the loan will be secured by 50% of the Participant's
11-7
<PAGE> 68
Vested Accrued Benefit in the Plan, and provision for repayment will be
made. All loans will be subject to the approval of the Plan Administrator
which will investigate each application for a loan. The Plan Administrator
will prescribe such rules as may be necessary to provide guidelines as to
under which circumstances and for what purpose loans will be permitted.
The Plan Administrator will prescribe guidelines as to which Account or
Accounts loans may be made from. Each loan made to a Participant will be
made from the Participant's allowable Account or Accounts. All interest and
principal repayments will be credited to the Participant's Account from
which the loan was made.
In addition to any additional rules and regulations as the Plan
Administrator may adopt all loans will comply with the following terms and
conditions:
(a) Only Active and Inactive Participants will be eligible to apply for a
loan. Each application for a loan will be made in writing to the Plan
Administrator, whose action thereon will be final.
(b) Each loan will be made against collateral being the assignment of 50%
of the borrower's entire right, title and interest in and to the Trust
Fund, supported by the borrower's promissory note for the amount of
the loan, including interest payable to the order to the Trustee, and
any additional security deemed necessary to adequately secure the
Loan. If a person fails to make a required payment within 90 days of
the due date set forth in the loan agreement, the loan will be in
default. There will be no foreclosure against a Participant's Accrued
Benefit prior to his becoming entitled to a distribution of benefits
in accordance with the terms of this Plan. All loans will become due
and payable in full upon the termination of a Participant's
employment. If a Participant with an outstanding loan terminates
employment and becomes entitled to a distribution of benefits from the
Plan, then the outstanding balance of the unpaid loan plus any accrued
interest thereon will be deducted from the amount of otherwise
distributable benefits and the Participant's promissory note will be
distributed to the Participant.
(c) The principal repayment will be amortized over the fixed life of a
loan with installments of principal and interest to be paid not less
often than quarterly. The period of repayment for each loan will be
arrived at by mutual agreement between the Plan Administrator and the
borrower, but in no event will such period exceed a reasonable period
of time. The period of repayment will in no event exceed 5 years
unless the loan is to be used to acquire, construct, reconstruct or
substantially rehabilitate any dwelling unit which, within a
reasonable period of time, is to be used as a principal residence of
the Participant or a member of the family (spouse, brother, sister,
ancestor, or lineal descendants) of the Participant.
(d) The minimum amount of any loan is equal to $1,000.
(e) The maximum amount of any loan is such that when the amount of the
loan is added to the outstanding balance of all other loans made to
the Participant from the Plan (and any other plans maintained by the
Employer or any Related Employer) the total does not exceed the lesser
of:
(1) 50% of the Participant's Vested Accrued Benefit; or
(2) $50,000, reduced by the amount, if any, of the highest balance of
all outstanding loans to the Participant during the one-year
period ending on the day prior to the day on which the loan in
question is made.
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<PAGE> 69
(f) Each loan will bear interest at a rate equal to the prime rate which
is published in the Wall Street Journal as being representative of the
base rate on corporate loans at large U.S. money center commercial
banks on the date on which the loan is made.
(g) A Participant may have only one loan outstanding at any time and may
make a new loan no more frequently than once per year.
(h) Each loan will require the Participant (and, if the Participant is
married, the Participant's spouse) to consent to the loan and the
possible reduction in the Participant's Accrued Benefit. Such consent
must be made in writing within the 90-day period before the making of
the loan.
(i) No loan will be permitted to a Participant in a year in which he is
either an Owner-Employee or Shareholder-Employee as defined in Code
Section 4975(d).
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<PAGE> 70
IN WITNESS WHEREOF, this instrument has been executed by the duly authorized and
empowered officers of the Employer, this 16th day of June, 1995.
Thomas Group, Inc.
By: /s/ [ILLEGIBLE]
--------------------------------------
Each Trustee agrees to continue to serve as Trustee under the terms of this
instrument.
/s/ [ILLEGIBLE]
--------------------------------------
Charles Schwab Trust Company, Trustee
--------------------------------------
Philip R. Thomas, Trustee of
GIC Contracts
/s/ [ILLEGIBLE]
--------------------------------------
Lee Grubb, Trustee of GIC Contracts
<PAGE> 1
EXHIBIT 10.6
================================================================================
FIRST AMENDED AND RESTATED
REVOLVING CREDIT LOAN AGREEMENT
BY AND BETWEEN
THOMAS GROUP, INC.
AND
COMERICA BANK-TEXAS
AS OF
DECEMBER 4, 1996
$20,000,000.00
================================================================================
<PAGE> 2
FIRST AMENDED AND RESTATED
REVOLVING CREDIT LOAN AGREEMENT
This FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT (this
"AGREEMENT"), dated as of December 4, 1996, is among THOMAS GROUP, INC., a
Delaware corporation and COMERICA BANK-TEXAS, a Texas banking association
("LENDER").
RECITALS:
The Borrower (as defined herein) has requested that the Lender modify
and increase its existing credit facility so as to extend credit to the
Borrower in the form of revolving credit advances in an aggregate principal
amount not to exceed $20,000,000.00.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the Borrower and the Lender hereby agree as
follows:
SECTION 1. DEFINITIONS
1.1. Definitions. As used in this Agreement, the following terms
shall have the respective meanings indicated below:
"ADJUSTED LIBOR RATE" shall mean, for any LIBOR Advance for
any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined by the Lender to be
equal to the LIBOR Rate for such LIBOR Advance for such Interest
Period divided by 1 minus the Reserve Requirement for such LIBOR
Advance for such Interest Period.
"ADVANCE" shall mean a Loan or an advance of funds by the
Lender to the Borrower pursuant to this Agreement.
"ADVANCE REQUEST FORM" shall mean a certificate, in the form
approved by the Lender, properly completed and signed by the Borrower
requesting an Advance.
"AGREEMENT" shall mean this First Amended and Restated
Revolving Credit Loan Agreement, which shall supersede in all respects
that certain Revolving Credit Loan Agreement dated as of January 4,
1994, as amended prior to this date.
"APPLICABLE RATE" shall mean: (a) during the period that an
Advance is a Prime Rate Advance, the Prime Rate; (b) during the period
that an Advance is a LIBOR Advance, the Adjusted LIBOR Rate plus the
Margin; and (c) during the period that an Advance is a Cost of Funds
Advance, the Cost of Funds Rate plus the Margin.
CREDIT AGREEMENT - Page 1
<PAGE> 3
"ASSESSMENT RATE" shall mean, at any time, the rate (rounded
upwards, if necessary, to the nearest 1/100 of 1%) then charged by the
Federal Deposit Insurance Corporation (or any successor) to the Lender
for deposit insurance for Dollar time deposits with the Lender at its
principal office in Dallas, Texas as determined by the Lender.
"AUTHORIZED OFFICER" shall mean each officer of the Borrower
who has been authorized by the Borrower to request Loans hereunder and
who has been furnished by the Borrower with the Security Code. The
Borrower shall provide the Lender with a list of Authorized Officers.
"BANKRUPTCY CODE" shall mean Title 11 of the United States
Code, as amended, or any successor act or code.
"BORROWER" shall mean collectively, Thomas Group, Inc., a
Delaware corporation, and each of the Constituent Entities.
"BUSINESS DAY" shall mean each day on which the Lender is
open to carry on its normal commercial lending business.
"CAPITALIZED SOFTWARE COST" shall mean the total capitalized
cost (net of accumulated amortization) associated with development of
software in accordance with GAAP.
"COMMITMENT" shall mean the Revolving Credit Commitment.
"CONTINUE," "CONTINUATION" and "CONTINUED" shall refer to
the continuation pursuant to Section 4.3 of a LIBOR Advance as a LIBOR
Advance from one Interest Period to the next Interest Period.
"CONTRACT RATE" shall mean, as of any date of determination,
the Applicable Rate.
"COST OF FUNDS ADVANCES" shall mean Advances the interest
rates on which are determined on the basis of the rates referred to in
the definition of "Cost of Funds Rate" in this Section 1.1.
"COST OF FUNDS RATE" shall mean the annual rate of interest
determined by the lender in its sole discretion at the time of any
Cost of Funds Rate Advance to be the cost to Lender of obtaining time
deposits of a one-year maturity or more, as requested by the Borrower.
The Lender will advise the Borrower of each determination of the Cost
of Funds Rate before the time of any such Advance.
"CONVERT," "CONVERSION" and "CONVERTED" shall refer to a
conversion pursuant to Section 4.3 of one Type of Advance into another
Type of Advance.
CREDIT AGREEMENT - Page 2
<PAGE> 4
"CURRENT RATIO" shall mean, as computed in accordance with
GAAP, the quotient of the Borrower's current assets divided by the
Borrower's current liabilities.
"DEBT" shall mean, as of any applicable date of
determination, all items of indebtedness, obligation or liability of a
Person, whether matured or unmatured, liquidated or unliquidated,
direct or indirect, absolute or contingent, joint or several, that
should be classified as balance sheet liabilities in accordance with
GAAP.
"DEBT RATIO" shall mean, at any particular time, the ratio
resulting as the quotient of (a) the Debt divided by (b) the Tangible
Net Worth.
"DEFAULT" shall mean a condition or event which, with the
giving of notice or the passage of time, or both, would result in an
Event of Default.
"DEFAULT RATE" shall mean the lesser of (i) the sum of the
Prime Rate in effect from day to day plus four percent (4%), or (ii)
the Maximum Legal Rate.
"EARNINGS TO INTEREST EXPENSE RATIO" shall mean the quotient
of the Borrower's EBITDA for the previous four calendar quarters
divided by the Borrower's Net Interest Expense for the same period.
"EBITDA" shall mean at any time, and for the previous four
calendar quarters then ending as computed in accordance with GAAP, (a)
the sum of the Borrower's consolidated net income, plus interest
expense, taxes, depreciation and amortization expense for the same
period, excluding (b) any gain or loss from the sale of any capital
assets.
"ENVIRONMENTAL LAWS" shall mean any and all federal, state,
and local laws, regulations, and requirements pertaining to the
environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. 6901 et seq., the Occupational Safety and Health
Act, as amended, 29 U.S.C. 651 et seq., the Clean Air Act, 42 U.S.C.
7401 et seq., the Clean Water Act as amended, 33 U.S.C. 1251 et seq.,
the Toxic Substances Control Act, as amended, 15 U.S.C. et seq., and
all similar laws, regulations, and requirements of any governmental
authority or agency having jurisdiction over Borrower or any of its
properties or assets, as such laws, regulations, and requirements may
be amended or supplemented from time to time.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, or any successor act or code.
"EVENT OF DEFAULT" shall mean any of those conditions or
events listed in Section 11.1 of this Agreement.
CREDIT AGREEMENT - Page 3
<PAGE> 5
"FINANCIAL STATEMENTS" shall mean all those balance sheets,
earnings statements and other financial data which have been furnished
or will be furnished to the Lender for the purpose of, or in
connection with, this Agreement and the transactions contemplated
hereby.
"FINANCING STATEMENTS" shall mean UCC financing statements
describing the Lender as secured party and any of the companies making
up the Borrower as debtor, covering the Collateral and otherwise in
such form, for filing in such jurisdictions and with such filing
offices as the Lender shall reasonably deem necessary or advisable.
"FUNDED DEBT" shall mean all Debt (excluding Subordinated
Debt), as computed in accordance with GAAP, excluding accruals, trade
payables and deferred tax liabilities, and including Judgments which
in the aggregate exceed $25,000.
"FUNDED DEBT-TO-EARNINGS RATIO" shall mean, at any
particular time, the quotient of the Borrower's Funded Debt divided by
EBITDA.
"GAAP" shall mean, as of any applicable date of
determination, generally accepted accounting principles consistently
applied, as in effect on the date hereof except as otherwise agreed by
the Borrower and the Lender.
"GUARANTORS" shall mean each of the entities identified as a
guarantor on the signature page to this Agreement, each such entity
being a Guarantor for all purposes of this Agreement.
"GUARANTY" shall mean a guaranty in the form of Exhibit B
attached hereto; any Guarantors who have not previously executed a
Guaranty shall do so simultaneously with the execution of this
Agreement.
"HAZARDOUS SUBSTANCE" shall mean any substance, product,
waste, pollutant, material, chemical, contaminant, constituent, or
other material which is or becomes listed, regulated, or addressed
under any Environmental Law, including, without limitation, asbestos,
petroleum, and polychlorinated biphenyls.
"INDEBTEDNESS" shall mean all loans, advances and
indebtedness of the Borrower to the Lender under this Agreement,
together with all other indebtedness, obligations and liabilities
whatsoever of the Borrower to the Lender, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, due or to become due, now existing or
hereafter arising.
"INTEREST PERIOD" shall mean:
(a) With respect to Prime Rate Advances,
each period commencing on the date such Advances are made or
Converted from LIBOR Advances and ending on the date of
payment or Conversion of such Advances.
CREDIT AGREEMENT - Page 4
<PAGE> 6
(b) With respect to any LIBOR Advances,
each period commencing on the date such Advances are made or
Converted from Prime Rate Advances or, in the case of each
subsequent, successive Interest Period applicable to a LIBOR
Advance, the last day of the next preceding Interest Period
with respect to such Advance, and ending on the numerically
corresponding day in the first, second, third or sixth
calendar month thereafter, as the Borrower may select as
provided in this Agreement, except that each such Interest
Period which commences on the last Business Day of a
calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month.
(c) With respect to Cost of Funds
Advances, each period commencing on the date such Advances
are made or Converted from Prime Rate Advances and ending on
the last day of the period relating to each respective Cost
of Funds Advance.
Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (or, in the case of an Interest Period
for LIBOR Advances if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b)
any Interest Period which would otherwise extend beyond the
Termination Date shall end on the Termination Date; (c) no more than
five (5) Interest Periods shall be in effect at the same time for any
Revolving Loan; (d) no Interest Period for any LIBOR Advances shall
have a duration of less than one (1) month; and (e) no Interest Period
may extend beyond a principal repayment date unless, after giving
effect thereto, the aggregate principal amount of the LIBOR Advances
having Interest Periods that end after such principal payment date
shall be equal to or less than the Advances to be outstanding
hereunder after such principal repayment date.
"JUDGMENTS" shall mean any judgment or decree against the
Borrower or any Guarantor which has or have become nonappealable and
which remains undischarged, unsatisfied by insurance and/or unstayed
for more than 30 days; also included shall be any writ of attachment
or garnishment against the property of the Borrower or any Guarantor
in any action(s) claiming more than $25,000 in the aggregate, which in
the time allowed by applicable law is neither released nor stayed nor
appealed nor bonded in a manner satisfactory to the Lender.
"LENDER" shall mean Comerica Bank-Texas, a Texas banking
association.
"LETTER OF CREDIT" shall mean any letter of credit issued by
the Lender for the account of the Borrower under this Agreement and
which, (i) in the case of commercial letters of credit, shall have
respective expirations not to exceed 90 days from date of issue, and
(ii) in the case of standby letters of credit, shall have respective
expirations not to exceed 365 days from date of issue, and (iii) in
the aggregate, as to all issued and
CREDIT AGREEMENT - Page 5
<PAGE> 7
outstanding letters of credit (and all drawn and unpaid letters of
credit) do not exceed $2,000,000.
"LIBOR ADVANCES" shall mean Advances the interest rates on
which are determined on the basis of the rates referred to in the
definition of "Adjusted LIBOR Rate" in this Section 1.1.
"LIBOR RATE" shall mean, for any LIBOR Advance for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) quoted by the Lender at
approximately 11:00 A.M. Dallas time (or as soon thereafter as
practicable) one Business Day prior to the first day of such Interest
period for the offering by the Lender to leading banks in the London
interbank market of Dollar deposits in immediately available funds
having a term comparable to such Interest Period and in an amount
comparable to the principal amount of the LIBOR Advance to which such
Interest Period relates.
"LOAN" shall mean a loan or Advance of funds by the Lender
pursuant to this Agreement.
"LOAN DOCUMENTS" shall mean this Agreement and all
promissory notes, security agreements, deeds of trust, assignments,
letters of credit, guaranties and other instruments, documents, and
agreements executed in connection with this Agreement, as such
instruments, documents and agreements may be amended, modified,
renewed, extended or supplemented from time to time. "LOAN DOCUMENT"
shall mean any one of the Loan Documents.
"MARGIN" shall mean an annual percentage rate which is
dependent upon the Funded Debt Ratio, changing at such times as
provided in this Agreement, and being determined as follows:
<TABLE>
<CAPTION>
Funded Debt Ratio Margin
----------------- ------
<S> <C> <C>
o greater than 1.5 to 1.0 2%
o less than or equal to 1.5 to 1.0,
but greater than 0.50 to 1.0 1.5%
o less than or equal to 0.5 to 1.0 1.0%
</TABLE>
"MAXIMUM LEGAL RATE" shall have the meaning specified in
Section 4.5 of this Agreement.
"NET INTEREST EXPENSE" shall mean at any time the Borrower's
interest expense for the immediately preceding twelve-month period,
net of interest income for the same period.
"NOTE" shall mean the Revolving Credit Note.
CREDIT AGREEMENT - Page 6
<PAGE> 8
"PBGC" shall mean the Pension Benefit Guaranty Corporation
or any Person succeeding to the present powers and functions of the
Pension Benefit Guaranty Corporation.
"PERMITTED LIENS" shall mean:
(a) Liens and encumbrances in favor of
the Lender;
(b) Liens for taxes, assessments or
other governmental charges incurred in the ordinary course
of business and not yet past due or being contested in good
faith by appropriate proceedings and for which adequate
reserves have been established as reflected by the balance
sheet of the Borrower at the time thereof;
(c) Liens of mechanics, materialmen,
carriers, warehousemen or other like statutory or common law
liens securing obligations incurred in good faith in the
ordinary course of business that are not yet due and
payable;
(d) Encumbrances consisting of zoning
restrictions, rights-of-way, easements or other restrictions
on the use of real property, none of which materially
impairs the use of such property by the Borrower or any
Subsidiary in the operation of the business for which it is
used and none of which is violated in any material respect
by any existing or proposed structure or land use;
(e) Existing liens described as a part
of Schedule 8.5 attached hereto;
(f) Purchase money liens not to exceed
$1,000,000 in the aggregate at any time;
(g) Liens upon assets which are acquired
by the Borrower pursuant to the provisions of Section 10.1,
so long as such liens do not extend to any assets other than
those acquired and so long as such liens do not extend to
any other entity affiliated with the Borrower.
"PERSON" shall mean any individual, corporation,
partnership, joint venture, association, trust, unincorporated
association, joint stock company, government, municipality, political
subdivision or agency or other entity.
"PRIME RATE" shall mean that annual rate of interest
designated by the Lender as its prime rate and which is changed by the
Lender from time to time. The Prime Rate may not necessarily be the
lowest rate charged by the Lender.
CREDIT AGREEMENT - Page 7
<PAGE> 9
"PRIME RATE ADVANCES" shall mean Advances that bear interest
at rates based upon the Prime Rate.
"REDUCTION DATES" shall mean each of the following dates:
December 31, 1998, 1999, 2000, 2001, 2002
March 31, 1999, 2000, 2001, 2002, 2003
June 30, 1999, 2000, 2001, 2002, 2003
September 30, 1999, 2000, 2001, 2002, 2003
"REGULATION D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as the same may be amended or
supplemented from time to time.
"REGULATORY CHANGE" shall mean, with respect to the Lender,
any change after the date of this Agreement in United States federal
or state, or foreign laws or regulations (including Regulation D) or
the adoption or making after such date of any interpretations,
directives, or requests applying to a class of banks including the
Lender of or under any United States federal or state, or any foreign,
laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the
interpretation or administration thereof.
"RESERVE REQUIREMENT" shall mean, for any LIBOR Advance for
any Interest Period therefor, the average maximum rate at which
reserves (including any marginal, supplemental or emergency reserves)
are required to be maintained during such Interest Period under
Regulation D by member banks of the Federal Reserve System in New York
City with deposits exceeding one billion Dollars against "Eurocurrency
Liabilities" as such term is used in Regulation D. Without limiting
the effect of the foregoing, the Reserve Requirement shall include any
other reserves required to be maintained by such member banks by
reason of any Regulatory Change against (g) any category of
liabilities which includes deposits by reference to which the Adjusted
LIBOR Rate is to be determined or (h) any category of extensions of
credit or other assets which include LIBOR Advances.
"REVOLVING CREDIT COMMITMENT" shall mean the obligation of
the Lender to make Revolving Credit Loans to the Borrower in an
aggregate principal amount at any time outstanding up to but not to
exceed $20,000,000, from the date of this Agreement through December
30, 1998, reduced automatically without notice by $1,000,000 on each
of the successive Reduction Dates thereafter.
"REVOLVING CREDIT LOAN" shall mean the single Advance of
funds made by the Lender to the Borrower pursuant to Section 2.
CREDIT AGREEMENT - Page 8
<PAGE> 10
"REVOLVING CREDIT NOTE" shall mean the promissory note of
the Borrower payable to the order of the Lender, in substantially the
form of Exhibit "D" hereto, and all extensions, renewals and
modifications thereof and substitutions therefor.
"SECURITY CODE" shall mean a code furnished by the Lender to
the Borrower, pursuant to Section 4.2 hereof, which an Authorized
Officer of the Borrower must deliver to the Lender upon making a
telephonic Loan request.
"SUBORDINATED DEBT" shall mean all unsecured Debt, the
payment of which has been subordinated in writing, in form and
substance satisfactory to the Lender.
"SUBSIDIARIES" shall mean any entity of which more than
fifty percent (50%) of the outstanding voting securities shall, as of
any applicable date of determination, be owned directly, or indirectly
through one or more intermediaries, by the Borrower.
"TANGIBLE NET WORTH" shall mean, as of any applicable date
of determination, the excess of (i) the book value of all assets of
Borrower and the Subsidiaries (other than patents, patent rights,
trademarks, trade names, franchises, purchase allocations to software,
copyrights, goodwill, and similar intangible assets) after all
appropriate deductions (including, without limitation, reserves for
doubtful receivables, obsolescence, depreciation and amortization),
all as determined on a consolidated basis in accordance with GAAP,
less (ii) all Debt of the Borrower and its Subsidiaries which, in
accordance with GAAP, would be required to be presented on their
consolidated balance sheet at such date.
"TERMINATION DATE" shall mean December 3, 2003.
"TYPE" shall mean any type of Advance (i.e., Prime Rate
Advance, Cost of Funds Advance or LIBOR Advance).
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of Texas and as amended from time to time.
"UNUSED FACILITY FEE" shall mean on an annualized basis, a
fee equal to thirty seven and one-half one hundredths of one percent
(0.375%) of the difference, if any, between the Revolving Credit
Commitment and the daily outstanding principal balance of the
Revolving Credit Note for each calendar quarter, to be paid within ten
(10) days after presentment of each such computation thereof by the
Lender.
1.2. Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be construed in accordance with GAAP. All
accounting terms and calculations herein with respect to the Borrower and the
Subsidiaries shall be made after elimination of all inter-company accounts and
transactions among them.
CREDIT AGREEMENT - Page 9
<PAGE> 11
1.3. Singular and Plural. Where the context herein requires, the
singular number shall be deemed to include the plural, and vice versa.
SECTION 2. REVOLVING CREDIT LOANS
2.1. Revolving Credit Commitment. Subject to the terms and
conditions of this Agreement, the Lender hereby agrees to make one or more
Revolving Credit Loans to the Borrower from time to time from the date hereof
to and including the Termination Date in an aggregate principal amount at any
time outstanding up to but not exceeding the amount of the Revolving Credit
Commitment as then in effect; provided, however that the Lender shall not be
obligated to make any Revolving Credit Loan which would cause the principal
balance of all outstanding Revolving Credit Loans, when added to the face
amount of all outstanding (and all drawn and unpaid) Letters of Credit to
exceed the Revolving Credit Commitment. Subject to the limitations and the
other terms and provisions of this Agreement, the Borrower may from time to
time borrow, repay and reborrow hereunder the amount of the Revolving Credit
Commitment by means of Prime Rate Advances, Cost of Funds Advances and LIBOR
Advances; provided that the Lender shall not have an obligation to make any
Revolving Credit Loan on a day which is not a Business Day.
2.2. Revolving Credit Note. The obligation of the Borrower to
repay the Revolving Credit Loans and interest thereon shall be evidenced by the
Revolving Credit Note executed by the Borrower, payable to the order of the
Lender in the principal amount of the Revolving Credit Commitment as originally
in effect and dated of even date herewith. The principal balance of Revolving
Credit Note shall in any event, subject to prior acceleration, be payable in
full on the Termination Date. Interest on the Revolving Credit Loans shall be
payable in accordance with Section 4.1. The Borrower shall pay to the Lender
the amount by which the unpaid principal balance of the Revolving Credit Loans
exceed the Revolving Credit Commitment, such payment to be made within one
Business Day after any such excess occurs.
2.3. Use of Proceeds. Proceeds of the Revolving Credit Loans
shall be used by the Borrower for working capital purposes and for acquisition
of companies in accordance with Section 10.3.
SECTION 3. LETTERS OF CREDIT
3.1. Letters of Credit.
(a) The Bank may, in its sole discretion, and upon
the request of Borrower from time to time, issue or cause to be issued
for the Borrower's account commercial or standby Letters of Credit.
Without intending to limit the Bank's discretion with respect to
Letters of Credit, the Bank will not issue or cause to be issued any
Letter of Credit if: (a) the maximum face amount of the requested
Letter of Credit, plus
CREDIT AGREEMENT - Page 10
<PAGE> 12
the amount of any drawn and unpaid Letters of Credit, plus the
aggregate undrawn face amount of all outstanding Letters of Credit
would exceed Two Million Dollars ($2,000,000); or (b) the maximum face
amount of the requested Letter of credit, plus the amount of any drawn
and unpaid Letters of Credit, plus the aggregate principal amount of
outstanding Revolving Loans, would exceed $20,000,000 at such time.
The Letters of Credit shall be governed by such Letter of Credit
applications and agreements as the Bank may require. All payments
made under any Letter of Credit and any related agreements shall be
paid in accordance with any reimbursement agreement which the Bank and
the Borrower may have executed, or, if not timely paid pursuant to any
such reimbursement agreement, all such amounts, at the sole discretion
of the Bank, be charged to the Borrower's Loan account as Revolving
Loans.
SECTION 4. GENERAL - ALL LOANS
4.1. Interest. The unpaid principal amount of the Advances shall
bear interest prior to maturity at a varying rate per annum equal from day to
day to the lesser of (a) the Maximum Rate, or (b) the Applicable Rate. If at
any time the Applicable Rate for any Advance shall exceed the Maximum Legal
Rate, thereby causing the interest accruing on such Advance to be limited to
the Maximum Legal Rate, then any subsequent reduction in the Applicable Rate
for such Advance shall not reduce the rate of interest on such Advance below
the Maximum Legal Rate until the aggregate amount of interest accrued on such
Advance equals the aggregate amount of interest which would have accrued on
such Advance if the Applicable Rate had at all times been in effect. Accrued
and unpaid interest on the Advances shall be due and payable as follows:
(a) in the case of Prime Rate Advances, (i) for the
Revolving Credit Note, on the first day of each month commencing
____________, 1996 and continuing on the same day of each successive
month thereafter up to and including maturity, whether by acceleration
or otherwise;
(b) in the case of each LIBOR Advance or Cost of
Funds Advance, monthly, on the first day of each month of each
Interest Period and on the last day of the Interest Period with
respect thereto, unless sooner accelerated, and then upon the
accelerated maturity;
(c) upon the payment or prepayment of any Advance or
the Conversion of any Advance to an Advance of another Type (but only
on the principal amount so paid, prepaid, or Converted); and
(d) on the Termination Date.
Notwithstanding the foregoing, any outstanding principal of any Advance and (to
the fullest extent permitted by law) any other amount payable by the Borrower
under this Agreement or any other Loan Document that is not paid in full when
due (whether at stated maturity, by acceleration, or otherwise) shall bear
interest at the Default Rate for the period from and including the due date
thereof to but excluding the date the same is paid in full. Interest payable
at the Default Rate shall be payable from time to time on demand.
CREDIT AGREEMENT - Page 11
<PAGE> 13
4.2. Borrowing Procedure.
(a) The Borrower shall give the Lender notice by
means of an Advance Request Form of each requested Advance at least
one (1) Business Day before the requested date of each LIBOR Advance
or Cost of Funds Advance, or, no later than the date of any requested
Prime Rate Advance, in each case specifying: (a) the requested date of
such Advance (which shall be a Business Day), (b) the amount of such
Advance, (c) the Type of the Advance, and (d) in the case of a LIBOR
Advance or Cost of Funds Advance, the duration of the Interest Period
for such Advance. The Lender at its option may accept telephonic
Advance requests by an Authorized Officer who provides the Lender with
the Security Code, provided that such acceptance shall not constitute
a waiver of the Lender's right to delivery of an Advance Request Form
in connection with subsequent Advances. Any telephonic request for an
Advance by the Borrower shall be promptly confirmed by submission of a
properly completed Advance Request Form to the Lender. Each LIBOR or
Cost of Funds Advance shall be in a minimum principal amount of
$500,000 and each Prime Rate Advance shall be in a minimum principal
amount of $100,000. Subject to the terms and conditions of this
Agreement, each Advance shall be made available to the Borrower by
depositing the same, in immediately available funds, in an account of
the Borrower maintained with the Lender at the principal office
designated by the Borrower. All notices under this Section shall be
irrevocable and shall be given not later than 2:00 P.M. Dallas, Texas
time on the day which is not less than the number of Business Days
specified above for such notice.
(b) Within the limitations set forth above, and upon
such terms and conditions as the Borrower and the Lender may agree
from time to time, the Lender will, at the request of the Borrower,
make Revolving Loans denominated in Deutsche Marks, up to the
equivalent (in the aggregate as to all such outstanding denominated
Loans) of U.S. $1,500,000. Such Loans must be repaid in Deutsche
Marks at the office designated by the Lender. The Borrower will
immediately reimburse the Lender for any loss of yield and foreign
exchange losses (and will pay such prepayment penalty as the Lender
establishes) for any prepayment of such Deutsche Mark Loans paid prior
to stated maturity.
4.3. Conversions and Continuations. The Borrower shall have the
right from time to time to Convert all or part of one Type of Advance
outstanding under any Note into another Type of Advance or to Continue all or
part of any LIBOR Advance or Cost of Funds Advance by giving the Lender written
notice at least one (1) Business Day before Conversion into a Prime Rate
Advance, and at least one (1) Business Day before Conversion into or
Continuation of a LIBOR Advance or a Cost of Funds Advance, specifying: (a) the
Conversion or Continuation date, (b) the amount of the Advance to be Converted
or Continued, (c) in the case of Conversions, the Type of Advance to be
Converted into, and (d) in the case of a Continuation of or Conversion into a
LIBOR Advance or a Cost of Funds Advance, the duration of the Interest Period
applicable thereto; provided, that (a) LIBOR Advances or a Cost of Funds
Advance may only be Converted on the last day of the Interest Period, and (b)
except
CREDIT AGREEMENT - Page 12
<PAGE> 14
for Conversions to Prime Rate Advances, no Conversions shall be made while an
Event of Default has occurred and is continuing. All notices given under this
Section shall be irrevocable and shall be given not later than 2:00 P.M.
Dallas, Texas time on the day which is not less than the number of Business
Days specified above for such notice. If the Borrower shall fail to give the
Lender the notice as specified above for Continuation or Conversion of a LIBOR
Advance or a Cost of Funds Advance prior to the end of the Interest Period with
respect thereto, such LIBOR Advance or Cost of Funds Advance shall
automatically be Converted into a Prime Rate Advance on the last day of the
Interest Period for such LIBOR Advance or Cost of Funds Advance.
4.4. Payment. All payments of principal, interest, and other
amounts to be paid by the Borrower under this Agreement or any other Loan
Document shall be paid to the Lender at the address set forth herein for the
delivery of notices to the Lender, in U.S. dollars (except as set forth above
for Deutsche Mark Loans) in immediately available funds, without setoff or
counterclaims, at or before 2:00 p.m. Dallas, Texas time on the date on which
such payment shall become due (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Business Day).
The Borrower shall, at the time of making each such payment, specify to the
Lender the sums payable by the Borrower under this Agreement and the other Loan
Documents to which such payment is to be applied (and in the event the Borrower
fails to so specify, or if an Event of Default has occurred and is continuing,
the Lender may apply such payment to the Indebtedness in such order and manner
as it may elect in its sole discretion). Whenever any payment under this
Agreement or any other Loan Document shall be stated to be due on a day that is
not a Business Day, such payment shall be deemed due on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of the payment of interest.
4.5. Maximum Legal Rate. The following provisions shall control
this Agreement and each Note:
(a) No agreements, conditions, provision or
stipulations contained in this Agreement or in any other Loan
Document, or the occurrence of an Event of Default, or the exercise by
the Lender of the right to accelerate the payment of the maturity of
principal and interest on any Note, or to exercise any option
whatsoever contained in this Agreement or any other Loan Document, or
the arising of any contingency whatsoever, shall entitle the Lender to
collect, in any event, interest exceeding the maximum rate of
nonusurious interest allowed from time to time by applicable state or
federal laws as now or as may hereinafter be in effect (the "MAXIMUM
LEGAL RATE") and in no event shall the Borrower be obligated to pay
interest exceeding such Maximum Legal Rate, and all agreements,
conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel the
Borrower to pay a rate of interest exceeding the Maximum Legal Rate
shall be without binding force or effect, at law or in equity, to the
extent only of the excess of interest over such Maximum Legal Rate.
In the event any interest is charged in excess of the Maximum Legal
Rate (the "EXCESS"), the Borrower acknowledges and stipulates that any
such charge shall be the result of an accidental and bona fide error,
and such
CREDIT AGREEMENT - Page 13
<PAGE> 15
Excess shall be, first, applied to reduce the principal of any
obligations due, and, second, returned to the Borrower, it being the
intention of the parties hereto not to enter at any time into an
usurious or otherwise illegal relationship. The parties hereto
recognize that with fluctuations in the Contract Rate from time to
time announced by the Lender such an unintentional result could
inadvertently occur. By the execution of this Agreement, the Borrower
covenants that (a) the credit or return of any Excess shall constitute
the acceptance by the Borrower of such Excess, and (b) the Borrower
shall not seek or pursue any other remedy, legal or equitable, against
the Lender based, in whole or in part, upon the charging or receiving
of any interest in excess of the Maximum Legal Rate. For the purpose
of determining whether or not any Excess has been contracted for,
charged or received by the Lender, all interest at any time contracted
for, charged or received by the Lender in connection with the
Borrower's obligations shall be amortized, prorated, allocated and
spread during the entire term of this Agreement. If at any time the
rate of interest payable hereunder shall be computed on the basis of
the Maximum Legal Rate, any subsequent reduction in the Contract Rate
shall not reduce such interest thereafter payable hereunder below the
amount computed on the basis of the Maximum Legal Rate until the
aggregate amount of such interest accrued and payable under this
Agreement equals the total amount of interest which would have accrued
if such interest had been at all times computed solely on the basis of
the Contract Rate.
(b) Unless preempted by federal law, the rate of
interest from time to time in effect hereunder shall not exceed the
"indicated rate ceiling" from time to time in effect under Chapter 1
of the Texas Credit Code (Vernon's Texas Civil Statutes), Section
(a)(1), Article 5069-1.04, as amended.
(c) The provisions of this Section shall be deemed
to be incorporated into every document or communication relating to
the Indebtedness which sets forth or prescribes any account, right or
claims or alleged account, right or claim of the Lender with respect
to the Borrower (or any other obligor in respect of the Indebtedness),
whether or not any provision of this Section is referred to therein.
All such documents and communications and all figures set forth
therein shall, for the sole purpose of computing the extent of the
obligations asserted by the Lender thereunder, be automatically
recomputed by the Borrower or any other obligor, and by any court
considering the same, to give effect to the adjustments or credits
required by this Section.
(d) If the applicable state or federal law is
amended in the future to allow a greater rate of interest to be
charged under this Agreement than is presently allowed by applicable
state or federal law, then the limitation of interest hereunder shall
be increased to the maximum rate of interest allowed by applicable
state or federal law, as amended, which increase shall be effective
hereunder on the effective date of such amendment, and all interest
charges owing to the Lender by reason thereof shall be payable upon
demand.
CREDIT AGREEMENT - Page 14
<PAGE> 16
(e) The provisions of Chapter 15 of the Texas Credit
Code (Vernon's Texas Civil Statutes), Article 5069-15, as amended, are
specifically declared by the parties hereto not to be applicable to
this Agreement or any other Loan Document or to the transactions
contemplated hereby or thereby.
4.6. Basis of Computation. The amount of all interest payable
hereunder shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days.
4.7. Prepayments.
4.7.1. Mandatory Prepayments. The Borrower shall pay
to the Lender as a payment on the Revolving Credit Note the amount
required by the last sentence of Section 2.2 whenever an excess of the
Loan balance occurs as set forth therein, together with all interest
accrued and unpaid on the amount of such excess.
4.7.2. Optional Prepayments. The Borrower may, upon
same-day notice to the Lender in the case of Prime Rate Advances, and
at least one (1) Business Day prior notice to the Lender in the case
of LIBOR Advances or Cost of Funds Advances prepay the Advances in
whole at any time or from time to time in part without premium or
penalty but with accrued interest to the date of prepayment on the
amount so prepaid, provided that compensation under Section 5 hereof
shall be due if LIBOR Advances or Cost of Funds Advances are prepaid
prior to the last day of the Interest Period for such Advances, and
each partial prepayment shall be in the principal amount of $500,000
in the case of prepayments of LIBOR Advances or Cost of Funds
Advances,and $100,000 in the case of Prime Rate Advances or an
integral multiple thereof. All notices under this Section shall be
irrevocable and shall be given not later than 2:00 P.M. Dallas, Texas
time, on the day which is not less than the number of Business Days
specified above for such notice.
4.8. Early Termination. The Lender, at its sole discretion, may,
at any time after ______________, 2001, upon prior written notice to the
Borrower given at least ninety (90) days prior to each one-year anniversary of
this Note, declare all of the Revolving Credit Note principal balance due and
payable in full. All accrued and unpaid interest shall be due and payable one
hundred eighty (180) days following the anniversary date that occurs next
following the date of such notice from the Lender, and after any such call by
the Lender, the Lender shall have no obligation to make any further Advances.
SECTION 5. YIELD PROTECTION AND ILLEGALITY
5.1. Additional Costs.
(a) The Borrower shall pay to the Lender from time
to time such amounts as the Lender may reasonably determine to be
necessary to compensate it for any costs incurred by the Lender which
the Lender determines are attributable to its making or maintaining of
any LIBOR Advances or Cost of Funds Advances hereunder
CREDIT AGREEMENT - Page 15
<PAGE> 17
or its obligation to make any of such Advances hereunder, or any
reduction in any amount receivable by the Lender hereunder in respect
of any such Advances or such obligation (such increases in costs and
reductions in amounts receivable being herein called "ADDITIONAL
COSTS"), in any such event resulting from any Regulatory Change which:
(i) changes the basis of taxation of any
amounts payable to the Lender under this Agreement or the
Note in respect of any of such Advances (other than taxes
imposed on the overall net income of the Lender or its
lending office for any of such Advances by the jurisdiction
in which the Lender has its principal office or such lending
office);
(ii) imposes or modifies any reserve,
special deposit, minimum capital, capital ratio, or similar
requirement relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or
commitments of, the Lender (with respect to such Advances);
or
(iii) imposes any other condition
affecting this Agreement or such Advances or any of such
extensions of credit or liabilities or commitments.
The Lender will notify the Borrower of any event occurring after the
date of this Agreement which will entitle the Lender to compensation
pursuant to this Section as promptly as practicable after it obtains
knowledge thereof and determines to request such compensation. The
Lender will furnish the Borrower with a certificate setting forth the
basis and the amount of each request of the Lender for compensation
under this Section. If the Lender requests compensation from the
Borrower under this Section, the Borrower may, by notice to the Lender
suspend the obligation of the Lender to make or Continue making, or
Convert Advances into, Advances of the Type with respect to which such
compensation is requested until the Regulatory Change giving rise to
such request ceases to be in effect (in which case the provisions of
Section 5.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing
provisions of this Section, in the event that, by reason of any
Regulatory Change, the Lender either (a) incurs Additional Costs based
on or measured by the excess above a specified level of the amount of
a category of deposits or other liabilities of the Lender which
includes deposits by reference to which the interest rate on LIBOR
Advances or Cost of Funds Advances is determined as provided in this
Agreement or a category of extensions of credit or other assets of the
Lender which includes LIBOR Advances or Cost of Funds Advances or (b)
becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if the Lender so elects
by notice to the Borrower the obligation of the Lender to make or
Continue making, or Convert Advances into, Advances of such Type
hereunder shall be suspended until such
CREDIT AGREEMENT - Page 16
<PAGE> 18
Regulatory Change ceases to be in effect (in which case the provisions
of Section 5.4 hereof shall be applicable).
(c) Determinations and allocations by the Lender for
purposes of this Section of the effect of any Regulatory Change on its
costs of maintaining its obligations to make Advances or of making or
maintaining Advances or on amounts receivable by it in respect of
Advances, and of the additional amounts required to compensate the
Lender in respect of any Additional Costs, shall be conclusive,
provided that such determinations and allocations are made on a
reasonable basis.
5.2. Limitation on Types of Advances. Anything herein to the
contrary notwithstanding, if with respect to any LIBOR Advances or Cost of
Funds Advances for any Interest Period therefor:
(a) The Lender reasonably determines (which
determination shall be conclusive) that quotations of interest rates
for the relevant deposits, such as are referred to in the definition
of "LIBOR Rate" in Section 1.1 hereof, are not being provided in the
relative amounts or for the relative maturities for purposes of
determining the rate of interest for such Advances as provided in this
Agreement; or
(b) The Lender determines (which determination shall
be conclusive) that the relevant rates of interest on the basis of
which the rate of interest for such Advances for such Interest Period
is to be determined do not accurately reflect the cost to the Lender
of making or maintaining such Advances for such Interest Period;
then the Lender shall give the Borrower prompt notice thereof specifying the
relevant Type of Advances and the relevant amounts or periods, and so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Advances of such Type or to Convert Advances of any other Type
into Advances of such Type and the Borrower shall, on the last day(s) of the
then current Interest Period(s) for the outstanding Advances of the affected
Type, either prepay such Advances or Convert such Advances into another Type of
Advance in accordance with the terms of this Agreement.
5.3. Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Lender to (a) honor
its obligation to make LIBOR Advances or Cost of Funds Advances hereunder or
(b) maintain LIBOR Advances hereunder, then the Lender shall promptly notify
the Borrower thereof and the Lender's obligation to make or maintain such
Advances and to Convert other types of Advances into such Advances hereunder
shall be suspended until such time as the Lender may again make and maintain
such Advances (in which case the provisions of Section 5.4 hereof shall be
applicable).
5.4. Substitute Prime Rate Advances. If the obligation of the
Lender to make a LIBOR Advance or a Cost of Funds Advance shall be suspended
pursuant to Section 5.1, 5.2 or 5.3 hereof (Advances of such Type being herein
called "Affected Advances" and such Type being herein called the "Affected
Type"), all Advances which would be otherwise made by the
CREDIT AGREEMENT - Page 17
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Lender as Advances of the Affected Type shall be made instead as Prime Rate
Advances and all Advances which would otherwise be Converted into Advances of
the Affected Type shall be converted instead into (or shall remain as) Prime
Rate Advances (and, if an event referred to in Section 5.1, 5.2 or 5.3 hereof
has occurred and the Lender so requests by notice to the Borrower, all Affected
Advances of the Lender then outstanding shall be automatically Converted into
Prime Rate Advances on the date specified by the Lender in such notice) and, to
the extent that Affected Advances are so made as (or Converted into) Prime Rate
Advances, all payments and prepayments of principal which would otherwise be
applied to the Lender's Affected Advances shall be applied instead to its Prime
Rate Advances.
5.5. Compensation. The Borrower shall pay to the Lender, upon
the request of the Lender, such amount or amounts as shall be sufficient (in
the reasonable opinion of the Lender) to compensate it for any loss, cost, or
expense incurred by it as a result of:
(a) Any payment, prepayment or conversion of a LIBOR
Advance or a Cost of Funds Advance for any reason (including, without
limitation, the acceleration of outstanding Advances pursuant to this
Agreement) on a date other than the last day of an Interest Period for
such Advance; or
(b) Any failure by the Borrower for any reason
(including, without limitation, the failure of any conditions
precedent specified in this Agreement to be satisfied) to borrow,
Convert, or prepay any such Type of Advance on the date for such
borrowing, Conversion, or prepayment, specified in the relevant notice
of borrowing, prepayment, or Conversion under this Agreement.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which otherwise would have accrued on the principal amount so paid or Converted
or not borrowed for the period from the date of such payment, Conversion, or
failure to borrow to the last day of the Interest Period for such Advance (or,
in the case of a failure to borrow, the Interest Period for such Advance which
would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Advance provided for herein, less the
applicable margin, over (ii) the interest component of the amount the Lender
would have bid in the London interbank market (if such Advance is a LIBOR
Advance) for Dollar deposits of leading banks and amounts comparable to such
principal amount and with maturities comparable to such period.
SECTION 6. SECURITY
6.1. Setoff. If an Event of Default shall have occurred and be
continuing, the Lender shall have the right to set off and apply against any
Indebtedness then due in such manner as the Lender may determine, at any time
and without notice to the Borrower, any and all deposits (general or special,
time or demand, provisional or final) or other sums at any time credited by or
owing from the Lender to the Borrower. The rights and remedies of the Lender
CREDIT AGREEMENT - Page 18
<PAGE> 20
hereunder are in addition to other rights and remedies (including, without
limitation, other rights or setoff) which the Lender may have.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF LENDER
7.1. Conditions to First Loan. The obligations of the Lender
under this Agreement are subject to the occurrence, prior to or on the date of
the initial Loan hereunder, of each of the following conditions, any or all of
which may be waived in whole or in part by the Lender in writing:
7.1.1. Documents Executed and Filed. The Borrower
shall have executed (or caused to be executed) and delivered to the
Lender and, as appropriate, there shall have been signed for filing
with such filing offices as the Lender shall deem appropriate, such
documents and instruments as the Lender may require.
7.1.2. Certified Resolutions. The Borrower shall have
furnished to the Lender a copy of resolutions of the Board of
Directors of the Borrower authorizing the execution, delivery and
performance of this Agreement, the borrowings hereunder, the Notes and
all other Loan Documents, which shall have been certified by the
Secretary or Assistant Secretary of the Borrower as of the date
hereof.
7.1.3. Certificate of Good Standing and Other
Certificates. The Borrower shall have furnished to the Lender a
certificate of good standing, a certificate of existence, and a
certified copy of the organizational documents of Borrower, which
shall have been certified in each case by the agency issuing the same
as of a date reasonably near the date hereof. The Borrower shall also
have furnished to the Lender its bylaws.
7.1.4. Certificate of Incumbency. The Borrower shall
have furnished to the Lender a certificate of the Secretary or
Assistant Secretary of the Borrower, certified as of the date hereof,
as to the incumbency and signatures of such officers signing this
Agreement, the Notes and the other Loan Documents.
7.1.5. Payment of Fees. Evidence that the costs and
expenses (including reasonable attorneys' fees) incurred by the Lender
in connection with the preparation of this Agreement and the other
Loan Documents shall have been paid in full by the Borrower.
7.1.6. Approval of Lender Counsel. All actions,
proceedings, instruments and documents required to carry out the
transactions contemplated by this Agreement or incidental thereto and
all other related legal matters shall have been satisfactory to and
approved by legal counsel for the Lender, and said counsel shall have
been furnished with such certified copies of actions and proceedings
and such other instruments and documents as they shall have reasonably
requested.
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7.1.7. Other Information and Documentation. The Lender
shall have received such other information, certificates and executed
documents as it shall have reasonably requested.
7.2. Conditions to All Loans. The obligation of the Lender to
make any Loan (including any initial Advance) is subject to the occurrence,
prior to or on the requested date of each such Loan, of each of the following
conditions, any or all of which may be waived in whole or in part by the Lender
in writing:
7.2.1. Loan Request. The Lender shall have received a
written Advance Request Form, executed by the appropriate officer of
the Borrower and timely delivered as required by this Agreement.
7.2.2. No Default. As of such date:
(a) No Default or Event of Default shall
have then occurred and be continuing; and
(b) Each warranty or representation set
forth in Section 8 of this Agreement shall be true and
correct.
SECTION 8. WARRANTIES AND REPRESENTATIONS
The Borrower represents and warrants to the Lender:
8.1. Corporate Existence and Power. (a) The Borrower (each
entity comprising the Borrower) (i) is a corporation or partnership, as the
case may be, duly organized, validly existing and in good standing under the
laws of its state or country, as the case may be, of organization, (ii) has the
corporate power and authority to own its properties and assets and to carry out
its business as now being conducted and is qualified to do business and in good
standing in every jurisdiction wherein such qualification is necessary and
(iii) has the corporate and partnership power and authority to execute and
perform this Agreement, to borrow money in accordance with its terms, to
execute and deliver the Note and the other Loan Documents to be executed by
each respective entity and to do any and all other things required of it
hereunder.
8.2. Authorization and Approvals. As to the Borrower (each
entity comprising the Borrower), the execution, delivery and performance of
this Agreement, the borrowing hereunder and the execution and delivery of each
of the other Loan Documents contemplated hereby (a) have been duly authorized
by all requisite corporate action, (b) do not require registration with or
consent or approval of, or other action by, any federal, state or other
governmental authority or regulatory body, or, if such registration, consent or
approval is required, the same has been obtained and disclosed in writing to
the Lender, (c) will not violate any provision of law, any order of any court
or other agency of government, the articles of incorporation or bylaws of the
Borrower, any provision of any indenture, agreement or other
CREDIT AGREEMENT - Page 20
<PAGE> 22
instrument to which the Borrower is a party, or by which it or any of its
properties or assets are bound, (d) will not be in conflict with, result in a
breach of or constitute (with or without notice or passage of time) a default
under any indenture, agreement or other instrument, and (e) will not result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of its properties or assets other than in favor of the
Lender and as contemplated hereby.
8.3. Valid and Binding Agreement. This Agreement is, and each of
the other Loan Documents will be, when delivered, valid and binding obligations
of the Borrower, in each case enforceable in accordance with their respective
terms except as limited by insolvency, bankruptcy or similar laws and equitable
principles affecting the enforcement of creditors' rights generally.
8.4. Actions, Suits or Proceedings. Except as disclosed on
Schedule 8.4 or otherwise disclosed in writing to the Lender, there are no
actions, suits or proceedings, at law or in equity, and no proceedings before
any arbitrator or by or before any governmental commission, board, bureau or
other administrative agency, pending, or, to the best knowledge of the
Borrower, threatened against or affecting the Borrower, or any properties or
rights of the Borrower, which, if adversely determined, could materially impair
the right of the Borrower to carry on business substantially as now conducted
or could have a material adverse effect upon the financial condition of the
Borrower.
8.5. No Liens, Pledges, Mortgages or Security Interests. Except
for Permitted Liens, none of the Borrower's assets and properties is subject to
any mortgage, pledge, lien, security interest or other encumbrance of any kind
or character.
8.6. Accounting Principles. The Financial Statements have been
prepared on a consolidated basis in accordance with GAAP and fairly present the
financial condition of the Borrower as of the dates, and the results of its
operations for the periods, for which the same are furnished to the Lender. To
the best of Borrower's knowledge and belief, the Borrower has no material
contingent obligations, liabilities for taxes, long-term leases or unusual
forward or long-term commitments not disclosed by, or reserved against in, the
Financial Statements or otherwise disclosed in writing to the Lender.
8.7. No Adverse Changes. There has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower since the date of the latest of the Financial Statements or otherwise
disclosed in writing to the Lender.
8.8. Conditions Precedent. As of the date of each Loan
hereunder, all appropriate conditions precedent referred to in this Agreement
shall have been satisfied (or waived in writing by the Lender).
8.9. Taxes. The Borrower has filed by the due date therefor all
federal, state and local tax returns and other reports required by law to be
filed and which are material to the conduct of their businesses, has paid or
caused to be paid all taxes, assessments and other
CREDIT AGREEMENT - Page 21
<PAGE> 23
governmental charges that are shown to be due and payable under such returns,
and has made adequate provision for the payment of such taxes, assessments or
other governmental charges which have accrued but are not yet payable. The
Borrower has no knowledge of any deficiency or assessment in a material amount
in connection with any taxes, assessments or other governmental charges not
adequately disclosed in the Financial Statements or otherwise disclosed in
writing to the Lender.
8.10. Compliance with Laws. The Borrower has complied with all
applicable laws, to the extent that failure to comply would materially
interfere with the conduct of its businesses.
8.11. Material Agreements. Except as disclosed on Schedule 8.11
or otherwise disclosed in writing to the Lender, the Borrower has no Debt or
any material contracts or commitments for Debt; to the best knowledge of the
Borrower has complied with the provisions of such contracts or commitments; and
to the best knowledge of Borrower, no party to such agreements is in default
thereunder, nor has there occurred any event which with notice or the passage
of time, or both, would constitute such a default.
8.12. Margin Stock. The Borrower is not engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, and no
part of the proceeds of any Loan hereunder will be used, directly or
indirectly, to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock or for any other
purpose which might violate the provisions of Regulation G, T, U or X of the
said Board of Governors. The Borrower does not own any margin stock.
8.13. Pension Funding. The Borrower has not incurred any material
accumulated funding deficiency within the meaning of ERISA or any material
liability to the PBGC in connection with any employee benefit plan established
or maintained by the Borrower and no presently existing reportable event or
presently existing prohibited transaction, as defined in ERISA, has occurred
with respect to such plans.
8.14. Misrepresentation. No warranty or representation by the
Borrower contained herein or in any certificate or other document furnished by
the Borrower pursuant hereto contains any untrue statement of material fact or
omits to state a material fact necessary to make such warranty or
representation not misleading in light of the circumstances under which it was
made.
8.15. Loans and Representations. At the time of each Loan
request, the Borrower, unless otherwise disclosed to the Lender in writing,
shall be deemed to represent and warrant to the Lender, as an inducement to
having the Lender make the requested Loan, that as of the date of such Loan
request (a) all representations and warranties contained in this Agreement are
true and correct in all respects, and (b) no Default or Event of Default
exists.
CREDIT AGREEMENT - Page 22
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SECTION 9. AFFIRMATIVE COVENANTS
From the date hereof until the Indebtedness is paid in full, the
Borrower covenants and agrees that as to the Borrower, it will:
9.1. Financial and Other Information.
9.1.1. Annual Financial Reports. Furnish to the Lender
in form satisfactory to the Lender not later than ninety (90) days
after the close of each fiscal year of Borrower, beginning with the
fiscal year ending December 31, 1996, on a consolidated and
consolidating basis, a balance sheet as at the close of each such
fiscal year, statements of income and statements of cash flow for each
such fiscal year of Borrower and the Subsidiaries, and such other
comments and financial details as are usually included in similar
reports. Such consolidated reports shall be audited in accordance
with GAAP by independent certified public accountants of recognized
standing selected by Borrower and acceptable to the Lender and shall
contain unqualified opinions as to the fairness of the statements
therein contained.
9.1.2. Monthly Financial Statements. Furnish to the
Lender not later than thirty (30) days after the close of each month
(except when the end of a month is also the end of a calendar quarter,
in which case 45 days after the end of such month), beginning with
reports for the month ending November 30, 1996, financial statements
containing the consolidated and consolidating balance sheet of
Borrower as of the end of each month, consolidated and consolidating
statements of income of Borrower up to the end of each month. These
statements shall be prepared on substantially the same accounting
basis as the statements required in Section 9.1.1 of this Agreement
and shall be in such detail as the Lender may require, and in the case
of the quarterly statements, the accuracy of the statements (subject
to year-end adjustments) shall be certified by an authorized officer
of the Borrower.
9.1.3. Quarterly Compliance Certificate. Furnish to
the Lender not later than the forty-fifth (45th) day of each month
next following the end of each fiscal quarter of the Borrower
(beginning September 30, 1996) a certificate, dated as of the end of
the month immediately prior to the due date for such Certificate, in a
form acceptable to the Lender, evidencing the Borrower's compliance
with Sections 9.5, 9.6, 9.7, 9.8 and 9.9 hereof, and an aging of all
accounts receivable.
9.1.4. Adverse Events. Promptly inform the Lender of
the occurrence of any Event of Default or Default, or of any
occurrence which has or could reasonably be expected to have a
materially adverse effect upon the Borrower's business, properties,
financial condition or ability to comply with its obligations
hereunder.
9.1.5. Management Letters; Securities Reports. Furnish
to the Lender, promptly upon receipt thereof, copies of all management
letters submitted to the Borrower by independent certified public
accountants in connection with any annual or
CREDIT AGREEMENT - Page 23
<PAGE> 25
interim audit of the books of the Borrower, and promptly, upon filing
or distributing the same, all forms 10Q, 10K and shareholder reports.
9.1.6. ERISA. Certify to the Lender annually on or
about each January 1, that the filings referred to in Section 9.10
have been made.
9.1.7. Other Information as Requested. Promptly
furnish to the Lender such other information regarding the operations,
business affairs and financial condition of the Borrower as the Lender
may reasonably request from time to time and permit the Lender, its
employees, attorneys and agents, to inspect all of the books, records
and properties of the Borrower at any reasonable time.
9.2. Insurance. Keep its insurable properties adequately insured
and maintain (a) insurance against fire and other risks customarily insured
against by companies engaged in the same or a similar business to that of the
Borrower, (b) necessary worker's compensation insurance, (c) public liability
and product liability insurance, and (d) such other insurance as may be
required by law or as may be reasonably required in writing by the Lender, all
of which insurance shall be in such amounts, containing such terms, in such
form, for such purposes and written by such companies as may be satisfactory to
the Lender in the reasonable exercise of its judgment. All such policies shall
contain a provision whereby they may not be canceled except upon thirty days'
prior written notice to the Lender. The Borrower will deliver to the Lender,
at the Lender's request, evidence satisfactory to the Lender that such
insurance has been so procured. If the Borrower fails to maintain satisfactory
insurance as herein provided, the Lender shall have the option to do so, and
the Borrower agrees to repay the Lender, with interest at three percent (3%)
per annum plus the Prime Rate, all amounts so expended by the Lender.
9.3. Taxes. Pay promptly and within the time that they can be
paid without interest or penalty all taxes, assessments and similar imposts and
charges of every kind and nature lawfully levied, assessed or imposed upon them
and their property, except to the extent being contested in good faith and for
which adequate reserves have been established on the balance sheet of the
Borrower. If the Borrower shall fail to pay such taxes and assessments by
their due date, the Lender shall have the option to do so, and the Borrower
agrees to repay the Lender, with interest at three percent (3%) per annum plus
the Prime Rate, all amounts so expended by the Lender.
9.4. Maintain Legal Existence and Business. Do or cause to be
done all things necessary to preserve and keep in full force and effect its
legal existence, rights and franchise and comply with all applicable laws;
continue to conduct and operate its business substantially as conducted and
operated during the present and preceding calendar year; at all times maintain,
preserve and protect all franchise and trade names and preserve all the
remainder of its property used or useful in the conduct of its business and
keep the same in good repair, working order and condition; and from time to
time make, or cause to be made, all needed and proper repairs, renewals,
replacements, betterments and improvements thereto so that the
CREDIT AGREEMENT - Page 24
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business carried on in connection therewith may be properly and advantageously
conducted at all times.
9.5. Tangible Net Worth. Maintain at all times a Tangible Net
Worth (plus Subordinated Debt) in an amount not less than $10,000,000.
9.6. Debt Ratio. Maintain at all times a Debt Ratio of not more
than 3.0 to 1.0.
9.7. Current Ratio. Maintain at all times a Current Ratio of not
less than 2.5 to 1.0.
9.8. Funded Debt-to-Earnings Ratio. Maintain at all times a
Funded Debt to Earnings Ratio of not more than 1.75 to 1.0.
9.9. Net Interest Expense Ratio. Maintain at all times a Net
Interest Expense Ratio of at least 4.0 to 1.0.
9.10. ERISA. (a) At all times meet the minimum funding
requirements of ERISA with respect to the Borrower's employee benefit plans
subject to such minimum funding requirements; (b) promptly after the Borrower
knows or has reason to know (i) of the occurrence of any event which would
constitute a reportable event or prohibited transaction under ERISA, or (ii)
that the PBGC or the Borrower has instituted or will institute proceedings to
terminate an employee pension plan, deliver to the Lender a certificate of the
chief financial officer of the Borrower setting forth details as to such event
or proceedings and the action which the Borrower proposes to take with respect
thereto, together with a copy of any notice of such event which may be required
to be filed with the PBGC; and (c) deliver to the Lender a copy of the annual
return (including all schedules and attachments) for each plan covered by
ERISA, and filed with the Internal Revenue Service by the Borrower, not later
than ten (10) days after receipt of a written request from the Lender for such
report.
9.11. Use of Loan Proceeds. Use the proceeds of the Loans
hereunder for the purposes set forth herein.
9.12. New Subsidiary Guarantees. At the time of formation of any
Subsidiary of any entity which comprises the Borrower deliver to the Lender a
written Guaranty of all Indebtedness.
9.13. Unused Facility Fee. Pay the Unused Facility Fee when due.
SECTION 10. NEGATIVE COVENANTS
From the date hereof until the Indebtedness is paid in full, the
Borrower and each Guarantor covenants and agrees (on a consolidated basis after
giving effect thereto) it will not:
10.1. Acquisitions. It is agreed that the Borrower may desire to
engage in the acquisition of stock and/or assets of other entities from time to
time (the "Acquisitions"). Such Acquisitions will be permitted, and Debt may
be assumed by the Borrower in connection
CREDIT AGREEMENT - Page 25
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therewith, so long as (i) the Acquisition(s) are related to the Borrower's
existing lines of business, (ii) no Event of Default exists at the time of such
Acquisition(s), (iii) the Acquisition(s) will not cause an Event of Default to
occur, (iv) any Debt to any seller must be unsecured, and (v) Acquisitions must
be reasonably projected to be accretive to positive earnings within twelve
months of closing the Acquisition.
10.2. Liens and Encumbrances. Create, incur, assume or suffer to
exist any mortgage, pledge, encumbrance, security interest, lien or charge of
any kind (including any charge upon property purchased or acquired under a
conditional sales or other title-retaining agreement or lease required to be
capitalized under GAAP) upon any of its property or assets, whether now owned
or hereafter acquired, other than Permitted Liens.
10.3. Indebtedness. Incur, create, assume or permit to exist any
Debt, except for (a) the Indebtedness, (b) indebtedness subordinated to the
prior payment in full of the Indebtedness upon terms and conditions approved in
writing by the Lender, (c) existing indebtedness to the extent set forth on
schedules to this Agreement, (d) indebtedness meeting the standards of Section
10.1, (e) indebtedness secured by Permitted Liens; (f) up to $5,000,000 (US) in
unsecured foreign currency borrowings from other lenders, having maturities, in
each case, of less than one year, (g) trade payables incurred in the ordinary
course of business, and (h) deferred taxes.
10.4. Extension of Credit. Make loans, advances or extensions of
credit to any Person, except for advances to officers and employees which at
any time do not exceed $1,700,000 in the aggregate.
10.5. Guarantee Obligations. Guarantee or otherwise, directly or
indirectly, in any way be or become responsible for obligations of any other
Person, whether by agreement to purchase the indebtedness of any other Person,
agreement for the furnishing of funds to any other Person through the
furnishing of goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or discharging (or
causing the payment or discharge of) the indebtedness of any other Person, or
otherwise, except for the endorsement of negotiable instruments by the Borrower
in the ordinary course of business for deposit or collection if (as to any of
the foregoing) the amount for which the Borrower becomes obligated exceeds
$1,000,000 in the aggregate.
10.6. Subordinate Indebtedness. Subordinate any indebtedness due
to it from a Person to indebtedness of other creditors of such Person.
10.7. Property Transfer, Merger or Lease-Back. (a) Sell, lease,
transfer or otherwise dispose of all or, except as to the sale of Inventory or
unneeded Equipment in the ordinary course of business, any material part of its
properties and assets (whether in one transaction or in a series of
transactions), (b) change its name, consolidate with or merge into any other
corporation except in furtherance of any transaction permitted by Section 10.1,
permit another corporation to merge into it, acquire all or substantially all
the properties or assets of any other Person, enter into any reorganization or
recapitalization or reclassify its capital stock, or
CREDIT AGREEMENT - Page 26
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(c) enter into any sale-leaseback transaction, provided that Borrower and its
Subsidiaries may make transfers of assets among themselves so long as the liens
and security interests of the Lender in the Collateral at all times remain
perfected and in full force and effect.
10.8. Acquire Securities. Except as provided in Section 10.3,
purchase or hold beneficially any stock or other securities of, or make any
investment or acquire any interest whatsoever in, any other Person except for
investments:
(a) in commercial paper, maturing within 270 days
after acquisition thereof, which has the highest or second highest
credit rating given by either Standard & Poor's Corporation or Moody's
Investors Service, Inc.;
(b) in obligations, maturing within 12 months after
acquisition thereof, issued or unconditionally guaranteed by the
United States of America or an instrumentality or agency thereof and
entitled to the full faith and credit of the United States of America;
(c) in demand deposits, and time deposits (including
certificates of deposit) maturing within 12 months from the date of
deposit thereof, with any office of the Lender, any of the Lender's
affiliates, or any national or state bank or trust company which is
organized under the laws of the United States of America or any state
therein and which has capital, surplus and undivided profits of at
least $100,000,000; and
(d) in repurchase obligations of any bank or trust
company described in the above subsection (c) which relate to the
repurchase of obligations described in the above subsection (b).
10.9. Pension Plans. (a) Allow any fact, condition or event to
occur or exist with respect to an employee pension plan which would constitute
grounds for termination by the PBGC of any such plan or for the appointment by
a United States District Court of a trustee to administer any such plan, or (b)
permit any such plan to be the subject of termination proceedings (whether
voluntary or involuntary) from which termination proceedings there results a
liability of the Borrower to the PBGC which will have a materially adverse
effect upon the operations, business, property, assets, financial condition or
credit of the Borrower.
10.10. Misrepresentations. Furnish the Lender with any certificate
or other document that contains any untrue statement of a material fact or
omits to state a material fact necessary to make such certificate or document
not misleading in light of the circumstances under which it was furnished.
10.11. Margin Stock. Apply any of the proceeds of the Notes to the
purchase or carrying of any "margin stock" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, or any regulations,
interpretations or rulings thereunder.
CREDIT AGREEMENT - Page 27
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10.12. Compliance with Environmental Laws. The Borrower will not
(i) use (or permit any tenant to use) any of its real property for the
handling, processing, storage, transportation, or disposal of any Hazardous
Substance except in all respects in compliance with Environmental Laws, (ii)
generate any Hazardous Substance except in all respects in compliance with
Environmental Laws, (iii) conduct any activity which is likely to cause a
release of any Hazardous Substance in violation of Environmental Law, or (iv)
otherwise conduct any activity or use any of its real property or assets in any
manner that is likely to violate any Environmental Law.
10.13. Capitalized Software Cost Limitation. Permit the addition
to Capitalized Software Cost at any time to exceed twenty percent (20%) of
EBITDA for the immediately preceding four (4) calendar quarters.
SECTION 11. EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS
11.1. Events of Default. The occurrence of any of the following
events shall constitute an Event of Default hereunder:
11.1.1. Failure to Pay Monies Due. If any principal of
or interest on any of the Indebtedness shall not be paid within one
Business Day after becoming due.
11.1.2. Misrepresentation. If any warranty or
representation of the Borrower in connection with or contained in this
Agreement, or if any financial data or other information now or
hereafter furnished to the Lender by or on behalf of the Borrower,
shall prove to be false or misleading in any material respect.
11.1.3. Noncompliance with Lender Agreement. If the
Borrower shall fail to perform any of its obligations and covenants
under, or shall fail to comply with any of the provisions of, this
Agreement or any other Loan Document or any other agreement with the
Lender to which it may be a party, and such failure is not remedied
within thirty (30) days after the Lender gives notice thereof to the
Borrower.
11.1.4. Other Defaults.
(a) If the Borrower shall default in the
due payment of any of its Indebtedness (other than under the
Loan Documents) or in the observance or performance of any
term, covenant or condition in any agreement or instrument
evidencing, securing or relating to such Indebtedness,
provided such indebtedness is in an aggregate principal
amount of $500,000 or more and such default shall be
continued for a period sufficient to permit acceleration of
the indebtedness.
11.1.5. Business Suspension, Bankruptcy, Etc. If the
Borrower shall voluntarily suspend transaction of its business; or if
the Borrower shall not pay its debts as they mature or shall make a
general assignment for the benefit of creditors; or
CREDIT AGREEMENT - Page 28
<PAGE> 30
proceedings in bankruptcy, or for reorganization or liquidation of the
Borrower, under the Bankruptcy Code or under any other state or
federal law for the relief of debtors shall be commenced by the
Borrower or shall be commenced against the Borrower and shall not be
discharged within thirty (30) days of commencement; or a receiver,
trustee or custodian shall be appointed for the Borrower or for any
substantial portion of its respective properties or assets.
11.1.6. Inadequate Funding or Termination of
Employee/Benefit Plan(s). If the Borrower shall fail by $25,000 or
more to meets its minimum funding requirements under ERISA (after
giving effect to any valid waiver of such requirements) with respect
to any employee benefit plan established or maintained by the
Borrower, or if any such plan shall be the subject of termination
proceedings (whether voluntary or involuntary) and there shall result
from such termination proceedings a liability of the Borrower (or any
subsidiary) to the PBGC of $25,000 or more.
11.1.7. Occurrence of Certain Reportable Events. If
there shall occur, with respect to any pension plan maintained by the
Borrower, any reportable event (within the meaning of section 4043(b)
of ERISA) which the Lender shall determine in good faith constitutes a
ground for the termination by the PBGC of any such plan, and if such
event continues for 60 days after the Lender gives written notice to
the Borrower, provided that termination of such plan or appointment of
such trustee would, in the opinion of the Lender, have a materially
adverse effect upon the operations, business, property, assets,
financial condition or credit of the Borrower.
11.2. Acceleration of Indebtedness. Upon the occurrence of any of
the Events of Default described in Section 11.1, the Lender may discontinue
Advances and/or all Indebtedness may be declared due and payable in full
forthwith at the option of the Lender without presentation, demand, protest,
notice of dishonor or other notice of any kind, all of which are hereby
expressly waived. Unless all of the Indebtedness is then fully paid, the
Lender shall have and may setoff against the Indebtedness any amount owing by
the Lender to the Borrower.
11.3. Application of Proceeds. The proceeds of any setoff
authorized by this Agreement shall be applied by the Lender, first upon all
reasonable expenses of collection and all reasonable attorneys' fees and legal
expenses incurred by the Lender; the balance of the proceeds of such sale or
other disposition shall be applied in the payment of the Indebtedness, first to
interest, then to principal; and the surplus, if any, shall be paid over to the
Borrower or to such other Person or Persons as may be entitled thereto under
applicable law. The Borrower shall remain liable for any deficiency, which the
Borrower shall pay to the Lender immediately upon demand.
11.4. Cumulative Remedies. The remedies provided for herein are
cumulative to the remedies for collection of the Indebtedness as provided by
law or by any mortgage, security agreement or other document contemplated
hereby. Nothing herein contained is intended, nor should it be construed, to
preclude the Lender from pursuing any other remedy for the recovery
CREDIT AGREEMENT - Page 29
<PAGE> 31
of any other sum to which the Lender may be or become entitled for the breach
of this Agreement by the Borrower.
SECTION 12. MISCELLANEOUS
12.1. Independent Rights. No single or partial exercise of any
right, power or privilege hereunder, or any delay in the exercise thereof,
shall preclude other or further exercise of the rights of the parties to this
Agreement.
12.2. Covenant Independence. Each covenant in this Agreement
shall be deemed to be independent of any other covenant, and an exception in
one covenant shall not create an exception in another covenant.
12.3. Waivers and Amendments. No forbearance on the part of the
Lender in enforcing any of its rights under this Agreement, nor any renewal,
extension or rearrangement of any payment or covenant to be made or performed
by the Borrower hereunder, shall constitute a waiver of any of the terms of
this Agreement or of any such right. No Default or Event of Default shall be
waived by the Lender except in writing signed and delivered by an officer of
the Lender, and no waiver of any Default or Event of Default shall operate as a
waiver of any other Default or Event of Default or of the same Default or Event
of Default on a future occasion. No other amendment, modification or waiver
of, or consent with respect to, any provision of this Agreement or the Note or
other documents contemplated hereby shall be effective unless the same shall be
in writing and signed and delivered by an officer of the Lender.
12.4. GOVERNING LAW. THIS AGREEMENT, AND EACH AND EVERY TERM AND
PROVISION HEREOF, SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE
STATE OF TEXAS. IF ANY PROVISIONS OF THIS AGREEMENT SHALL FOR ANY REASON BE
HELD INVALID OR UNENFORCEABLE, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT
AFFECT ANY OTHER PROVISION HEREOF, BUT THIS AGREEMENT SHALL BE CONSTRUED AS IF
SUCH INVALID OR UNENFORCEABLE PROVISION HAD NEVER BEEN CONTAINED HEREIN.
12.5. Survival of Warranties, Etc. All of the Borrower's
covenants, agreements, representations and warranties made in connection with
this Agreement and any document contemplated hereby shall survive the making of
Advances and the delivery of the Notes hereunder and shall be deemed to have
been relied upon by the Lender, notwithstanding any investigation heretofore or
hereafter made by the Lender. All statements contained in any certificate or
other document delivered to the Lender at any time by or on behalf of the
Borrower pursuant hereto or in connection with the transactions contemplated
hereby shall constitute representations and warranties by the Borrower in
connection with this Agreement.
12.6. Attorneys' Fees. The Borrower agrees that it will pay all
reasonable costs and expenses of the Lender in connection with the enforcement
of the Lender's rights and remedies
CREDIT AGREEMENT - Page 30
<PAGE> 32
under this Agreement and in connection with the preparation or making of any
amendments, modifications, waivers or consents with respect to this Agreement.
12.7. Payments on Saturdays, Etc. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a Saturday, Sunday or
any other day which is not a Business Day, such payment shall be due on the
next succeeding Business Day, and such extension, if any, shall be included in
computing interest in connection with such payment.
12.8. Binding Effect. This Agreement shall inure to the benefit
of and shall be binding upon the parties hereto and their respective successors
and assigns; provided, however, the Borrower may not assign or transfer any
rights or obligations hereunder without the prior written consent of the
Lender.
12.9. Maintenance of Records. The Borrower will keep all of its
respective records concerning the Collateral and the Equipment at its principal
place of business. The Borrower will give the Lender prompt written notice of
any change in its respective principal place of business, or in the location of
said records.
12.10. Notices. All notices and communications provided for herein
or in any document contemplated hereby or required by law to be given shall be
effective when received or, upon sending by registered or certified mail,
postage prepaid, addressed as follows: (a) If to the Borrower, to: Leland
Grubb, Jr., 5215 North O'Connor, Suite 2500, Irving, Texas 75039, and (b) If to
the Lender, to: 8828 Stemmons Freeway, Suite 441, Dallas, Texas 75247, Attn:
David Terry, or to such other address as a party shall have designated to the
other in writing.
12.11. Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures were upon the same
instrument.
12.12. Headings. Article and section headings in this Agreement
are included for the convenience of reference only and shall not constitute a
part of this Agreement for any purpose.
12.13. INDEMNIFICATION. THE BORROWER HEREBY COVENANTS AND AGREES
TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE LENDER AND ITS OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LIABILITIES,
COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION, THE FEES AND OUT-OF-POCKET
EXPENSES OF COUNSEL) WHICH MAY BE INCURRED BY OR ASSERTED AGAINST THE LENDER OR
ANY SUCH OTHER INDIVIDUAL OR ENTITY IN CONNECTION WITH:
(a) ANY INVESTIGATION, ACTION OR PROCEEDING ARISING
OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT, THE NOTES, OR ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING
CREDIT AGREEMENT - Page 31
<PAGE> 33
TO THE LOANS, OR ANY ACT OR OMISSION RELATING TO ANY OF THE FOREGOING;
(b) ANY TAXES (OTHER THAN FEDERAL OR STATE INCOME
TAXES); OR
(c) THE CORRECTNESS, VALIDITY OR GENUINENESS OF ANY
INSTRUMENTS OR DOCUMENTS THAT MAY BE RELEASED OR ENDORSED TO BORROWER
BY THE LENDER (WHICH SHALL AUTOMATICALLY BE DEEMED TO BE WITHOUT
RECOURSE TO THE LENDER IN ANY EVENT), OR THE EXISTENCE, CHARACTER,
QUANTITY, QUALITY, CONDITION, VALUE OR DELIVERY OF ANY GOODS
PURPORTING TO BE REPRESENTED BY ANY SUCH DOCUMENTS.
12.14. NO ORAL AGREEMENTS. THIS AGREEMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN THE LENDER
AND THE BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE LENDER AND THE BORROWER.
12.15. Gender. Throughout this Agreement, the masculine shall
include the feminine and vice versa and the singular shall include the plural
and vice versa, unless the context of this Agreement indicates otherwise.
12.16. Severability of Provisions. Any provision of this
Agreement, the Notes or any other documents relating thereto that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, such Notes or such
other documents or affecting the validity or enforceability of such provision
in any other jurisdiction.
12.17. Assignment. The Lender shall have the absolute and
unrestricted right to sell, assign, transfer, or grant participation in, all or
any portion of the Loans, guaranties or other security relating thereto without
the consent of the Borrower to any federal or state agency, or to any bank
affiliate of the Bank, or, with the Borrower's consent (which shall not be
unreasonably withheld and shall not be required during the existence of an
Event of Default), to any commercial bank or to any other financial institution
or holding company of any of the foregoing; provided, however, no such action
on the part of the Lender shall have the effect of changing any of the
Borrower's obligations hereunder without the respective written consent or the
Borrower.
12.18. Waiver of Jury Trial. The Borrower and the Lender hereby
irrevocably waive the right to trial by jury with respect to any and all
actions or proceedings at any time in which Borrower and Lender are parties
arising out of this Agreement.
CREDIT AGREEMENT - Page 32
<PAGE> 34
12.19. Survival of Agreement. Notwithstanding anything to the
contrary contained in this Agreement, the provisions of this Agreement shall
remain in full force and effect until such time as all Indebtedness is paid in
full.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first written above.
BORROWER:
THOMAS GROUP, INC.
By:
----------------------------------------
Name: Philip R. Thomas
Title: Chairman of the Board
GUARANTORS:
The undersigned Guarantors execute this Agreement for the limited purpose of
acknowledging their respective guarantees of the Indebtedness and to agree that
all provisions of Section 8 and Section 9 of the Agreement shall apply to each
of them, as well as to the Borrower:
THOMAS GROUP ACQUISITION CORP.,
a Delaware corporation
By:
----------------------------------------
Name: Philip R. Thomas
Title: Chairman of the Board
THOMAS GROUP OF LOUISIANA, INC.,
a Delaware corporation
By:
----------------------------------------
Name: Philip R. Thomas
Title: Chairman of the Board
CREDIT AGREEMENT - Page 33
<PAGE> 35
THOMAS GROUP (SWITZERLAND) GMBH,
a Swiss corporation
By:
----------------------------------------
Name: Philip R. Thomas
Title: Managing Director
THOMAS GROUP GMBH,
a German corporation
By:
----------------------------------------
Name: Philip R. Thomas
Title: Managing Director
BERMAC COMMUNICATIONS, INC.,
a Delaware corporation
By:
----------------------------------------
Name: Philip R. Thomas
Title: Chairman of the Board
THOMAS GROUP ASIA PRIVATE LIMITED,
a Singapore corporation
By:
----------------------------------------
Name: Philip R. Thomas
Title: Director
LENDER:
COMERICA BANK-TEXAS
By:
----------------------------------------
Name: David Terry
Title: Assistant Vice President
CREDIT AGREEMENT - Page 34
<PAGE> 1
EXHIBIT 10.7
COMMERCIAL LEASE
STATE OF LOUISIANA
PARISH OF EAST FELICIANA
This lease is entered into, in the presence of the subscribing
witnesses, by:
PHILIP R. THOMAS and WAYNE HEIRTZLER THOMAS, born Heirtzler,
who are of the age of majority, residents of and domiciled in
East Feliciana Parish, Louisiana, with a permanent mailing
address of Route 2, Box 2300, Ethel, Louisiana 70730, and who
are married to and living with each other, hereafter "OWNER,"
and who declared that they lease to:
THOMAS GROUP, INC., a Delaware corporation authorized to do
business in the State of Louisiana, with its principal
business establishment in Louisiana in East Feliciana Parish,
Louisiana, with a permanent mailing address of 5215 North
O'Connor Boulevard, Suite 2500, Irving, Texas 75039,
represented herein by its Vice President and Chief Financial
Officer, Robert C. Pearson, by virtue of the authority of a
resolution of the Board of Directors of the corporation, a
copy of which is annexed, hereafter referred to as "LESSEE,"
the following described property:
A certain tract or parcel of land, together with all of the buildings
and improvements thereon, and all of the rights, ways and servitudes
thereunto belonging or in any way appertaining, and all component parts
thereof, situated in the Parish of East Feliciana, State of Louisiana,
in Section 65, Township 3 South, Range 1 East Greensburg Land District
of Louisiana, containing 30.451 acres, being shown as TRACT C on a plat
of survey entitled "Map Showing Subdivision of the James D. Kemp Estate
Located in Section 65, T3S, R1E of Greensburg Land District in East
Feliciana Parish Near Ethel, LA," made by Wm. A. Wintz, Jr., Registered
Land Surveyor, dated Baton Rouge, Louisiana, June 14, 1974, filed as
Register Number 72094, recorded in Conveyance Book W-3, page 21,
conveyance records of East Feliciana Parish, Louisiana, and being the
same property acquired by Philip R. Thomas and Wayne Heirtzler Thomas
by act of cash sale filed as Register Number 122,292, recorded in
Conveyance Book J-8, page 67, conveyance records of East Feliciana
Parish, Louisiana,
hereafter referred to as "The Premises," or "The Leased Premises."
1. USE OF THE PREMISES.
1.1 LESSEE'S USE. LESSEE may use the premises as a training center
and conference center for executive officers and other
business persons, as well as for construction of buildings and
other housing for personnel and trainees, and for any related
purposes, including but not limited to landscaping and
beautification.
1.2 OWNER'S USE.
1.2.1 GENERAL USE. OWNER may enter those portions of the
premises which are not in use by LESSEE, and may use
those portions in any way which does not interfere
with Lessee's use of the premises.
1.2.2 MINERALS. LESSEE's rights shall be subordinate to
OWNER's right to grant mineral leases of the property
and otherwise utilize the property for mineral
purposes, including the transfer of mineral or
royalty interests therein and unitization of the
property with other lands for mineral purposes;
however, in utilization of any such rights, OWNER
shall have no right to use or disturb the surface of
the premises without Lessee's consent.
<PAGE> 2
2. TERM OF LEASE. This lease is for a term of twenty-five [25] years,
beginning on November 20, 1991, and ending on November 20, 2016,
subject to the limitations, terms and conditions set forth hereafter.
3. RENTAL. LESSEE shall pay as rental $6,000.00 annually, payable on or
before January 2 of each year, beginning on January 2, 1992.
4. MAINTENANCE OF THE PREMISES. LESSEE acknowledges that the premises are
in good condition, accepts the premises in such condition and agrees to
keep them in such condition during the term of the lease and to deliver
them to OWNER is such condition at termination of the lease.
5. ADDITIONS TO THE PREMISES. LESSEE may make additions to the premises,
including structures for housing the activities of LESSEE under this
lease. All such improvements shall become the property of OWNER at
termination of the lease without further cost to OWNER, except as
provided in Paragraph 14 hereafter. In case of fire or other casualty
or accident which wholly or partially destroys any additions, LESSEE
shall rebuild such additions as quickly as practicable, and shall not
be entitled to any reduction or remission of rentals during the period
of any rebuilding or construction.
6. DAMAGES AND INJURIES; WAIVER AND ASSUMPTION OF LIABILITY. OWNER shall
not be responsible for any damage to LESSEE or to any other person
whatever or for any other loss, injury or damage arising out of the
leased premises or this lease. LESSEE shall hold OWNER free from any
responsibility for injury or damages to LESSEE or to any other person
and to any property of LESSEE or any other person arising from the
condition, state of repair, upkeep or maintenance of the leased
premises, or lack thereof, or of Lessee's operation, possession,
occupancy, or use of the leased premises, including that resulting from
any vice or defect of the premises, whether such damage occurs on or
off the leased premises. LESSEE assumes all such liability, and shall
indemnify and hold OWNER free from any liability for any such damages
or injuries, including any attorney's fees and costs in defending
claims resulting from such damages or injuries.
7. ASSIGNMENT AND SUBLEASE. LESSEE may not sublease the premises without
OWNER's written consent, but may assign this lease. In the event of
such an assignment, LESSEE shall remain liable to OWNER for all
obligations of LESSEE under this lease, and the assignee shall become
an additional LESSEE for all purposes under this lease.
8. INSURANCE AND TAXES
8.1 LIABILITY INSURANCE. LESSEE shall furnish a certificate of
insurance showing a policy of comprehensive liability
insurance in effect at all times during the term of this
lease, with policy limits of not less than $3,000,000.00 per
occurrence for personal injury and property damage liability,
covering all liabilities assumed by LESSEE herein, and naming
OWNER[s] as additional insureds under the policy and providing
in the policy that OWNER will be notified in the event of
cancellation of the policy.
8.2 PROPERTY DAMAGE INSURANCE. LESSEE shall carry comprehensive
property damage insurance, including fire, windstorm, tornado,
explosion and general risk insurance, up to the full insurable
value of all improvements placed on the leased premises.
8.3 WORKERS COMPENSATION. LESSEE shall carry workers' compensation
insurance in not less than the minimum amount necessary to
meet the requirements of the Louisiana workers' compensation
laws.
8.4 AD VALOREM TAXES. LESSEE shall pay all ad valorem property
taxes on the leased premises and any improvements thereto.
8.5 FAILURE TO MAINTAIN INSURANCE. In addition to any other
provision or remedy provided herein, if LESSEE fails to obtain
or maintain any insurance required by this lease, or pay any
taxes or other
<PAGE> 3
assessments required by this lease, OWNER shall have the
option, after fifteen [15] days' written notice to LESSEE, to
obtain such insurance or pay such taxes or assessments at
LESSEE's cost. Any sums so advanced shall be secured as
rentals due under the terms of this lease and shall bear
interest at the rate of 12% per annum from the date of the
advance.
9. UTILITIES. LESSEE shall pay all charges for utility service to the
premises.
10. DEFAULT.
10.1 The following actions or inactions by LESSEE shall constitute a
default under this lease:
10.1.1 Violation of any covenant, condition or obligation of
this lease;
10.1.2 Discontinuance of use of the premises for the purpose
of which leased, or failure to actively conduct the
business intended under this lease on the leased
premises;
10.1.3 Failure to promptly pay rentals, to provide insurance
required, to pay insurance premiums, or to pay
utility bills or other expenses or obligations of
LESSEE under this lease;
10.1.4 Adjudication of LESSEE as a bankrupt, or appointment
of a receiver or trustee to take charge of the
property or any portion thereof;
10.1.5 Placement of LESSEE in receivership;
10.1.6 Insolvency of LESSEE, or failure of LESSEE in
business;
10.1.7 Use of the premises or any portion thereof for any
unlawful purpose.
10.1.8 Commission or tolerating the commission of any
nuisance or act of waste, or of any act punishable by
penalty, fine or imprisonment under the laws of East
Feliciana Parish, the State of Louisiana or the
United States;
10.2 In the event of default, OWNER, at OWNER's option, may:
10.2.1 Accelerate the rental for the whole of the unexpired
term, which rental shall become immediately due;
10.2.2 Immediately cancel this lease;
10.2.3 Proceed for collection of past due installments only,
reserving OWNER's right to later proceed for
collection of the remaining installments; or
10.2.4 Re-enter the premises and lease them for such price
and on such terms as may be immediately obtainable,
in OWNER's discretion, and apply the net amount
realized to payment of rent due by LESSEE.
10.3 If OWNER elects to accelerate the rental for the unexpired
term of the lease, then OWNER, at OWNER's option, shall have
the further option to re-enter the premises and to attempt to
lease them for such rental and on such terms as OWNER may be
able to obtain, in reduction of the amount due OWNER, or, if
OWNER is unable to lease the premises, to let the premises on
a month-to-month basis, and credit the net amount realized on
the payment of the rental due for the full unexpired term of
the lease, reserving the right to sue thereafter for any
balance remaining due after credit for the rental actually
received or estimated to be received. Any balance thus due
shall be considered rental due under this lease, and shall be
secured by lessor's privilege and right of detention. Exercise
of this right of re-entry and privilege to re-let shall not
prejudice OWNER's
<PAGE> 4
right to hold LESSEE responsible for any amount due under this
lease in excess of the amount for which the property is
re-let.
10.4 If LESSEE fails or refuses to permit OWNER to re-enter the
premises, OWNER may eject LESSEE according to Louisiana law,
including but not limited to the provisions of Louisiana Code
of Civil Procedure articles 4701-4735, without forfeiting any
of OWNER's rights under the other terms of this lease, and
OWNER may at the same time or subsequently sue for any money
due or to enforce any other rights of OWNER.
10.5 Should OWNER choose to cancel the lease, LESSEE waives the
right to written notice to vacate and agrees to immediate
eviction proceedings without such notice. In such case, LESSEE
shall remain responsible for all damages or losses suffered by
OWNER. LESSEE waives any requirement for putting in default
for any breach of this lease, except as otherwise provided
herein.
10.6 Failure to strictly and promptly enforce the conditions set
forth above shall not operate as a waiver of OWNER's rights.
OWNER reserves the right to enforce prompt payment of rent or
to terminate this lease regardless of any indulgences or
extensions previously granted. OWNER's acceptance of any
rentals in arrears, or after institution of suit shall not
constitute a waiver of notice or suit, or of any other rights
of OWNER.
11. ATTORNEY'S FEES. Should it become necessary for either party to employ
an attorney to enforce any claim or protect any right of either party
arising from this lease, the party whose action or inaction
necessitates such employment shall pay, in addition to any other
charges or amounts due by that party, a reasonable attorney's fee.
12. CHANGES IN LEASE. No change or modification of this lease shall be
binding unless evidenced by an agreement in writing signed by OWNER and
LESSEE.
13. NOTICES. All notices required to be given under this lease shall be in
writing by certified or registered mail, addressed to the parties at
their respective addresses set forth at the beginning of this lease, or
at any change of address given to either party by the other in writing.
14. OWNER'S OPTION TO BUY OUT LEASE.
14.1 After nine [9] years from the date of this lease, OWNER may,
by giving one year's notice to LESSEE, purchase LESSEE's
rights under this lease, and terminate the lease, on the
following terms and conditions:
14.1.1 The price for such buy-out shall be the fair market
value of all leasehold improvements placed on the
premises by LESSEE.
14.1.2 After receiving written notice, LESSEE shall have one
[1] year in which to vacate the premises. All
improvements to the premises shall become the
property of OWNER.
15. SUCCESSION IN TITLE. This lease binds each of the parties and their
respective heirs, successors and assigns. All of the terms hereof,
including the provisions against sublease, apply to any persons or
legal entities claiming by or through either party.
DONE AND SIGNED by the parties on _____________________________, 1991
in the presence of the subscribing witnesses.
WITNESSES:
- ----------------------------------- -----------------------------------
PHILIP R. THOMAS, Owner
<PAGE> 5
- ----------------------------------- -----------------------------------
WAYNE HEIRTZLER THOMAS, Owner
THOMAS GROUP, INC. Lessee
BY:
--------------------------------
Robert C. Pearson, Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.8
AMENDMENT NO. 1 TO THE COMMERCIAL LEASE OF DECEMBER 31, 1991 BETWEEN
PHILIP R. THOMAS AND WAYNE HEIRTZLER THOMAS, OWNERS AND
THOMAS GROUP, INC., LESSEE
The following amendment to that certain Commercial Lease of December 31, 1991 is
hereby adopted:
2.1 The LESSEE shall have the option to renew this lease for an additional
fifteen (15) years after November 20, 2016, provided that OWNER shall
not have exercised the option set forth in Paragraph 14. LESSEE must
provide notice to OWNER of intention to exercise this option by August
20, 2016. OWNER and LESSEE will in good faith negotiate the rental for
the option period. Failure to agree upon a rental for the option period
will cause this lease to be renewed for a five (5) year period
beginning November 21, 2016 at a rental rate of $18,000 per year.
2.2 If LESSEE fails to exercise this option to renew, the lease shall
terminate.
2.3 Upon termination of this lease on November 20, 2016 or at the
expiration of the renewal option period if said option is exercised by
LESSEE, all leasehold improvements placed on the premises by LESSEE at
any time and remaining on the premises at termination of this lease
will revert to OWNER or OWNER's estate.
Done and signed by the parties on ___________________________, 1992 in the
presence of the subscribing witnesses.
WITNESSES:
- --------------------------------- ----------------------------------
Philip R. Thomas, Owner
- --------------------------------- ----------------------------------
Wayne Heirtzler Thomas, Owner
Thomas Group, Inc., Lessee
----------------------------------
Robert C. Pearson, Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.9
AMENDMENT #2 TO COMMERCIAL LAND LEASE, DATED
31 DECEMBER 1991, BETWEEN PHILIP R. THOMAS AND
WAYNE HEIRTZLER THOMAS, OWNERS, AND
THOMAS GROUP, INC. LESSEE
The following Amendment to that certain Commercial Lease of December 31, 1991
between OWNERS and LESSEE is hereby adopted:
"14.1 After sixteen (16) years from the date of this lease, OWNER
may, by giving one year's notice to LESSEE, purchase LESSEE's
rights under this lease and terminate the lease on the
following terms and conditions:"
Done and signed by the parties on 1 February, 1993 in the presence of the
subscribing witness.
WITNESSES:
-------------------------------------------
Philip R. Thomas, Owner
- -----------------------------------
-------------------------------------------
Wayne Heirtzler Thomas, Owner
- -----------------------------------
Thomas Group, Inc., Lessee
-------------------------------------------
Alex W. Young
President and Chief Operating Officer
<PAGE> 1
EXHIBIT 10.10
Amendment No. 3 to the Commercial Lease of
December 31, 1991 between Philip R. Thomas
and Wayne Heirtzler Thomas, OWNERS and
Thomas Group, Inc., LESSEE
The following amendment to that certain Commercial Lease December 31, 1991 is
hereby adopted:
2.3 Upon termination of this lease on November 20, 2016 or at the
expiration of the renewal option period if said option is exercised by
LESSEE, OWNER shall pay to LESSEE the fair market value of all
leasehold improvements placed on the premises by LESSEE at any time and
remaining on the premises at termination of this lease.
Signed by the parties on _________________________, 1993 in the presence of the
subscribing witnesses.
WITNESSES:
-------------------------------------------
Philip R. Thomas, Owner
-------------------------------------------
Wayne Heirtzler Thomas, Owner
- -----------------------------------
THOMAS GROUP, INC. LESSEE
-------------------------------------------
Robert C. Pearson, Vice President
And Chief Financial Officer
- -----------------------------------
<PAGE> 1
EXHIBIT 10.11
AGREEMENT
For valuable and sufficient consideration, Thomas Group, Inc., (LESSEE) and
Philip R. Thomas, (OWNER) and Wayne Heirtzler Thomas (OWNER) on 1 February, 1993
do hereby agree as follows:
WHEREAS, OWNERS lease a certain tract or parcel of land situated in the Parish
of East Feliciana, State of Louisiana, in Section 65, Township 3 South, Range 1
East, Greensburg Land District of Louisiana, containing 30.451 acres and
otherwise described in that certain Commercial Lease of December 31, 1991
between OWNERS and LESSEE and,
WHEREAS, LESSEE desires to prepay land lease rent to OWNERS in exchange for a
reduction in value of such rent,
THE PARTIES HEREBY AGREE as follows:
1. LESSEE will pay OWNERS the sum of $55,465 upon signing of this
Agreement as prepayment of rental on land described above and leased to
LESSEE, such prepayment to satisfy all rentals due to OWNERS through
December 31, 2008, rental for the year ending December 31, 1993 having
been previously paid by LESSEE to OWNERS.
2. If LESSEE and OWNERS mutually agree to terminate that certain
Commercial Lease of December 31, 1991 at any time prior to December 31,
2008, OWNER will refund to LESSEE the sum of $6,000 per full year
remaining from time of termination to December 31, 2008 plus a partial
payment of $6,000 times the ratio of remaining days in the year divided
by 365 for a partial year, the total of such payments to be discounted
at the rate of 8 percent from the time otherwise due to the date of
termination.
This Agreement binds each of the parties and their respective heirs, successors
and assigns. All of the terms hereof apply to any persons or legal entities
claiming by or through either party.
WITNESSES:
------------------------------------
Wayne Heirtzler Thomas, Owner
- ------------------------------------
------------------------------------
Philip R. Thomas, Owner
- ------------------------------------
------------------------------------
Thomas Group, Inc.
Alex W. Young,
President and Chief Operating Officer
<PAGE> 1
EXHIBIT 10.12
THOMAS GROUP, INC.
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR RETAINER FEE PLAN
1. Purpose. The purpose of this Amended and Restated Non-Employee
Director Retainer Fee Plan (the "Plan") is to provide non-employee directors of
Thomas Group, Inc., a Delaware corporation (the "Corporation"), with a retainer
fee plan, consisting of cash, shares of the Corporation's common stock, $.01 par
value per share ("Common Stock"), and options to purchase shares of Common Stock
which will:
(a) provide a means by which the Corporation may attract able
persons to serve as non-employee directors of the Corporation;
(b) increase the interest of non-employee directors in the
Corporation's welfare; and
(c) furnish an incentive to non-employee directors to continue
their services for the Corporation and to reward them for their
services in a manner that will suitably recognize the value of their
judgment, counsel and expertise.
2. Administration. The Plan shall be administered by the Board of
Directors of the Corporation ("Board") or a committee thereof ("Committee").
Except as otherwise provided by the Board in written directions to the
Committee, the Committee shall have all of the powers with respect to the Plan.
Any member of the Committee (or all members in the event the Board elects to
assume direct responsibility for administration of the Plan) may be removed at
any time, with or without cause, by resolution of the Board. Any vacancy
occurring in the membership of the Committee may be filled by appointment of the
Board.
The Committee shall select one of its members to act as its Chairman,
and shall make such rules and regulations for its operation as it deems
appropriate. A majority of the Committee shall constitute a quorum and the act
of a majority of the members of the Committee present at a meeting at which a
quorum is present shall be the act of the Committee.
3. Participants. Only directors who are not employees of the
Corporation shall be eligible to participate in the Plan.
4. Common Stock Subject to Plan. The Board may not grant more than
120,000 shares of Common Stock under the Plan, in the aggregate (subject to
adjustment in accordance with Section 7). Options granted hereunder shall be
granted pursuant to the Corporation's 1992 Stock Option Plan (the "1992 Plan"),
and shall be subject to all limitations of such plan, including the aggregate
number of options which may be granted. Shares available to be granted under
this Plan may be made available from either authorized but unissued Common Stock
or Common Stock held by the Corporation in its treasury.
<PAGE> 2
5. Grants. Each non-employee director of the Board is entitled to
receive, and shall be paid, a retainer fee pursuant to the formula described
below. The grant of a stock option shall be evidenced by a stock option
agreement containing such terms and provisions as are approved by the Board, but
not inconsistent with this Plan and the 1992 Plan.
Each non-employee director in the Plan shall be paid his or her
retainer fee in the following manner:
(i) Upon election or appointment to the Board, each non-employee
director shall receive nine thousand (9,000) options to purchase Common Stock.
All options granted hereunder shall be for a period of five years, with standard
vesting.
(ii) A cash fee of $25,000 per year will be paid to each
non-employee director in four equal installments. Each installment will be paid
in cash within 15 days after the end of a fiscal quarter.
(iii) Common Stock having an aggregate value of $25,000 (at the time
of grant) will be granted to each non-employee director in four equal
installments. Each installment will be granted effective as of the last business
day of a fiscal quarter.
(iv) The computation of amounts to be paid pursuant to this Section
shall be adjusted for service by a non-employee director during a partial fiscal
quarter or partial fiscal year, as applicable, by computing the amount due
hereunder for the applicable fiscal period and multiplying such result by the
ratio of (a) the number of days of such partial fiscal quarter or partial fiscal
year, as applicable, that the particular non-employee director was a director
and that this Plan was in effect for such director during such period to (b) the
number of days in the complete fiscal quarter or year, as applicable.
6. Common Stock Price on Date of Grant. The exercise price of options
granted hereunder shall be 100% of the fair market value of the Common Stock on
the date of grant. For the purposes hereof, the fair market value of the Common
Stock on the date of grant shall be the average of the high and low prices of
the Common Stock on the principal national securities exchange on which the
Common Stock is listed, or if not so listed, the average of the high and low
prices of the Common stock on such date on the NASDAQ National Market System, or
if not so quoted, the average of the bid and asked prices of the Common Stock on
such date in such other market in which shares of Common Stock are regularly
quoted, or if not so quoted, as established by the Board on such date.
7. Capital Adjustments. The aggregate number of shares of Common stock
which may be granted under the Plan shall be proportionately adjusted to reflect
any stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, reorganization, liquidation, or the
like, of or by the Corporation. Any fractional shares resulting from any such
adjustment shall be eliminated for the purposes of such adjustment.
-2-
<PAGE> 3
8. Non-Assignability. An option granted to a participant may not be
transferred other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. Except as described in the preceding
sentence, during a participant's lifetime, options granted to a participant may
be exercised only by a participant.
9. Interpretation. The Board shall interpret the Plan and shall
prescribe such rules in connection with the operation of the Plan as it
determines to be advisable for the administration of the Plan.
The Board may rescind and amend its rules.
10. Amendment and Termination of the Plan. The Board may at any time
suspend or terminate this Plan. The Board may also at any time amend or revise
the terms of this Plan, provided that, without further approval thereof by the
vote or written consent of the holders of a majority of the Corporation's
outstanding Common Stock, no such amendment or revision shall (except as
otherwise permitted under the provisions of Section 7): (a) increase the maximum
number of shares in the aggregate which may be granted pursuant to Section 4 of
the Plan; (b) materially increase the benefits accruing to participants under
Section 5 of the Plan; (c) change the exercise price set forth in Section 6
hereof; (d) increase the maximum term of the options provided for in Section 5
hereof; or (e) modify the class of persons eligible to receive compensation
pursuant to the Plan.
The provisions of Section 3, 5 and 6 of this Plan may not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
11. Effect of the Plan. Neither the adoption of this Plan nor any
action of the Board shall be deemed to give any participant any right to
continue to serve as a director of the Corporation.
12. Investment Intent. The Corporation may require that there be
presented to and filed with it by any participant under the Plan, such evidence
as it may deem necessary to establish that the options granted or shares of
Common Stock granted or to be purchased pursuant to this Plan are being acquired
for investment purposes and not with a view to their distribution.
13. Term. Unless sooner terminated by action of the Board, this Plan
will terminate on August 9, 2003.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
executed as of March 9, 1995 by its Chief Executive Officer and Secretary
pursuant to authorization of its Board of Directors.
By:
---------------------------------
Philip R. Thomas
Chief Executive Officer
Attest:
- -------------------------
Alex W. Young, Secretary
-4-
<PAGE> 1
EXHIBIT 10.13
STATE OF TEXAS
COUNTY OF DALLAS
COMMERCIAL LEASE
This lease is entered into, in the presence of the subscribing
witnesses, by:
PHILIP R. THOMAS, whose Tax Identification Number is ###-##-####, and
WAYNE HEIRTZLER THOMAS, born Heirtzler, whose Tax Identification Number
is ###-##-####, husband and wife domiciled in East Feliciana Parish,
whose present mailing address is Route 2, Box 2300, Ethel, LA 70730;
hereinafter referred to collectively as "OWNER";
who declared that they lease to:
THE THOMAS GROUP, INC., whose Tax Identification Number is 72-0843540,
a Delaware corporation domiciled and doing business in East Feliciana
Parish, authorized to do business in the State of Louisiana,
represented herein by ROBERT C. PEARSON, one of its Vice Presidents and
the Chief Financial Officer, duly authorized, and whose present mailing
address is Route 2, Box 2300, La. Hwy. 956, Ethel, LA 70730, hereafter
referred to as "LESSEE";
the following described property:
A certain tract or parcel of land thereon containing 10.00 acres in
Section 65, Township 3 South, Range 1 East, Greensburg Land District,
East Feliciana Parish, Louisiana, and being more particularly shown as
LOT "A" according to a "Plat showing [the] resubdivision of the 100.42
acre (called 100.00 acre) L(ouis) Andrus tract in Sec. 65, T-3-S,
R-1-E, GLD into [a] 10.00 acre LOT "A" and [a] 90.42 acre LOT "B" for
Philip R. Thomas," by Walter C. Snyder, Registered Land Surveyor, which
said plat of resubdivision is filed of record at Entry No. 130433, of
the official conveyance records of the Parish of East Feliciana; AND
A 20.00 acre portion of a tract of land containing 90.42 total acres in
Section 65, Township 3 South, Range 1 East, Greensburg Land District,
East Feliciana Parish, Louisiana, and being more particularly shown as
a measured portion of LOT "B" containing 20.00 acres according to a
"Plat showing [the] resubdivisions of the 100.42 acre (called 100.00
acre) L(ouis) Andrus tract in Sec. 65, T-3-S, R-1-E, GLD into [a] 10.00
acre LOT "A" and [a] 90.42 acre LOT "B" for Philip R. Thomas, REVISED
1-17-94 TO SHOW IMPROVEMENTS ON LOT A AND [A] 20.00 AC LEASE SITE ON
TRACT B" by Walter C. Snyder, Registered Land Surveyor, which said plat
of resubdivision is filed of record at Entry No. 130433, of the
official conveyance records of the Parish of East Feliciana; a copy of
which revised plat is attached hereto, marked Exhibit "A", WITH THE
LEASE ACREAGE OUTLINED IN RED THEREON.
hereafter referred to as "The Premises," or "The Lease Premises." It being the
intention of the parties hereto that the premises shall contain 30.00 total
acres.
1. USE OF THE PREMISES
1.1 LESSEE'S USE. LESSEE may use the premises as a training center
and conference center for executive officers and other
business persons, as well as for construction of buildings and
other housing for personnel and trainees, and for related
purposes, including but not limited to landscaping and
beautification.
1.2.1 OWNER'S USE. OWNER may enter those portions of the premises
which are not in use by LESSEE, and may use those portions in
any way which does not interfere with Lessee's use of the
premises.
<PAGE> 2
1.2.2 MINERALS. LESSEE's rights shall be subordinate to OWNER's
right to grant mineral leases of the property and otherwise
utilize the property for mineral purposes, including the
transfer of mineral or royalty interests therein and
utilization of the property with other lands for mineral
purposes; however, in utilization of any such rights, OWNER
shall have no right to use or disturb the surface of the
premises without Lessee's consent.
2. TERM OF LEASE. This lease is for a term of twenty-five (25) years,
beginning on JANUARY 1, 1994, and ending on DECEMBER 31, 2019, subject
to the limitations, terms and conditions set forth hereafter.
2.1 The LESSEE shall have the option to renew this lease for an
additional fifteen (15) years after November 20, 2016,
provided that OWNER shall not have exercised the option set
forth at paragraph 14. LESSEE must provide notice to OWNER and
LESSEE will in good faith negotiate the rental for the option
period. Failure to agree upon a rental for the option period
will cause this lease to be renewed for a five (5) year period
beginning November 21, 2016, at a rental rate of $18,000.00
per year.
2.2 If LESSEE fails to exercise this option to renew, the lease
shall terminate.
2.3 Upon termination of this lease on November 20, 2016, or at the
expiration of the renewal option period if said option is
exercised by LESSEE, all leasehold improvements placed on the
premises by LESSEE at any time and remaining on the premises
at the termination of this lease will revert to the OWNER or
OWNER'S estate.
3. RENTAL. LESSEE shall pay as rental $6,000.00 annually, payable on or
before JANUARY 2, 1994, and on the same succeeding date thereafter.
4. MAINTENANCE OF THE PREMISES. LESSEE acknowledges that the premises are
in good condition, accepts the premises in such condition and agrees to
keep them in such condition during the term of the lease and to deliver
them to OWNER in such condition at the termination of the lease.
5. ADDITIONS TO THE PREMISES. LESSEE may make additions to the premises,
including structures for housing the activities of LESSEE under this
lease. All such improvements shall become the property of OWNER at
termination of the lease without further cost to OWNER, except as
provided in Paragraph 14 hereafter. In case of fire or other casualty
or accident which wholly or partially destroys any additions, LESSEE
shall rebuild such additions as quickly as practicable, and shall not
be entitled to any reduction or remission of rentals during the period
of any rebuilding or construction.
6. DAMAGES AND INJURES; WAIVER AND ASSUMPTION OF LIABILITY. OWNER shall
not be responsible for any damage to LESSEE or to any other person
whatever or for any other loss, injury or damage arising out of the
leased premises or this lease. LESSEE shall hold OWNER free from any
responsibility for injury or damages to LESSEE or to any other person
and to any property of LESSEE or any other person arising from the
condition, state of repair, upkeep or maintenance of the leased
premises, or lack thereof, including that resulting from any vice or
defect of the premises, whether such damage occurs on or off the leased
premises. LESSEE assumes all such liability and shall indemnity and
hold OWNER free from any liability for any such damages or injuries,
including any attorney's fees and costs in defending claims resulting
from such damages or injuries.
7. ASSIGNMENT AND SUBLEASE. LESSEE may not sublease the premises without
OWNER's written consent, but may assign this lease. In the event of
such an assignment, LESSEE shall remain liable to OWNER for all
obligations of LESSEE under this lease, and the assignee shall become
an additional LESSEE for all purposes under this lease.
8. INSURANCE AND TAXES.
8.1 LIABILITY INSURANCE. LESSEE shall furnish a certificate of
insurance showing a policy of comprehensive liability
insurance in effect at all times during the term of this
lease, with policy
<PAGE> 3
limits of not less than $3,000,000.00 per occurrence for
personal injury and property damage liability, covering all
liabilities assumed by LESSEE herein, and naming OWNER[s] as
additional insureds under the policy and providing in the
policy that OWNER will be notified in advance in the event of
a cancellation or suspension of the policy.
8.2 PROPERTY DAMAGE INSURANCE. LESSEE shall carry comprehensive
property damage insurance, including fire, windstorm, tornado,
explosion and general risk insurance, up to the full insurable
value of all improvements placed on the leased premises.
8.3 WORKERS COMPENSATION. LESSEE shall carry workers' compensation
insurance in not less than the minimum amount necessary to
meet the requirements of the Louisiana workers' compensation
laws.
8.4 AD VALOREM TAXES. LESSEE shall pay all ad valorem taxes on the
leased premises and any improvements thereto.
8.5 FAILURE TO MAINTAIN INSURANCE. In addition to any other
provision or remedy provided herein, if LESSEE fails to obtain
or maintain any insurance required by this lease, or pay any
taxes or other assessments required by this lease, OWNER shall
have the option, after fifteen (15) days' written notice to
LESSEE, to obtain such insurance or pay such taxes or
assessments at LESSEE's cost. Any sums so advanced shall be
secured as rentals due under the terms of this lease and shall
bear interest at the rate of 12% per annum from the date of
the advance.
9. UTILITIES. LESSEE shall pay all charges for utility service to the
premises.
10. DEFAULT.
10.1 The following actions or inactions by LESSEE shall constitute
a default under this lease:
10.1.1 Violation of any covenant, condition or obligation of
this lease;
10.1.2 Disontinuance of use of the premises for the purpose
for which leased, or failure to actively conduct the
business intended under this lease on the leased
premises;
10.1.3 Failure to promptly pay rentals, to provide insurance
required, to pay insurance premiums, or to pay
utility bills or other expenses or obligations of
LESSEE under this lease;
10.1.4 Adjudication of LESSEE as a bankrupt, or appointment
of a receiver or syndic to take charge of the
property or any portion thereof;
10.1.5 Placement of LESSEE in receivership;
10.1.6 Insolvency of LESSEE, or failure of LESSEE in
business;
10.1.7 Use of the premises or any portion thereof for any
unlawful purpose;
10.1.8 Commission or tolerating the commission of any
nuisance or act of waste, or of any act punishable by
penalty, fine or imprisonment under the laws of East
Feliciana Parish, the State of Louisiana or the
United States.
10.2 In the event of default, OWNER, at OWNER's option, may:
10.2.1 Accelerate the rental for the whole of the unexpired
term, which rental shall become immediately due;
<PAGE> 4
10.2.2 Immediately cancel this lease;
10.2.3 Proceed for collection of past due installments only,
reserving OWNER's right to later proceed for
collection of the remaining installments; or
10.2.4 Re-enter the premises and lease them for such price
and on such terms as may be immediately obtainable,
in OWNER's discretion, and apply the net amount
realized to payment of rent due by LESSEE.
10.3 If OWNER elects to accelerate the rental for the unexpired
term of the lease, then OWNER, at OWNER's option, shall have
the further option to re-enter the premises and to attempt to
lease them for such rental and on such terms as OWNER may be
able to obtain, in reduction of the amount due OWNER, or, if
OWNER is unable to lease the premises, to let the premises on
a month-to-month basis, and credit the net amount realized on
the payment of the rental due for the full unexpired term of
the lease, reserving the right to sue thereafter for any
balance remaining due after credit for the rental actually
received or estimated to be received. Any balance thus due
shall be considered rental due under this lease, and shall be
secured by lessor's lien and privilege, with the right of
sequestration. Exercise of this right of re-entry and
privilege to re-let shall not prejudice OWNER's right to hold
LESSEE responsible for any amount due under this lease in
excess of the amount for which the property is re-let.
10.4 If LESSEE fails or refuses to permit OWNER to re-enter the
premises, OWNER may evict LESSEE according to Louisiana law,
including but not limited to applicable provisions of the
Louisiana Code of Civil Procedure, Articles 4701-4735, without
forfeiting any of OWNER's rights under the other terms of this
lease, and OWNER may at the same time or subsequently sue for
any money due or to enforce any other rights of OWNER.
10.5 In the event it becomes necessary for OWNER to evict LESSEE or
to cancel the lease, LESSEE hereby waives the five (5) day
notice to vacate the leased premises provided by Louisiana
Code of Civil Procedure Article 4701, and consents to the
immediate institution of eviction proceedings by OWNER in
accordance with Chapter 2 of Title XI of the Louisiana Code of
Civil Procedure. In either case, LESSEE shall nevertheless
remain responsible for all damages or losses suffered by
OWNER. LESSEE also waives any requirement for putting in
default for any breach of this lease, except as otherwise
provided herein.
10.6 Failure to strictly and promptly enforce the conditions set
forth above shall not operate as a waiver of OWNER's rights.
OWNER reserves the right to enforce prompt payment of rent or
to terminate this lease regardless of any indulgences or
extensions previously granted. OWNER's acceptance of any
rentals in arrears, or after institution of suit shall not
constitute a waiver of notice or suit, or of any other rights
of OWNER.
11. ATTORNEY'S FEES. Should it become necessary for either party to employ
an attorney to enforce any claim or protect any right of either party
arising from this lease, the party whose action or inaction
necessitates such employment shall pay, in addition to any other
charges or amounts due by that party, a reasonable attorney's fee.
12. CHANGES IN LEASE. No change or modification of this lease shall be
binding unless evidenced by an agreement in writing signed both by
OWNER and LESSEE.
13. NOTICES. All notices required to be given under this lease shall be in
writing sent by certified or registered mail, or by private express
courier, or by facsimile (followed by written confirmation delivered
per one of the other enumerated delivery methods), addressed to the
parties at their respective addresses set forth at the beginning of
this lease, or at any change of address given to either party by the
other in writing.
<PAGE> 5
14. OWNER'S OPTION TO BUY OUT LEASE.
14.1 After nine (9) years from the date of this lease, OWNER may,
by giving one (1) year's notice to LESSEE, purchase LESSEE's
rights under this lease, and terminate the lease, on the
following terms and conditions:
14.1.1 The price for such buy-out shall be the fair market
values of all leasehold improvements placed on the
premises by LESSEE.
14.1.2 After receiving written notice, LESSEE shall have one
(1) year in which to vacate the premises. All
improvements to the premises shall become the
property of OWNER.
15. SUCCESSION IN TITLE. This lease binds each of the parties and their
respective heirs, successors and assigns. All of the terms hereof,
including the provisions against sublease, apply to any persons or
legal entitles claiming by or through either party.
THUS DONE AND SIGNED by the parties in duplicate originals on
_____________________, 1993 at Irving, Texas, in the presence of the
subscribing witnesses.
WITNESSES:
- -------------------------------- -----------------------------------------
PHILIP R. THOMAS, OWNER
- -------------------------------- -----------------------------------------
WAYNE HEIRTZLER THOMAS, OWNER
<PAGE> 1
EXHIBIT 21
PAGE 1 OF 1
THOMAS GROUP, INC.
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------------------------------ ----------------------------------------
<S> <C>
Thomas Group GmbH Germany
Thomas Group (Switzerland) GmbH Switzerland
Thomas Group of Louisiana, Inc. Delaware
Thomas Group Asia Pte. Ltd. Singapore
Thomas Group of Sweden Sweden
Thomas Group Hong Kong Hong Kong
Thomas Group Information
Technologies, Inc. Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,376
<SECURITIES> 0
<RECEIVABLES> 11,979
<ALLOWANCES> 396
<INVENTORY> 0
<CURRENT-ASSETS> 21,091
<PP&E> 3,627
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,631
<CURRENT-LIABILITIES> 7,491
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 21,147
<TOTAL-LIABILITY-AND-EQUITY> 31,631
<SALES> 68,361
<TOTAL-REVENUES> 68,361
<CGS> 39,625
<TOTAL-COSTS> 39,625
<OTHER-EXPENSES> 28,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164
<INCOME-PRETAX> 128
<INCOME-TAX> 37
<INCOME-CONTINUING> 91
<DISCONTINUED> (4,433)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,342)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.80)
</TABLE>
