-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NjhqJ76+k8eGC5yAGmMOuVa/7Q4SdztZ1NAbUyS93oaVoqIULeFD0vUK/D0MFhgG ocyxBrRIJtUb3QRsemYjjw== 0000850414-96-000002.txt : 19960612 0000850414-96-000002.hdr.sgml : 19960612 ACCESSION NUMBER: 0000850414-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANDEX ENVIRONMENTAL RECOVERY INC CENTRAL INDEX KEY: 0000850414 STANDARD INDUSTRIAL CLASSIFICATION: 4950 IRS NUMBER: 222941704 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17840 FILM NUMBER: 96540691 BUSINESS ADDRESS: STREET 1: 500 CAMPUS DR CITY: MORGANVILLE STATE: NJ ZIP: 07751 BUSINESS PHONE: 9085368500 MAIL ADDRESS: STREET 1: CO JOHN ST JAMES STREET 2: 500 CAMPUS DRIVE CITY: MORGANVILLE STATE: NJ ZIP: 07751 10-K 1 1995 10K FOR Y/E 12/30/95 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 30, 1995 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 Not Applicable to ------------------------ ---------------- Commission file number 0-17840 ---------------------------------------------- HANDEX CORPORATION (Exact name of Registrant as specified in its charter) Delaware 22-2941704 - - ----------------------------- --------------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 Campus Drive, Morganville, New Jersey 07751 - - ----------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 536-8500 --------------- Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which Not Applicable registered - - --------------------------------- ------------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value -------------------------------- Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ------ The aggregate market value of the Common Stock held by non-affiliates of the Registrant as of March 1, 1996 was approximately $17,740,541, computed on the basis of the last reported sales price per share ($5.125) of such stock on the NASDAQ National Market System. The number of shares of the Registrant's Common Stock outstanding as of March 1, 1996 was 6,865,212. DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE Part of Form 10-K Documents Incorporated - - ---------------------------------- by Reference Part III (Items 10, 11, 12 and 13) -------------------------------- Portions of the Registrant's definitive Proxy Statement to be used in connection with its Annual Meeting of Stockholders to be held on May 7, 1996 HANDEX CORPORATION INDEX TO ANNUAL REPORT ON FORM 10K PART I Item 1. Business General 1 Environmental Services 2 Customers and Marketing 3 Competition 4 Environmental Legislation 4 Permits, Licenses and Regulatory Approval 5 Insurance 5 Employees 5 Educational Wholly-owned centers and franchising 6 Services 6 Customers 6 Marketing 6 Competition 7 Item 2. Properties 7 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 8 Item 6. Selected Consolidated Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 8. Financial Statements and Supplementary Data 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 PART III Item 10. Directors and Executive Officers of the Registrant 17 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 8K 18 SIGNATURES 19 PART I ITEM 1. BUSINESS GENERAL - - ------- Handex Corporation ("Company") conducts two distinct lines of business; its environmental segment, which has been its core business, and the educational segment, which the Company started in August 1994 with its acquisition, through its subsidiary, New Horizons Education Corporation ("New Horizons"), of all the issued and outstanding shares of New Horizons Franchising, Inc. and all of the assets of New Horizons Learning Center, Inc. The discussion that follows and note 10 to the consolidated financial statements (see Item 8) highlight the business conditions and certain financial information specific to each of the two business segments. ENVIRONMENTAL BUSINESS SEGMENT - - ------------------------------ The Company, through subsidiaries of its environmental holding subsidiary, Handex Environmental, Inc., (collectively "Handex Environmental") provides a comprehensive solution to hydrocarbon contamination of groundwater and soil at CERCLA, RCRA and UST sites. Handex Environmental's full service approach addresses the entire remediation process, from detection and delineation to recovery and treatment. Specific services include detailed site assessments, analysis of groundwater and soil contamination, development and installation of on-site recovery systems, permitting services, maintenance and monitoring of recovery systems and complete documentation of all services and systems. Handex Environmental also provides environmental dewatering services to petroleum producers and suppliers. In late 1988 Handex Environmental introduced environmental site assessment services at industrial sites, primarily in the State of New Jersey, and subsequently increased its capability to perform other types of remediation projects through the acquisition of sludge dewatering equipment. Handex Environmental's primary clients continue to be the major petroleum companies which store petroleum products in underground storage tanks. While the bulk of Handex Environmental's underground storage tank and related services remained concentrated at retail gasoline stations during the fiscal year ended December 30, 1995 ("1995"), Handex Environmental continued to pursue and obtained additional work at bulk petroleum storage terminals, refineries and industrial sites. During 1995, Handex Environmental won and executed a series of significant contracts throughout the country. Most of the work on these projects involved disciplines and services new to Handex Environmental. The projects included two superfund sites - one in Florida and one in North Carolina, a series of landfill jobs in Texas, Maryland, Delaware and New Hampshire, and a variety of jobs involving large scale industrial cleanups. These projects generated over $10,000,000 in gross operating revenues in 1995. Handex Environmental also built a backlog for this type of work, starting 1996 with a backlog of over $12,000,000. Handex Environmental intends to continue to pursue this market to supplement its core retail gasoline station business. Through 1991, Handex Environmental operated primarily in New Jersey, Florida, Massachusetts, Maryland and surrounding states. In 1990, Handex Environmental opened area offices in eastern Pennsylvania. In 1991, Handex Environmental continued its expansion by opening area offices in: Western Pennsylvania; Long Island, New York; Jacksonville, Florida; Chicago, Illinois; and Charlotte, North Carolina. Handex Environmental also acquired, through a merger, a small groundwater remediation business in Palm Springs, Florida. In 1993, Handex Environmental opened area offices in: Cincinnati, Ohio; and Atlanta, Georgia. In 1994, Handex Environmental opened area offices in: Golden, Colorado; Wixom, Michigan; Mobile, Alabama; and Kansas City, Missouri. In 1995, Handex Environmental opened an office in Tampa, Florida and acquired the assets of a local environmental concern. In 1996, Handex Environmental opened an office in Indianapolis, Indiana. The area offices differ from Handex Environmental's other locations in that they do not have their own remediation capability. When such services are needed, they are provided by Handex Environmental's larger offices or by subcontractors. In 1995, the environmental remediation market was characterized by intense price-based competition. Handex Environmental believes this condition will continue to be the single, dominant factor in the market in the future. In recent years, Handex Environmental's business has been helped considerably by the cost reimbursement program maintained by the State of Florida through the Florida Inland Protection Trust Fund. Toward the end of the first quarter of 1995, significant regulatory changes in Handex Environmental's Florida market adversely affected revenues from its Florida operations. These changes effectively narrowed the number and types of environmental clean-up expenditures which would be reimbursable from the Fund. Handex Environmental believes that the quality and comprehensive nature of its services, its focus on well defined markets, both geographically and in terms of services offered, and the response of governmental authorities to public concern with groundwater contamination are material to the success of its business. Handex Environmental intends to continue its strategy of focusing on its primary service market -- hydrocarbon contamination of groundwater and soil due to leaking underground storage tanks and related contamination sources -- and to grow by entering new geographic markets where there is active enforcement of environmental protection statutes and significant petroleum industry presence, by expanding its focus to include bulk petroleum storage terminals, CERCLA and RCRA sites; by offering its services to a broader range of customers and by continuing to improve operating efficiencies while maintaining a high level of technical quality. In addition, Handex Environmental is expanding its expertise and operations beyond the hydrocarbon remediation contamination services market. Handex Environmental currently conducts its groundwater remediation business through nine wholly-owned subsidiaries, Handex of New Jersey, Inc., Handex of Maryland, Inc., Handex of Florida, Inc., Handex of New England, Inc., Handex of the Carolinas, Inc., Handex of Illinois, Inc., Handex of Ohio, Inc., Handex of Colorado, Inc. and Handex of Pennsylvania, LLC. In addition, Handex Environmental performs other remediation services, such as sludge dewatering and facility decontamination, through its wholly owned subsidiary, Handex Environmental Management, Inc. SERVICES - - -------- Handex Environmental provides its clients with comprehensive groundwater and soil assessment, and remediation services directed at contamination resulting from leaking underground storage tanks, petroleum distribution systems and related contamination sources. A Handex Environmental project team includes hydrogeologists, engineers, and risk management specialists working with its operations department, which includes environmental technicians, data collection specialists and remedial system installers and operators. A Handex Environmental project begins with the investigation of a confirmed or suspected petroleum release. The case hydrogeologist develops a data collection and analysis program for the site. Handex Environmental professionals collect and evaluate information pertaining to site geology, hydrogeology, the nature and distribution of contaminants, potential exposure pathways and receptors. This is accomplished by employing rapid assessment techniques such as core penetrometer surveys, on-site chemical screening and analysis of soil and groundwater and traditional monitoring well installation. Through the analysis of field data and the results of the analysis of soil and groundwater samples, the hydrogeologist determines the extent of the contamination, soil characteristic and contaminant migration pathways. This information forms the basis for corrective action decisions. Based on the information collected during the site characterization process, Handex Environmental, in concert with its customer, determines the risk posed by the site. If the risk exposure is unacceptable, Handex Environmental may propose a soil and/or groundwater remediation program to reduce the level of contamination to within acceptable guidelines, or, it may instead focus on its modeling capability and regulatory knowledge to develop an argument that no further action is required. Handex Environmental has extensive experience designing and installing soil and groundwater remediation systems. A typical Handex Environmental remediation system can include groundwater extraction, soil vapor extraction, air sparging or some combination of the three. Groundwater and air treatment systems are designed to address site specific contaminant, concentrations and loading rates. Remediation equipment is often modified by Handex Environmental to enhance its performance and to provide an integrated system. The installation of the remediation system is performed by Handex Environmental's trained installation technicians. Handex Environmental's regulatory department specialists ensure compliance with Federal, state and local laws pertaining to the installation and operation of remediation systems. Once a remediation system is installed, Handex Environmental technicians monitor the performance of the system, collect water and soil samples and perform routine inspection, adjustment and maintenance to ensure proper operations. Handex Environmental monitors the progress of the remedial action until the clean-up goals have been achieved. Handex has over 600 projects currently being monitored. It provides groundwater data and analysis of such data to its customers and in some cases to various regulatory bodies to comply with certain individual state and local regulations. Emergency Response Capabilities. As a result of Handex Environmental's ability to provide comprehensive groundwater remediation services and the equipment necessary to perform such services, Handex Environmental is often called upon to respond to emergency spills or leaks by its customers or by state or local governmental bodies or agencies. Emergency situations involve the application of the various techniques used by Handex Environmental in providing groundwater remediation services in non-emergency situations. However, due to the need for prompt action as a result of the higher level of contamination which may be present and publicity concerning the problem, Handex Environmental's emergency response services typically involve a substantially greater initial commitment of personnel and equipment than routine projects. Environmental Dewatering Services. Handex Environmental provides environmental dewatering services to petroleum producers and suppliers who desire to replace underground storage tanks or petroleum distribution systems in areas where groundwater is located near the surface. Dewatering consists of pumping groundwater in order to reduce the water table elevation in a given area to a level sufficient to permit installation of new underground storage tanks or systems. Water generated during the dewatering process is generally contaminated with soluble components of gasoline and is treated through the use of mobile water treatment units employing separation and carbon adsorption prior to its discharge back into the environment. General Site Assessment and Remediation Services. Handex Environmental provides environmental site assessment services to its customers. The areas of environmental concern that need to be investigated in connection with a site assessment include underground storage tanks, groundwater and soil quality, areas of known hazardous spills, drum storage areas, lagoons and loading and unloading areas. In addition, the interiors of buildings on the site must also be examined. As areas of contamination are discovered, a cleanup plan is designed, approved by the appropriate regulatory authorities and implemented. Customers for environmental site assessment services have included potential buyers, owners and operators of various industrial and commercial facilities. In addition, banks and other financial institutions that provide financing to such owners and operators, as well as potential acquirers of such facilities, have requested environmental site assessments. CUSTOMERS AND MARKETING - - ----------------------- Handex Environmental's principal customers are major petroleum companies, which accounted for approximately 84.0%, 80.2% and 78.9% of Handex Environmental's net operating revenues in 1993, 1994 and 1995, respectively. Handex Environmental's three largest petroleum company customers, Amoco Oil Company, Exxon Company, U.S.A. and Shell Oil Company accounted for 15.9%, 12.5%, and 11.4%, respectively, of Handex Environmental's net operating revenues in 1995. Handex Environmental's level of business with those customers declined from its 1994 level, reflecting adverse economic conditions, regulatory changes, the introduction of Risk Based Corrective Action ("RBCA") in certain states and reduced funding for environmental services. The loss of business from any of its major customers or adverse changes in current regulations could have a material adverse effect on Handex Environmental. Handex Environmental currently performs approximately 80% of its work for petroleum companies at retail gasoline stations, although it does perform and continues to pursue, work at bulk petroleum terminals, pipelines, refineries and industrial sites from time to time. Handex Environmental's non-petroleum customers are primarily industrial clients and/or state and local governmental bodies or agencies which engage Handex Environmental to provide emergency response services. Most of Handex Environmental's jobs for petroleum companies are performed pursuant to purchase orders or non-exclusive contracts, neither of which provide for any minimum purchase requirements. Most customers now require Handex Environmental to bid on certain phases of recovery projects, and Handex Environmental believes that this trend will continue in the future. In addition, many customers of Handex Environmental now purchase certain services and equipment historically provided by or through Handex Environmental as part of its full service approach from other contractors. Handex Environmental believes the unbundling of services, such as laboratory testing and analysis, is an indication of the increasing focus by its customers on containing costs associated with environmental remediation projects. Handex Environmental historically charged its customers for the services of its employees on an hourly basis with few budgetary limitations, as well as for the cost of materials and equipment used in connection with its services. Starting in 1993, a majority of Handex Environmental's work has been performed under fixed price contracts and unit prices, and it is expected that this trend will continue. Handex Environmental historically marketed its services through its senior professional staff and executives who have focused primarily on existing customers. Since competition in the groundwater remediation services industry has increased substantially the past few years and is likely to continue to increase further, Handex Environmental has established a sales and marketing function with experienced professionals in this field. Since 1993, Handex Environmental has committed significant resources for sales and marketing activities. COMPETITION - - ----------- While many companies are engaged in various aspects of the soil and groundwater remediation services industry, only a few provide the full service approach to groundwater remediation provided by Handex Environmental in its principal geographic markets. There are, however, a large number of firms which provide consulting and assessment services with respect to hydrocarbon recovery and soil/groundwater remediation. In addition, a large number of firms perform remediation services, but these firms concentrate their operations on major spills, Superfund site cleanups, and the removal of substances such as polychlorinated biphenols ("PCBs") and asbestos. There are also numerous small independent pump and tank contractors which remove contaminants and transport them to hazardous waste sites or other storage facilities. These contractors collectively have a significant share of the market for such services. The increasing focus on lower remediation costs by major consumers of environmental services has heightened competition in the soil/groundwater remediation services industry and this trend will likely continue as the industry matures, as other companies enter the market and expand the range of services which they offer and as Handex Environmental and its competitors move into new geographic markets. For example, major engineering and consulting companies are becoming increasingly involved in the engineering related aspects and subsequent remediation of hazardous waste sites. It is also likely that some of the major consulting firms will expand their groundwater remediation services and compete directly with Handex Environmental. Competition from these larger companies could have a material adverse effect on Handex Environmental's business. Further, competition from small firms which offer a more limited range of services but which can compete effectively on price has and may continue to adversely affect Handex Environmental's profitability by reducing its margins. Handex Environmental historically responded to competition on the basis of its ability to provide a comprehensive response to the problems of soil/groundwater contamination and the quality of its services, rather than on the price of its services. However, Handex Environmental believes that price has now become of primary importance to its customers, and believes that it must compete on this basis. Handex Environmental also believes that, over the long term, the quality of its services will continue to be an important competitive advantage. Accordingly, in attempting to respond to price competition, Handex Environmental will attempt to maintain a high level of technical quality in its services. ENVIRONMENTAL LEGISLATION - - ------------------------- The current demand for Handex Environmental's soil/groundwater remediation services is a result of a number of overlapping Federal, state and local laws concerned with the protection of human health and the environment, as well as regulations promulgated by administrative agencies thereunder. The principal Federal statutes affecting groundwater include the Safe Drinking Water Act of 1974, the Resource Conservation and Recovery Act of 1976 ("RCRA") and the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). One of the more important Federal regulatory developments relating to Handex Environmental's business occurred in September 1988 when the EPA issued comprehensive regulations under RCRA governing underground storage tanks containing hazardous substances or petroleum. Such regulations require the owners of underground storage tanks to upgrade or close existing tanks within 10 years, and to install release detection equipment on existing tanks over a five- year period. Such regulations also require all new tanks which are installed to have protection against spills, overflows and corrosion. In addition, such regulations also prescribe the procedures by which tank owners and operators should investigate and report confirmed or suspected releases from tanks, and if applicable, proceed with corrective actions. Many of the foregoing Federal statutes encourage significant state involvement in their administration and enforcement, and various states have been authorized by the Environmental Protection Agency to implement their own underground storage tank programs. Various states have also enacted their own statutes designed to protect and restore environmental quality and to deal directly with the problem of soil and groundwater contamination. The state statutes and regulations are in some cases, different or more stringent than the other Federal statutes, and Handex Environmental believes that statutes and regulations enacted at the state level have had a greater impact on the demand for its services than those enacted at the Federal level. Some examples of such state statutes include New Jersey's Spill Compensation and Control Act, Environmental Clean Up Responsibility Act and its Underground Storage of Hazardous Substances Act, Maryland's Hazardous Substance Spill Response Law, Florida's Water Quality Assurance Act and the Florida Inland Protection Trust Fund. The Florida Inland Protection Trust Fund, which had helped considerably Handex Environmental' s business in Florida up through 1994, was revised by the Florida legislature in early 1995 and now requires site prioritization and prior approval of costs by the Florida Department of Environmental Protection for reimbursement of cleanup expenditures. These revisions, which were intended to assure the Fund's economic integrity, have adversely affected in a significant manner, the operating results of Handex Environmental's operations in Florida, and will continue to have an adverse effect on the Company given the size of Handex Environmental's operations in that state. PERMITS, LICENSES AND REGULATORY APPROVALS - - ------------------------------------------ The installation and operation of remediation systems are subject to various licensing, permitting, approval and reporting requirements imposed by Federal, state and local laws. For example, National Pollutant Discharge Elimination System ("NPDES") permits, air pollution permits and other regulatory program permits are typically required in connection with the installation of an active remediation system, and the terms of these permits often require ongoing reporting to governmental agencies concerning the operation of the remediation system. Passive remediation programs also require institutional and engineering controls. Approvals of corrective action plans by the appropriate regulatory agency is increasingly being required before a recovery system can be installed to address contaminated soil and/or groundwater due to a release from an underground storage tank. Various state and local laws require the monitoring wells and wells used in the recovery process to be installed by licensed well drillers, and installation of the recovery system may also require compliance with applicable provisions of construction and zoning laws. Some of the states in which Handex Environmental operates require that groundwater recovery systems installed at a facility be operated by licensed wastewater treatment plant operators. Some states have also adopted testing and licensing programs to regulate professionals who typically conduct subsurface investigations and propose remedial action workplans. In order to provide a full service approach to subsurface remediation, Handex Environmental employs licensed well drillers, and many of its environmental technicians are licensed wastewater treatment plant operators. In addition, Handex Environmental employs individuals who specialize in obtaining the required Federal, state and local environmental and operational permits necessary for Handex Environmental and its customers to install and operate remediation systems, facility permits, including Title V air permits and compliance audits. Handex Environmental also provides the documentation of the recovery process necessary to assist its customers in satisfying applicable reporting requirements. INSURANCE - - --------- In 1992, the Company purchased an interest in a trade association captive insurance group through which it obtains comprehensive general liability insurance, with coverage limits of $5,000,000, including losses for sudden and accidental pollution damage. While Handex Environmental believes that it operates its business safely and prudently, there can be no assurance that liabilities incurred from a claim for professional liability or some other risk will be covered by insurance or, if covered, that the dollar amount of such liabilities will not exceed coverage limits. EMPLOYEES - - --------- As of December 30, 1995, the number of employees at Handex Environmental, including the corporate staff at Handex Corporation, was 576 employees. Of these, 318 are skilled professionals (hydrogeologists, geologists, environmental scientists and field technicians), 121 are non-professional technical support personnel, and 137 are administrative and executive personnel. Handex Environmental believes that a key factor in its success will be its ability to continue to attract and retain highly skilled professionals. Handex Environmental attempts to meet its need for these professionals both by training hydrogeologists and geologists in the field of hydrocarbon recovery and groundwater cleanup and by recruiting qualified candidates from other companies, governmental agencies and colleges and universities. None of Handex Environmental's employees are represented by a labor organization. Handex Environmental considers relations with its employees to be satisfactory. EDUCATIONAL BUSINESS SEGMENT - - ---------------------------- The Company operates its educational segment through subsidiaries of its education holding company subsidiary, New Horizons Education Corporation (collectively, "New Horizons") . There are two distinct businesses to the education segment; one operates computer training centers, while the other supplies a system of instructions, sales and management concepts concerning computer training to independent franchisees. New Horizons Training Centers. New Horizons operates computer training facilities in Santa Ana, California; Chicago, Illinois; and New York, New York. In addition, New Horizons holds a minority interest in a joint venture which operates a facility in Cleveland, Ohio. Prior to the acquisition of New Horizons by the Company, New Horizons operated a single training center in Santa Ana. The other centers were acquired from franchisees, subsequent to the acquisition, as part of New Horizons' strategic plan to operate company-owned training centers in selected major United States markets. Through its computer training centers, New Horizons offers comprehensive instruction in the use of personal computers and computer software, including instructor-led courses in software applications, networking and work stations. Each training center is equipped with computer hardware, software, and peripherals in order to provide students with hands-on training. Students are provided with internally developed coursewares and other training materials purchased by New Horizons from leading software manufacturers under license agreements. Revenues from the computer training centers are derived from training fees paid by clients and proceeds from the sale of training materials related to the computer courses. The Company believes there is a nationwide trend toward out-sourcing of computer training. Typical students in a New Horizons' classroom consist of individuals from private employers or various government agencies, which contract with New Horizons to provide training in personal computer and software applications to their personnel. Most of the classes are held at New Horizons' facilities. However, in response to the needs of its customers, New Horizons also provides instruction at client offices. All training is instructor-led, with approximately 70% being conducted at the training centers and 30% at client locations. Franchising Operations. New Horizons began offering franchise territories in 1992, and as of March 1, 1996, there were 121 training centers world-wide in addition to Company-owned locations in New York, Chicago and Santa Ana, California. During the first quarter of 1996, the Company completed the sale of ten franchises in Japan. New Horizons sells only one franchise within a defined geographic area. Franchisees pay an initial franchise fee and royalty and advertising fees based on both gross training revenues and gross sales of courseware. A new franchise owner undergoes an intensive training program, receiving in-depth instruction in sales, marketing, computer training and the management of a computer training facility. New Horizons also provides franchisees with sales, management, advertising and technical support. Customers. Customers for the training provided at New Horizons' operated and franchised training centers are predominantly employer-sponsored individuals from a wide range of corporations, professional service organizations, government agencies and municipalities. No single customer accounted for more than 10% of New Horizons revenues during 1995. Marketing. According to a survey conducted by International Data Corporation, worldwide revenues for the information training industry approached $15 billion in 1993 and are expected to grow to almost $27 billion by 2,000. Although very fragmented, the industry is expected to produce annual growth rates of 13%. The majority of all company-sponsored computer education and training is currently supplied through the use of in-house training staffs. The Company believes that there is a trend in the United States toward out-sourcing non-core operations, such as computer training, as a means of increasing corporate efficiency and competitiveness. New Horizons markets its services primarily through account executives who utilize telemarketing to target and contact potential customers. New Horizons has also recently established a national account program designed to market computer training services to large companies which have facilities throughout the United States. Competition The information technology training and education industry is highly fragmented. Computer education and training is supplied primarily by in- house training departments, regional personal computer application specialists, such as ExecuTrain, Catapult and Productivity Point International, small local independents, computer dealers and superstores and computer resellers. Except for ExecuTrain, an Atlanta, Georgia based company, none of the Company's competitors currently have a national presence. The instructor-led computer training markets are locally oriented. Although national marketing efforts are conducted, a training center's success depends upon execution at the local level. Although competitive pricing is important, New Horizons believes that it is currently a less important competitive factor than the quality of training, flexibility and convenience of service. Training Authorization. New Horizon is authorized to provide training by more than 30 software publishers, including Microsoft, Novell, Apple and Sun Microsystems. The authorization agreements are typically annual in length and are renewable at the option of the publishers. While New Horizons believes that its relationship with software publishers are good, the loss of any one of these agreements could have a material adverse impact on its business. Employees. As of December 30, 1995, New Horizons employed 328 individuals, consisting of 100 computer instructors, 80 account executives and 148 in the administration and executive areas. None of these employees are represented by a labor organization. New Horizons considers relations with its employees to be satisfactory. ITEM 2. PROPERTIES The Company's corporate headquarters occupy a portion of a 33,000 square foot facility in Morganville, New Jersey, which it shares with two wholly owned subsidiaries, pursuant to a lease which expires in 2003. The lease gives the Company an option to extend its tenancy for the entire facility for an additional five-year period. As of December 30, 1995, Handex Environmental conducted business at nineteen facilities located in the states of New Jersey, New York, Pennsylvania, Maryland, North Carolina, Ohio, Florida, Georgia, Illinois, Massachusetts, Colorado, Michigan, Alabama, and Missouri. Handex Environmental owns facilities in New Jersey, Maryland and Florida, while leasing facilities in all other locations. In January 1996, Handex purchased its facility in Mt. Dora, Florida from a general partnership whose partners are certain executive officers and Directors of the Company. New Horizons' headquarters and primary training centers are located in Santa Ana and Irvine, California, pursuant to leases which expire in 1997 and 2001, respectively. As of December 30, 1995, New Horizons conducted business at four leased facilities located in California, Illinois and New York. The Company believes that its properties are well maintained and are adequate to meet current requirements and that suitable additional or substitute space will be available as needed to accommodate any expansion of operations and for additional offices if necessary. ITEM 3. LEGAL PROCEEDINGS The Company is involved in several lawsuits incidental to the ordinary conduct of its business. The Company does not believe that the outcome of any or all these claims will have a material adverse effect upon its business or financial condition or result of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Common stock is traded on the NASDAQ National Market System under the symbol HAND. The following table sets forth the range of high and low bid quotations per share of Common stock from January 2, 1994 through December 30, 1995, as reported by the NASDAQ system. 1995 HIGH LOW - - ---- ----- ---- 1st Quarter (January 1 - April 1) 9 7 2nd Quarter (April 2 - July 1) 8-1/4 4-1/2 3rd Quarter (July 2 - September 30) 8-1/8 6-1/4 4th Quarter (October 1 - December 30) 7-3/8 4-5/8 1994 HIGH LOW - - ---- ----- ---- 1st Quarter (January 2 - April 2) 8-1/2 6-1/4 2nd Quarter (April 3 - July 2) 7-1/2 6 3rd Quarter (July 3 - October 1) 9-3/8 7 4th Quarter (October 2 - December 31) 8-5/8 6-1/4 As of March 1, 1996, the Company's Common stock was held by 264 holders of record. The Company has never paid cash dividends on its Common stock and has no present intention to pay cash dividends in the foreseeable future. The Company currently intends to retain any future earnings to finance the growth of the Company. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Summary Consolidated Financial Data (in thousands, except per share) SELECTED CONSOLIDATED 1995(2) 1994(2) 1993 1992 1991 ------- ------- ----- ---- ----- STATEMENTS OF INCOME DATA:(1) Total operating revenues $85,272 $64,773 $48,194 $52,098 $62,245 Subcontractor costs 15,018 12,202 9,481 9,657 12,522 ------- -------- -------- -------- -------- Net operating revenues 70,254 52,571 38,713 42,441 49,723 Cost of net operating revenues 45,066 32,866 24,745 27,437 26,079 ------- -------- ------- ------- ------- Gross profit 25,188 19,705 13,968 15,004 23,644 Selling, general and administrative expenses 24,008 16,182 12,197 12,263 11,778 Provision for loss in a joint venture, asset write- off and termination expenses 1,113 -- -- -- -- Other income (expense), net (191) 343 424 417 134 ------- ------- ------- ------- ------- Income (loss) before income (124) 3,866 2,195 3,158 12,000 taxes Provision for income taxes 69 1,535 821 1,225 4,685 ------- -------- ------ ------- ------- Net income (loss) $(193) $2,331 $1,374 $1,933 $7,315 ======= ======== ======= ======= ======= Net income (loss) per share of Common stock(3) $(.03) $ .34 $ .20 $ .28 $ 1.06 ======= ======= ======= ====== ======= SELECTED CONSOLIDATED BALANCE SHEET DATA DECEMBER DECEMBER JANUARY DECEMBER 31 30, 31, 1, ------------------ SELECTED CONSOLIDATED 1995 1994 1994 1992 1991 BALANCE SHEET DATA: ----- ----- ----- ----- ---- Working capital $23,198 $24,666 $38,194 $36,129 $34,524 Total assets 67,089 61,920 52,393 50,629 50,839 Long-term obligations, excluding current installments 650 464 -- -- 17 Total stockholders' equity 49,428 49,637 47,060 46,253 45,040 (1) Certain reclassifications were made in 1994, 1993, 1992, and 1991 to conform with the presentation in 1995. (2) The operating results of New Horizons are included in 1995 for the entire year and for the period from August 15, 1994 through December 31, 1994 for 1994. (3) Net income per share of Common stock is computed based on the weighted average number of common shares outstanding during the year as adjusted for the five-for-four stock split in March 1991 and stock repurchase described in Note 1 of Notes to Consolidated Financial Statements. Inclusion of the incremental shares applicable to outstanding stock options in the computation would have no material effect. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes and "SELECTED FINANCIAL DATA" included elsewhere in this report. The following table presents, for the periods indicated (i) the percentage relationship which certain items in the Company's Consolidated Statements of Income bear to net operating revenues and (ii) the percentage change in the dollar amount of such items. All references to 1993 in the financial statements refer to the fiscal year ended January 1, 1994. PERCENTAGE RELATIONSHIP PERIOD TO PERIOD TO NET OPERATING REVENUES CHANGE 1995 1994 1993 VS. VS. VS. 1995 1994 1993 1994 1993 1992 ------ ----- ----- ----- ----- ----- Net operating revenues 100.0% 100.0% 100.0% 33.6% 35.8% (8.8)% Cost of net operating revenues 64.1 62.5 63.9 37.1 32.8 (9.8) Gross profit 35.9 37.5 36.1 27.8 41.1 (6.9) Selling, general and administrative expenses 34.2 30.8 31.5 48.4 32.7 (.5) Provision for loss in a joint venture, asset write-off and termination expenses 1.6 -- -- 100.0 -- -- Interest income .9 1.5 2.0 (23.0) (0.5) 32.0 Income (loss) before income taxes (.2) 7.4 5.7 N.A. 76.1 (30.4) Provision for Income taxes .1 2.9 2.1 (95.5) 87.0 (33.0) Net income (loss) (.3) 4.4 3.5 N.A. 69.7 (28.9) GENERAL - - -------- Handex Corporation ("Company") conducts two distinct lines of business; its environmental segment which has been its core business and the educational segment, which the Company started in August 1994 with its acquisition of all the issued and outstanding shares of New Horizons Franchising, Inc. and all of the assets of New Horizons Learning Center, Inc. The discussion that follows and note 10 to the consolidated financial statements (see Item 8) highlight the business conditions and certain financial information specific to each of the two business segments. ENVIRONMENTAL BUSINESS SEGMENT - - ------------------------------- The Company conducts the environmental segment of its business through a subsidiary, Handex Environmental, Inc., and its subsidiaries (collectively "Handex Environmental"). Net operating revenues include fees for services provided directly by Handex Environmental, and fees for arranging for subcontractors' services, as well as proceeds from the rental and sale of equipment. Handex Environmental, in the course of providing its services, routinely subcontracts for outside services such as soil cartage, laboratory testing and other specialized services. These costs are generally passed through to clients and, in accordance with industry practice, are included in total operating revenues. Because subcontractor services can change significantly from project to project, changes in total operating revenues may not be truly indicative of business trends. Accordingly, Handex Environmental views net operating revenues, which is total operating revenues less the cost of subcontractor services, as its primary measure of revenue growth. Cost of net operating revenues includes professional salaries, other direct labor, material purchases and certain direct and indirect overhead costs. Selling, general and administrative expenses include management salaries, sales and marketing salaries and expenses, and clerical and administrative overhead. During 1995 and 1994, several trends continued to develop which Handex Environmental believes will have a direct impact on its future results of operations. Handex Environmental believes that expenses for administration, computerization, marketing and engineering will continue to increase. Administrative costs have increased and will continue to increase as a result of the increasing desire of Handex Environmental's customers for more detailed information concerning the status of their environmental projects. Handex Environmental's marketing costs will continue to increase due to the effects of increased competition in the environmental industry and Handex Environmental's strategy to diversify its client base. Handex Environmental's customers have become increasingly cost conscious during recent periods in part due to their own financial constraints. To date, this cost consciousness on the part of customers has manifested itself primarily in three areas: (i) the manner in which Handex Environmental obtains its business and charges for its services; (ii) the use of other contractors to provide certain services traditionally provided by Handex Environmental; and (iii) an increasing preference to purchase, rather than lease, remediation equipment. Over the last four years, Handex Environmental has experienced a significant increase in customer demand for competitive bidding and/or fixed price contracts. During 1995 and 1994, a majority of Handex Environmental's work was performed under fixed price contracts and unit prices. Price has become the primary factor in the environmental remediation services market. However, management believes that, over the long term, the quality and cost effectiveness of its services will continue to be an important competitive advantage. Accordingly, in responding to price competition, Handex Environmental will attempt to maintain a high level of technical quality in its services. A majority of Handex Environmental's major customers now purchase from other contractors equipment and certain services, such as laboratory analyses, which were formerly provided by or through Handex Environmental as part of its full service approach. Management believes that this trend will continue. Handex Environmental's quarterly results may fluctuate from period to period. Among the principal factors influencing quarterly variations are weather, which may limit the amount of time Handex Environmental's professional and technical personnel have in the field; the addition of new professionals who require training and initially bill a lower percentage of their time; the timing of receipt of discharge and other permits necessary to install dewatering and recovery systems, and the opening of new offices, which initially have higher expenses relative to revenues than established offices. In recent years, Handex Environmental's business has been helped considerably by the cost reimbursement program maintained by the State of Florida through the Florida Inland Protection Trust Fund. During the first quarter of 1995, the Florida Inland Protection Trust Fund was revised by the Florida legislature and now requires site prioritization and prior approval of costs by the Florida Department of Environmental Protection for reimbursement of cleanup expenditures. These revisions which were intended to assure its economic integrity, have significantly limited the number and types of environmental cleanup expenditures which would be reimbursable from the Fund and have therefore, adversely affected Handex Environmental's operating results in Florida and its overall operating results in 1995. Management believes that these revisions will continue to have an adverse effect on Handex Environmental's operations in Florida and the Company's environmental segment results as a whole. During 1995, Handex Environmental acquired the assets of a small environmental concern in Florida in a strategic move to partially offset the revenue loss resulting from revisions to the Fund reimbursement program. EDUCATIONAL BUSINESS SEGMENT - - ----------------------------- The Company operates the educational segment of its business through its subsidiary, New Horizons Education Corporation, and its subsidiaries ("New Horizons") (collectively "New Horizons). There are two distinct businesses in the educational segment; one operates wholly-owned training centers, and the second, supplies systems of instruction, sales and management concepts concerning computer training to independent franchisees. Revenues for the training centers operated by New Horizons consist primarily of training fees and fees derived from sales of courseware materials. Cost of sales consists primarily of instructors' salaries and benefits, facilities costs such as rent, utilities and classroom equipment, courseware, and computer hardware, software and peripherals. Selling, general and administrative expenses consist primarily of costs associated with technical support personnel, facilities support personnel, scheduling personnel, training personnel, accounting and finance support and sales executives. Revenues for the franchising operation consist primarily of initial franchise fees associated with the sale of a franchise, royalty and advertising fees based on a percentage of franchisee gross training revenues, and percentage royalties received on the gross sales of courseware. Cost of sales consists primarily of costs associated with franchise support personnel who provide system guidelines and advice on daily operating issues including sales, marketing, instructor training and general business problems. Selling, general and administrative expenses consist primarily of technical support, courseware development, accounting and finance support, national account sales support, and advertising expenses. RESULTS OF OPERATIONS - - ---------------------- 1995 VERSUS 1994 NET OPERATING REVENUES - - ----------------------- Consolidated net operating revenues increased $17,683,0000 or 33.6% in 1995 compared to 1994. Consolidated net operating revenues of $70,254,000 in 1995 consisted of Handex Environmental's net operating revenues of $46,521,000 (66.2% of consolidated net operating revenues) and New Horizons' net operating revenues of $23,733,000 (33.8% of the consolidated net operating revenues). Handex Environmental's net operating revenues decreased $61,000 or 0.1% in 1995 compared to 1994. Excluding operating locations which were opened in 1995 and 1994, Handex Environmental's net operating revenues declined $2,348,000 or 5.2% in 1995 compared to 1994. The decline in revenues came from Handex Environmental's operating subsidiaries in New Jersey, Maryland, Illinois and Florida, with the Florida subsidiary accounting for over 65% of the decline in revenues. Handex Environmental's operating results in its Florida operations and as a whole, were adversely impacted by the revisions in early 1995 to the Florida Inland Protection Trust Fund which effectively limited the types of environmental cleanup expenditures which would be reimbursable under the Fund. Management believes these revisions will continue to have a significant adverse impact on Handex Environmental's future operating results. Handex Environmental's net operating revenues from its New Jersey, Maryland and Illinois markets were adversely impacted by intense price-competition. The operations of Handex Environmental's subsidiaries in Massachusetts, Ohio and Colorado registered revenue growth ranging from 13% in New England to 109% in Colorado. New Horizons' net operating revenues increased $17,744,000 or 296.3% in 1995 compared to 1994 (1994 net operating revenues were for the period August 15, 1994 through December 31, 1994). In February 1995, New Horizons bought back and converted the New York franchise to a company-owned operation. The New York operations contributed $2,238,000 in net operating revenues for the year. COST OF NET OPERATING REVENUES - - ------------------------------- Consolidated cost of net operating revenues increased $12,200,000 or 37.1% in 1995 compared to 1994. As a percentage of consolidated net operating revenues, the consolidated cost of net operating revenues increased to 64.1% in 1995, from 62.5% in 1994. Consolidated cost of net operating revenues of $45,066,000 in 1995 consisted of Handex Environmental's $31,902,000 (70.8% of consolidated cost of net operating revenues) and New Horizons' $13,164,000 (29.2% of consolidated net operating revenues). Handex Environmental's cost of net operating revenues increased $2,306,000 or 7.8% in 1995 compared to 1994. As a percentage of its net operating revenues, Handex Environmental's cost of net operating revenues increased to 68.6% in 1995 from 63.5% in 1994. The increase in cost of net operating revenues, both in terms of absolute dollars and as a percentage of net operating revenues, was due primarily to a combination of lower than expected net operating revenues and higher employee related expenses. New Horizons' cost of net operating revenues increased $9,894,000 or 302.6% in 1995 compared to 1994 which was for the period August 15, 1994 through December 31, 1994. As a percentage of its net operating revenues, New Horizons' cost of net operating revenues increased to 55.5% in 1995 from 54.6% in 1994. The increase in cost of net operating revenue dollars was due primarily to the 1994 period consisting only of four and one-half months compared to a full year for 1995. The increase in cost of net operating revenues as a percentage of net operating revenues was due primarily to higher personnel and facilities costs and higher operating costs relative to revenues associated with New Horizons' start-up operations in Chicago and New York. GROSS PROFIT - - ------------- Consolidated gross profit increased $5,483,000 or 27.8% in 1995 compared to 1994. Consolidated gross profit of $25,188,000 consisted of Handex Environmental's contribution of $14,619,000 (58.0% of consolidated gross profit) and New Horizons' contribution of $10,569,000 (49.0% of consolidated gross profit). As a percentage of consolidated net operating revenues, consolidated gross profit declined to 35.9% in 1995 from 37.5% in 1994. Handex Environmental's gross profit decreased $2,367,000 or 13.9% in 1995 compared to 1994. As a percentage of its net operating revenues, Handex Environmental's gross profit declined to 31.4% in 1995, from 36.5% in 1994. The decrease in gross profit, both in terms of absolute dollars and as a percentage of net operating revenues, was due primarily to a combination of lower than expected net operating revenues and higher employee related expenses and lower margins on industrial jobs. New Horizons' gross profit increased $7,850,000 or 288.6% in 1995 compared to 1994 (four and one half month period). As a percentage of its net operating revenues, New Horizons' gross profit declined to 44.5% in 1995 from 45.4% in 1994. The increase in gross profit dollars in 1995 compared to 1994 was due principally to the 1994 period being significantly shorter than 1995. The decline in gross profit as a percentage of net operating revenues was due principally to higher facilities and employee related expenses and the expected lower gross profit relative to revenues associated with New Horizons' start-up operations in Chicago and New York. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - - --------------------------------------------- Consolidated selling, general and administrative expenses increased $7,825,000 or 48.4% in 1995 compared to 1994. Of the consolidated selling, general and administrative expenses of $24,008,000, Handex Environmental incurred $14,751,000 (61.4% of consolidated selling, general and administrative expenses) and New Horizons incurred $9,257,000 (38.6% of consolidated selling, general and administrative expenses). Handex Environmental's selling, general and administrative expenses increased $802,000 or 5.7% in 1995 compared to 1994. As a percentage of its net operating revenues, Handex Environmental's selling, general and administrative expenses increased to 31.7% in 1995 from 29.9% in 1994. The increase in selling, general and administrative expenses both in terms of absolute dollars and as a percentage of its net operating revenues was due primarily to lower than expected net operating revenues combined with increased costs related to its sales and marketing function and the new offices opened in 1995 and 1994. New Horizons' selling, general and administrative expenses increased $7,024,000 or 314.6% in 1995 compared to 1994 (four and one half month period).As a percentage of its net operating revenues, New Horizons' selling, general and administrative expenses increased to 39.0% in 1995, from 37.3% in 1994. The increase in New Horizons' in selling, general and administrative expense dollars was primarily due to the 1994 period being significantly shorter than 1995 and increased sales and marketing expenses. As a percentage of its net operating revenues, New Horizons' selling, general and administrative expenses increased primarily due to the lower revenues associated with its start-up operations in Chicago and New York. PROVISION FOR LOSS IN A JOINT VENTURE, ASSET WRITE-OFF AND TERMINATION EXPENSES - - -------------------------------------------------------------------------------- In the third quarter of 1995, the Company recognized pre-tax charges totaling $1,113,000 or 1.6% of consolidated net operating revenues. Of this amount, $301,000 related to Handex Environmental and $812,000 pertained to New Horizons. In response to the softness in the environmental services market, Handex Environmental undertook a reduction in its work force and accordingly recorded a charge totaling $301,000, representing payments to employees who were released. The Company, through one of its educational subsidiaries, has a minority interest in a limited liability company that was formed to operate a New Horizons' training center in Cleveland, Ohio. In accordance with the limited liability company agreement, the Company, in addition to its asset and capital contributions, is obligated to and provided financing for certain working capital requirements of the limited liability company. During the third quarter of 1995, an affiliate of the majority member in the limited liability company filed for bankruptcy. The Company recorded a charge in the amount of $650,000, representing the funds it had loaned to the limited liability company. The Company has been managing this operation pending the resolution of the bankruptcy issues pertaining to the venture's majority member. The Company also recorded a charge in the amount of $162,000, representing the unamortized portion of the developmental costs incurred for a management information system which was abandoned by New Horizons in the third quarter. OTHER INCOME/EXPENSE - - --------------------- Interest expense for 1995 increased to $101,000 from $37,000 in 1994. The increase was primarily due to interest expense on New Horizons capital lease obligations resulting from fixed asset additions. As a percentage of consolidated net operating revenues, interest expense remained at .1% in 1995 and 1994. The Company has a credit facility with a commercial bank which has not been used since June 1991. Interest income decreased to $608,000 in 1995 from $789,000 in 1994. As a percentage of consolidated net operating revenues, interest income decreased to .9% in 1995 from 1.5% in 1994. The Company's interest income generated by its investment in tax-free notes and bonds declined significantly in 1995 compared to 1994 primarily due to the use of investment funds in the acquisition of New Horizons. The decline in interest income as a percentage of net operating revenues in 1995 was due to a combination of higher net operating revenues and lower interest income resulting from the reduced funds available for placement in tax-free investments. Other expenses in 1995 increased to $698,000 from $409,000 in 1994. Included in other expenses was goodwill amortization expense from the acquisition of New Horizons which amounted to $366,000 in 1995 and $132,000 in 1994. (a partial year). In addition, other expenses in 1995 included a higher provision for litigation expenses compared to 1994. INCOME TAXES - - -------------- The provision for income taxes for 1995 was due primarily to foreign taxes, state income and franchise taxes of certain operating subsidiaries and certain non-deductible items for income tax purposes. NET INCOME (LOSS) - - ----------------- Consolidated net loss for 1995 amounted to $193,000 compared to a consolidated net income of $2,331,000 for 1994. As a percentage of consolidated net operating revenues, consolidated net loss was .3% compared to a consolidated net income of 4.4%. Handex Environmental's 1995 operations resulted in a net loss of $146,000 compared to a net income of $2,153,000 in 1994. This was due primarily to a combination of lower than expected revenues and higher employee related expenses. New Horizons operations for 1995 resulted in a net loss of $47,000 compared to a net income of $174,000 for the four and one half month period in 1994. This was due primarily to the one time charges totaling $812,000, discussed earlier and the less than anticipated results from the start-up operations in Chicago and New York. RESULTS OF OPERATIONS - - ---------------------- 1994 VERSUS 1993 NET OPERATING REVENUES - - ----------------------- The Company's net operating revenues increased $13,858,000 or 35.8% in 1994 compared to 1993. Net operating revenues of $52,571,000 in 1994 included New Horizons net operating revenues of $5,989,000 for the period August 15, 1994 through December 31, 1994. These revenues represented 11.4% of the Company's total net operating revenues for 1994. Handex Environmental's net operating revenues of $46,582,000 reflect the improved market for environmental services during 1994, the impact of Handex Environmental's focused marketing initiatives, disciplined geographical expansion program and comprehensive personnel training programs which enhanced its competitiveness. Handex Environmental's net operating revenues increased $7,869,000 or 20.3% in 1994 compared to 1993. Each of Handex Environmental's subsidiaries which were in operation prior to 1993 reported revenue growth which totaled 13.5% in 1994 compared to 1993. New Horizons combined with Handex Environmental's subsidiaries which began operations in 1994 and 1993, contributed over 17% of the Company's net operating revenues for 1994. COST OF NET OPERATING REVENUES - - ------------------------------ The Company's cost of net operating revenues for 1994 increased $8,120,000 or 32.8% compared to 1993. As a percentage of net operating revenues, the Company's cost of net operating revenues declined to 62.5% in 1994, from 63.9% in 1993. Cost of net operating revenues for New Horizons for 1994 amounted to $3,269,000 (54.6% of New Horizons' revenues) and accounted for 13.2% of the increase over last year. Handex Environmental's cost of net operating revenues, as a percentage of net operating revenues decreased to 63.5% from 63.9% in 1993. The increase in Handex Environmental's cost of net operating revenues in absolute dollars was primarily due to the hiring of additional employees, increases in materials and supplies purchased, other expenses related to the increase in the level of business and new offices opened in 1993 and 1994. As a percentage of net operating revenues, Handex Environmental's cost of net operating revenues declined mainly due to the growth in net operating revenues and improved utilization of staff resulting from its comprehensive training programs. GROSS PROFIT - - ------------- The Company's gross profit for 1994 increased $5,738,000 or 41.1% compared to 1993. As a percentage of net operating revenues, the Company's gross profit increased to 37.5% in 1994, from 36.1% in 1993. Gross profit from New Horizons included in 1994 amounted to $2,720,000 (45.4% of New Horizons' revenues) and accounted for 19.5 % of the increase over last year. Handex Environmental's gross profit, as a percentage of net operating revenues, grew to 36.5%, from 36.1% in 1993. The improvement in Handex Environmental's gross profit, both in absolute dollars and as a percentage of its net operating revenues was due mainly to the growth in net operating revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - - -------------------------------------------- The Company's selling, general and administrative expenses for 1994 increased $3,986,000 or 32.7% compared to the same period last year. As a percentage of net operating revenues, the Company's selling, general and administrative expenses decreased to 30.8% in 1994, from 31.5% in 1993. New Horizons' operations incurred $2,233,000 in selling, general and administrative expenses (37.3% of New Horizons' revenues) and accounted for 18.3% of the increase over last year. Handex Environmental's selling, general and administrative expenses, as a percentage of environmental net operating revenues declined to 29.9% in 1994 from 31.5% in 1993. The increase in Handex Environmental's selling, general and administrative expenses in absolute dollars was due mainly to the increase in its marketing expenses, legal and professional fees, fees associated with the hiring of professional staff and expenses related to new offices opened in 1993 and 1994. The decrease in Handex Environmental's selling, general and administrative expenses as a percentage of net operating revenues was due largely to the growth in net operating revenues. OTHER INCOME/EXPENSE - - --------------------- Interest expense for 1994 increased to $37,000 from $9,000 in 1993. The increase was primarily due to interest expense on New Horizons loan obligations. As a percentage of net operating revenues, interest expense increased to .1% in 1994 from 0% in 1993 primarily due to New Horizons' loan obligations. The Company did not use its credit facility with a commercial bank. Interest income of $789,000 in 1994 decreased slightly from $793,000 in 1993. As a percentage of net operating revenues, interest income decreased to 1.5% in 1994 from 2.0% in 1993. The Company's interest income generated by its investment in tax-free notes and bonds declined significantly in 1994 compared to 1993 primarily due to the use of investment funds in the acquisition of New Horizons. This was offset largely by the increase in interest income generated under a financing agreement between Handex Environmental and one of its customers. The decline in interest income as a percentage of net operating revenues in 1994 was due to a combination of higher net operating revenues and lower interest income from the Company's tax-free investments. Other expenses in 1994 increased to $409,000 from $360,000 in 1993. Included in other expenses for 1994 was goodwill amortization expense of $132,000 arising from the acquisition of New Horizons. Other expenses in 1994 also included a charge in the amount of $240,000 representing advances to a bio- remediation contractor whose operations ceased during the year. This was offset by the reversal to income of excess accrual for litigation expenses. As a percentage of Handex Environmental's net operating revenues, Handex Environmental's other expenses declined from .9% in 1993 to .6% in 1994, mainly due to the higher level of net operating revenues and lower provision for litigation expenses. INCOME TAXES - - ------------ The provision for income taxes as a percentage of income before income taxes increased to 39.7% in 1994 from 37.4% in the year ago period. The increase in the provision for income taxes was due primarily to the reduction in the Company's tax-free interest income. NET INCOME - - ---------- Net income for 1994 increased $957,000 or 69.6% from the same period last year. Included in net income for 1994 was New Horizons' contribution which amounted to $174,000 (2.9% of New Horizons' revenues) and which represented 12.7% of the percentage increase over last year. Excluding the revenue and net income contributions of New Horizons, net income for Handex Environmental as a percentage of net operating revenues, increased to 4.6% in 1994 from 3.5% for the same period last year. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- As of December 30, 1995, the Company's working capital was $23,198,000, and its cash and cash equivalents and short-term investment totaled $6,596,000. Working capital as of December 30, 1995 reflected a decrease of $1,468,000 from $24,666,000, as of December 31, 1994. The Company's cash flow from operating activities improved to $4,782,000 in 1995 from $399,000 in 1994 primarily due to cash provided by increased depreciation and amortization expenses, lower growth in accounts receivable balance, and increases in accounts payable and accrued expenses. As of March 12, 1996, the Company has renegotiated an extension to June 30, 1998 of its unsecured $5,500,000 credit facility with a commercial bank under substantially the same terms and conditions prior to the extension. This facility, which the Company has not used since June 1991, bears interest at either the bank's prime rate, or the bank's short-term money market rate, whichever the Company elects. The Company's full service approach to its environmental services business in certain markets and its continuing geographic expansion require capital expenditures for machinery and equipment and expenditures related with the establishment of new office locations. During 1995, the Company's environmental segment spent approximately $1,300,000 on capital equipment and anticipates spending up to $2,300,000 in 1996. The nature of the Company's educational business segment also requires significant cash commitments for the acquisition of computer equipment, software and facilities. During 1995, the Company's educational segment spent approximately $2,700,000 for capital equipment and leasehold improvements and anticipates spending up to $3,200,000 in 1996. Management believes that current cash and cash equivalents, together with cash generated by operations, and its funds available under its revolving credit facility will provide the liquidity necessary to support its current and anticipated capital expenditures through the end of 1996. IMPACTS OF ACCOUNTING PRONOUNCEMENTS - - ------------------------------------- The Company's management is not aware of any current recommendations by regulatory authorities which, if they were implemented, would have a material effect on the liquidity, capital resources or operations of the Company. However, the potential impact of Statement of Accounting Financial Standards ("SFAS 123") warrants further discussion. SFAS 123, which will be effective in 1996, provides elective accounting for stock-based employee compensation arrangements using a fair value model. Companies currently accounting for such arrangement under APB Opinion 25 "Accounting for Stock Issued to Employees," may continue to do so; however, SFAS 123 supersedes the disclosure requirements of Opinion 25. The Company does not believe that adoption of SFAS 123 will have a significant impact on net income but will increase disclosure requirements for stock-based compensation. All other applicable Statements of Financial Accounting Standards that have been issued and have effective dates impacting 1995 and prior years' financial statements have been adopted by the Company. The Company believes there are no Statements of Financial Accounting Standards which have been issued and have implementation dates in the future which will materially impact the financial statements of future years. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following pages contain the Financial Statements and supplementary data specified for Item 8 of Part II of Form 10-K. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. HANDEX CORPORATION INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 30, 1995 Page REPORT OF INDEPENDENT AUDITORS F-2 FINANCIAL STATEMENTS Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 - F-15 SCHEDULES Schedule II - Valuation and Qualifying Accounts and Reserves 20 All other schedules have been omitted because the material is not applicable or is not required as permitted by the rules and regulations of the Commission, or the required information is included in Notes to Consolidated Financial Statements. INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Handex Corporation: We have audited the consolidated financial statements of Handex Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Handex Corporation and subsidiaries as of December 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 30, 1995 in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Markwick LLP Cleveland, Ohio February 16, 1996 CONSOLIDATED BALANCE SHEETS HANDEX CORPORATION AND SUBSIDIARIES DECEMBER 30, 1995 AND DECEMBER 31, 1994
1995 1994 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 3,821,474 $ 2,895,478 Marketable securities 2,775,000 3,940,000 Accounts receivable, less allowance for doubtful accounts of $981,745 in 1995 and $934,560 in 1994 (note 3) 30,001,497 26,854,906 Inventories 539,491 298,326 Prepaid expenses 606,005 214,198 Refundable income tax 666,060 388,682 Deferred income tax assets (notes 1 and 4) 705,453 609,668 Other current assets 321,846 394,948 ----------- ----------- Total current assets 39,436,826 35,596,206 ----------- ----------- Property, Plant and equipment, at cost: (note 2) Land 517,053 518,478 Buildings and improvements 2,711,807 2,347,918 Machinery and equipment 15,431,033 12,479,364 Furniture and fixtures 2,955,294 2,284,281 Motor vehicles 5,249,370 5,087,435 ----------- ----------- 26,864,557 22,717,476 Less accumulated depreciation and amortization (17,221,433) (13,980,868) ------------ ----------- Net property, plant and equipment 9,643,124 8,736,608 Excess of cost over net assets of acquired companies, net of accumulated amortization of $842,095 in 1995 and $421,357 in 1994 16,121,258 15,921,530 Cash surrender value of life insurance 909,839 1,054,426 Other assets (notes 5 and 13) 978,335 611,367 ----------- ----------- $ 67,089,382 $ 61,920,137 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term obligations (note 2) $ 447,227 $ 579,991 Accounts payable 7,896,838 4,523,848 Other liabilities (note 6) 7,894,616 5,826,066 ----------- ----------- Total current liabilities 16,238,681 10,929,905 Long-term obligations, excluding current 649,941 464,357 installments (note 2) Deferred income tax liability (notes 1 and 4) 772,466 888,516 Stockholders' equity: Preferred stock without par value, 2,000,000 shares authorized, no shares issued -- -- Common stock, $.01 par value, 15,000,000 shares authorized; issued, 7,050,212 shares in 1995 and 1994 70,502 70,502 Additional paid in capital 24,349,542 24,365,566 Retained Earnings 26,306,375 26,499,416 Treasury stock at cost - 185,000 shares in 1995 and 1994 (note 1) (1,298,125) (1,298,125) ----------- ----------- Total stockholders' equity 49,428,294 49,637,359 Commitments and contingencies (notes 9, 13 and 15) -- -- ----------- ----------- $ 67,089,382 $ 61,920,137 =========== =========== See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS HANDEX CORPORATION AND SUBSIDIARIES YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
1995 1994 1993 ---- ---- ---- Total operating revenues $85,271,557 $64,772,555 $48,194,334 Subcontractor costs 15,017,661 12,201,809 9,481,455 ----------- ----------- ----------- Net operating revenues (note 3) 70,253,896 52,570,746 38,712,879 Cost of net operating revenues 45,065,597 32,865,469 24,745,121 ----------- ----------- ----------- Gross profit 25,188,299 19,705,277 13,967,758 Selling, general and administrative expenses 24,007,696 16,182,303 12,196,284 Provision for loss in a joint venture, asset write-off and termination expenses (note 12) 1,113,167 -- -- Other income (expense): Interest expense (100,891) (37,042) (8,601) Interest income 607,728 789,097 792,743 Other (697,805) (409,190) (360,260) ------------ ----------- ----------- (190,968) 342,865 423,882 ------------ ----------- ----------- (Loss) income before income taxes (123,532) 3,865,839 2,195,356 Provision for income taxes (note 4) 69,509 1,534,797 821,144 ----------- ----------- ------------ Net (loss) income $ (193,041) 2,331,042 1,374,212 =========== =========== ============ Net (loss) income per share of Common stock $ (0.03) $ 0.34 $ 0.20 =========== =========== =========== See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY HANDEX CORPORATION AND SUBSIDIARIES YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
ADDITIONAL COMMON STOCK PAID-IN RETAINED TREASURY STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY ------- -------- --------- ---------- ------- ------- BALANCE AT DECEMBER 31, 1992 6,940,212 $ 70,402 $24,119,669 $22,794,162 $(731,250) $46,252,983 Repurchase of Treasury stock (85,000) -- -- -- (566,875) (566,875) Net income, year ended January 1, 1994 -- -- -- 1,374,212 -- 1,374,212 ---------- --------- ----------- ----------- ----------- ---------- BALANCE AT JANUARY 1, 1994 6,855,212 70,402 24,119,669 24,168,374 (1,298,125) 47,060,320 Issuance of Common stock for stock options 10,000 100 64,900 -- -- 65,000 Income tax benefit from the exercise of stock options -- -- 1,997 -- -- 1,997 Issuance of warrants on Common stock -- -- 179,000 -- -- 179,000 Net income, year ended December 31, 1994 -- -- -- 2,331,042 -- 2,331,042 ---------- --------- ---------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1994 6,865,212 70,502 24,365,566 26,499,416 (1,298,125) 49,637,359 Registration expense for warrants issued in 1994 -- -- (16,024) -- -- (16,024) Net loss, year ended December 30, 1995 -- -- -- (193,041) -- (193,041) ---------- --------- ----------- ---------- ---------- ---------- BALANCE AT DECEMBER 30, 1995 6,865,212 $ 70,502 $24,349,542 $26,306,375 ($1,298,125) $49,428,294 ========== ========= =========== =========== =========== =========== See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS HANDEX CORPORATION AND SUBSIDIARIES YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
1995 1994 1993 ----- ----- ----- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(193,041) $2,331,042 $1,374,212 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 3,951,496 2,664,871 2,685,448 Gain on disposal of equipment (6,284) (42,711) (33,325) Deferred taxes (211,835) 29,706 (327,102) Cash provided (used) from the change in: Accounts receivable (3,146,591) (8,646,814) (1,384,659) Inventories (241,165) (40,020) 41,143 Prepaid expenses (391,807) 211,879 (270,838) Other current assets 73,102 368,872 (246,712) Other assets and cash surrender value of life insurance (216,213) (177,392) (714,131) Accounts payable 3,372,990 2,511,641 417,745 Other liabilities and income taxes payable/ refundable 1,791,172 1,187,471 1,047,595 ---------- ----------- ----------- Net cash provided by operating activities 4,781,784 398,545 2,589,376 ----------- ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities, (5,775,000) (17,855,000) (40,570,000) Redemption of marketable securities 6.940,000 37,010,000 39,865,000 Additions to property, plant and equipment (4,189,036) (3,476,238) (541,096) Cash paid for acquired companies, net of cash acquired. (868,589) (14,531,722) -- ------------- ------------ ---------- Net cash provided (used) in investing activities (3,892,625) 1,147,040 (1,246,096) -------------- ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock -- 65,000 -- Registration expenses on warrants issued (16,024) -- -- Proceeds from debt obligations 766,992 556,030 -- Repurchase of treasury stock -- -- (566,875) Principal payments on debt obligations (714,171) (153,960) -- ------------- ------------- ---------- Net cash provided (used) in financing activities 36,797 467,070 (566,875) -------------- ------------- ---------- Net increase in cash and cash equivalents 925,996 2,012,655 776,405 Cash and cash equivalents at beginning of period 2,895,478 882,823 106,418 ------------ ----------- ---------- Cash and cash equivalents at end of period $ 3,821,474 $2,895,478 $ 882,823 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash was paid for: Interest $ 104,460 $ 37,042 $ 8,601 =========== =========== ========= Income taxes $ 568,650 $2,144,135 $ 872,390 =========== =========== ========== Investing and financing activities - - ---------------------------------- In 1995, the Company acquired certain assets of New Horizons' New York franchise and a Florida based environmental concern for an aggregate cash price and related expenses of approximately $830,000. There were no liabilities assumed in either acquisition. In August 1994, the Company acquired certain assets and liabilities of a computer training school and all the issued and outstanding shares of stock of a computer training franchising company in August, 1994 at an aggregate cash price of $14,000,000 and related cash expenses of approximately $600,000 and non-cash expense of $179,000. The non-cash expense represents the excess of the fair market value over the issue price on warrants on 40,000 shares of Handex's Common stock. Liabilities assumed totaled $2,446,000. See accompanying notes to consolidated financial statements
HANDEX CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 30, 1995, December 31, 1994 and January 1, 1994 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ----------------------------------------------------------- (a) Nature of Operations --------------------- The Company conducts two distinct lines of business; an Environmental segment which provides environmental consulting and remediation services, and has been the Company's core business since it was acquired in 1986, and; an Educational segment, which was acquired in 1994 and provides a variety of computer training services to employer- sponsored enrollees. (b) Basis of Accounting and Principles of Consolidation --------------------------------------------------- The consolidated financial statements include the accounts of Handex Corporation, and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated in consolidation. In August 1992, the Company's Board of Directors authorized the purchase of up to 500,000 shares of Handex's Common stock in the open market or in private transactions. The repurchase program lasted through June 30, 1993, and was limited to an aggregate expenditure of $4,500,000. The Company had repurchased 185,000 shares of the Common stock under this program at an aggregate cost of $1,298,125. (c) Revenue Recognition --------------------- Revenue is recognized at the time work is performed and services are rendered. (d) Marketable Securities ---------------------- Funds retained for future use in the business are temporarily invested in tax-exempt bonds and municipal funds. Effective January 2, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in debt and Securities" ("SFAS 115"). SFAS 115 requires the accounting for certain investments in debt and equity securities based on certain specific guidelines. The Company's investments are presented at their aggregate face value. Amounts paid over face value are amortized through maturity. Unamortized premiums amounted to $3,775 and are included in other current assets. As of December 30, 1995 and December 31, 1994, the Company's security portfolio had aggregate fair market values of $2,775,000 and $3,945,350, respectively. There were no unrealized gains or losses as of December 30, 1995. There were also no gains or losses realized from the redemption of securities during the year. (e) Inventories ------------ Inventories are stated at the lower of cost or market. Inventory costs are determined using the first-in, first-out (FIFO) method. (f) Property, Plant and Equipment ------------------------------ Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the respective assets, using the straight line method as follows: Buildings and improvement 25 years or term of the lease whichever is shorter Machinery and equipment 3 to 5 years Furniture and fixtures 5 to 10 years Motor vehicles 5 years (g) Income Taxes ------------- The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years when those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (h) Excess of Cost Over Net Assets Acquired --------------------------------------- The excess of cost over net assets acquired is being amortized on a straight-line basis principally over 40 years. (i) Asset Impairments ----------------- The Company periodically reviews the carrying value of certain of its assets in relation to historical results, current business conditions and trends to identify potential situations in which the carrying value of assets may not be recoverable. Such assets would include, cost in excess of fair market value of net assets of acquired businesses and other identifiable intangible assets. If such reviews indicate that the carrying value of such assets may not be recoverable, the Company would estimate the undiscounted sum of the expected future cash flows to determine if they are less than the carrying value of such assets to ascertain if a permanent impairment has occurred. The carrying value of any impaired assets will be reduced to fair market value. (j) Cash and Cash Equivalents ------------------------- For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with purchased maturities of three months or less to be cash equivalents. (k) Net Income Per Share --------------------- The computation of net income per share of Common stock is based on the average number of shares outstanding during each year. Inclusion of the incremental shares applicable to outstanding stock options in the computation using the treasury stock method would have no material dilutive effect. Dilutive options are not considered in the calculation of net loss per share. The average number of shares outstanding used in determining net income per share was 6,865,212 in 1995, 6,863,069 in 1994, and 6,881,267 in 1993. (l) Use of Estimates ----------------- The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (m) Reclassification ------------------ Certain items on the 1994 and 1993 consolidated statements of income have been reclassified to conform to the 1995 presentation. 2. LONG-TERM OBLIGATIONS ------------------------ The Company's debt and capital lease obligations represent indebtedness of New Horizons as follows: 1995 1994 ---- ------ Notes payable to bank with interest rates $ -- $304,776 adjusted to prime (8.5% at December 30, 1995), plus up to 2.5%, paid in full in February 1995, secured by certain assets of New Horizons Note payable to bank at 9.99% interest rate, 170,421 253,349 payable in monthly installments of $9,306, secured by certain assets of New Horizons Note payable to a former franchisee, non- -- 35,000 interest bearing, unsecured, paid in full in January 1995 Amounts due under non-cancelable leases 1,101,655 520,838 accounted for as capital leases. These leases have effective interest rates ranging from 8.5% to 12.3% per annum Amount of capital leases representing interest (174,908) (69,615) --------- -------- Present value of minimum lease payments 926,747 451,223 Less: current portion of notes payable and lease obligations 447,227 579,991 --------- -------- $ 649,941 $ 464,357 ========= --------- The following is a summary of future payments required under the above obligations: DEBT LEASE ----- ------ 1996 $ 99,889 $ 432,049 1997 70,532 345,130 1998 -- 218,211 1999 -- 102,605 2000 -- 3,660 2001 and after -- -- Included in the Company's plant, property and equipment is New Horizons' equipment under capital leases amounting to $1,272,860, net of accumulated amortization of $410,540. The Company has received a firm commitment from a commercial bank for an unsecured credit facility which provides a maximum credit of $5,500,000 through June 30, 1998. This credit facility bears interest at the Company's preference of either the prime rate or LIBOR. The Company is required to pay a fee of 1/4 of 1% of the unused balance of the facility. 3. BUSINESS AND CREDIT CONCENTRATION ---------------------------------- Handex Environmental's primary customers are major petroleum companies who store petroleum products in underground storage tanks. New Horizons' customers are predominantly employer-sponsored individuals from corporations, professional service organizations, government agencies and municipalities. Handex Environmental has certain customers which, in one or more of the last three years, accounted for 10% or more of both its total and net operating revenues. The approximate total and net operating revenues for these customers are as follows: 1995 1994 1993 ----- ----- ------ Total operating revenues: Customer 1 $ 9,267,000 $10,567,000 $9,049,000 Customer 2 6,890,000 8,592,000 7,391,000 Customer 3 6,283,000 7,306,000 7,241,000 Customer 4 4,895,000 6,138,000 5,359,000 ----------- ------------ ----------- Total $27,335,000 $32,603,000 $29,040,000 =========== =========== ============ Net operating revenues: Customer 1 $ 7,387,000 $ 8,544,000 $ 7,294,000 Customer 2 5,833,000 7,542,000 6,489,000 Customer 3 5,291,000 6,131,000 6,415,000 Customer 4 3,890,000 4,812,000 4,244,000 ------------ ----------- ------------ Total $22,401,000 $27,029,000 $24,442,000 =========== =========== =========== As of December 30, 1995 Handex Environmental's receivables from such customers amounted to approximately $9,700,000. New Horizons has no individual customer which accounts for 10% or more of its operating revenues for 1995 and 1994. 4. INCOME TAXES -------------- Income tax expense for the periods below differs from the amounts computed by applying the U.S. federal income tax rate of 34 percent to the pretax income as a result of the following: 1995 1994 1993 ------ ------ ------ Computed "expected" tax expense (benefit) $ (42,001) $1,314,385 $ 746,421 Amortization of excess of cost over net assets acquired 31,600 22,450 16,950 State and local tax expense, net of Federal income tax effect 62,300 287,200 232,100 Foreign income tax 36,740 6,351 -- Interest income from tax- free investments (64,200) (149,800) (205,200) Meals and entertainment 40,464 49,124 19,657 Other 4,606 5,087 11,216 --------- ---------- ----------- Income tax expense $ 69,509 $ 1,534,797 $ 821,144 ========== =========== ============ Effective rates N/A 39.7% 37.4% ========== ========== =========== Income tax expense consists of: 1995 1994 1993 ----- ----- ----- Federal Current $ 150,285 $ 1,131,620 $ 760,000 Deferred (211,835) (2,281) (242,509) State and local 94,319 399,107 303,653 Foreign 36,740 6,351 -- ------------ ----------- ---------- $ 69,509 $ 1,534,797 $ 821,144 ============ ============ =========== The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 30, 1995 and December 31, 1994, are presented below: DECEMBER 30, DECEMBER 31, 1995 1994 ----- ----- Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 392,698 $ 373,824 Reserve for uninsured losses and litigation 232,064 188,250 Loss on joint venture 260,000 -- Other 80,691 47,594 ------------ ----------- Total gross deferred tax assets 965,453 609,668 Less valuation allowance -- -- ----------- ----------- Net deferred tax assets 965,453 609,668 ----------- ----------- Deferred tax liability: Property, plant and equipment, principally due to differences in depreciation (724,164) (805,920) Excess of cost over net assets of acquired company (308,302) (82,596) ------------ ----------- Deferred tax liability (1,032,466) (888,516) ------------- ----------- Net deferred tax liability $ (67,013) $(278,848) ============== ============ There is no valuation allowance required at December 30, 1995 and December 31, 1994. 5. NOTES RECEIVABLE FROM OFFICERS ------------------------------- Included in other assets are notes receivable from certain officers of the Company in the aggregate amount of $468,610. One of the notes is payable on or before September 30, 1997 and is fully secured by a mortgage on real estate to which the loan proceeds were applied; the others are demand notes secured by the proceeds from certain life insurance policies. 6. OTHER LIABILITIES ----------------- Other liabilities consist of: 1995 1994 ----- ----- Sales taxes payable $ 620,347 $ 713,617 Salaries, wages and bonuses payable 1,795,787 1,264,405 Amounts received on behalf of a customer 1,205,424 1,542,451 Deferred revenues 1,564,096 994,167 Allowance for uninsured claims 250,161 270,624 Allowance for litigation expenses 330,000 200,000 Other 2,128,801 840,802 ----------- ------------ $ 7,894,616 $ 5,826,066 =========== ============ 7. EMPLOYEE SAVINGS PLAN --------------------- The Company has a 401(k) Profit Sharing Trust and Plan in which all employees in its environmental business segment not currently covered by a collective bargaining agreement are eligible to participate. None of the Company's employees are covered by any collective bargaining agreement. The Company, at its option, matches each participant's contribution to the Plan at the rate of 50% of up to 6% of each participant's compensation, up to the maximum allowable under the Internal Revenue Code. Employer contributions for the years ended December 30, 1995, December 31, 1994, and January 1, 1994 totaled $360,551, $269,068 and $235,384 respectively. Employees vest in the Company contributions at a rate of 20% per year based upon years of service. A similar, but non-contributory plan is in place for New Horizons' employees. 8. STOCK OPTION PLAN ------------------ The Company maintains a key employee stock option plan which provides for the issuance of non-qualified options, incentive stock options and stock appreciation rights. The plan currently provides for the granting of options to purchase up to 1,200,000 shares of common stock. Incentive stock options are exercisable for up to ten years, at an option price of not less than the market price on the date the option is granted or at a price of not less than 110% of the market price in the case of an option granted to an individual who, at the time of grant, owns more than 10% of the Company's Common stock. Non-qualified stock options may be issued at such exercise price and on such other terms and conditions as the Compensation Committee of the Board of Directors may determine. Optionees may also be granted stock appreciation rights under which they may, in lieu of exercising an option, elect to receive cash or Common stock, or a combination thereof, equal to the excess of the market price of the Common stock over the option price. All options were granted at fair market value at dates of grant. The stock option plan for directors who are not employees of the Company provides for the issuance of up to 75,000 shares of Common stock and may be issued at such price per share and on such other terms and conditions as the Compensation Committee may determine. All options were granted at fair market value at dates of grant. The following table summarizes all transactions during 1995 and 1994 under the Stock Option Plans. 1995 1994 ----- ----- Options outstanding at beginning of year (number of shares): Key employees 723,900 506,500 Outside directors 24,750 24,750 Options granted (number of shares): Key employees 30,739 253,000 Outside directors -- -- Average grant price: Key employees $ 6.00 $ 7.96 Outside directors -- -- Options exercised (number of shares): Key employees -- 10,000 Outside directors -- -- Average exercise price: Key employees $ -- $ 6.50 Outside directors -- Options canceled (number of shares): Key employees 40,900 25,600 Outside directors -- -- Options outstanding at end of year (number of shares): Key employees 713,739 723,900 Outside directors 24,750 24,750 Option price range: Key employees $5.80 - $ 9.00 $5.80 - $ 9.00 Outside directors $6.50 - $11.20 $6.50 - $11.20 Options exercisable (number of shares): Key employees 399,500 279,700 Outside directors 24,750 24,750 Aggregate price of exercisable options Key employees $ 2,891,810 $ 2,011,345 Outside directors 230,200 230,200 Options available for future grants (number of shares): Key employees 270,761 260,600 Outside directors 46,250 46,250 9. LEASES ------ The Company, is obligated under operating leases primarily for office space and training facilities, with rental arrangements for various periods of time ending through 2003. These leases provide for minimum fixed rents for the following fiscal years as follows: 1996, $2,174,074; 1997, $1,854,220; 1998, $1,501,317; 1999, $1,329,248; 2000, $1,166,686; and 2001 and after, $3,250,527 excluding the related-party lease described below. Rent expense was $2,302,068, $1,370,365, and $1,287,231, during the years ended December 30, 1995, December 31, 1994, and January 1, 1994, respectively. A subsidiary of the Company leased a building from a partnership comprised of related parties. Rent under this lease, which commenced in June 1987 and was scheduled to expire in June 1999, was $36,000 for each of the years ended December 30, 1995, December 31, 1994, and January 1, 1994. On January 15, 1996, the Company purchased this property. 10. SEGMENT INFORMATION AND REPORTING ---------------------------------- In 1995, the Company acquired the assets of New Horizons' franchise in New York and a Florida based environmental concern for an aggregate cash price and related expenses of $830,000. These acquisitions have been accounted as purchases, and accordingly the purchase prices have been allocated to assets based upon the Company's estimate of their fair market values. The aggregate purchase price and related expenses exceeded the fair values of the assets by $597,000 and are included in Goodwill. . On August 15, 1994, the Company, through New Horizons, acquired substantially all of the assets of New Horizons Computer Learning Center, Inc. and all of the issued and outstanding shares of stock of New Horizons Franchising, Inc. for an aggregate cash price of $14,000,000. During 1994, New Horizons also acquired certain assets of franchises covering the Chicago and Cleveland markets. In February 1995, New Horizons contributed the Cleveland assets to a newly formed joint venture in exchange for a minority interest. The joint venture operates the Cleveland franchise. Also in February 1995, New Horizons acquired certain assets of the franchise covering the metropolitan New York market. New Horizons specializes in providing instructor-led training in the use of computers and computer software, offering courses in PC software applications, networking, and work stations. Training is provided at New Horizons' owned training centers located in Santa Ana, California, Chicago, Illinois, and New York, New York. Franchising is engaged in the business of offering systems of instructions, sales and management concepts for training in the use of computers and computer system through the sale of franchises throughout the United States and internationally. These acquisitions have been accounted for as purchases, and accordingly the purchase prices have been allocated to assets and liabilities based upon New Horizon's estimate of their fair market values. The aggregate purchase price and related expenses exceeded the fair values of assets and liabilities by $14,393,077 and are included in Goodwill. Prior to August 15, 1994, the Company's business operations were concentrated in the environmental services industry. With the acquisition of New Horizons, the Company extended its operations into the computer training industry. Information about the Company's segment operating data for 1995 follows: NEW ENVIRONMENTAL HORIZONS CORPORATE CONSOLIDATED ------------- ---------- ----------- ------------ Net operating revenues $46,520,688 $23,733,208 $ -- $70,253,896 Gross Profit 14,619,091 10,569,208 -- 25,188,299 Identifiable 34,455,894 23,613,435 9,020,053 67,089,382 assets (a) Capital 1,302,116(b) 2,730,467(b) 156,453 4,189,036 expenditures Depreciation and 2,056,811 1,724,073(c) 170,612 3,951,496 amortization (a) Identifiable assets are those used in the operation of each segment. Corporate assets consist primarily of cash and short-term marketable securities. (b) Excludes assets of $232,675 from acquired companies. (c) Includes write-off of the unamortized cost of management software in the amount of $161,749. New Horizons has no assets outside the United States and derives revenues from the sale of franchises and royalties based on certain revenues of licensed franchises. During 1995 revenues derived from the sale of franchises and royalties derived from franchised operations outside the United States amounted to approximately $681,000. 11. QUARTERLY FINANCIAL DATA (UNAUDITED) ------------------------------------ Summarized quarterly financial data for 1995 and 1994 are as follows (in thousands, except per share data): INCOME (LOSS) NET BEFORE NET EARNINGS OPERATING GROSS INCOME INCOME (LOSS) YEAR QUARTER REVENUES PROFIT TAXES (LOSS) PER SHARE ---- ------- --------- ------- ------- ------- -------- 1995 First $ 17,001 $ 6,221 $ 453 $ 274 $ .04 Second 17,074 6,520 612 335 .05 Third 17,757 6,428 (942) (608) (.09) Fourth 18,422 6,019 (247) (194) (.03) 1994 First $ 9,806 $ 3,188 $ 74 $ 60 $ .01 Second 11,876 4,545 1,103 677 .10 Third 14,338 5,527 1,428 858 .12 Fourth 16,551 6,445 1,261 736 .11 The fourth quarter of 1994 reflects adjustments aggregating to approximately $200,000 for excess provision for vacation, holiday, major medical and dental expenses. The quarter also reflects the write-off to expense of advances to a bio-remediation contractor amounting to $240,000 which was partially offset by the reversal to income of excess provision for litigation expenses. 12. PROVISION FOR LOSS IN A JOINT VENTURE, ASSET WRITE-OFF AND TERMINATION EXPENSES ----------------------------------------------------------------------- In February 1995, one of the Company's education subsidiaries acquired a minority interest in a limited liability company by contributing the assets of its Cleveland operations and cash. In the third quarter of 1995, an affiliate of the venture's majority member filed for bankruptcy and the Company has assumed the management of these operations pending settlement of the bankruptcy issues. The Company estimates and has provided for the estimated loss on the joint venture in the amount of $650,000. In addition, one of the Company's education subsidiaries wrote-off the unamortized developmental costs of a software program which had been in development prior to its acquisition by the Company in August 1994. The write-off amounted to $161,748. In the environmental segment, the Company reduced its work force in response to softness in its environmental business and recorded a charge in the amount of $301,419 for related termination costs. These charges combined, all of which were recorded in the third quarter of 1995, totaled $1,113,167 before tax and on an after-tax basis, had a $0.10 impact on net income per share. 13. CAPTIVE INSURANCE COMPANY -------------------------- In February 1992, the Company purchased stock in a holding company which owns a captive insurance company through which the Company obtains its general liability insurance coverage. The stock purchase price of $476,250 was paid by $158,750 in cash, which is reflected in other non-current assets in the accompanying financial statements, and the balance is secured by an irrevocable letter of credit. As of December 30, 1995, there has not been any draw against the letter of credit. The Company has no obligations to the holding company/captive insurance group other than the amount represented by the letter of credit and as a shareholder and director of the holding company. The Company owns 1 share (3.3%) of the 30 shares of common stock, and 466.25 shares (23.3%) of 1,996.79 shares of Preferred stock, Series A, issued and outstanding as of December 30, 1995. 14. FINANCIAL INSTRUMENTS ---------------------- The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities is considered to approximate their fair value due to the short maturity of these instruments. Marketable securities are shown at fair value. Debt instruments are not significant. 15. COMMITMENTS AND CONTINGENCIES ------------------------------ The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. 16. CHANGE IN FISCAL YEAR ----------------------- On December 18, 1992, the Board of Directors approved a change in the Company's fiscal year from one ending on December 31st of each year to a 52-53 week fiscal year ending on the Saturday nearest the last day of December. Fiscal 1995 ended on December 30, 1995. Fiscal 1994 ended on December 31, 1994. Fiscal 1993, the first fiscal year under this change, ended on January 1, 1994. All references to 1993 in the financial statements refer to the fiscal year ended January 1, 1994. The Company filed a Form 8-K report on December 31, 1992. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS --------- The information required by this Item 10 as to the Directors of the Company is incorporated herein by reference to the information set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 1996, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. Information required by this Item 10 as to the executive officers of the Company is included in Part I of this Annual Report on Form 10-K. EXECUTIVE OFFICERS OF THE REGISTRANT* ------------------------------------- The following is a list of the executive officers of the Company. The executive officers are elected each year and serve at the pleasure of the Board of Directors. NAME AGE POSITION - - ---- --- --------- Curtis Lee Smith, Jr. 68 Chairman of the Board and Chief Executive Officer Thomas J. Bresnan 43 President and Chief Operating Officer P. Craig Modesitt 39 Vice President, Sales and Marketing Stuart O. Smith 63 Vice Chairman of the Board, Chief Development Officer and Secretary John T. St. James 49 Vice President, Treasurer and Chief Financial Officer *The description of executive officers called for in this Item is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K. Set forth below is a brief description of the background of those executive officers of the Company who are not Directors of the Company. Information with respect to the background of those executive officers who are also Directors of the Company is incorporated herein by reference as set forth in Part III, Item 10, of the Company's Annual Report on Form 10-K. JOHN T. ST. JAMES joined the Company in December 1988 and was elected its Treasurer in January 1989, Chief Financial Officer in February 1989 and Vice President in February 1991. Prior to joining the Company, Mr. St. James served as Vice President and Chief Financial Officer for B.A.T.U.S., Inc., an operator of retail concerns, from 1984 to 1987, as Vice President and Chief Financial Officer for the Henri Bendel division of The Limited, Inc., and operator of retail clothing stores, from 1987 to 1988; and as Vice President - Financial Operations/Control for Brooks Fashions, Inc., an operator of retail clothing stores, for a brief period during 1988. P. CRAIG MODESITT joined the Company in August 1993 and was elected Vice President, Sales and Marketing. From 1979 until that time, he was with Ejector Systems, Inc., as both a founder and Vice President of Sales and Marketing. Ejector Systems, Inc. is a privately-held manufacturer of groundwater remediation equipment. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated by reference to the information set forth under the caption "Compensation of Directors and Executive Officers" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 1996, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated by reference to the information set forth under the caption "Share Ownership of Principal Holders and Management" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 1996, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated by reference to the information set forth under the caption "Certain Transactions" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 7, 1996, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) (1) FINANCIAL STATEMENTS The following Consolidated Financial Statements of the Registrant and its subsidiaries are included in Part II, Item 8: Page ----- Report of Independent Auditors F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 to F-15 (A) (2) FINANCIAL STATEMENTS SCHEDULES The following Consolidated Financial Statement Schedules of the Registrant and its subsidiaries are included in Item 14 hereof: Page ----- Report of Independent Auditors as to Schedules F-2 Schedule II Valuation and Qualifying Accounts and Reserves 20 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (A) (3) EXHIBITS Reference is made to the Exhibit Index at sequential page 21 hereof. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized at Morganville, New Jersey this 28th day of March, 1996. HANDEX CORPORATION By: /s/Curtis Lee Smith, Jr. ---------------------------- Curtis Lee Smith, Jr., Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: SIGNATURE TITLE DATE /s/Curtis Lee Smith, Jr. Chairman, and ) - - ------------------------- Chief Executive Officer ) Curtis Lee Smith, Jr. (Principal Executive ) Officer) ) ) /s/John T. St. James Vice President, ) - - ------------------------ Treasurer and ) John T. St. James Chief Financial Officer ) (Principal Financial ) and Accounting Officer) ) ) /s/Stuart O. Smith Director ) - - ----------------------- ) Stuart O. Smith ) March 28, 1996 ) /s/Thomas J. Bresnan Director ) - - ----------------------- ) Thomas J. Bresnan ) ) /s/Gregory J. Reuter Director ) - - ----------------------- ) Gregory J. Reuter ) ) /s/David A. Goldfinger Director ) - - ----------------------- ) David A. Goldfinger ) ) /s/Richard L. Osborne Director ) - - ----------------------- ) Richard L. Osborne ) ) /s/Scott R. Wilson Director ) - - ----------------------- ) Scott R. Wilson ) ) /s/William H. Heller Director ) - - ----------------------- ) William H. Heller ) ) SCHEDULE II ----------- HANDEX CORPORATION INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years ended December 30, 1995, December 31, 1994, and January 1, 1994 Allowance for Doubtful Accounts Balance at December 31, 1992 $ 891,834 Additions - Charged to costs and expenses 192,943 Deductions (A) (244,686) Balance at January 1, 1994 840,091 Additions - Charged to costs and expenses 195,552 Deductions (A) (101,083) Balance at December 31, 1994 934,560 Additions - Charged to costs and expenses 400,375 Deductions (A) (353,190) Balance at December 30, 1995 $ 981,745 (A) - Accounts charged off, less recoveries EXHIBIT INDEX PAGINATION BY SEQUENTIAL EXHIBIT EXHIBIT NUMBERING NUMBER DESCRIPTION SYSTEM - - ----- ----------- ------- 3.1 Amended Certificate of Incorporation of the Registrant (1) 3.2 By-Laws of the Registrant(1) 3.3 Amendment to Certificate of Incorporation of the Registrant 4.1 Specimen Certificate for Share of Common Stock, $.01 par value, of the Registrant(1) 4.2 Unsecured Revolving Loan Agreement(4) 4.3 First Amendment to Unsecured Revolving Loan Agreement (7) 4.4 Working Capital Line of Credit Note (7) 10.1 Key Employees Stock Option Plan of the Registrant(1)* 10.2 Amendment No. 1 to Key Employees Stock Option Plan of the Registrant(7)* 10.3 Form of Stock Option Agreement executed by recipients of options under Key Employees Stock Option Plan(6) 10.4 Stock Option Agreement dated August 6, 1992, between the Registrant and Thomas J. Bresnan (7)* 10.5 Outside Directors Stock Option Plan of the Registrant(1)* 10.6 Amendment No. 1 to the Outside Directors Stock Option Plan of the Registrant (7)* 10.7 Form of Stock Option Agreement executed by recipients of options under the Outside Directors Stock Option Plan(7) 10.8 Amended and Restated 401(k) Profit sharing Trust and Plan of the Registrant(1)* 10.9 Amendment No. 1 to the Registrant's Amended and Restated 401(k) Profit Sharing Trust and Plan(2)* 10.10 Amendment No. 2 to the Registrant's Amended and Restated 401(k) Profit Sharing Trust and Plan(3)* 10.11 Amendment No. 3 to the Registrant's Amended and Restated 401(k) Profit Sharing Trust and Plan(6)* 10.12 Form of Indemnity Agreement with Directors and Officers of the Registrant(6) 10.13 Employment Agreement dated August 3, 1992, between the Registrant and Thomas J. Bresnan(7)* 10.14 Lease Agreement dated April 26, 1988, between Jocama Construction Inc. and the Registrant(1) EXHIBIT INDEX PAGINATION BY SEQUENTIAL EXHIBIT EXHIBIT NUMBERING NUMBER DESCRIPTION SYSTEM - - ------ ----------- ------- 10.15 Addenda to the Lease Agreement dated April 6, 1988 between Jocama Construction and the Registrant (8) 10.16 Indenture of Lease dated June 17, 1987, between Xednah Investments and Handex of Florida, as amended (1) 10.17 Lease Agreement dated March 25, 1991, between Handex of New England, Inc. and Metro Park Marlboro Realty Trust, as amended (6) 10.18 Lease Agreement dated January 20, 1992, between Handex of Maryland, Inc. and Winmeyer Commons II Limited Partnership (6) 10.19 Lease Agreement dated March 1, 1995, between New Horizons Learning Center of Metropolitan New York, Inc. and Mid City Associates, guaranteed by the Registrant (10) 10.20 Lease Agreement dated February 24, 1995, between New Horizons Computer Learning Center of Cleveland LTD., LLC, and Realty One Property Management, guaranteed by the Registrant (10) 10.21 Consulting Agreement between the Registrant and The Nassau Group, Inc. dated December 17, 1993 (9) 10.22 Warrants for the purchase of 25,000 shares of Common Stock $.01 par value per share of the Registrant issued to The Nassau Group, Inc. on December 17, 1993 (9) 10.23 Warrants for the purchase of 40,000 shares of Common Stock $.01 par value per share of the Registrant issued to The Nassau Group, Inc. on August 15, 1994. (10) 10.24 Asset Purchase Agreement, dated as of August 15, 1994, by and among New Horizons Computer Learning Centers, Inc. a Delaware Corporation, New Horizons Learning Center, Inc., a California Corporation and Michael A. Brinda (11) 10.25 Stock Purchase Agreement dated as of August 15, 1994, by and among New Horizons Education Corporation, a Delaware Corporation and Michael A. Brinda (11) 10.26 Lease Agreement dated April 5, 1995, between New Horizons Computer Learning Center of Chicago, Inc., and the Equitable Life Assurance Society of the United States (12) 10.27 Lease Agreement dated March 7, 1996, between New Horizons Computer Learning Centers, Inc. and Mani Brothers, LLC 10.28 Contract for the sale of real estate dated January 15, 1996, between Handex of Florida, Inc. and Xednah Investments 10.29 New Horizons Education Corporation 401(k) Profit Sharing Trust and Plan* 10.30 Amendment No. 4 to the Registrant's Amended and Restated 401(k) Profit Sharing Trust and Plan* 21.1 Subsidiaries of the Registrant 23.1 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule 99.1 Directors and Officers and Company Indemnity Policy(5) - - -------------------------------------------------- (1) Incorporated herein by reference to the appropriate exhibits to the Registrant's Registration Statement on Form S-1 (File No. 33-28798). (2) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. (3) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1990. (4) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report or Form 10-Q for the period ended June 30, 1990. (5) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (6) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (7) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31,1992. (8) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended July 3, 1993. (9) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended January 1, 1994. (10) Incorporated herein by reference to the appropriate exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. (11) Incorporated herein by reference to the appropriate exhibit to the Registrant's Form 8-K dated August 15, 1994. (12) Incorporated herein by reference to the appropriate exhibit to the Registrant's Quarterly Report on Form 10-Q for the period ended April 1, 1995. * Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14 of Form 10-K. EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR DEC-30-1995 DEC-30-1995 3,821,474 2,775,000 30,983,242 981,745 539,491 39,436,826 26,864,557 17,221,433 67,089,382 16,238,681 649,941 70,502 0 0 49,357,792 67,089,382 70,253,896 70,253,896 45,065,597 70,186,460 90,077 400,375 100,891 (123,532) 69,509 (193,041) 0 0 0 (193,041) (.03) (.03)
EX-1 3 AMENDMENT TO CERT. OF INCORP. CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF HANDEX ENVIRONMENTAL RECOVERY, INC. ----------------------------------- Pursuant to Section 242 of the Delaware General Corporation Law ----------------------------------- The undersigned, Curtis Lee Smith, Jr., being the Chairman of the Board of Directors, and Gary T. Gann, being the Assistant Secretary of Handex Environmental Recovery, Inc., a Delaware corporation (the "Corporation"), hereby certify as follows: 1. The name of the Corporation is Handex Environmental Recovery, Inc. 2. The amendment of the Certificate of Incorporation as hereinafter set forth has been duly adopted in accordance with Section 242 of the Delaware General Corporation Law. 3. The Certificate of Incorporation of the Corporation is hereby amended by deleting in its entirety the current Article I and replacing it with the following: "The name of the Corporation is Handex Corporation." IN WITNESS WHEREOF, the undersigned, being the duly elected and acting Chairman of the Board of Directors and Assistant Secretary, respectively, have hereunto subscribed their names to this Certificate of Amendment and affirm that the facts stated herein are true under penalties of perjury, this 9th day of May, 1995. /s/ Curtis Lee Smith, Jr. ------------------------------ Curtis Lee Smith, Jr., Chairman /s/ Gary T. Gann ------------------------------ Gary T. Gann Assistant Secretary 370/18746GQA.317 EX-2 4 LEASE-NHCLC AND MANI BROTHERS TABLE OF CONTENTS PAGE Article 1 - Basic Lease Provisions 1 Article 2 - Term 2 Article 3 - Basic Monthly Rent 3 Article 4 - Tax Rent 3 Article 5 - Operating Expense Rent 4 Article 6 - Capital Expense Rent 5 Article 7 - Security Deposit 5 Article 8 - Use 6 Article 9 - Utilities and Services 6 Article 10 - Parking License 7 Article 11 - Repairs 7 Article 12 - Condition of Premises 8 Article 13 - Entry by Landlord 8 Article 14 - Alterations 9 Article 15 - Hazardous Materials 9 Article 16 - Liens 9 Article 17 - Brokers 10 Article 18 - Insurance 10 Article 19 - Indemnification 11 Article 20 - Limitation of Liability 11 Article 21 - Damage or Destruction 12 Article 22 - Eminent Domain 13 Article 23 - Subordination 13 Article 24 - Offset Statement 13 Article 25 - Assignment and Subletting 13 Article 26 - Bankruptcy and Involuntary Assignment 15 Article 27 - Financial Statements 15 Article 28 - Holding Over 15 Article 29 - Defaults 15 Article 30 - Remedies 16 Article 31 - Attorney's Fees 16 Article 32 - Arbitration 16 Article 33 - Notices 17 Article 34 - General Provisions 17 Article 35 - Addendum 19 Exhibit A - Premises Location Plan 20 Exhibit B - Legal Description 21 Exhibit C - Rules and Regulations 22 Exhibit D - Work Letter 25 Exhibit E - Guaranty of Lease 28 Schedule 1 - Preliminary Space Plans 30 Addendum No. 1 31 LEASE By this Lease dated March 7, 1996 for reference purpose only, Landlord hereby leases to Tenant the Premises, together with the non-exclusive right to use the Common Areas, upon and subject to the following terms, covenants and conditions: ARTICLE L-BASIC LEASE PROVISIONS 1.1 For purposes of this Lease and addenda, exhibits and other attachments thereto, and as subject to modification, revision or amendment by other terms and conditions of this Lease, addenda exhibits and other attachments thereto mutually agreed by Landlord and Tenant, these certain provisions are defined as follows: (a) Landlord: Mani Brothers LLC (b) Tenant: New Horizons Computer Learning Centers, Inc. a Delaware Corporation (c) Building: 100 Corporate Pointe, Culver City; California (d) Premises: Suite 180 (consisting of approximately 10,779 rentable square feet), Suite 195 (consisting of approximately 4,127 rentable square feet) and a portion of Suite 105 (consisting of approximately 261 rentable square feet), totaling approximately 15,167 rentable square feet. The exact location and square footage shall be subject to space planning, architectural measurements and the relocation of the tenant currently located in Suite 195. Tenant shall have the right to have the space planner verify the square footage calculation prior to lease execution. The Premises shall be computed in accordance with the BOMA standards. Tenant's primary entrance shall be from the exterior of the building to the right hand side of the existing lobby. (e) Commencement Date: June 1, 1996, subject to the Paragraph 2.1.(a). (f) Termination Date: One hundred twenty (120) months after the Commencement Date. (g) Permitted Use: General office use for the purpose of conducting a computer learning center. (h) Basic Monthly Rent: The Basic Monthly Rent shall be Eighteen Thousand Nine Hundred Fifty Eight and 75/100 Dollars ($18,958.75) for the first (1st) through the sixtieth (both) month of the lease term. The Basic Monthly Rent shall be Twenty Five Thousand Twenty five and 55/100 Dollars ($25,025.55) for the period from the sixty-first (61st) month through the one hundred and twentieth (120th) months. Said Basic Monthly Rent shall be net of utilities. (i) Security Deposit: Eighteen Thousand Nine Hundred Fifty Eight and 75/100 Dollars ($18,958.75) and shall be increased on the sixty first (61st) month to Twenty Five Thousand Twenty Five and 55/100 Dollars ($25,025.55). (j) Proportional Share: 13.85% (k) Base Year:1996 (l) Procuring Broker: CB Commercial Real Estate Group, Inc. - Hunt Barnett and Taylor Ing, as Tenant's representative and CB Commercial Real Estate Group, Inc. - Jeffrey S. Pion, as Landlord's representative. In the event CB Commercial Real Estate Group, Inc. represents both parties herein, Landlord and Tenant acknowledge that each has been notified of said dual representation and both Landlord and Tenant consent hereto to said dual representation. (m) Parking Allotment: See Addendum. (n) Business Hours:8:00 AM to 6:00 PM Monday through Friday; and 9:00 AM to 1:00 PM Saturday, excluding holidays generally recognized in the State of California. Landlord acknowledges that Tenant will conduct its business at times other than the Building's normal hours. (o) Land:The site upon which the Building, Common Areas and other related improvements, facilities, service areas and equipment are located (as legally described in Exhibit "B" attached herein). (p) Common Areas: Those interior and exterior portions of the Building and such other areas, facilities and equipment serving the Building, which are designated by Landlord for the common use and benefit of tenants, tenants' employees, customers and invitees, and/or members of the general public. Such areas, facilities and equipment shall include, without limitation: entrances; exits; lobbies; elevators; stair-ways; corridors; passageways; public washrooms, parking facilities; loading areas; plazas, private sidewalks; landscaped areas; walkways; mechanical, electrical and telephone rooms; utilities and related facilities; electrical, mechanical, sprinkler, fire detection and fire prevention and security equipment and related facilities; duct shafts; operating, maintenance and storage areas; and service areas, equipment and facilities. ARTICLE 2-TERM 2.1 The Term of this Lease shall commence on the Commencement Date. (a) Initial Term. The Term of the Lease shall be for the period shown in Article 1 of the Summary of Basic Terms commencing, subject to the provisions of the "Work Letter" attached hereto as Exhibit "D", on the date the Premises shall be tendered to Tenant ready for occupancy or such earlier date or later date as Tenant takes possession or commences use of the Premises for any purpose including construction (the "Commencement Date"). The Premises shall be deemed ready for occupancy and Rent shall commence on the date of issuance of a Certificate of Occupancy, Temporary Certificate of Occupancy or other equivalent approval by the City of Culver City of the improvements required by this Lease to be constructed by Landlord. Landlord acknowledges that the premises may be built in stages and Tenant's obligation to pay rent shall commence upon completion of each stage of construction. Landlord agrees to use its best efforts to give Tenant estimates of the schedule for completion of the improvements and to give Tenant ten (10) days prior notice of the anticipated date the Premises will be ready for occupancy. The Commencement Date is a date which Landlord has projected for occupancy, based upon its present estimates of construction schedules. Subject to "Force Majeure" (as that term is defined below), Tenant shall have the right to cancel this Lease in the event Landlord has not delivered the Premises to Tenant within one hundred twenty (120) days after the Commencement Date, as such date may be modified by the provisions of the "Work Letter" attached hereto as Exhibit "D", which right is exercisable by Tenant by delivering written notice to Landlord within five (5) business days following expiration of said one hundred twenty (120) day period. "Force Majeure" is hereby defined to mean any cause beyond the reasonable control of Landlord, including but not limited to, strikes, acts of God, war, governmental laws and regulations or restrictions, including delays in the issuance of permits (not to exceed one hundred twenty (120) days), inspections and approvals, shortages of labor or materials, or delays caused by acts of Tenant as more particularly set forth in paragraph "7" of the "Work Letter" attached hereto as Exhibit "D". In the event permission is given to Tenant to enter or occupy all or a portion of the Premises prior to the Commencement Date, such occupancy shall be subject to all of the terms and conditions of this Lease. When the Lease Commencement Date has been determined, the parties shall execute an amendment to this Lease in the form of Exhibit "B" attached hereto and incorporated herein by this reference, stating the actual Lease Commencement Date and the date for expiration of the Term (the "Expiration Date") and setting forth an acknowledgment by Tenant that Landlord has completed all improvements to the Premises in accordance with this Lease and to the satisfaction of Tenant, subject to the items listed in a punch list, if any, delivered to Landlord pursuant to Article "2(b)" Acceptance and Suitability below. (b) Acceptance and Suitability. Within thirty (30) days following the date Tenant takes possession of the Premises, Tenant may provide Landlord with a punch list which sets forth any corrective work to be performed by Landlord with respect to work performed by Landlord as set forth in the Work Letter; provided, however, that Tenant's obligation to pay Basic Monthly Rent as provided below shall not be affected thereby. If Tenant fails to submit a punch list to Landlord within such thirty (30) day period, Tenant agrees that by taking possession of the Premises, it will conclusively be deemed to have inspected the Premises and found the Premises in satisfactory condition except for subsequently discovered latent defects. Tenant acknowledges that neither Landlord, nor any agent, employee or servant of Landlord, has made any representation with respect to the Premises, or the Building, or with respect to the suitability of them to the conduct of Tenant's business, nor has Landlord agreed to undertake any modifications, alternations, or improvements of the Premises, or Building, except as specifically provided in this Lease. 2.2 This Lease shall terminate on the Termination Date, unless terminated sooner as may be provided elsewhere herein. ARTICLE 3-BASIC MONTHLY RENT 3.1 The first Installment of Basic Monthly Rent is due on or before the Commencement Date. All other installments of Basic Monthly Rent are payable in advance on the first day of each calendar month, together with any monthly Installments of estimated Tax Rent, Operating Expense Rent and Capital Expense Rent (collectively "Total Monthly Rent"). Except as provided in Article 28, if the Commencement Date is not the first day of the calendar month or the Termination Date is not the last day of the calendar month, then Total Monthly Rent shall be prorated based upon a thirty (30) day month. 3.2 All amounts due or relating to Tenant's occupancy under this Lease, other than Total Monthly Rent, are due and payable within thirty (30) days of receipt of Landlord's Invoice for same. Such amounts include, without limitation: annual reconciliations and retroactive charges of Tax Rent, Operating Expense Rent or Capital Expense Rent; Orders for Extra Work; charges for extra utilities and services; and late Charges (collectively "Additional Rent"). All amounts due under this Lease or relating to Tenant's occupancy are deemed to be rent, receivable as such, and subject to all remedies of Landlord for nonpayment of rent. Tenant's obligation to pay all amounts owing under this Lease shall survive Tenant's relinquishment of possession to Landlord, or the expiration or early termination of this Lease. 3.3 Tenant agrees that Tenant's late payment of any sum due under this Lease will cause Landlord to Incur cost not contemplated hereunder, the exact amount of which is impracticable or extremely difficult to fix. Therefore, if all or any portion of any installment of Total Monthly Rent is not received by Landlord by the tenth (10th) day of the month for which it is due, or if all or any portion of any item of Additional Rent is not received by Landlord when due pursuant to Article 3.5, then Tenant shall pay to Landlord a "Late Charge of ten percent (10%) of the overdue amount. Landlord and Tenant agree that the Late Charge represents a fair and reasonable estimate of costs that Landlord will incur by reason of any late payment by Tenant. Landlord's acceptance of a Late Charge shall not constitute a waiver of Tenant's default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights and remedies available to Landlord under this Lease or pursuant to law. The Late Charge shall be in addition to, and not in lieu of, any interest which may accrue pursuant to Article 34.11 of this Lease. 3.4 All amounts due Landlord shall be paid by Tenant, without deduction or offset, in lawful money of the United States of America, which shall be legal tender at the time of payment. Payments shall be made at the office of Landlord or to such other person or at such other place as Landlord notifies Tenant. Landlord reserves the right to require that payments be made by certified check or cash. ARTICLE 4-TAX RENT 4.1 For each successive calendar year of the Term after the Base Year ("Comparison Year"), Tenant shall pay to Landlord "Tax Rent", which shall be the Proportional Share of the amount, if any, which the aggregate annual Property Taxes for the Comparison Year exceeds the Property Taxes for the Base Year. Tax Rent is payable in the manner set forth in Article 4.3. If this Lease terminates on a day other than the last day of the Comparison Year, then Tax Rent for the Comparison Year shall be prorated. 4.2 (A) "Property Taxes" is defined for purposes of this Lease as: all costs and expenses which Landlord or Landlord's managing agent has incurred or will incur for real and personal property taxes, or any other assessment upon Landlord's legal or equitable interest in the Land, Building, Common Areas and all or any related facilities and improvements (including, without limitation, leasehold taxes or other taxes or assessments levied in lieu thereof or in addition thereto), whether imposed by a government authority or agency, or by a special assessment district; any taxes resulting from a reassessment of the Building occasioned by any cause whatsoever, including, without limitation, any reassessment resulting from a conveyance of Landlord's interest in the Land, Building or Common Areas (whether of not such transfer occurs before or after the Commencement Date), or by the determination by a court that any law, regulation, statute, or constitutional provision purporting to limit tax increases is invalid in whole or in part: any non-progressive tax on or measured with respect to gross receipts from the rental of space in the Building; any user fees or charges assessed for any government services which were provided without cost prior to the imposition of Proposition 13; any assessment, tax, fee charge or levy for any transportation plan, fund or system within the general geographic area of the Building; and, any actual, reasonable and documented expenses of Landlord in contesting any of the foregoing or the assessed valuation of the Land, Building or Common Areas. Notwithstanding the foregoing, the definition of "Property Taxes" excludes any net income, franchise, capital stock, estate or inheritance taxes. (B) Upon request by Tenant, Landlord shall provide Tenant with copies of all tax bills, assessments and charges received from any local taxing agencies. Shall Landlord sell or convey the property of which the leased premises are a part, Tenant shall not be obligated to pay any increase in property taxes resulting from said sale or conveyance (Proposition 13). 4.3 As soon as practical after the beginning of each Comparison Year, Landlord shall provide Tenant with Landlord's estimate of Property Titles and Tax Rent for the Comparison Year. During the Comparison Year, Tenant shall pay Landlord estimated Tax Rent in equal monthly installments on the first day of each month. If the estimated Tax Rent for the Comparison Year is not determined until after the beginning of the Comparison Year, the Tenant shall continue to pay the monthly installments for the prior Comparison Year, if any, and shall retroactively pay any underpayment of estimated Tax Rent payable for the period from the beginning of the Comparison Year until the estimate was provided. As soon as practical after the end of each Comparison Year, Landlord shall determine the Property Taxes incurred in the Comparison Year. If Tenant has underpaid its Tax Rent for the Comparison Year, then Tenant shall pay to Landlord the full amount of such deficiency as Additional Rent. If Tenant has overpaid its Tax Rent for the Comparison Year, then Landlord shall either credit the overpayment toward Tenant's next installment(s) of Total Monthly Rent or, if this Lease has terminated and Landlord has not applied the overpayment to a default of Tenant, refund the overpayment to Tenant within thirty (30) days of determination. 4.4 Tenant shall directly pay the taxing authority any tax levied against the personal property or trade fixtures of Tenant in or about the Premises. If Tenant fails to pay such tax before delinquency, then Landlord may pay such tax on behalf of Tenant, and the amount paid shall constitute Additional Rent due Landlord. Landlord shall upon request of Tenant, deliver to Tenant copies of any tax bills paid by Landlord for and on behalf of Tenant. 4.5 The calculation and payment of Tax Rent is separate, distinct and shall not be affected by the calculation and payment of either Basic Monthly Rent, Operating Expense Rent, Capital Expense Rent or Consumer Price Index Adjustment, if any. Any item of cost or expense included as Property Taxes shall not be included as either Operating Expenses or Capital Expenses. ARTICLE 5-OPERATING EXPENSE RENT 5.1 For each Comparison Year, Tenant shall pay to Landlord Operating Expense Rent, which shall be the Proportional Share of the amount, if any, by which the aggregate annual Operating Expenses for the Comparison Year exceeds the Operating Expenses for the Base Year. Operating Expense Rent is payable in the manner set forth in Article 5.4. If this Lease terminates on a day other than the last day of the Comparison Year, then Operating Expense Rent for the Comparison Year shall be prorated. 5.2 "Operating Expenses" is defined for purposes of this Lease as all costs and expenses, calculated in both the Base Year and any Comparison Year as if the Building were ninety-five percent (95%) occupied and all services were provided to the entire Building, which Landlord or Landlord's managing agent has incurred or will incur (without offset for any revenue derived from any source whatsoever) in the operation, maintenance, repair, improvement, management and administration of the Land, Building and Common Areas, plus a management fee not to exceed four percent (4%) of gross Building and Common Areas revenue. 5.3 "Operating Expenses" includes, without limitation, costs and expenses for: all wages, salaries, benefits, payroll taxes, other similar government charges and other direct costs of personnel rendering services to the Building, whether or not situated in the Building, including, without limitation, Building managers and their assistants and supervisors, clerical, accounting, and technical services personnel; costs to comply with all laws, ordinances, rules and regulations; utility charges and surcharges; janitorial, mechanical, security, landscaping, elevator, waste disposal, alarm maintenance and other Building services; parking facility operation, maintenance and management; labor; lighting; air conditioning; heating; ventilating; water and sewage charges; supplies; material; tools; equipment; uniforms; operation, maintenance and repair of systems and facilities; structural and non-structural repair; business licenses or similar licenses or taxes; insurance premiums, deductibles and related charges, whether required pursuant to this Lease or by any lienholder or encumbrancer; professional fees and other expenses; and the expenses of maintaining a building management office (not to exceed 2,500 usable square feet), with rent imputed at the effective market rate for the building containing the office. 5.4 As soon as practical after the beginning of each Comparison Year, Landlord shall provide Tenant with Landlord's estimate of Operating Expenses and Operating Expense for the Comparison Year. During the Comparison Year, Tenant shall pay Landlord's estimated Operating Expense Rent in equal monthly installments on the first day of each month. If the estimated Operating Expense Rent for the Comparison Year is not determined until after the beginning of the Comparison Year, then Tenant shall continue to pay the monthly installments for the prior Comparison Year, if any, and shall retroactively pay any underpayment of estimated Operating Expense Rent payable for the period from the beginning of the Comparison Year until the estimate was provided. As soon as practical after the end of each Comparison Year, Landlord shall determine the Operating Expenses incurred in the Comparison Year. If Tenant has underpaid its Operating Expense Rent for the Comparison Year, then Tenant shall pay to Landlord the full amount of such deficiency as Additional Rent. If Tenant has overpaid its Operating Expense Rent for the Comparison Year, then Landlord shall either credit the overpayment toward Tenant's next installment(s) of Total Monthly Rent or, if this Lease has terminated and Landlord has not applied the overpayment to a default of Tenant, refund the overpayment to Tenant within thirty (30) days of determination. 5.5 The calculation and payment of Operating Expense Rent is separate, distinct and shall not be affected by the calculation and payment of either Basic Monthly Rent, Tax Rent, Capital Expense Rent or Consumer Price Index Adjustment, if any. Any item of cost or expense included as Operating Expenses shall not be included as either Property Taxes or Capital Expenses. ARTICLE 6-CAPITAL EXPENSE RENT 6.1 During the Term, Tenant shall pay to Landlord "Capital Expense Rent", which shall be the Proportional Share (or any other proportion in Landlord's sole discretion, which equitably distributes either Capital Expenses or Capital Expense Rent among tenants) of any Capital Expenses either incurred in the calendar year, allocated by Landlord in its sole discretion to the calendar year, or which Landlord has in its sole discretion elected to amortize in the year. Capital Expense Rent is payable in the manner set forth in Article 6.3. If this Lease commences or terminates on a day other than the first or last day of a calendar year, Capital Expense Rent for the year shall be prorated. 6.2 "Capital Expenses" is defined for purposes of this Lease as all costs and expenses which Landlord or Landlord's managing agent has incurred or will incur (without offset for any revenue derived from any source whatsoever) in the making or installation of capital improvements, modifications or additions to the Land, Building, Common Areas and/or the machinery, equipment and facilities related thereto, either: (a) Required by directive of a government, quasi-government or regulatory agency or authority, but only those Capital Expenses which are so required either: (i) Pursuant to either a law or statue newly enacted after the execution of this Lease or (ii) Pursuant to an interpretation of a law or statue existing as of the execution of this Lease, which interpretation is newly promulgated after the execution of this Lease (b) Made with the intent of reducing Operating Expenses. 6.3 As soon as practical after the beginning of each calendar year (or the Term, as the case may be), Landlord shall provide Tenant with Landlord's estimate of the Capital expenses and Capital Expense Rent for the calendar year. During the calendar year, Tenant shall pay Landlord's estimated Capital Expense Rent in equal monthly installments on the first day of each month. If the estimated Capital Expense Rent for the calendar year is not determined until after the beginning of the calendar year, then Tenant shall continue to pay the monthly installments for the prior calendar year, if any, and shall retroactively pay any underpayment of estimated Capital Expense Rent payable for the period from the beginning of the calendar year until the estimate was provided. Landlord shall amortize the cost of any capital item over its usual life. As soon as practical after the end of each calendar year, Landlord shall determine the Capital Expenses incurred, allocated or amortized in the calendar year. If Tenant has underpaid its Capital Expense Rent for the Calendar year, then Tenant shall pay to Landlord the full amount of such deficiency as Additional Rent. If Tenant has overpaid its Capital Expense Rent for the calendar year, then Landlord shall either credit the overpayment toward Tenant's next installment(s) of Total Monthly Rent or, if this Lease has terminated and Landlord has not applied the overpayment to a default of Tenant, refund the overpayment to Tenant within thirty (30) days of determination. 6.4 The calculation and payment of Capital Expense Rent is separate, distinct and shall not be affected by the calculation and payment of either Basic Monthly Rent, Tax Rent, Operating Expense Rent or Consumer Price Index Adjustment, if any. Any item of cost or expense included as Capital Expenses shall not be included as either Property Taxes or Operating Expenses. ARTICLE 7-SECURITY DEPOSIT 7.1 On or before execution of this Lease, Tenant shall deposit with Landlord the initial Security Deposit. The Initial Security Deposit and any other sums deposited with Landlord pursuant to this Article (collectively "Security Deposit") shall be held by Landlord as security for the faithful performance by Tenant of all of the terms, covenants and conditions of this Lease to be kept or performed by Tenant. If Tenant acquires additional Premises, Tenant shall deposit additional sums with Landlord so that the Total Security Deposit held by Landlord is equal to Tenant's then current Basic Monthly Rent. Landlord shall not be required to SEGREGATE THE Security Deposit from its general funds, refund any Security Deposit except as provided in Article 7.3, or pay Tenant any interest thereon. 7.2 If Tenant defaults on any obligation hereunder, Landlord may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of rent or any other sum in default, or to compensate Landlord for any loss or damage which Landlord has suffered or may suffer due to Tenant's default. Tenant shall, upon demand, restore any Security Deposit so used, applied or retained to the amount held by landlord immediately prior thereto. 7.3 If Tenant fully and faithfully performs every provision of this Lease to be performed by Tenant, then, within thirty (30) days of the later of the termination of this Lease or the surrender of the Premises to Landlord, Landlord shall return to Tenant (or, at Landlord's option, the last assignee of Tenant hereunder) any Security Deposit which has not been so used, applied or retained. Notwithstanding the foregoing, Landlord may retain such portion of the Security Deposit as is necessary to secure any remaining obligations of Tenant hereunder (including, without limitation, Tenant's obligations pursuant to Articles 4, 5 and 6, which Tenant acknowledges comet be fully ascertained until as soon as practical after the end of the calendar year; and Tenant waives application of the provisions of California Civil Code section 1950.7 in respect to such retention). 7.4 If Landlord transfers, assigns or conveys its interest in the Premises, then Landlord shall be discharged from any liability for the return of Tenant's Security Deposit, provided Landlord transfers to Landlord's successor in interest that portion of the Security Deposit which has not been used, applied or retained as per mined by this Lease. ARTICLE 8-USE 8.1 Tenant agrees that the Permitted use is a material provision of this Lease. Tenant shall use the Premises solely for the Permitted Use and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord. Any consent by Landlord to a change of use by Tenant shall not be deemed a waiver of Landlord's right to withheld its consent to any subsequent proposed change of use. Tenant shall be responsible for obtaining all necessary permits for the conduct of its business and for verifying that Tenant's permitted use is acceptable to the City of Culver City. Landlord makes no representations as to Tenant's ability to obtain necessary permits for conduct of its business. Landlord shall be responsible for obtaining building construction permits. 8.2 Tenant shall, at Tenant's sole cost and expense, comply with all certificates, rules, directives, orders and regulations of any public authority (including Federal, State, County and Municipal authorities) caused by Tenant's use of the premises which concern either the Premises or Tenant's use or occupancy thereof. Tenant shall not use or occupy the Building, Common Areas or Premises in violation of any law, certificate of occupancy, or covenant, condition or restriction and shall discontinue the violating use upon Landlord's demand. 8.3 Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any insurance policy covering the Land, Building, Common Areas, or equipment, property and facilities therein. Tenant shall comply with all rules, orders, regulations and requirements of any insurance fire rating bureau or any other organization performing a similar function. Tenant shall, upon Landlord's demand, reimburse Landlord for any additional insurance premium which may be incurred due to Tenant's failure to Comply with this Lease. 8.4 Tenant shall not do or permit to be done anything which will constitute a nuisance, or obstruct, injure, annoy or interfere with the rights of other tenants or occupants of the Building. The Premises shall not be used for any lodging, sleeping, improper, immoral, unlawful or objectionable purpose. Tenant shall not commit waste. ARTICLE 9-UTILITIES AND SERVICES 9.1 Landlord shall provide Tenant with: (a) Twenty-four (24) hour access to the Premises; (b) Reasonable quantities of electric current for receptacles, water for lavatory and drinking purposes, and automated elevator service; (c) Standard fluorescent lighting and heat, ventilation or air conditioning as may be required for the comfortable use and occupation of the Premises during Business Hours; and (d) Janitorial and security services to the extent and during such times as are determined by Landlord. (Tenant submits list.) 9.2 Notwithstanding the provisions of Article 9.1, Landlord may: restrict access to the Premises while making any repairs, alterations or improvements to the Premises, Common Area or Building; make reasonable nondiscriminatory changes to the access, utilities and services landlord is obligated to provide hereunder; make such changes in the access, utilities and services Landlord is obligated to provide hereunder as may be reasonable and necessary to comply with any government restriction, requirement or standard relating thereto; or prevent access or curtail utilities or services to the Land, Building, Common Areas or Premises during any invasion, mob, riot, public excitement or other circumstances rendering such action advisable, in Landlord's reasonable opinion. In the absence of an emergency, Landlord and Tenant shall agree and schedule an appropriate date and time for such actions to commence. 9.3 If Tenant either: (a) Requires or uses more utilities or services than generally used by another tenant in the Building; (b) Requires utilities or services that are not generally provided to the Building during non-Business Hours; or (c) Has special water, electric, cooling or ventilation needs due to concentration of personnel, or the use of office equipment, devices or machines which consume power or generate head in excess of personal computers or common office photocopiers (which may include, without limitation, communications equipment, main-frame or mini-computers). then Tenant shall pay, as Additional Rent, the charge for such use, as determined by Landlord. Landlord's current charge for after-hours heating, ventilation and air conditioning is Thirty Five and No/100 Dollars ($35.00) per hour, as such rate may be adjusted by Landlord from time-to-time. Landlord shall install separate circuitry or meters to accommodate and/or measure Tenant's demand and Tenant shall pay same directly to utility. 9.4 Except as expressly provided elsewhere in this Lease, Landlord shall not be liable for any loss or damage to Tenant or Tenant's employees, or their respective property or business, and Tenant shall not be entitled to any abatement or reduction of rent as a result if Landlord's failure is due to any cause beyond Landlord's reasonable control (including, without limitation, accident, breakage, repairs, shortage of materials or supplies, strike, lockout, boycott, labor dispute, fire, earthquake, acts of God, rioting, insurrection, war, Government action, and acts of pubic enemy), unless such access or services are (i) not provided for more than thirty (30) consecutive days after receipt of written notice from Tenant, and (ii) the Premises are incapable during said thirty (30) consecutive day period, then, commencing on the thirty-first (31st) day following such thirty (30) day consecutive period, Total Monthly Rent shall abate until the services and access are restored. If Tenant's access is prohibited as a result of any activities set forth in this paragraph for a period of 180 days or more, Tenant shall have the right to cancel this lease. ARTICLE 10-PARKING LICENSE Tenant shall have a revocable license to park, in common with other tenants, up to Tenant's Parking Allotment of automobiles in the parking facilities of the Building, subject to the following: (a) Tenant shall pay Landlord or Landlord's agent, the regularly-scheduled parking rates at such time and in such manner as Landlord or Landlord's agent may, from time to time, establish for tenants of the Building. (b) Tenant shall not be in default under any term or condition of this Lease; (c) Tenant shall abide by any reasonable rules and regulations for use of the parking facilities that Landlord or Landlord's agent establishes from time to time, and otherwise use the parking facility in a safe and lawful manner; (d) Tenant and Tenant's employees, contractors and invitees may be required to use attended parking; (e) No bailment shall be created hereunder or by any use of the parking facility; (f) Tenant and Tenant's agents, servants, employees, successors or assigns each hereby releases Landlord's agents, servants, employees and independent contractors from all claims for loss or damage to (including, without limitation, vandalism and theft) arising out of or related to use of the parking facility; and (g) Tenant shall have this revocable license, only, and no estate shall be conveyed to Tenant under this Article; and (h) The location or relocation of the reserved parking spaces identified in Article 1.1, Paragraph (m) shall be reasonably agreed to by Landlord and Tenant. If Tenant violates any of the terms and conditions of this Article, or fails to use the parking facility in accordance with the terms of this Article and this Lease, then landlord may revoke this license to the extent that landlord deems reasonable and necessary, without liability to Tenant. Tenant's license shall otherwise be revoked and tenement concurrently with the termination of this Lease. ARTICLE 11-REPAIRS 11.1 Except as provided in Article 11.2, Tenant shall, at Tenant's sole cost and expense, keep the Premises in good condition and repair; including, without limitation, the maintenance and repair of all glass panels and partitions, lavatories, showers, toilets, basins, kitchen facilities and heating, ventilation and air-conditioning systems and each of their respective mechanical, plumbing and electrical connections (whether such systems or facilities are fully contained in the Premises, or exist outside the Premises, but were installed or are maintained to exclusively serve the Premises). Tenant shall exclusively use Landlord or Landlord's approved subcontractors for all work related to the mechanical, plumbing, heating, ventilation, air-conditioning, electrical, fire/life safety and lighting systems, which work shall be coordinated by Landlord; and, if Landlord independently determines that any such work is required, Landlord may arrange for such work to be performed without prior demand upon Tenant (but with such notice as may be required pursuant to Article 13). All charges for work coordinated by Landlord hereunder shall be payable by Tenant to Landlord as Additional Rent. 11.2 Landlord shall, at Landlord's initial cost and expense, repair and maintain the Common Areas, structural portions of the Building, and all basic mechanical, electrical, plumbing, heating, ventilation and air-conditioning systems providing service to all tenants in the Building. Payment of such expenses by Tenant to Landlord shall be subject to Article 5 and 6 of this Lease. Notwithstanding the foregoing, but subject to the provisions of Article 18, if any such maintenance or repair is caused in part or in whole by the negligence or willful misconduct of Tenant, its agents, servants, employees, licensees invitees (which do not include unsolicited relationships with Tenant), then Tenant shall directly pay to Landlord as Additional Rent the reasonable charge for such maintenance and repairs. Furthermore, Tenant shall take all reasonably necessary action to prevent any additional or future damage which Landlord reasonably believes may be caused by Tenant, its agents, servants, employees, licenses or invitees (which do not include unsolicited relationships with Tenant), whether as an isolated incident or as a continuous course of conduct, or whether individually or as a group. 11.3 Provided Landlord uses commercially reasonable efforts to minimize interference with Tenant's use of the Premises, Landlord reserves the right to: (a) Install, repair, maintain, relocate or replace plumbing, electrical, HVAC and other mechanical systems above the ceiling, below the floor, within the walls and central core; (b) Temporarily close the Common Areas or building for maintenance, repair, improvement or alteration of the Building or Common Areas, or make changes to the Common Areas, including, without limitation, changes affecting ingress, traffic flow, landscaping and parking facilities; and (c) Perform such other acts or make such other changes to the Building and Common Areas that Landlord may deem appropriate (provided Tenant's use or access to the Premises or Common Areas is not unreasonably impaired). 11.4 Landlord shall not be liable to Tenant for any failure by Landlord to perform the repairs and maintenance required of Landlord hereunder, unless such failure persists for an unreasonable time after Tenant notifies Landlord in writing of the specific need for such repairs or maintenance. Except as expressly provided elsewhere in this Lease, there shall be no abatement of rent and no liability of Landlord by reason of any injury to, or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building, Common Areas or Premises. Tenant waives any right to make repairs at Landlord's expense pursuant to California Civil Code section 1942 or any similar law, statue or ordinance. Tenant acknowledges that the Premises do not constitute a "Dwelling Unit" or "Dwelling" as the term is used in California Civil Code section 1940, et. seq. ARTICLE 12-CONDITION OF PREMISES 12.1 Subject to any provisions of this Lease concerning the making of Leasehold Improvements in the Premise (if any), by taking possession of the Premises hereunder, Tenant accepts the Premises as being in good order, condition and repair (excepting only latent defects and items subject to correction pursuant to Article 35) and otherwise as is, where is and with all faults. All work required to bring the Premises into compliance with the requirements of the ADA, other laws and ordinances as of the Commencement Date, shall be the sole responsibility of Landlord, both as to performance and payment of costs. Thereafter, Tenant shall be solely responsible to keep and maintain its Premises in compliance with the requirements of the ADA, other laws and ordinances. Except as may be expressly set forth in this Lease, Tenant acknowledges that neither Landlord, nor any employee, agent or contractor of landlord has made any representation or warranty concerning the Land, Building, Common Areas or Premises, or the suitability of either for the conduct of Tenant's business. 12.2 Upon the expiration of the Term or earlier termination of this Lease, Tenant shall relinquish possession of the Premises to Landlord in the same condition as received, ordinary wear and tear excepted, free of all trash and rubbish, and in broom clean condition. Landlord may dispose of any personal property remaining in the Premises in accordance with California Civil Code section 1980, et seq., and shall be entitled to recover all costs and expenses provided therein, including landlord's reasonable attorneys' fees and costs. ARTICLE 13-ENTRY BY LANDLORD 13.1 Provided Landlord uses commercially reasonable efforts to minimize interference with Tenant's business and advises Tenant an appropriate period in advance of same, Landlord shall have the right to enter the Premises to inspect the Premises, show the Premises to prospective purchasers, show the Premises to prospective tenants (if Tenant has failed to exercise its option to re-lease or in the last six (6) months of the extension terms, only), make alterations, improvements or repairs (including construction required by the character of the work), and environmental inspections. No advance notice shall be required for Landlord to supply janitorial services or to post legal notices. 13.2 Notwithstanding the provisions of Article 13.1, Landlord shall be entitled to enter the Premises without advising Tenant in advance or making the required effort to minimize interference with Tenant's business when Tenant is in default of this Lease, or in an "Emergency" (which shall be any circumstance which may threaten or endanger the building, or health or property of Landlord, other tenants, occupants or the general public, or result in a liability or loss to Landlord). 13.3 Landlord shall at all times have a key with which to unlock all of the doors in and to the Premises, excepting Tenant's vaults and safes. If Tenant changes locks on any doors without Landlord's prior written consent, Landlord shall have the right to enter the Premises, change, remove and/or replace such locks, repair any damage and restore the Premises, and charge Tenant as Additional Rent all expenses incurred in accomplishing the foregoing. 13.4 Except as expressly provided elsewhere in this Lease, there shall be no abatement of rent and no liability of Landlord by reason of any injury to, or interference with Tenant's business arising from any entry performed by Landlord in good faith attempt to comply with the terms of this Article. Any such good faith entry shall not constitute an eviction, or a forcible or unlawful entry or detainer of the Premises. ARTICLE 14-ALTERATIONS 14.1 All alterations, additions, decorations or improvements made by or on behalf of Tenant in or to the Premises ("Alterations"), shall require Landlord's prior reunion consent, which consent shall not be unreasonably withheld or delayed. Tenant may make alterations, decoration or improvements of less than $5,000 in any one instance without consent but with prior written notice to Landlord. Tenant shall give Landlord ten (10) days' prior written notice of Tenant's desire to make Alterations. Landlord may impose any reasonable condition upon issuing Landlord's consent (including, without limitation: requiring Tenant to remove Alterations at the end of the Term and restore the Premises to the condition prior to Alterations' having been made (reasonable wear and tear excepted); obtaining the consent of any mortgagee, encumbrance, lender or ground lessee; providing Landlord with working drawings, specifications, and estimated costs; providing Landlord with verification of all required permits or approvals; and, obtaining a lien and completion bond. 14.2 Tenant shall use contractors reasonably acceptable to Landlord for all Alterations effecting basic Building mechanical, electrical, plumbing, heating, ventilation and air-conditioning systems; and, shall otherwise use licensed, qualified contractors and subcontractors which shall carry course of construction, products liability, completed operations, worker's compensation and public liability insurance in amounts satisfactory to Landlord, naming Landlord as an additional insured. Alterations shall be performed at the times and in the manner specified by Landlord, and shall not interfere with access or use of the Common Areas or other premises. Alterations shall be performed in full compliance with all laws, rules and/or directives of any government or regulatory agency or authority. 14.3 All permanent improvements to the Premises, Leasehold Improvements and Alterations (including, without limitation, floor and wall coverings, blind, drapes, cabinets, shelving, doors, locks, paneling and the like) which Landlord has not required Tenant to remove at the end of the Term shall become the property of Landlord upon the termination of this Lease and shall be relinquished with the Premises. 14.4 Landlord may require Tenant to immediately remove any Alterations not made in accordance with this Articles, and restore the Premises to the condition immediately prior to the Alterations' having been made (reasonable wear and tear excepted). If Tenant either fails to immediately remove Alterations not made in accordance with this Article after Landlord's demand, or fails to remove Alterations which Landlord required to be removed upon termination as a condition of issuing Landlord's consent, then Landlord may perform such removal and restore the Premises, at Tenant's sole cost and expense, to the condition immediately prior to the Alterations' having been made (reasonable wear and tear excepted). 14.5 Except for initial tenant improvements performed by Landlord prior to The Commencement Date, all Alterations, removal of Alterations and restoration the Premises which Landlord is reasonably required to perform or supervise are subject to Landlord's charge, as Additional Rent, for all costs and expenses of such performance and supervision (including, without limitation, review of plans or work by Landlord's architect, engineer or other consultant), plus a supervision fee payable to Landlord in the amount of ten percent(10%) of the cost of such work. ARTICLE I5-HAZARDOUS MATERIALS 15.1 Tenant shall neither create, bring into nor store in the Building, Common Areas or Premises any "Hazardous Materials" (which shall be defined as any substance, material, emission discharge or waste defined as "hazardous", "toxic", or a "pollutant" or "contaminant" under any local, state or federal government law, statue, code, order or regulation for the protection of health, safety or the environment), excepting reasonable quantities of cleaning and business supplies used in connection with the maintenance of the Premises or the use of common office equipment. Tenant shall comply with all laws, regulations, recommendations or orders promulgated by any government, quasi-government or regulatory agency or authority, or the manufacturer of hazardous waste or materials with regard to maintenance of records, and its handling, storage and disposal. 'Upon Landlord's request, Tenant shall supply Landlord with a copy of any record or certificates required to be maintained by Tenant concerning hazardous materials or waste. 15.2 Notwithstanding the provisions of Article 15.1, if such Hazardous Materials were brought onto or generated upon the Land, Building, Common Areas or Premises by Tenant, and if such materials pose a material risk to the health of occupants of the Building or Common Areas or such Hazardous Materials are required to be removed according to law, then Tenant shall be solely responsible for the removal and abatement of same, at Tenant's sole cost and expense, and Tenant shall indemnify and hold Landlord harmless from any action which might occur as a result of the presence of such Hazardous Materials brought into or incorporated into the Land, Building, Common Areas or Premises by Tenant, its employees, subcontractors or consultants. ARTICLE 16-LIENS Tenant shall keep the Land, Building and Premises free from any liens resulting from work performed, materials furnished or obligations incurred by, or on behalf of Tenant. Tenant shall promptly discharge any such lien by bond or otherwise. If Tenant fails to promptly discharge any such lien after Landlord's demand, then Landlord may discharge the lien and charge Tenant as Additional Rent all costs and expense reasonably incurred by Landlord to do so, including attorneys' fees and costs. ARTICLE 17-BROKERS Each party warrants to the other that no broker, agent, finder, person or entity, other than Procuring Broker, was instrumental in negotiating or consummating this Lease, or might be entitled to a commission or compensation in connection with the execution of this lease. Each party shall indemnify and hold the other harmless from any claim, damages, cost and expenses, including attorneys' fees and costs, resulting from any claim that may be asserted against the other party by any broker, agent, finder, person or entity other than Procuring Broker which is not disclosed by such party to the other in writing prior to entering into this Lease, or who claims a right to compensation through such party. Landlord shall pay all commission due to the Procuring Broker in accordance with the agreement between Landlord and Procuring Broker. ARTICLE 18-INSURANCE 18.1 Subject to Article 5, Landlord shall, throughout the Term, provide, maintain and keep in force: with the agreement between Landlord and Procuring Broker. (a) Comprehensive general liability insurance for personal injury, bodily injury (including death), and property damage in such amounts as Landlord from time to time determines such insurance shall be reasonably comparable to those maintained by other landlords on similar buildings in the area: with the agreement between Landlord and Procuring Broker. (b) All risk insurance or fire insurance (with standard extended coverage and endorsement perils, leakage from fire protection devices and water damage) covering the Building and all fixed improvements therein, except those fixtures, improvements, furnishings, equipment and other property which Tenant is required to insure pursuant to Article 18.2, subparagraphs (b), (c), (d) and (e); (c) Insurance for loss of rental income or insurable gross profits in such amount Landlord prudently elects to maintain; (d) Such other insurance in such amounts as Landlord prudently elects to maintain shall be reasonably comparable to those maintained by other landlords on similar buildings in the area; Insurance to be provided and maintained by Landlord herein may contain such deductibles and exclusions and or such other terms and conditions as Landlord prudently determines to be commercially reasonable and sufficient. 18.2 Tenant shall, during the Term, provide, maintain and keep in force: (a) Comprehensive general liability insurance for personal and bodily injury, including death and property damage, with respect to Tenant's use and occupancy of the Premises, Common Areas and Building, and the business carried on by Tenant therein, with limits of not less than Two Million Dollars (2,000,000.00) for any one accident or occurrence, with Landlord named as an additional insured: (b) All risk or fire insurance (with standard extended coverage endorsement perils, theft, vandalism explosion, falling plaster, steam, gas, electricity, water, rain, elements of nature, water damage or dampness, and leakage from any part of the Building or Land, including fire protection devices, pipes, appliances and other plumbing) covering the full replacement cost of Tenant's trade fixtures, furnishings, equipment, inventory, stock-in- trade, Alterations and any improvement in and to the Premises which are above Building standards, whether such items existed in the Premises prior to Tenant's occupancy, or were installed in or to exclusively serve the Premises, and whether such items were installed by either Tenant or Landlord, and at either Tenant's or Landlord's expense; (c) If the Premises is on the street level floor of the Building, insurance covering the full replacement value of any plate glass windows or doors; (d) Any insurance which may be required pursuant to any local, state or federal government law, statue or regulation (including, without limitation, workers' compensation insurance). Notwithstanding the above, Landlord reserves the right to reasonably and prudently change the insurance requirements set forth herein (including, without limitation, requiring such additional insurance which Landlord reasonably and prudently determines to be sufficient). 18.3 Tenant shall provide Landlord on or before the Commencement Date and throughout the Term with copies of such certificates or other proof reasonably necessary for Landlord to verify that the required insurance coverage has been obtained, is in full force and effect and that the premiums have been paid thereon. All policies shall contain an undertaking by the insurer to notify landlord (and any mortgagees or ground lessors designated by Landlord) in writing not less than thirty (30) days prior to any material change, reduction, cancellation or other termination of coverage required hereunder. Replacement certificates or other such proof shall be furnished to Landlord not less than thirty (30) days prior to the expiration of any such policy or policies. Landlord's failure to request evidence of coverage shall not constitute a waiver of any of Landlord's rights hereunder or Tenant's obligation to so insure. 18.4 Insurance to be provided and maintained by either party pursuant to Article 18.1, subparagraphs (b), (c) and (d), and Article 18.2, subparagraphs (b), (c) and (d) shall include a clause or endorsement whereby the insurer waives its right of subrogation against the other party. Landlord and Tenant waive any rights of recovery against the other for injury or loss due to hazards covered y insurance (or required to be covered by insurance pursuant to Articles 18.1., subparagraphs (b), (c), and (d), and 18.2, subparagraphs (b), (c), and (d) which contain (or are required to contain) such a waiver of subrogation, to the extent of the injury or loss covered thereby. ARTICLE 19-lNDEMNlFlCATlON 19.1 Subject to the waivers of subrogation and liability set for thin Article 18.4, Tenant shall defend, indemnify and hold Landlord harmless from and against any and all liability, loss, claims, demand, damages or expenses, including attorneys' fees, whether for personal injury, theft, property damage or otherwise, due to or arising from: (a) Any accident, act or omission (caused by Tenant's use of the Premises or conduct of business therein) occurring or emanating from the Premises, except as may be caused by the negligence or willful misconduct, or breach or non-performance described in Article 19.2. subparagraph (b) or (c); (b) The negligence or willful misconduct of Tenant, its servants, employees, agents, contractors, concessionaires or licensees, or those over whom Tenant would normally be expected to exercise control, whether in or about the Land, Building, Common Areas, Premises, or parking facility; or (c) Tenant's breach or non-performance of any material provision of this Lease. If any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon notice from the Landlord, shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord. 19.2 Subject to the waivers of subrogation and liability set forth in Article 18.4, Landlord shall defend, indemnify and hold Tenant harmless from and against any an all liability, loss, claims, demand, damages or expenses, including attorneys' fees, whether for personal injury, theft, property damage or otherwise, due to or arising from: (a) Any accident, act or omission in or about the Land, Building, and Common Areas, except as may be caused by any accident, act or omission, negligence or willful misconduct, or breach or non-performance described in Article 19.1, subparagraphs (a) through (c); (b) The negligence or willful misconduct of Landlord, its servants, employees, agents, contractors, invitees, concessionaires or licensees, or those over whom Landlord has control, whether in or about the Land, Building, Common Areas, Premises, or parking facility; or (c) Landlord's breach or non-performance of any material provision of this Lease. If any action or proceeding is brought against Tenant by reason of any such claim, then Landlord, upon notice for Tenant, shall defend the same at Landlord's expense by counsel reasonably satisfactory to Tenant. ARTICLE 20-LIMITATION OF LIABILITY Except as may be expressly provided in Article 21, and notwithstanding anything to the contrary set forth in Article 19, Tenant assumes the risk of, and Landlord shall not be liable or in any way responsible to Tenant or Tenant's servant, employees, agents, contractors, concessionaires or licensees, or those over whom Tenant would normally be expected to exercise control for any loss, injury or damage to their respective. (a) Required to be insured by Tenant pursuant to Article 18.2, otherwise actually insured by Tenant; (b) Resulting from entrustment of property to Landlord, or Landlord's employees, contractors or agents ("Entrustment" to be defined to include, without limitation, attended parking, but exclude the nominal maintenance of Tenant's fixtures, furnishings and property in the Premises in connection with the Permitted Use); (c) Resulting from the intentional or negligent acts or omissions (including, without limitation, theft and vandalism) by other tenants of the Building (and their employees, invitees, contractors or agents), unless caused by Landlord's failure, after receipt of written notice, to take reasonable action to enforce the Leases or Rules and Regulations with respect to such other tenants, or resulting from the intentional or negligent acts or omission of other persons or occupants in the building or Common Areas other than the parties hereto (and their respective employees, invitees, contract on or agents); (d) Resulting from the construction of public work, whether in, on or about the Land, Building, Common Areas or Premises; (e) Resulting from the failure of Landlord to perform or observe any of the terms, conditions or covenants of this Lease unless such failure has persisted for an unreasonable period of time after receipt of written notice by Landlord from Tenant specifying such failure; or (f) Resulting from any occurrence not otherwise specifically set forth above, provided such occurrence is not caused by Landlord's negligence, willful misconduct, or breach of this Lease. ARTICLE 21-DAMAGE OR DESTRUCTION 21.1 If the interior of the Premises is damaged or destroyed by Tenant, then Tenant shall, at Tenant's sole cost and expense, promptly repair, replace and restore the Premises and the permanent improvements therein (including, without limitation, any Leasehold Improvements and Alterations) to at least the condition existing prior to the damage (reasonable wear and tear excepted) during which time this Lease shall remain in full force and effect. If no damage or destruction as described in Article 21.2 occurs in conjunction with the damage or destruction to the interior of the Premises, then Tenant's rent shall not abate as a result of same. 21.2 If any portion of the Land, Building, Common Areas, or Premises reasonably necessary for Tenant's access, use or occupancy of the Premises is damaged or destroyed by any cause, then the rights and obligations of Landlord and Tenant shall be as follows: (a) If repairs can, in Landlord's reasonable opinion, be completed within one hundred twenty (120) days after commencement of such repairs, then Landlord shall repair the same (to the condition existing prior to the damage) after receipt of insurance proceeds, during which time this Lease shall remain in full force and effect except that Tenant's Total Monthly Rent shall abate to the extent provided in Article 21.4; or (b) If repairs cannot, in Landlord's opinion, be completed within said one hundred twenty (120) day period, or if such damage or destruction is not insured by Landlord's insurance policies, Landlord may either: (i) Repair the same (to Building standards) after receipt of insurance proceeds, during which time this Lease shall remain in full force and effect, except that Tenant's Total Monthly Rent shall abate to the extent provided in Article 21.4; or (ii) Provided Landlord terminates the leases of all similarly situated tenants, Terminate this Lease upon at least thirty (30) days' prior written notice to Tenant, this Lease to remain in full force and effect through the specified termination date, except that Tenant's Total Monthly Rent shall abate to the extent provided in Article 21.4. (c) If Landlord has failed, within one hundred twenty (120) days from the date of damage or destruction to the Building or common areas to make the Premises available for Tenant's use, enjoyment and access, Tenant may terminate this Lease with thirty (30) days prior written notice, in which event this Lease shall terminate on the date set forth in Tenant's notice as if such date were the expiration date of the Term. 21.3 If Landlord or Tenant elects to terminate this Lease pursuant to Article 21.2(b)(ii) or Article 21.2 (c), respectively, and Tenant has maintained the insurance required pursuant to Article 18.2 (b), then Tenant shall assign its right to receive the benefits under such insurance for the repair and restoration of the above-standard permanent improvements to the Premises. If Tenant terminates, Tenant shall directly pay Landlord any deductible under such policy. 21.4 Any abatement of rent hereunder shall be limited to the extent that Tenant's use or enjoyment of the Premises or necessary common area is materially impaired or prevented. 21.5 Notwithstanding anything to the contrary contained in this Article or Lease; Landlord shall have no obligation to repair or restore damage or destruction under Article 21.2 when it occurs during the last six (6) months of he Term; however, if Landlord so elects and the damage or destruction either prevents Tenant's reasonable access to the Premises or materially adversely affects Tenant's use of all or a substantial part of the Premises, then Tenant shall have the right to terminate this Lease upon thirty (30) days' prior written notice to Landlord, which notice shall be given within fifteen (l5) days after receipt of Landlord's election not to repair or restore. 21.6 Tenant hereby waives the application of California Civil Code sections 1932(2)and 1933(4), which shall have no force or effect in governing the termination of this Lease. ARTICLE 22-EMINENT DOMAIN 22.1 If all or any portion of the Land, Building, Common Areas or Premises is taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain (or sold in lieu of such taking), then: (a) If such taking or sale substantially interferes with Tenant's use and occupancy of the Premises, then Tenant may elect to terminate this Lease on the date of surrender or sale to said authority; or (b) If such taking or sale does not substantially interfere with Tenant's use and occupancy of the Premises and any restoration of the Premises is covered by insurance carried or maintained by Landlord, then Landlord shall restore the Premises to the same condition prior to such partial taking, otherwise, Landlord may elect to terminate this Lease; however, in either case, Tenant's Total Monthly Rent shall be abated with respect to that portion of the Premises rendered unusable for the conduct of Tenant's business therein as a result of the taking or sale, for the period of time that such portion is so rendered unusable. 22.2 Tenant shall not assert any claim for the taking of any interest in this Lease, the Land, Building, Common Areas or Premises and Landlord shall be entitled to receive the entire amount of any award without deduction or offset for any estate or interest of Tenant; however, Tenant shall be entitled to bring a separate action for relocation expense, and damages to Tenant's personal property, trade fixtures and goodwill. Tenant hereby waives the application of California Code of Civil Procedure section 1265.130 to the extent that its provision are contrary to the provision of this Article. ARTICLE 23-SUBORDINATION 23.1 Without the necessity of the execution and delivery of any further instruments on the part Or Tenant to effectuate such subordination, this lease shall at all times be subject and subordinate to any liens of any mortgages or deed of trust, or ground or underlying leases which not exist or may hereafter be executed or placed effecting the Land and/or Building, or upon landlord's interest or estate therein. If any ground lease or underlying lease is terminated for any reason, any mortgage deed of trust or lien is foreclosed, or the Land or Building is conveyed in lieu of foreclosure, then Tenant shall attorn to and become the tenant of Landlord's successor in interest and Tenant's right to possession of the Premises shall; not be disturbed, provided Tenant is not in default and continues to perform; and observe all of the terms, conditions and covenants of this Lease. 23.2 Notwithstanding the foregoing, Tenant shall execute and deliver such reasonable instrument which may be required by any such ground lessor, lender, mortgagee, lien holder or encumbrancer evidencing such subordination, and the failure or refusal to do so within ten (10) business days after receipt of Landlord's written request shall constitute a default of this Lease. 23.3 Landlord shall use its best efforts to obtain a non-disturbance agreement from Landlord's lender in a form acceptable to Landlord's lender. ARTICLE 24-OFFSET STATEMENT Upon Landlord's request, Tenant shall execute, acknowledge and deliver to Landlord a statement in writing setting forth Tenant's certification of the following: that this Lease is unmodified (or, if modified, the nature of such modification) and is in full force and effect; the extent to which rental or other charges have been prepaid; and that Landlord, to Tenant's knowledge, has not failed to cure any default of Landlord of this Lease (or specifying such uncured defaults, if any are claimed). Tenant's failure or refusal to execute and deliver such a statement within ten (10) business days after receipt of Landlord's written request shall be conclusive upon Tenant that: this Lease is in full force and effect, without modification (except as may be represented by Landlord); except as provided in this Lease, not more than one month of rent has been paid in advance, and not more than one month of security deposit is being held by Landlord: and, there are no uncured defaults of Landlord. Tenant acknowledges that such statement may be relied upon by a prospective purchaser or encumbrancer of all or any portion of the Land, Building or Premises. ARTICLE 25-ASSIGNMENT AND SUBLETTING 25.1 Unless Tenant has obtained the prior written consent of Landlord (which shall not be unreasonably withheld, subject to the provisions of Article 25.3), Tenant shall not pledge, sell, transfer, hypothecate, encumber or assign this Lease or Tenant's interest therein, sublet all or any part of the Premises, or permit occupancy or the conduct of business in any or all of the Premises by anyone other than Tenant. Any assignment, sublease, sale, mortgage, pledge, encumbrance or transfer by Tenant or such other party made in contravention of this Article shall be void and of no force or effect. 25.2 If Tenant proposes to assign this Lease or to sublet all or any portion of the Premises, then Tenant shall give Landlord written notice of Tenant's intent to so assign or sublet at least fifteen (15) days prior to the proposed effective date of the assignment or sublease. The notice shall include, with respect to each proposed assignee or subtenant; name and address; terms and conditions of the proposed assignment or sublease; a detailed statement of facts about the nature of the proposed use of the Premises and the proposed assignee's or subtenant's business experience; a balance sheet showing financial condition as of a date within ninety (90) days prior to the date of the notice; for any proposed sublease or assignment of an area greater than four thousand rentable square feet, statements of income, profit and loss for the last two (2) complete fiscal years; bank and credit references; and, such other and further information as Landlord may reasonably require. 25.3 (A) Landlord shall, within such fifteen (15) days following receipt of Tenant's notice pursuant to Article 25.1, notify Tenant that Landlord either grants or denies its consent for Tenant to proceed to assign or sublet on the terms and conditions contained in Tenant's notice. Landlord's failure to timely deny consent shall be deemed approval to assign or sublet on the terms and conditions contained in Tenant's notice, but only to the extent that the represented terms and conditions do not conflict with the terms and conditions of this Lease. Landlord may deny consent to assign or sublet upon any commercially reasonable ground (which Landlord shall specify in notifying Tenant of such denial of consent), including, but not limited to, the following: (a) The financial condition of the proposed assignee or subtenant, in Landlord's reasonable opinion, is insufficient to enable it to meet its proposed financial obligations; (b) If Tenant is to relocate, the financial condition of Tenant after the proposed assignment or sublease and relocation would be insufficient to enable it to meet its financial obligations under this Lease: (c) The proposed use, or reputation or character of the proposed assignee or subtenant is not in keeping with the nature of the Building or may adversely affect the operation or reputation of the Building; (d) The proposed use of the Premises is not for general of office uses compatible, in Landlord's reasonable opinion, to the other tenants' uses (regardless of the Permitted Use); or (e) The proposed use of the Premises conflicts with any other existing agreements between Landlord and other tenants concerning the Land, Building, Common Areas or Premises. If Landlord denies consent to sublet, Tenant waives the right to terminate this Lease pursuant to California Civil Code section 1995.310 (b). Such consent shall not be unreasonable withheld or delayed. (B) In the event Tenant informs Landlord of its desire to sublease the Premises, Landlord shall have fifteen (15) days to recapture the Premises and terminate the Lease. 25.4 One half (1/2) of any consideration, including rents, received by or on behalf of Tenant from such assignment or sublease in excess of total Monthly Rent shall be payable to Landlord upon receipt by Tenant as Additional Rent. Notwithstanding the foregoing, Tenant shall be entitled to recapture from any such excess consideration Tenant's costs and expenses for brokerage commissions, permanent improvements, excused rent, attorneys' fees, lease takeovers, and other common commercial lease concessions, advertising to sublet or assign and shared services (including, without limitation, expenses of shared receptionist, library, telephone system, photocopier, or other similar office expense); but, expressly excluding from recapture any "down time" for non-use of any portion of the Premises prior to such assignment or sublease. 25.5 Any allowances, rights to acquire additional Premises, rights to extend or renew, options or any other similar concessions or consideration set forth in this Lease and any addenda or amendments thereto are expressly understood to be solely for the benefit of the original Tenant and shall be null, void and of no force or effect, at Landlord's option, as of the effective date of any assignment or subletting; however, this shall not be deemed to retroactively nullify or void any allowances, concessions, rights or options actually disbursed, made or exercised prior to such effective date. 25.6 Any advertisement, publicity or other public solicitation of any assignment or subletting of the Premises shall require Landlord's prior written consent, which shall not be unreasonably withheld or delayed. 25.7 Any permitted assignment or subletting of the Premises shall not act to release Tenant or any subsequent assignor or sub lessor from any liability under this Lease, and Tenant shall cause any assignee to execute an agreement with Landlord upon a form furnished by Landlord binding the assignees or sublease to all the terms of this Lease without relieving Tenant of any liability hereunder. As security for Tenant's obligations under this Lease, Tenant assigns to Landlord the right to collect all rent resulting from any assignment or sublease of the Premises in the event of Tenant's default; and Landlord (as assignee and attorney-in-fact for Tenant, or as a receiver for Tenant appointed on Landlord's application, may upon written notice to Tenant and subtenant or assignee, thereafter collect and apply such rent toward the satisfaction of Tenant's obligations under this Lease. Tenant shall pay a reasonable processing fee to Landlord for each assignment or sublease to Landlord, not to exceed Five Hundred Dollars ($500.00). 25.8 Unless Tenant is a corporation or a wholly owned subsidiary of a corporation whose stock is traded through a recognized United States exchange, any of the following shall be deemed to be a voluntary assignment requiring Landlord's consent: a change in business status or organization, dissolution, merger, consolidation or other reorganization of Tenant (either voluntarily or pursuant to any provision of the Bankruptcy Act); the sale or other transfer of a controlling share of the voting capital stock of Tenant; or, the sale of fifty-one percent (51%) or more of the interests of Tenant. However, if Tenant is a corporation or a wholly owned subsidiary of a corporation whose stock is traded through a recognized United States exchange, then, provided Tenant is not in default hereunder, Tenant may assign this Lease or sublet the Premises to a corporation into or with which Tenant is merged or consolidated, or to which all or substantially all of Tenant's assets are transferred, or to any corporation or other entity which controls or is controlled by the Tenant or is under common control or affiliated with the Tenant. Tenant shall notify Landlord of any such assignment or sublease in accordance with Article 33 of this Lease and concurrently provide Landlord with the same financial information as required in Article 25.2 with respect to any proposed assignee or sublease. ARTICLE 26- BANKRUPTCY AND INVOLUNTARY ASSIGNMENT 26.1 Any of the following acts or occurrences with respect to either Tenant or any guarantor of this Lease shall constitute an involuntary assignment; filing a petition under Chapter 7, 10, 11 or any other provision of the Bankruptcy Act now or hereafter in effect; making an assignment for the benefit or creditors; being adjudicated bankrupt in involuntary bankruptcy proceedings, unless the judgment is vacated within sixty (60) days from entry; becoming insolvent (reflected by either a written admission of inability to meet current obligations, actual inability to meet current obligations, or liabilities exceeding assets); appointment of a receiver or trustee for any property (including, without limitation, this Lease) unless the attachment or execution is removed within sixty (60) days after levy; or transfer or assignment of this Lease by operation of law (including, without limitation, transfer by will or intestacy). 26.2 An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to terminate this Lease. This Lease shall not be treated as an asset of Tenant and neither Tenant nor any person claiming through or under Tenant (or by virtue of any statue or order of any court) shall be entitled to possession of the Premises, which shall be forthwith surrendered to Landlord. Landlord shall be entitled to recover damages at least in the amounts set forth in Article 30 of this Lease; however, nothing herein shall limit or prejudice the right of Landlord to seek any other damages allowed by any applicable statue or rule of law. ARTICLE 27-FINANCIAL STATEMENTS If Tenant is not in default of this Lease, and Landlord is proposing to convey, finance or refinance Landlord's interest in the land, Building or Common Areas, then Landlord shall have the right to require Tenant to furnish Landlord, at Landlord's sole cost and expense, with financial statements prepared by a Certified Public Accountant according to generally recognized accounting principles showing Tenant's financial condition as of a date not more than ninety (90) days prior to submission to Landlord. ARTICLE 28-HOLDING OVER 28.1 Tenant shall not hold over after the expiration of the Term or earlier termination of this Lease without the prior written consent of Landlord (which shall not be subject to Article 34.1). Tenant agrees that Tenant's failure to surrender possession of the Premises at the end of the Term can and will cause actual damage to Landlord which is impracticable or extremely difficult to ascertain (including, without limitation, lost opportunities to lease the Premises, increase in the cost of improvements, lost rent and liability for Landlord's inability to deliver timely possession of the Premises to another tenant). Therefore, if Tenant holds over after the Term without the prior written consent of Landlord, then Tenant shall become a Tenant at sufferance only and shall continue to perform each and every term, condition and covenant of this Lease during any such period of holding over; except that, in lieu of damages to which Landlord may be entitled hereunder, Landlord may elect to have Tenant pay Landlord liquidated damages in an amount equal to one hundred fifty percent (l50%) of the Total Monthly Rent payable by Tenant to Landlord in the last complete month of the Term, for each month or portion thereof which Tenant so holds over. 28.2 If Landlord consents to Tenant's holding over after the expiration of the Term or earlier termination of this Lease, then the tenancy shall continue from month-to-month upon the same terms, conditions and covenants contained in this Lease, except that for each month or portion thereof that Tenant so hold over, Tenant shall pay to Landlord rent equal to one hundred fifty percent (150%) of the Total Monthly Rent payable by Tenant in the last complete month of the Term. 28.3 The foregoing provisions of this Article are in addition to any other rights of Landlord hereunder, or as otherwise provided by law, including, without limitation, the right to bring an action for unlawful detainer. Landlord's acceptance of rent after expiration or earlier termination of this Lease, or during any such period of holding over shall not be construed as a renewal or extension of this Lease. Notwithstanding anything to the contrary contained in this Lease, Tenant shall not be entitled to any parking discounts or specified modes of parking during any such period of holding over. ARTICLE 29-DEFAULTS 29.1 The occurrence of any one or more of the following events shall constitute a default of this Lease by Tenant: (a) Tenant's failure to pay any Basic Monthly Rent, Tax Rent, Operating Expense Rent, Capital Expense Rent, Additional Rent or any other payment due Landlord under this Lease; (b) Any default set forth in Article 26 of this Lease; or (c) Tenant's failure to observe to perform any express or implied covenant or provisions of this Lease, other than those specified in subparagraphs (a) and (b), above, within ten ( 10) days after receipt of notice from Landlord; however, if more than ten (10) days are reasonably required to so observe or perform, then Tenant shall not be in default so long as Tenant commences observance or performance within said ten (10) day period and diligently prosecutes same to completion. 29.2 Any notice of default Landlord is required to give Tenant hereunder and any notice Landlord may be required to give pursuant to California Code of Civil Porcedure Section 1161 etseq. (or any similar law now or hereafter in effect) may be satisfied by a single notice inclusive of the requirements of both this Article and statutory law. Tenant shall have five (5) days from notification by Landlord to cure any such default. ARTICLE 30- REMEDIES 30.1 If Tenant is in default of this Lease, then Landlord may avail itself of any remedies under law. Landlord may elect (without obligation under Article 35.1) to avail itself of the remedy described in California Civil Code Section 1951.4, in which case this Lease shall continue in full force and effect after Tenant's breach and abandonment, and notwithstanding anything to the contrary contained in Article 25, Tenant shall thereafter have the right to sublet or assign this Lease subject only to reasonable limitations. If Landlord does not elect to avail itself of the remedy described in California Civil Code Section 1951.4 and Tenant either breaches this Lease and abandons the Premises before the end of the Term, or Tenant's right to possession is terminated by the Landlord because of a breach of this Lease, then this Lease shall terminate, and Landlord shall recover from Tenant the following: (a) The worth at the time of award of the unpaid rent which had been earned at time of termination: (b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided: and (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom (including, without limitation, any costs of obtaining mitigating rental income, such as excused rent, brokerage commissions, Tenant Improvements, parking concessions, lease takeovers, cash payments, advertising, moving costs or any other cost or Tenant concession related to the re-leasing of the Premises upon the default of Tenant). The "worth at the time of award" of the amounts referred to in subparagraphs (a) and (b) above shall be computed by allowing interest at the rate specified in Article 34.11 of this Lease; and the "worth at the time of award" of the amounts referred to in subparagraph (c) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). 30.2 Tenant waives any equity of redemption and any right to relief form forfeiture as provided by California Code of Civil Procedures Section 1179 (or any other similar applicable statute, regulation or law nor or hereafter in effect). ARTICLE 31- ATTORNEYS' FEES 31.1 If either Landlord or Tenant brings suit to interpret or enforce any provision of this Lease or any rights of either party hereto, then the prevailing party shall recover from the other party all costs and expenses, including reasonable attorneys' fees. Notwithstanding the provisions of California Civil Code Section 1717, the term "prevailing party" as used herein shall include, without limitation, both a party as to whom a lawsuit is dismissed (with or without prejudice) without the written consent of that party and, if the lawsuit is one for declaratory relief, that party whose contentions are substantially upheld as to the interpretations of this Lease. Any attorneys' fees payable pursuant to this Article may be claimed either as court costs or in a separate suit. 31.2 If Landlord is named as a defendant in any suit brought against Tenant as a result of the tenancy created hereunder and not due to any alleged fault or breach of this Lease on the Part of Landlord, then Tenant shall pay to Landlord all costs and expenses incurred by Landlord in such suit, including attorneys' fees. ARTICLE 32- ARBITRATION Any controversy or claim arising out of or relating to this Lease, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. The costs and fees of the arbitrator shall be shared equally between the parties. Any award may also include an allocation of reasonable attorneys' fees to the prevailing party. The agreement to arbitrate will be specifically enforceable under the prevailing law of any court having jurisdiction. by Landlord in such suit, including attorneys' fees. ARTICLE 33- NOTICES 33.1 Notice shall be given to Tenant by sending the originals to: Chief Financial Officer of New Horizons Computer Learning Centers, Inc. at 1231 East Dyer Road, Suite 140, Santa Ana, CA 92705 and to the General Counsel at 500 Campus Drive, Morganville, NJ 07751. Notice shall be given to Landlord at 100 Corporate Pointe, Suite 160, Culver City, California 90230. Either party may, by written notice to the by Landlord in such suit, including attorneys' fees. 33.2 In order to prevent disputes concerning the giving of notice, if any provision of this Lease (or addenda or amendments thereto) requires "notice" to be given by either party to "notify" the other, or otherwise refers to "notification", then such notice shall be made in writing and be given by either personal delivery, certified mail or a nationally-recognized overnight courier service, in each case delivery to be evidenced by a signed receipt therefor. Notice may also be given by facsimile transmission, provided the party to whom the transmission is addressed acknowledges actual, legible receipt by existing a copy of the transmission (or a receipt for same) and returning a copy of same to the sender, by facsimile transmission or otherwise. Notices shall be deemed effective at the time of delivery, as confirmed by said signed receipts. If either party fails or refuses to accept delivery by certified mail or overnight courier service, or refuses to execute a receipt evidencing delivery, then notice may be given by first-class mail and shall be deemed effective two (2) business days after mailing. 33.3 The term "notice " shall not include any bills, invoices, rent statements or statement of any other charges or sums due from Tenant to Landlord, or any notice required or permitted to be given pursuant to any law or statute. ARTICLE 34- GENERAL PROVISIONS 34.1 Discretion Consent. Except as may be otherwise specifically provided in this Lease, to the contrary, wheresoever and whenever Landlord or Tenant's discretion or consent is required under this Lease, Landlord and Tenant agree that such discretion will be exercised in a commercially reasonable manner and that such consent will not be unreasonably withheld or delayed. 34.2 Rules and Relations. Tenant shall faithfully observe and comply with the Rules and Regulations attached hereto as Exhibit "C", and all reasonable and nondiscriminatory modifications or additions thereto made by Landlord from time to time, except as modified by this Lease and Addendum hereto. 34.3 Conflict of Laws. This Lease shall be governed by and construed under the laws of the State of California. 34.4 Venue. Any lawsuit brought by Tenant against Landlord shall be filed in a court of competent jurisdiction in the County of Los Angeles. 34.5 Identification of Tenant. The term "Tenant" as used in this Lease shall mean and include each person or entity that executes this Lease as Tenant, who shall be jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant. Notice from or to any single person or entity executing this Lease as Tenant shall be deemed to be effective notice from or to each and every person or entity executing this Lease as Tenant, with the same force or effect as if each such person or entity had so given or received such notice. Any act or signature by any single person or entity executing this Lease as Tenant concerning this tenancy or Lease (including without limitation, any renewal, extension, expiration, termination or modification of this Lease) shall be binding upon each person or entity executing this Lease as Tenant with the same force and effect as if each person or entity had so acted or signed. Any refund to any single person or entity executing this Lease as Tenant shall be deemed to be a refund to each person or entity executing this Lease as Tenant, as if each such refund had been collectively made to all such persons or entities. 34.6 Successors and Assigns. Except as otherwise provided in this Lease, each covenant, condition and provision of this Lease shall be binding upon and shall insure to the benefit of the parties hereto, their respective heirs, personal representatives, successors and permissible assigns. 34.7 Relinquishment of Possession. The voluntary or involuntary relinquishment of possession of the Premises by Tenant to Landlord, or a mutual cancellation of this Lease by both Tenant and Landlord, shall at the option of Landlord operate as a assignment to Landlord of any or all subleases or subtenancies and no marker shall be affected. 34.8 Performance by Tenant. If Tenant fails to perform any act to be performed by Tenant hereunder other than payment of money to Landlord and such failure continues for ten(10)days after Tenant's receipt of notice thereof from Landlord, Landlord may, without waiving or releasing Tenant from any obligation, perform any such at and all costs incurred by Landlord, together with interest thereon at the rate specified in Article 35.11 of this Lease from the date of such payment. 34.9 Definition of Landlord. The term "Landlord" as used in this Lease shall be limited to mean and include only the owner at the time in question of the fee or leasehold interest under a ground lease of the Land. If Landlord transfers assigns or otherwise conveys any such title or leasehold, Landlord shall be automatically freed and relieved of all liability with respect to the performance of any covenants or obligations in this Lease to be performed from and after the date of such transfer, assignment or conveyance, except as may be provided in Article 7.3 34.10 Waiver. The waiver by Landlord of any breach of any term, covenant or condition of this Lease shall neither be deemed a waiver of any concurrent or subsequent breach of the same or any other term, covenant or condition of this lease, nor shall any custom or practice which may develop between the parties in the administration of the term hereof be deemed a waiver of, or in any way affect the right of Landlord to require strict performance by Tenant. The acceptance of rent or any sum hereunder by Landlord shall not be deemed to be a waiver of any breach by Tenant of any term, covenant or condition of this lease other than the failure of Tenant to pay such rent or sum, regardless of Landlord's knowledge of such breach at the time of acceptance. 34.11 Interest. Whatsoever required in this Lease, and in lieu of the legal rate to be used in the computation of any interest owed Landlord in any judgment or award of the court, interest shall be charged at a rate equal to the higher of: (a) Ten percent (10%) per annum; or (b) Five percent (5%) per annum, plus the rate established by the Federal Reserve Bank of San Francisco on advances to member banks under Sections 13 and 13(a) of the Federal Reserve Act (as now in effect, or hereafter from time to time amended or, if there is no such single terminable rate of advances, the closest counterpart of such rate as shall be designated by the Superintendent of Banks of the Sate of California, unless some other person or agency is delegated such authority by the legislature) which is prevailing on the twenty-fifth (25th) day of the month preceding the "Accrual Date". The "Accrual Date" shall be defined as follows: for purposes of Article 29, as the initial date of default; for purposes of Article 6, the date of final payment by Landlord for the Capital Expense; and for all other purposes, the date of execution of this Lease. Tenant hereby agrees that the use of such interest rate herein shall not be deemed to be interest upon a loan or forbearance of money, for goods or things in action for use primarily for personal, family or household purposes within the meaning of the California Constitution, Article 15, Section 1. 34.12 Terms, Headings, and Print. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The article headings are not a part of this Lease, and such headings and any use of boldface, italics or underlining are for convenience only and shall have no effect upon the construction or interpretation of this Lease. 34.13 Time. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. 34.14 Entire Agreement. This Lease contains the entire agreement of the parties hereto with respect to any matter covered or mentioned in this lease and no prior agreement or understanding oral or written, expressed or implied, pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing executed by both Landlord and Tenant or their respective successors in interest. The parties acknowledge that all prior agreements, representations and negotiations concerning the subject matter of this Lease, or collateral thereto, are deemed superseded by the execution of this Lease to the extent they are not incorporated herein and that this agreement shall be deemed to be integrated. 34.15 Severability. Any provision of this Lease which proves to be invalid, void, or illegal shall in no way affect, impair or invalidate any other provisions hereof, and such other provisions shall remain in full force and effect. 34.16 Recording. Tenant shall not record this Lease or a short form memorandum thereof without the written consent of Landlord. Any recording without Landlord's written consent shall be a material breach of this Lease. 34.17 Plats, Riders, and Clauses. Any addenda, clauses, plats, riders and provisions executed by both Landlord and Tenant which are inserted in, endorsed on or affixed to this Lease are a part hereof. If there is any variations or discrepancy between duplicate original documents held by Landlord and Tenant, then the duplicate original held by Landlord shall be deemed controlling. 34.18 Building Name. Tenant shall not use the name of the Building for any purpose other than the address of the business to be conducted by Tenant in the Premises. Landlord shall have the right, without liability to Tenant, for any damage or injury, whatsoever, to change the name or street address of the Building. 34.19 Quiet Possession. Except as otherwise provided in this Lease, Tenant, upon paying the rents reserved hereunder and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, shall have quiet possession of the Premises for the entire Term. 34.20 Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive and, wherever possible, each remedy shall be cumulative with all other remedies. 34.21 Examination and Delivery of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, or option to Lease and is not effective as a Lease or otherwise, or a binding legal instrument until execution and delivery by all parties. Prior to such execution and delivery, this Lease shall neither be legally binding nor effective. 34.22 Confidentiality. Tenant agrees to keep the terms of this Lease confidential and shall not disclose same to any other person not a party hereto without the prior written consent of Landlord; however, Tenant may disclose the terms hereof to Tenant's real estate broker, accountants, attorneys, managing employees, and other in privity with Tenant to the extent reasonably necessary for Tenant's business purposes. Tenant agrees that a breach of this Article will cause irreparable injury to Landlord and Landlord shall be entitled, together with all other remedies in law or equity available to Landlord, to injunctive relief to restrain such breach. 34.23 Agreed Figures. All figures set forth in this Leases represent negotiated sums and percentages and are conclusive as between Landlord and Tenant. ARTICLE 35- ADDENDUM Addendum No. 1 attached hereto is hereby incorporated in and forms a part of this Lease WHEREUPON, THE PARTIES HERE TO HAVE EXECUTED THIS LEASE ON THE DATE INDICATED. TENANT: New Horizons Computer Learning Centers, Inc. Date: 3/15/96 By: /s/ Charles Kinch ---------- --------------------- Name: Charles Kinch -------------------- Title: President ------------------- ATTESTED: Date: 3/15/96 By: /s/ Gary T. Gann ---------- ----------------------- Name: Gary T. Gann --------------------- Title: Secretary -------------------- LANDLORD: Mani Brothers, LLC Date: By: --------- ---------------------- Name: ------------------- Title: ------------------- EXHIBIT "A" PREMISES LOCATION PLAN --------------------------------------- EXHIBIT "B" LEGAL DESCRIPTION ---------------------------------------- The real Properly commonly known as 100 Corporate Pointe, Culver City, California, and more particularly described as: That certain real property located in the County of Los Angeles, State of California, described as follows: Lots 20 and 23 of Tract 33152 in the City of Culver City, County of Los Angeles, State of California, as per map recorded in Book 1020, Pages 31 to 35 inclusive of Maps, in the office of the County Recorder of said County. EXHIBIT "C" RULES AND REGULATIONS -------------------------------------------------------------- Except as specifically provide to the contrary in the Lease to which these Rules and Regulations are attached, the following Rules and Regulations shall be applicable for purposes of this Lease. 1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building without the prior consent of the Landlord. Landlord shall have the right to remove, at Tenant's expense and without Notice any sign placard, picture, advertisement, name or notice installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant using materials and in a style and format approved by Landlord. 2. Tenant must use Landlord's Building Standard window coverings in all exterior and atrium window offices. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other objects attached or used in connection with any balcony, window or door of the Premise, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant shall immediately discontinue such use. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises. Landlord shall have a right of prior written approval with respect to any matter placed by Tenant on or near Tenant's windows or balcony. 3. Subject to the provisions of Rule 8. below, Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators or stairways of the Building. The halls, passages, exits, entrances, walls, elevators, escalators and stairways are not open to the general public; but are open, subject to reasonable regulations, to Tenants' business invitees. Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence, in the judgment of Landlord, would be prejudicial to the safety, character, reputation and interest of the Building and its tenants. Neither Tenant nor its contractors, employees or invitees shall go upon the roof(s) of the Building. 4. The directory of the Building will be provided exclusively for the display of the names and location of tenants only and Tenant shall be entitled to display one name per thousand rentable square feet in the Premises on the directory. Tenant's initial listing shall be at Tenant's cost and expense, and any revision thereto shall be made at Tenant's cost and expense. 5. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord and, except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises and Building. 6. Landlord will furnish Tenant, free of charge, with up to one key for each parking space leased by Tenant. Thereafter, Landlord will make a reasonable charge of any additional or replacement keys. Tenant shall not make or have made additional keys other than those provided by Landlord, and Tenant shall not alter any lock or install a new or additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys to all door locks which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 7. Electric wires, telephones, telegraphs, burglar alarms or other electric apparatus, other than those installed by Landlord at the time Tenant occupies the Premises, shall not be installed in the Premises except with the approval and under the direction of Landlord, and no such installation shall be made without first obtaining written permission from Landlord to do such work. The location of telephones, call boxes and any other equipment affixed to the Premises shall be subject to the approval of Landlord. Any installation of telephones, telegraphs, electric wires or other electric apparatus made without permission shall be removed by Tenant at Tenant's own expense. Landlord understands the nature of Tenant's business necessitates the use of movable cables and wires for computers and consents to their installation and re-installation thereof. 8. Freight elevator(s) shall be available for use by all tenants in the Building, subject to such reasonable scheduling as Landlord, in its discretion, deems appropriate. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Tenant's initial move-in and subsequent deliveries of bulky items (e.g., furniture, safes and similar items) shall, unless otherwise agreed in writing by Landlord, be made during non-Business Hours. Deliveries during Business Hours shall be limited to normal office supplies, reasonable quantities of food and beverage supplies and other small items. No deliveries shall be made which impede or interfere with other tenants or the operation of the Building. 9. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenants which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. 10. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner which is offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations. 11. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord. 12. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning and compliance with any governmental energy saving rules, laws or regulations relating thereto. Tenant shall not adjust thermostats. Tenant shall keep corridor doors closed. Tenant shall close window coverings, shut off all water faucets (or other water apparatus), and electricity, and turn off appliances and exhaust fans at the end of each business day. 13. During non-Business Hours Landlord reserves the right to exclude from the Building any person, unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. 14. The toilets, urinals, wash basins and other restroom or janitorial closet apparatus shall not be used for any purpose other that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. Tenant shall bear any expense of breakage, stoppage or damage resulting from the violation of this rule by Tenant 's employees or invitees. 15. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof or exterior walls of the Building. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 16. Tenant shall not unreasonably mark, drive nails, screw or drill into the partitions, workwood or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Except as otherwise provided herein, Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering in any manner, except as approved by Landlord. 17. Tenant shall not install, maintain or operate in the Premises any vending machine without the written consent of Landlord. 18. Canvassing, soliciting and distribution of handbills or any other written material and peddling in the Building or Common Areas are prohibited, and Tenant shall cooperate to prevent such activities. 19. Landlord reserves the right to exclude or expel from the Building or Common Areas any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building or parking facility. 20. Tenant shall store all its trash and garbage within its Premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any hazardous or medical wastes, or any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with direction issued from time to time by Landlord. 21. Tenant shall not use in any space or in the public halls of the Building any hand trucks, except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Building. 22. Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 23. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency, and shall participate in drills for same. 24. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 25. Tenant shall not park its vehicles in any parking areas designated by Landlord as areas for parking by visitors to the Building. Tenant shall not leave vehicles in the Building parking areas overnight (except in reserved spaces) nor park any vehicles in the Building parking areas which would exceed height requirements, or the size of the spaces provided therefor. Landlord may, in its sole discretion, designate separate areas for bicycles and motorcycles. 26. Tenant's requirements will be attended to only upon appropriate application to the Building management office by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 27. Landlord reserves the right to amend or waive any rules or regulations with respect to any other tenant, but no such waiver by Landlord shall be construed as a amendment or waiver in favor of Tenant with respect to such Rules and Regulations. 28. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of the Lease. EXHIBIT "D" WORK LETTER This Exhibit "D" is attached to and made a part of that certain Lease dated February 1, 1996 by and between Mani Brothers LLC (Landlord) and New Horizons Learning Center Santa Ana, a Delaware Corporation ("Tenant") for the Premises located at 100 Corporate Pointe. Suites 180 and 195, Culver City. California. 1. APPLICATION OF EXHIBIT Capitalized terms used and not otherwise defined herein shall have the same definitions as set forth in the Lease. The provisions of this Work Letter shall apply to the planning and completion of leasehold improvements requested by Tenant (the "Tenant Improvements") for the fitting out of the initial premises, as more fully set forth herein. 2. LANDLORD AND TENANT PRE-CONSTRUCTION OBLIGATIONS a) Preliminary Space Plans. Attached to this Work Letter as Schedule "1" are preliminary space plans for the Tenant Improvements (the "Preliminary Space Plans"), which include without limitation, sketches and/or drawings showing locations of doors, partitioning, electrical fixtures, outlets and switches, plumbing fixtures and other requirements, mutually agreed upon by Landlord and Tenant and determined by Tenant as required for its use of the Premises. Tenant acknowledges that the Preliminary Space Plans have been prepared by Landlord's Architect after consultation and cooperation between Tenant and Landlord's Architect regarding the proposed Tenant Improvements and Tenant's requirements and that the Preliminary Space Plans are complete with respect thereto. Landlord and Landlord's Architect shall be entitled, in all respects, to rely upon all information supplied by Tenant regarding the Tenant Improvements. b) Working Drawings. Within twenty-one (21) days following full execution of this Lease by both Landlord and Tenant, Landlord's Architect shall prepare working drawings (the "Working Drawings") for the Tenant Improvements based upon the approved Preliminary Space Plans. The Working Drawings shall include architectural drawings for the Tenant Improvements based on the Preliminary Space Plans. Notwithstanding the Preliminary Space Plans, in all cases the Working Drawings (I) shall be subject to Landlord's final approval, which approval shall not be unreasonably withheld, (ii) shall not be in conflict with building codes for the City or County or with insurance requirements for a fire resistive Class A office building, and (iii) shall be in a form satisfactory to appropriate governmental authorities responsible for issuing permits and licenses required for construction. (c) Approval of Working Drains. Landlord or Landlord's Architect shall submit the Working Drawings to Tenant for Tenant's review to confirm it is consistent with the Preliminary Space Plan, and Tenant shall notify Landlord and Landlord's Architect within five (5) business days after delivery thereof of any requested revisions. Within five (5) days after receipt of Tenant's notice, Landlord's Architect shall make all approved revisions to the Working Drawings and submit two (2) copies thereof to Tenant for its final review and approval, which approval shall be given within three (3) business days thereafter. Concurrently with the above review and approval process, Landlord may submit all plans and specifications to City or other governmental agencies in an attempt to expedite City approval and issuance of all necessary permits and Licenses to construct the Tenant Improvements as shown on the Working Drawings. Any changes which are required by City or other governmental agencies shall be immediately submitted to Landlord for Landlord's review and reasonable approval, and Landlord shall promptly notify Tenant of such changes. (d) Schedule of Critical Dates. Set forth below is a schedule of certain critical dates relating to Landlord's and Tenant's respective obligations for the design and construction of the Tenant Improvements. Such dates and the respective obligations of Landlord and Tenant are more fully described elsewhere in this Work Letter. The purpose of the following schedule is to provide a reference for Landlord and Tenant and to make certain the Final Approval Date occurs as set forth herein. Following the Final Approval Date, Tenant shall be deemed to have released Landlord to commence construction of the Tenant Improvements as set forth in Section 4 below. Reference Date Due Responsible Party A. "Prelimary Contemporaneously Tenant & Space Plan with Lease Landlord Approval" execution B. "Working Twenty-one(21) days Landlord Drawings after full Completion" execution of the Lease C. "Working Five (5) business Tenant Drwaing Review" days after Landlord submits Working Drawings to Tenant D. "Working Five (5) business Landlord Drawing days after Tenant Revisions" returns Working Drawings to Landlord E. "Final Approval Three (3) business Tenant Date" days after Landlord submits revised Working Drawings to Tenant 3. BUILDING PERMIT After the Final Approval Date has occurred, Landlord shall, if Landlord has not already done so, submit the Working Drawings to the appropriate governmental body or bodies for final plan checking and a building permit. Landlord, with Tenant's cooperation, shall cause to be made any change in the Working Drawings necessary to obtain the building permit; provided, however, after the Final Approval Date, no changes shall be made to the Working Drawings without the prior written approval of both Landlord and Tenant, and then only after agreement by Tenant to pay any excess costs resulting from such changes. Tenant may terminate this lease if any unapproved modifications to working drawings substantially effect the space, floor plan or intended use of Tenant provided that Tenant shall reimburse Landlord for one-half (1/2) the cost of the Landlord's expenditure to date. 4. CONSTRUCTION OF TENANT IMPROVEMENTS After the Final Approval Date has occurred and a building permit for the work has been issued, Landlord shall, through a construction contract ("Construction Contract") with a reputable, licensed contractor selected by Landlord ("Contractor"), cause the construction of the Tenant Improvements to be carried out in substantial conformance with the Working Drawings in a good and workmanlike manner using first-class materials, The costs associated with the construction of the Tenant Improvements shall be paid as set forth in Section 5 and 6 of this Work Letter. Landlord shall see that the construction complies with all applicable building, fire, health, and sanitary codes and regulations, the satisfaction of which shall be evidenced by a certificate of occupancy for the Premises. Landlord or Contractor shall maintain a comprehensive general liability insurance policy with a limit of not less than One Million Dollars ($l,000,000.00) to insure against bodily injury and property damage during the construction work prior to the Lease Commencement Date. 5. TENANT IMPROVEMENT ALLOWANCE Landlord shall provide Tenant with a Tenant Improvement Allowance towards the cost of the design, purchase and construction of the Tenant Improvements, including without limitation design, engineering and consulting fees (collectively, the "Tenant Improvement Costs") . The Tenant Improvement Allowance shall be used for payment or the following Tenant Improvements Costs: (i) Preparation by Landlord's Architect of the Preliminary Space Plans and the Working Drawings as provided in Section 2 of this Work Letter, including without limitation all fees charged by City (including without limitation fees for building permits and plan checks) in connection with the Tenant Improvements work in the Premises; (ii) Construction work for completion of the Tenant Improvements as reflected in the Construction Contract: (iii) All contractor's charges, general conditions, performance bond premiums and construction fees; and: (iv) Tenant Improvements as shown on the approved Preliminary Space Plans dated _________, attached hereto as Schedule "1". In the event that Tenant does request modifications, changes or alterations of the Tenant Improvements from what is shown on said approved Preliminary Space Plans, or causes any Tenant Delays as defined in Section 7 of this Work Letter, then all associated costs shall be borne by Tenant. If Tenant does seek to modify change or alter the Tenant Improvements from the approved Preliminary Space Plans, or does cause a Tenant Delay, Tenant shall pay to Landlord any excess costs resulting therefrom in accordance with Section 6 of this Work Letter. 6. CHANGE ORDERS Tenant may from time to time request and obtain change orders before or during the course of construction provided that: (1) each such request shall be reasonable, shall be in writing and signed by or on behalf of Tenant, and shall not result in any structural change in the Building, as reasonably determined by Landlord, (ii) all additional charges and costs, including without limitation architectural and engineering costs, construction and material costs, and processing costs of any governmental entity shall be the sole and exclusive obligation of Tenant, and (iii) any resulting delay in the completion of the Tenant Improvements shall be deemed a Tenant Delay and in no event shall extend the Commencement Date of the Lease. Upon Tenant's request for a change order, Landlord shall as soon as reasonably possible submit to Tenant a written estimate of the increased or decreased cost and anticipated delay, if any, attributable to such requested change. Within three (3) business days of the date such estimated costs adjustment and delay are delivered to Tenant, Tenant shall advise Landlord whether it wishes to proceed with the change order, and if Tenant elects to proceed with the change order, Tenant shall remit, concurrently with Tenant's notice to proceed, the amount of the increased costs, if any, attributable to such change order. Unless Tenant includes in its initial change order request that the work in process at the time such request is made be halted pending approval and execution of a change order, Landlord shall not be obligated to stop construction of the Tenant Improvements, whether or not the change order relates to the work then in process or about to be started. 7. TENANT DELAYS In no event shall the Commencement Date of the Lease be extended or delayed due or attributable to delays due to the fault of Tenant ("Tenant Delays") . Tenant Delays shall include, but are not limited to, delays caused by or resulting from any one or more of the following: a) Tenant's failure to timely review and reasonably approve the Working Drawings or to furnish information to Landlord or Landlord's Architect for the preparation by Landlord or Landlord's Architect of the Working Drawings; b) Tenant's request for or use of special materials, finishes or installations which are not readily available, provided that Landlord shall notify Tenant in writing that the particular material, finish, or installation is not readily available promptly upon Landlord's discovery of same; c) Change orders requested by Tenant; d) Interference by Tenant or by Tenant's Agents with Landlord's construction activities; e) Tenant's unreasonable failure to approve any other item or perform any other obligation in accordance with and by the dates specified herein or in the Construction Contract; f) Tenant's requested changes in the Working Drawings or any other plans and specifications after the approval thereof by Tenant or submission thereof by Tenant to Landlord; g) Tenant's failure to approve written estimates of costs in accordance with this Work Letter; and h) Tenant's obtaining or failure to obtain any necessary governmental approvals or permits for Tenant's intended use of the Premises. If the Commencement Date of this Lease is delayed by any Tenant delays, subject to force majeure as defined in the Lease, then the commencement date of the Lease and the payment of rent shall be accelerated by the number of days of such delay, determined at the time the certificate of occupancy is issued. Landlord shall provide Tenant written notice within a reasonable time of any circumstance that Landlord believes constitute a Tenant delay. If the Premises is not ready by the Commencement Date, adjusted by and for the Tenant's delay, the Tenant shall be relieved from the payment of any rent under the Commencement Date. 8. TRADE FIXTURES AND EQUIPMENT Tenant acknowledges and agrees that Tenant is solely responsible for obtaining, delivering and installing in the Premises all necessary and desired furniture, trade fixtures, equipment and other similar items, and that Landlord shall have no responsibility whatsoever with regard thereto. Tenant further acknowledges and agrees that neither the Commencement Date of the Lease nor the payment of Rent shall be delayed for any period of time whatsoever due to any delay in the furnishing of the Premises with such items. 9. FAILURE OF TENANT TO COMPLY Any failure of Tenant to comply with any of the provisions contained in this Work Letter within the times for compliance herein set forth shall be deemed a default under the Lease. In addition to the remedies provided to Landlord in this Work Letter upon the occurrence of such a default by Tenant, Landlord shall have all remedies available at law or equity to a landlord against a defaulting tenant pursuant to a written lease, including but not limited to those set forth in the Lease. EXHIBIT E GUARANTY OF LEASE This Guaranty of Lease (the "Guaranty") is attached to and made part of that certain real estate Lease (the "Lease") dated March 7, 1996 between Mani Brothers L.L.C. as Landlord, and New Horizons Computer Learning Centers, Inc. as Tenant, covering the Property commonly known as 100 Corporate Pointe, Culver City. California, Suite 180. The terms used in this Guaranty shall have the same definitions as set forth in the Lease. In order to induce Landlord to enter into the Lease with Tenant, New Horizons Education Corporation, a Delaware Corporation ("Guarantors"), have agreed to execute and deliver this Guaranty to Landlord. Each Guarantor acknowledges that Landlord would not enter into the Lease if each Guarantor did not execute and deliver this Guaranty to Landlord. 1. GUARANTY. In consideration of the execution of the Lease by Landlord and as a material Inducement to Landlord to execute the Lease, each Guarantor hereby irrevocably, unconditionally, jointly and severally guarantees the full, timely and complete (a) payment of all rent and other sums payable by Tenant to Landlord under the Lease, and any amendments or modifications thereto by agreement or course of conduct, and (b) performance of all covenants, representations and warranties made by Tenant and all obligations to be performed by Tenant pursuant to the Lease, and any amendments or modifications thereto by agreement or course of conduct. The payment of those amounts and performance of those obligations shall be conducted in accordance with all terms, covenants and conditions set forth in the Lease, without deduction, offset or excuse of any nature and without regard to the enforceability or validity of the Lease, or any part thereof, or any disability of Tenant. 2. LANDLORD'S RIGHTS. Landlord may perform any of the following acts at any time during the Lease Term, without notice to or assent of any Guarantor and without in any way releasing, affecting or impairing any of Guarantor's obligations or liabilities under this Guaranty: (a) alter, modify or amend the Lease by agreement or course of conduct, (b) grant extensions or renewals of the Lease, (c) assign or otherwise transfer its interest in the Lease, the Property, or this Guaranty, (d) consent to any transfer or assignment of Tenant's or any future tenant's interest under the Lease, (e) release one or more Guarantor, or amend or modify this Guaranty with respect to any Guarantor, without releasing or discharging any other Guarantor from any of such Guarantor's obligations or liabilities under this Guaranty, (f) take and hold security for the payment of this Guaranty and exchange, enforce, waive and release any such security, (g) apply such security and direct the order or manner of sale thereof as Landlord, in its sole discretion, deems appropriate, and (h) foreclose upon any such security by judicial or nonjudicial sale, without affecting or impairing in any way the liability of Guarantor under this Guaranty, except to the extent the indebtedness has been paid. 3. TENANT'S DEFAULT. This Guaranty is a guaranty of payment and performance, and not of collection. Upon any breach or default by Tenant under the Lease, Landlord may proceed immediately against Tenant and/or any Guarantor to enforce any of Landlord's rights or remedies against Tenant or any Guarantor pursuant to this Guaranty, the Lease, or at law or in equity without notice to or demand upon either Tenant or any Guarantor. This Guaranty shall not be released, modified or affected by any failure or delay by Landlord to enforce any of its rights or remedies under the Lease or this Guaranty, or at law or in equity. 4. GUARANTOR'S WAIVERS. Each Guarantor hereby waives (a) presentment, demand for payment and protest of non-performance under the Lease, (b) notice of any kind including, without limitation, notice of acceptance of this Guaranty, protest, presentment, demand for payment, default, nonpayment, or the creation or incurring of new or additional obligations of Tenant to Landlord, (c) any right to require Landlord to enforce its rights or remedies against Tenant under the Lease, or otherwise, or against any other Guarantor, (d) any right to require Landlord to proceed against any security held from Tenant or any other party, (e) any right of subrogation and (f) any defense arising out of the absence, impairment or loss of any right of reimbursement or subrogation or other right or remedy of Guarantors against Landlord or any such security, whether resulting from an election by Landlord, or otherwise. Any part payment by Tenant or other circumstance which operates to toll any statute of limitations as to Tenant shall operate to toll the statute of limitations as to Guarantor. 5. SEPARATE AND DISTINCT OBLIGATIONS. Each Guarantor acknowledges and agrees that such Guarantor's obligations to Landlord under this Guaranty are separate and distinct from Tenant's obligations to Landlord under the Lease. The occurrence of any of the following events shall not have any effect whatsoever on any Guarantor's obligations to Landlord hereunder, each of which obligations shall continue in full force or effect as though such event had not occurred: (a) the commencement by Tenant of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended or replaced, or any other applicable federal or state bankruptcy, insolvency or other similar law (collectively, the "Bankruptcy Laws"), (b) the consent by tenant to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official of Tenant or for any substantial part of its property, (c) any assignment by Tenant for the benefit of creditors, (d) the failure of Tenant generally to pay its debts as such debts become due, (e) the taking of corporate action by Tenant in the furtherance of any of the foregoing; or (f) the entry of a decree or order for relief by a court having jurisdiction in respect of Tenant in any involuntary case under the Bankruptcy Laws, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Tenant or for any substantial part of its property, or ordering the winding-up or liquidation of any of its affairs and the continuance of any such decree or order city and in effect for a period of sixty (60) consecutive days. The liability of Guarantors under this Guaranty is not and shall not be affected or impaired by any payment made to Landlord under or related to the Lease for which Landlord is required to reimburse Tenant pursuant to any court order or in settlement of any dispute, controversy or litigation in any bankruptcy, reorganization, arrangement, moratorium or other federal or state debtor relief proceeding. If, during any such proceeding, the Lease is assumed by Tenant or any trustee, or thereafter assigned by Tenant or any trustee to a third party, this Guaranty shall remain in full force and effect with respect to the full performance of Tenant, any such trustee or any such third party's obligations under the Lease. If the Lease is terminated or rejected during any such proceeding, or if any of the events described In Subparagraphs (a) through (fl of this Paragraph 5 occur, as between Landlord and each Guarantor, Landlord shall have the right to accelerate all of Tenant's obligations under the Lease and each Guarantor's obligations under this Guaranty. In such event, all such obligations shall become immediately due and payable by Guarantors to Landlord. Guarantors waive any defense arising by reason of any disability or other defense of Tenant or by reason of the cessation from any cause whatsoever of the liability of Tenant. 6. SUBORDINATION. All existing and future advances by Guarantor to Tenant, and all existing and future debts of Tenant to any Guarantor, shall be subordinated to all obligations owed to Landlord under the Lease and this Guaranty. 7. SUCCESSORS AND ASSIGNS. This Guaranty binds each Guarantor's successors and assigns. 8. ENCUMBRANCES. If Landlord's interest in the Property or the Lease, or the rents, issues or profits therefrom, are subject to any deed of trust, mortgage or assignment for security, any Guarantor's acquisition of Landlord's interest in the Property or Lease shall not affect any of Guarantor's obligations under this Guaranty. In such event, this Guaranty shall nevertheless continue in full force and effect for the benefit of any mortgagee, beneficiary, trustee or assignee or any purchaser at any sale by judicial foreclosure or under any private power of sale, and their successors and assigns. Any married Guarantor expressly agrees that Landlord has recourse against any Guarantor~s separate property for all of such Guarantor's obligations hereunder. 9. GUARANTOR'S DUTY. Guarantors assume the responsibility to remain informed of the financial condition of Tenant and of all other circumstances bearing upon the risk of Tenant's default, which reasonable inquiry would reveal, and agree that Landlord shall have no duty to advise Guarantors of information known to it regarding such condition or any such circumstance. 10. LANDLORD'S RELIANCE. Landlord shall not be required to inquire into the powers of Tenant or the officers, employees, partners or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty. 11. INCORPORATION OF CERTAIN LEASE PROVISIONS. Each Guarantor hereby represents and warrants to Landlord that such Guarantor has received a copy of the Lease, has read or had the opportunity to read the Lease, and understands the terms of the Lease. The provisions in the Lease relating to the execution of additional documents, legal proceedings by Landlord against Tenant, severability of the provisions of the Lease, interpretation of the Lease, notices, waivers, the applicable laws which govern the interpretation of the Lease and the authority of the Tenant to execute the Lease are incorporated herein in their entirety by this reference and made a part hereof. Any reference in those provisions to "Tenant" shall mean each Guarantor and any reference in those provisions to the "Lease" shall mean this Guaranty, except that (a) any notice which any Guarantor desires or is required to provide to Landlord shall be effective only if signed by ali Guarantors and (b) any notice which Landlord desires or is required to provide to any Guarantor shall be sent to such Guarantor at such Guarantor's address indicated below, or if no address is indicated below. at the address for notices to be sent to Tenant under the Lease. Signed on March 14, 1996 New Horizons ---------------------- Education Corporation, a Delaware Corporation 1231 E. Dyer Road, Suite 110 By:/s/ Robert McMillan - - -------------------------------- ----------------------- Santa Ana, CA 92705 Its: Secretary - - -------------------------------- ---------------------- Address Signed on ---------------------, 19 ---------------------------- ---------------------------- - - ------------------------------- By: ------------------------ - - ------------------------------- Its: Address ------------------------ CONSULT YOUR ATTORNEY - This document has been prepared for approval by your attorney. No representation or recommendation is made by CB Commercial Real Estate Group, Inc. or the Southern California Chapter of the Society of Industrial Realtors, Inc., or the agents or employees of either of them as to the legal sufficiency, legal effect, or tax consequences of this document or the transaction to which it relates. These are questions for your attorney. SCHEDULE "1" PRELIMINARY SPACE PLANS ADDENDUM NO.1 This Addendum dated March 7, 1996 is made a part of and is attached to that certain Lease dated March 7, 1996 between Mani Brothers LLC ("Landlord") and New Horizons Computer Learning Centers, Inc. ("Tenant"), concerning Suites 105 and 195 located at 100 Corporate Pointe, Culver City, California. ARTICLE 36-LEASEHOLD IMPROVEMENTS 36.1 Landlord agrees to provide Tenant with a build-to-suit in accordance with mutually approved preliminary space plans and working drawings ("Leasehold Improvements") provided that the total cost relating to said remodeling and construction does not exceed Three Hundred Ninety Two Thousand Two Hundred Fifty and No/100 Dollars ($392,250.00) (calculated by the usable square feet of 13,075 multiplied by Thirty and No/100 Dollars ($30.00) per usable square foot ("Tenant Improvement Allowance")). Tenant, at Tenant's sole cost, shall bear all costs relating to the remodeling and construction of the Premises which Landlord estimates to be in excess of the Tenant allowance ("Excess Costs"). Tenant shall, on demand by Landlord, deposit with Landlord the excess costs. Landlord agrees to promptly refund to Tenant any unused excess costs. 36.2 Within thirty (30) days after the Commencement Date, Tenant shall give Landlord written notice of any claimed deficiencies in the Leasehold Improvements. Within thirty (30) days after receipt of such notice, Landlord shall begin any corrective work that is required and diligently prosecute same to completion. Except with respect to any latent defects in said work, if Tenant fails to give Landlord notice of any deficiency as provided herein, then Tenant shall be deemed to have accepted the Leasehold Improvements inclusive of such deficiency, and Landlord shall have no further obligation to make any corrective work that may be required. 36.3 There shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business, fixtures, appurtenances or equipment which commonly occurs as a result of the normal making of any of the repairs, alterations or improvements contemplated herein. Any delay in the completion of the Leasehold Improvements that is caused by Tenant (including delay as a result of changes in the approved space plans requested by Tenant, specification of products or finishes not readily available, and delay in choosing finishes) shall constitute a "Tenant Delay". (Open for discussion.) 36.4 "Force Majeure Delay" shall mean and be defined as delay in the substantial completion of the Leasehold Improvements due to any cause beyond the reasonable control of the Party, including, without limitation: acts of God; fire and other casualties; the elements of nature; wars; black-outs or other interruptions of utilities; strikes or other labor troubles (provided same are not caused by illegal acts of the Party); changes in government codes or regulations (or the interpretation of same); availability of permits; or shortages of materials or supplies. ARTICLE 37-LIMITATION ON LIABILITY Notwithstanding anything in this Lease to the contrary, and excluding insurance proceeds, it is agreed that the liability of Landlord in connection with any matter related to this Lease will in no event exceed the fair market value of the Property as of the date of this Lease. ARTICLE 38-OPERATING EXPENSE EXCLUSIONS (a) Costs incurred in connection with the original construction of the Building or in connection with any major change in the Building, such as adding or deleting floors; (b) Costs of alterations or improvements to the Premises or the Premises of other tenants; (c) Depreciation, interest and principal payments on mortgages, and other debt costs, if any; (d) Costs correcting defects in or adequacy of the initial design or construction of the Building; (e) Expenses directly resulting from the negligence of Landlord, its agents, servants or employees; (f) Legal fees, planner's fees, real estate broker's leasing commissions, and advertising expenses incurred in connection with the original development or original leasing of the Building or future leasing of the Building; (g) Costs for which Landlord is reimbursed by its insurance carrier or any tenant's insurance carrier; (h) Any bad debt loss, rent loss, or reserves for bad debts or rent loss; (i) The expense of extraordinary services provided to other tenants in the Building; (j) Costs associates with the operation of the business of the partnership or entity which constitutes Landlord, as the same are distinguished from the costs of operation of the Building, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord's interest in the Building, costs of any disputes between Landlord and its employees (if any) not engaged in Building operation, disputes of Landlord with Building management, or outside fees paid in connection with disputes with other tenants; (k) The wages of any employee who does not devote substantially all of his or her time to the Building; (l) Fines, penalties, and interest; (m) Amounts paid as ground rental by Landlord; (n) Any Building system maintenance contracts, Earthquake or any other type of insurance, unless such maintenance costs and/or insurance coverage was carried during the base year or, in the alternative, the base year Operating Costs have been "grossed-up" to include what such maintenance and/or insurance coverage would have cost had it been carried during the base year. (o) Wages and fees incurred in connection with the ownership, management and operation of the parking structure; (p) Any Operating Costs in connection with the ground floor and mezzanine levels, or any other floor in the Building devoted to retail operation; and (q) Any recalculation of or additional Operating Costs actually incurred more than two (2) years prior to the year in which Landlord proposed that such costs be included. ARTICLE 39-COMMENCEMENT DATE The Lease shall commence upon completion of tenant improvement work which shall be targeted for June 1, 1996. Tenant, along with its contractors and agents, shall be permitted to enter the Premises without the obligation to pay rent thirty (30) days prior to substantial completion of the Premises provided that said occupancy does not disturb or delay the tenant improvement work being done by Landlord's contractor. The Lease shall commence fourteen (14) days following substantial completion of the Premises in order to give Tenant time to move in. Landlord is prepared to phase Tenant's occupancy and construction to accommodate any potential delays associated with relocating the existing tenant from Suite 195. Since Tenant is occupying the Premises in two different phases, rent commencement shall reflect such delayed occupancy. ARTICLE 40-PLANNING Tenant has chosen to have its space planner, 03 Design, complete all space planning work for the Premises including preliminary space planning, working drawings, engineering and related work. Landlord shall pay 03 Design for the cost of said work in an amount not to exceed Ninety Cents ($0.90) per usable square foot. Landlord, Landlord's space planner, and Landlord's contractor shall have the right to review and approve Tenant's space plans and working drawings. ARTICLE 41-PARKING Except as set forth below, Tenant shall have the right, but not the obligation, to rent parking spaces in accordance with a ratio of four (4) parking spaces for every one thousand (1,000) rentable square feet leased. Parking shall be in the project's on-site parking areas at prevailing building rates, which are currently Fifty and No/100 Dollars ($50.00) per space per month for unreserved parking and Seventy Five and No/100 Dollars ($75.00) per space per month for reserved parking. Tenant shall be entitled to two (2) reserved parking spaces near the building entrance area for the purpose of loading and unloading. The exact location of these parking spaces shall be mutually agreed to by Landlord and Tenant. Monthly parking rates shall remain fixed for the first three (3) years of the lease term. Thereafter, parking costs may increase but shall not exceed the corresponding parking rates charged for comparable parking in comparable buildings in the surrounding areas. However, the prevailing rates shall be no less than those set forth above. Landlord shall provide visitor parking for forty (40) cars on a monthly basis at the rate of $0.50 per one-half (1/2) hour with a maximum of $4.00 per day for the first three (3) years. Tenant shall guarantee income for said forty (40) visitor parking spaces and thirty (30) standard parking spaces commencing June 1, 1997. Landlord and Tenant shall work together to develop a parking validation system to accommodate Tenant's visitors. In the event Tenant vacates the Premises, Tenant shall not be obligated to guarantee the income from the forty (40) visitor parking spaces on a monthly basis. Landlord shall provide Tenant with free parking in accordance with a 4/1000 ratio during the first twelve (12) months of the lease term. Said credit shall be granted to Tenant in the form of a Basic Monthly Rent credit. Tenant shall receive a rent credit equal to Thirty Six Thousand Six Hundred and No/100 Dollars ($36,600.00), which shall be applied to Tenant's Basic Monthly Rent, commencing in the second (2nd) month of the lease term. Tenant shall have the right to allocate all or part of its monthly parking to visitors. Visitor parking on weekends and after 7:00pm during evening shall be free, provided Landlord does not need a parking attendant to assist Tenant's visitors ARTICLE 42-SECURITY Tenant shall have the right to install its own security system, subject to Landlord's approval, for the Premises. Landlord shall provide on-site security Monday through Friday from 7:00am to 9:00pm and Saturdays from 8:00am to 6:00pm. ARTICLE 43-ADVANCE RENT AND SECURITY DEPOSIT Upon execution of the lease document by Tenant, Tenant shall pay to Landlord the first month's rent in an amount equal to Eighteen Thousand Nine Hundred Fifty Eight and 75/100 Dollars ($18,958.75) and a security deposit equal to Eighteen Thousand Nine Hundred Fifty Eight and 75/100 Dollars ($18,958.75). ARTICLE 44-RIGHT TO CANCEL Provided Tenant has not been in default under any of the terms and conditions of this Lease, Tenant shall have the right to terminate the Lease effective at the end of the sixtieth (60th) month of the lease term provided Tenant gives to Landlord nine (9) months prior written notice of Tenant's intent to cancel said Lease. As consideration for the right to cancel, Tenant shall pay to Landlord, at the time Tenant delivers said cancellation notice, an amount equal to the unamortized tenant improvements and brokerage commissions amortized at ten percent (10%) per annum, plus three (3) months Basic Monthly Rent. ARTICLE 45-OPTION TO RENEW Tenant shall have one (1), five (5) year option to renew the lease provided that Tenant gives to Landlord at least nine (9) months prior written notice of Tenant's intent to exercise said options. The rental rate for the option period shall be at the then prevailing fair market rate for comparable space in comparable buildings in the area. The definition of fair market shall be negotiated in the lease document. ARTICLE 46-RIGHT OF FIRST OPPORTUNITY Landlord shall grant to Tenant a Right of First Opportunity on any space which may come available on the 1st Floor. In the event that Tenant expands into Suite 105/160 during the first twelve (12) months of the initial lease term, the terms and conditions shall be the same as the initial lease provided that the cost of tenant improvements shall be reduced proportionately. Thereafter, the terms and conditions shall be at the prevailing market rate. ARTICLE 47-ROOF RIGHTS Tenant shall have the right to install no more than two (2) antennae and/or satellite dishes on the roof in a location to be approved by Landlord. The cost of installation shall be Tenant's expense and Tenant shall conform to any and all applicable governmental requirements and approvals. Tenant shall be responsible for the removal of said antennae and/or Satellite dish at the expiration of the lease term and any required repair work necessary. ARTICLE 48-DIRECTORY BOARD Landlord, at Landlord's expense, shall furnish Tenant with space in the building directory board in accordance with one line per 1,000 rentable square feet leased. ARTICLE 49-SIGNAGE In the event Landlord creates a dedicated exterior entrance to the Premises on the right side of the main building lobby, Tenant, at Tenant's sole cost and expense, shall be allowed to install an eyebrow sign or monument sign to be mutually agreed upon between Landlord and Tenant. In addition, Landlord and Tenant shall work together to create directional signage, subject to the mutual approval of both parties, in the parking areas. Landlord shall create a dedicated exterior entrance to the Premises on the right side of the main lobby. Tenant will have identification signage on the building exterior near Tenant's entrance to be mutually agreed upon between Landlord and Tenant. Tenant shall present a rendering of the proposed signage to Landlord for Landlord's approval. ARTICLE 50-EXCLUSIVITY Landlord shall not lease space to any other tenants in the Building whose primary business shall be computer training or its equivalent or who are competitors of New Horizons Computer Learning Center without the express written consent of Tenant. ARTICLE 51 - TEMPORARY SPACE In the event the tenant improvement cost exceed $30 per usable square foot, Landlord shall amortize the overage over the initial term at an interest rate of ten percent (10%) per annum. However, Tenant shall receive rent credit on temporary space on the 2nd floor on a dollar per dollar basis predicated on $1.00 FSG per rentable square foot per month. Tenant expects to lease temporary space on the second floor at $1.00 full service gross per rentable square foot per month. If a tenant improvement overage exists for the premises, Tenant shall receive a rent credit on the temporary space equal to the T1 overage. If the tenant improvement is less than $30 per square foot, Tenant shall lease temporary space on the second floor for $1.00 per rentable square foot full service gross per month, commencing June 1, 1996. In the event of a conflict between this Addendum and the Lease, the provisions of this Addendum shall prevail. THE WHEREUPON, THE PARTIES HERETO HAVE EXECUTED THIS ADDENDUM ON THE DATES INDICATED. TENANT: New Horizons Computer Learning Centers, Inc. Date: 3/15/96 By: /s/ Charles Kinch ------------ ---------------------- Name: Charles Kinch ---------------------- Title: President -------------------- ATTESTED: Date: 3/15/96 By: /s/ Gary T. Gann -------------- ------------------------ Name: Gary T. Gann --------------------- Title: Secretary --------------------- LANDLORD: Mani Brothers, LLC Date: By: -------------- ----------------------- Name: --------------------- Title: --------------------- EX-3 5 SALE OF R/E DATED 1/15/96 CONTRACT FOR THE SALE OF REAL ESTATE This Contract for Sale is made on the 15 day of January, 1996, between XEDNAH INVESTMENTS, a Florida General Partnership whose address is 500 Campus Drive, Morganville, New Jersey 07751, hereinafter referred to as the "Seller" and Handex of Florida, Inc., a Delaware corporation, authorized to do business in Florida, whose address is 30941 Suneagle Drive, Mt. Dora, Florida 32757, hereinafter referred to as the "Buyer". The words "Buyer" and "Seller" include all Buyers and all Sellers listed above. 1. Seller agrees to sell and the Buyer agrees to buy the property described in this Contract. 2. The property to be sold consists of: (a) The land and all the buildings, other improvements and fixtures on the land; (b) All of the Sellers' rights relating to the land; and (c) All personal property specifically included in this Contract. The real property to be sold is commonly known as: 30941 Suneagle Drive in the Town of Mt. Dora, the County of Lake, and State of Florida. It is shown on the Municipal Tax Map as Sunset Hills N. 338.7 feet of Lot 2 in Block B, ORB 922 pg. 1328 & 1329. The property is more fully described as follows: The north 338.7 feet of Lot 2, Block B, Sunset Hills, according to the plat thereof as recorded in Plat Book 6, Page 112, Public Records Lake County Florida. 3. The Purchase Price is: $327,000.00 4. The Buyer will pay the purchase price as follows: 5. Initial Deposit: $1,000.00 Balance to be paid at Closing of Title in cash or by certified check (subject to adjustments at Closing) 6. Balance: $326,000.00 1. The Closing Date cannot be made final at this time. The Buyer and Seller agree to make February 1, 1996, the estimated date for Closing. Both parties will fully cooperate so the Closing can take place on or before the estimated date. The Closing will be held at 500 Campus Drive, Morganville, New Jersey 07751. 2. At the Closing the Seller will transfer ownership of the property to the Buyer. This transfer of ownership will be free of all claims and rights of others except as provided in other parts of this Contract. The Seller will give the Buyer a properly executed Warranty Deed and an Affidavit of Title. 3. A Deed is a written document used to transfer ownership of property. In this sale the Seller agrees to provide and the Buyer agrees to accept a Deed known as a Warranty Deed. The property is being sold "as is." The Seller does not make any claims or promises about the condition or value of any of the property included in this sale. The Buyer has inspected the property and relies on this inspection and any rights which may be provided for in other parts of this Contract. 4. The Seller is responsible for any damage to the property, except for normal wear and tear until the Closing. 5. The Seller agrees to transfer and the Buyer agrees to accept ownership of the property free of all claims and rights of others, except for: (a) the rights of utility companies to maintain pipes, poles, cables and other wires over, on and under this street, the part of the property next to the street or running to any other improvement on the property; (b) recorded agreements which limit the use of the property unless the agreements (i) are presently violated, (ii) provide that the property would be forfeited if they were violated, or (iii) unreasonably limit the normal use of the property; and (c) all items included, if any, as part of the description of the property. In addition to the above, the ownership of the Buyer must be insurable at regular rates by any reputable title insurance company authorized to do business in the State of Florida, subject only to the above exceptions. 1. The Buyer and Seller agree to adjust the following expenses as of the Closing Date: rents, municipal water charges, sewer charges, taxes, interest on any mortgage to be assumed and insurance premiums, etc. The Buyer or the Seller may require that any person with a claim of right affecting the property will be paid off from the proceeds of this sale. 2. At the Closing, the Buyer will be given possession of the property. No Tenant will have any right to the property unless otherwise agreed in this Contract. This Contract is the entire and only Agreement between the Buyer and Seller. This Contract replaces and cancels any previous Agreements between the Buyer and the Seller. This Contract can only be changed by an Agreement in writing signed by both Buyer and Seller. The Seller states that the Seller has not made any other Contract to sell the property to anyone else. 3. This Contract is binding upon all parties who sign it and all who succeed to their rights and responsibilities. 4. All notices under this Contract must be in writing. The notices must be delivered personally or mailed by Certified Mail, Return Receipt Requested, to the other party at the address written in this Contract or to that party's attorney. Xednah Investments, a Florida General Partnership hereby represents that the Partners signing this Contract of Sale are the only partners of said partnership and no other person has any interest either in the partnership or the property. Signed and agreed to by: Attested: As to the Buyer: Handex of Florida, Inc. By: /s/ Gary T. Gann By: /s/ George Bannon ----------------------- ------------------------- Gary T. Gann, Secretary George Bannon, President Witness: As to Seller: Xednah Investments By: By: /s/ Curtis Lee Smith, Jr -------------------------- --------------------------- Curtis Lee Smith, Jr. Partner By: By: /s/ Stuart O. Smith -------------------------- ----------------------------- Stuart O. Smith, Partner florida.con EX-4 6 NHEC 401(K) NEW HORIZONS EDUCATION CORPORATION 401(k) PROFIT SHARING TRUST AND PLAN Trust and Plan Effective Date: January 1, 1995 TABLE OF CONTENTS ARTICLE NO. NAME AND PURPOSE 1 DEFINITIONS 2 ELIGIBILITY AND PARTICIPATION 3 CASH OR DEFERRED OPTION 4 EMPLOYER CONTRIBUTIONS 5 ALLOCATION OF EMPLOYER CONTRIBUTIONS 6 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS 7 VALUATION OF ASSETS AND ADJUSTMENT OF UNSEGREGATED ACCOUNTS 8 TERMINATION OF EMPLOYMENT 9 RETIREMENT AND DISABILITY BENEFITS 10 DEATH BENEFITS 11 DISTRIBUTIONS 12 HARDSHIP BENEFITS 13 THE TRUSTEE, ITS POWERS AND DUTIES 14 INVESTMENTS 15 SEGREGATION OF ACCOUNTS OF PARTICIPANTS 16 ADMINISTRATION 17 PROHIBITION AGAINST ALIENATION 18 AMENDMENT AND TERMINATION 19 PARTICIPATING COMPANIES 20 TRANSFERS INVOLVING OTHER QUALIFIED RETIREMENT PLANS 21 LIMITATION ON ANNUAL ADDITIONS 22 TOP-HEAVY PROVISIONS 23 MISCELLANEOUS 24 INDEX ARTICLE NO. ADMINISTRATION 17 ALLOCATION OF EMPLOYER CONTRIBUTIONS 6 AMENDMENT AND TERMINATION 19 CASH OR DEFERRED OPTION 4 DEATH BENEFITS 11 DEFINITIONS 2 DISTRIBUTIONS 12 ELIGIBILITY AND PARTICIPATION 3 HARDSHIP BENEFITS 13 INVESTMENTS 15 LIMITATION ON ANNUAL ADDITIONS 22 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS 7 MISCELLANEOUS 24 NAME AND PURPOSE 1 PARTICIPATING COMPANIES 20 PROHIBITION AGAINST ALIENATION 18 EMPLOYER CONTRIBUTIONS 5 RETIREMENT AND DISABILITY BENEFITS 10 SEGREGATION OF ACCOUNTS OF PARTICIPANTS 16 TERMINATION OF EMPLOYMENT 9 THE TRUSTEE, ITS POWERS AND DUTIES 14 TOP-HEAVY PROVISIONS 23 TRANSFERS INVOLVING OTHER QUALIFIED RETIREMENT PLANS 21 VALUATION OF ASSETS AND ADJUSTMENT OF UNSEGREGATED ACCOUNTS 8 NEW HORIZONS EDUCATION CORPORATION 401(k) PROFIT SHARING TRUST AND PLAN THIS AGREEMENT is entered into and executed this ____ day of ____________, 1995, by and between NEW HORIZONS EDUCATION CORPORATION, a corporation organized and existing under and by virtue of the laws of the State of Delaware (hereinafter called the "Company"), and JOHN T. ST. JAMES, the Trustee hereunder (hereinafter called the "Trustee"); WITNESSETH: WHEREAS, it is the desire of the Company to provide benefits for its employees and employees of certain of its affiliates upon their retirement, to encourage and assist such employees in providing additional security for their own retirement, and to provide other benefits to them and their beneficiaries upon the happening of certain contingencies; and WHEREAS, it is the further desire of the Company to foster loyalty to the Company and its affiliates among their employees and the continuation in their service of their employees; and WHEREAS, the Company has duly authorized the establishment of a profit sharing trust and plan for the sole and exclusive benefit of its eligible employees and the employees of its affiliates which have adopted this Trust and Plan; and WHEREAS, the Company has duly authorized this Trust and Plan and the execution of this Agreement; and WHEREAS, it is the intention of the Company that such Trust and Plan qualify under Sections 401(a), 401(k) and 501(a) of the Code; NOW, THEREFORE, in consideration of the mutual covenants and undertakings of the parties hereto, it is agreed that the New Horizons Education Corporation 401(k) Profit Sharing Trust and Plan ("Trust and Plan") be established effective as of January 1, 1995, as follows: 1 NAME AND PURPOSE .1 The name of this Trust and Plan is the NEW HORIZONS EDUCATION CORPORATION 401(k) PROFIT SHARING TRUST AND PLAN. The Trust and Plan is hereby created in the form of this instrument for the purpose of providing benefits to the participants upon their retirement and for the purpose of providing such other benefits to such participants and their beneficiaries as are hereinafter described. .2 2 DEFINITIONS Unless the context otherwise indicates, the following terms shall have the following meanings whenever used in this instrument: .1 The word "accounts" shall mean "cash option accounts" established pursuant to Article 4 hereof and "employer contribution accounts" established pursuant to Article 5 hereof. .2 The words "active participant" shall mean, with respect to any plan year, either a participant who (a) is credited with at least One Thousand (1,000) hours as a Covered Employee with respect to such plan year and is employed by a Participating Company on the last day of such plan year; or (b) with respect to a participant whose employment terminates during such plan year by reason of his death, permanent and total disability, or retirement, either was credited with at least One Thousand (1,000) hours as a Covered Employee with respect to such plan year or, based on a reasonable projection of hours worked by such participant at the date of his termination of employment, would have been credited with at least One Thousand (1,000) hours as a Covered Employee with respect to such plan year if he had continued to be employed by the Participating Companies until the end of the plan year. .1 The word "Administrator" shall mean the person or entity designated as Administrator under Article 17 hereof. .2 The words "Adoption Date" shall mean, with respect to each Participating Company, the date as of which it shall have adopted this Trust and Plan pursuant to Article 20 hereof. .3 The word "affiliate" shall mean any person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with a Participating Company, and particularly shall mean any corporation or unincorporated trade or business which is a member of a controlled group of corporations or trades or businesses which includes a Participating Company (within the meaning of Sections 414(b) and 414(c) of the Code), is a member of an affiliated service group which includes a Participating Company (within the meaning of Section 414(m) of the Internal Revenue Code) or is a member of an arrangement within the meaning of Section 414(o) of the Code which includes a Participating Company. .4 The words "allocation date" shall mean the last day of each taxable year ending after the effective date, and such other uniform dates as the Administrator shall prescribe. .5 The words "alternate payee" shall mean any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the amounts credited to the accounts of such participant. .6 The word "beneficiary" shall mean any person who receives or is designated to receive payment of any benefit under the terms of this Trust and Plan because of the participation of another person in this Trust and Plan. .7 The word "Committee" shall mean the Employee Benefits Committee constituted under the provisions of Article 17 of this Trust and Plan. .8 The word "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. .9 The word "Company" shall mean New Horizons Education Corporation, a Delaware corporation, or any corporation or any other business organization which shall assume the obligations of New Horizons Education Corporation under this Trust and Plan. .10 The word "compensation" shall mean all remuneration paid by the Participating Companies to an active participant for services rendered as a Covered Employee, including wages, salaries, overtime and commissions, but shall not include: (a) bonuses, whether discretionary or non-discretionary, except for such purposes as they are by law specifically required to be included; (b) any extra benefits such as payment by a Participating Company of hospitalization, group insurance, expense reimbursement, amounts contributed under this Trust and Plan (except as provided below in this Section 2.12) or any other qualified retirement plan; (c) overtime pay; and (d) other special benefits. The amount of a participant's compensation for any plan year shall not include any amounts paid to the participant by a Participating Company prior to the date as of which he became a participant pursuant to Article 3 hereof. Except as otherwise indicated in the Trust and Plan, a participant's compensation shall include amounts contributed by a Participating Company to the Trustee pursuant to a participant's election under Section 4.1 hereof. For purposes of the Trust and Plan, the amount of a participant's compensation for any plan year shall not exceed One Hundred and Fifty Thousand Dollars ($150,000) plus such adjustments for increases in the cost of living as shall be prescribed by the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code. .11 The words "continuous service" shall mean for any employee any period during which he is or was employed by a Participating Company or any affiliate. Each such period shall be measured from his date of hire to the date of termination of employment which follows such date of hire. Notwithstanding the preceding provisions of this Section 2.13, if any employee is rehired within twelve (12) months of: (1) the date of his termination of employment, or (2) if earlier, the first day of any period of leave of absence, layoff, or military service after the end of which the employee did not return to work for a Participating Company or any affiliate prior to his termination of employment, such employee's continuous service shall include the period of severance measured from his date of termination until his subsequent date of rehire. Two or more periods of employment that are included in a participant's continuous service and that contain fractions of a year (computed in months and days) shall be aggregated on the basis of twelve (12) months constituting a year and thirty (30) days constituting a month. .12 The words "Covered Employee" shall mean an employee of a Participating Company who is neither a non-resident alien employed by a Participating Company outside of the United States nor covered by a collective bargaining agreement to which such Participating Company is a party. An employee shall cease to be a "Covered Employee" upon the earliest to occur of: (a) his termination of employment; (b) his transfer to employment with an affiliate which is not a Participating Company; (c) his becoming covered by a collective bargaining agreement to which a Participating Company is a party; or (d) his becoming a non-resident alien employed by a Participating Company outside of the United States. .13 The words "date of hire" shall mean the date on which an employee commences employment and works at least one (1) hour for a Participating Company or any affiliate. .14 The word "deferral" shall mean contributions made pursuant to Section 4.1. .15 The words "domestic relations order" shall mean, with respect to any participant, any judgment, decree or order (including approval of a property settlement agreement) which both: (a) relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the participant; and (b) is made pursuant to a State domestic relations law (including a community property law). .16 The words "effective date" shall mean January 1, 1995, the Trust and Plan's original effective date. .17 The words "eligibility break-in-service" shall mean for any employee a period of sixty (60) consecutive months commencing on the earliest to occur of: (a) his termination of employment; or (b) the first day of any period of leave of absence, layoff, or military service after the end of which the employee did not return to work for a Participating Company or any affiliate prior to his termination of employment; during which the employee was not employed by a Participating Company or any affiliate. Notwithstanding the foregoing provisions of this Section 2.19, in the event any employee is on a leave of absence either; (a) by reason of the pregnancy of such employee; or (b) by reason of the birth of a child of such employee; or (c) by reason of the placement of a child with such employee in connection with the adoption of such child by such employee; or (d) by reason of caring for such child for a period beginning immediately following such birth or placement; such employee shall, solely for the purposes of determining whether such employee has incurred an eligibility break-in-service pursuant to this Section 2.19, be deemed to have terminated his employment on the first anniversary of the date of his termination of employment. The Administrator may require any employee who leaves his employment by reason of any such pregnancy, birth, placement or caring to furnish to the Administrator such timely information as the Administrator may reasonably require to establish that the employee's leave of absence was by reason of such pregnancy, birth, placement or caring. .18 The word "employee" shall mean any employee of a Participating Company or an affiliate, as the case may be, or where the context may require, a former employee of a Participating Company or an affiliate. .19 The word "employer" shall mean, with respect to any participant, the Participating Company or, where the context requires, the affiliate by which he is employed. .20 The word "hours" shall generally mean for any employee the actual number of hours for which he was directly or indirectly paid or entitled to payment by a Participating Company or any affiliate, including payments pursuant to an award or agreement requiring a Participating Company or an affiliate to pay back wages, irrespective of mitigation of damages. Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b- 2(b) and (c) of the Department of Labor Regulations which are incorporated herein by reference. Notwithstanding the foregoing, (a) no employee shall be credited with more than 501 hours with respect to payments he receives or is entitled to receive during any single continuous period during which he performed no services for a Participating Company or an affiliate (irrespective of whether he has terminated employment) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, or leave of absence; (b) no employee shall be credited with hours with respect to payments he receives or is entitled to receive during a period when he performed no services for a Participating Company or an affiliate under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation, disability insurance or Federal Social Security laws; and (c) no employee shall be credited with hours with respect to payments he receives or is entitled to receive under a pension benefit plan to which a Participating Company or an affiliate has contributed during a period when he performed no services for a Participating Company or an affiliate. Notwithstanding the foregoing provisions of this Section 2.22, in the event any employee does not perform services for a Participating Company or any affiliate for any period either: (a) by reason of the pregnancy of such employee; or (b) by reason of the birth of a child of such employee; or (c) by reason of the placement of a child with such employee in connection with the adoption of such child by such employee; or (d) by reason of such employee caring for such child for a period beginning immediately following such birth or placement; such employee shall, solely for purposes of determining whether such employee has incurred a One (1) Year Break-In-Service pursuant to Section 2.26 hereof, be credited either with the hours which otherwise would normally have been credited to such employee but for such absence or, in any case in which the Administrator is unable to determine the hours described in the preceding clause, eight hours per day of such absence provided, however, that the total number of hours which an employee may be credited with by reason of any such pregnancy, birth or placement shall not exceed 501 hours. An employee shall be credited with the hours described in the preceding sentence only in the plan year in which the absence from work begins if the employee would be prevented from incurring a One (1) Year Break-In-Service in such plan year solely because the employee is credited with hours pursuant to the preceding sentence or, in any other case, in the immediately following plan year. The Administrator may require any employee who is absent from work because of any such pregnancy, birth or placement to furnish to the Administrator such timely information as the Administrator may reasonably require to establish both that the employee's absence from work is because of such pregnancy, birth or placement and the number of days during which the employee was absent is because of such pregnancy, birth or placement. .21 The words "insurance company" shall mean any legal reserve life insurance company licensed to issue annuity contracts. .22 The words "military service" shall mean duty in the Armed Forces of the United States, whether voluntary or involuntary, provided that the employee serves not more than one voluntary enlistment or tour of duty, and further provided that such voluntary enlistment or tour of duty does not follow involuntary duty. .23 The words "normal retirement date" shall mean for each participant the date upon which he attains age sixty-five (65). .24 The words "One (1) Year Break-In-Service" shall mean for any employee a taxable year ending after his termination of employment during which the employee was not credited with more than five hundred (500) hours. .25 The word "participant" shall mean any person who becomes a participant in the Trust and Plan in accordance with Article 3 hereof and shall also mean, as the context may require, any person who has terminated his employment and was formerly a participant in the Trust and Plan. .26 The words "Participating Company" shall mean the Company and any subsidiary which has adopted this Trust and Plan pursuant to Article 20 hereof. .27 The words "permanent and total disability" shall mean any disability which continuously disables and wholly prevents a participant from performing the duties of his occupation and which is expected to be of a permanent duration, as shall be determined under the provisions of Section 10.2 hereof except that no participant shall be deemed to be permanently and totally disabled if such disability was (a) contracted, suffered or incurred while the participant was engaged in, or resulted from his having engaged in, a criminal act or enterprise, or (b) resulted from his habitual drunkenness or addiction to narcotics, or (c) resulted from any intentionally self-inflicted injury. .28 The words "plan year" shall mean the Company's taxable year. .29 The words "qualified domestic relations order" shall mean a domestic relations order which satisfies the requirements of Section 414(p)(1)(A) of the Code. .30 The word "subsidiary" shall mean any corporation organized under the laws of any State of the United States or under the laws of any foreign country in which the Company owns directly or indirectly any outstanding shares either beneficially or of record. .31 The words "taxable year" shall mean the Company's annual accounting period, which presently is the calendar year. .32 The words "termination of employment" shall mean for any employee the occurrence of any one of the following events: (a) he is discharged by a Participating Company or any affiliate unless he is subsequently reemployed and given pay back to his date of discharge; (b) he voluntarily terminates employment with a Participating Company or any affiliate; (c) he retires from employment with a Participating Company or any affiliate; (d) he fails to return to work at the end of any leave of absence authorized by a Participating Company or any affiliate, or within any period following military service in which his right to reemployment with a Participating Company or any affiliate is guaranteed by law, or within three (3) days after he has been recalled to work following a period of layoff; or (e) he has been continuously laid-off for twenty-four (24) months. In the case of the occurrence of any event described in (d) or (e) of this Section, the date of such employee's termination of employment shall be deemed to be the first day of any such period of leave of absence, layoff, or military service. .33 The words "Trust and Plan" shall mean this instrument as originally executed and as it may be amended from time to time. .34 The word "Trustee" shall mean the trustee herein named and any successor Trustee. .35 The words "vested interest" shall mean with respect to any participant the sum of (a) plus (b) minus (c) below where: (a) equals the amounts credited to his employer contribution account multiplied by his Vested Percentage; (b) equals any distributions made to the participant from his employer contribution account since his earliest date of hire which has not been followed by five (5) consecutive One (1) Year Breaks-In-Service, multiplied by his Vested Percentage; and (c) equals the amount of any distributions made to the participant from his employer contribution account since his earliest date of hire which has not been followed by five (5) consecutive One (1) Year Breaks-In-Service. .36 The words "Vested Percentage" shall mean for any participant a percentage determined on the basis of his number of years of vesting service in accordance with the following table: Years of Vesting Service Vested Percentage Less than 1 year 0% 1 but less than 2 years 20% 2 " " " 3 " 40% 3 " " " 4 " 60% 4 " " " 5 " 80% 5 or more years 100% Notwithstanding the preceding provisions of this Section, the Vested Percentage of a participant who has attained his normal retirement date shall be 100%. .1 The words "vesting service" shall mean for any employee the number of taxable years during which the employee has been or was previously employed by a Participating Company or any affiliate, excluding: (a) any taxable years during which the employee was credited with less than one thousand (1,000) hours; and (b) any years of vesting service which a terminated and rehired participant had prior to a termination of employment if: (i) such participant did not have a vested interest on such date of termination of employment; and (ii) no amount was credited to his cash option account on such date of termination of employment; and (iii) such participant has had five consecutive One (1) Year Breaks-In-Service since the last day of such vesting service. 2 ELIGIBILITY AND PARTICIPATION .1 An employee of a Participating Company shall be qualified to become a participant under the Trust and Plan when he has met all of the following requirements: (a) he is a Covered Employee; (b) he has completed six (6) months of continuous service; and (c) he has attained the age of twenty-one (21) years. In the case of an employee who is rehired after a termination of employment, such employee's date of hire for purposes of this Section shall be deemed to be his earliest date of hire unless all of the following apply: (a) the employee did not have a vested interest on such date of termination of employment; (b) the employee did not have any amount credited to his cash option account on such date of termination of employment; (c) the employee has incurred an eligibility break-in-service; and (d) the employee's period of continuous service determined under this Section on such termination of employment shall have been less than or equal to the period between his termination of employment and his date of rehire. In the event that (a), (b), (c) and (d) above all apply with respect to a rehired employee, any periods of continuous service prior to such termination of employment shall be cancelled and such employee's date of rehire shall then be deemed to be his date of hire for purposes of determining his period of continuous service under this Section. .2 Every employee of a Participating Company who is eligible as of the effective date shall become a participant as of that date. Every employee of a Participating Company who becomes eligible after the effective date shall become a participant as of the January 1 or July 1 coinciding with or next following the date he becomes qualified. .3 In the event that a Participating Company or an affiliate shall reemploy a former participant whose continuous service as a former employee is not excluded pursuant to Section 3.1 hereof, such former participant shall again become a participant in the Trust and Plan on his date of rehire, provided he is then a Covered Employee. Any other former participant must requalify under the provisions of Section 3.1 hereof before he is eligible to again become a participant. .4 3 CASH OR DEFERRED OPTION .1 Pursuant to uniform rules and procedures promulgated by the Administrator, a participant may elect in writing that a portion (such portion being within limits prescribed by the Administrator) of his unpaid compensation for a taxable year be paid by his employer to the Trustee hereunder and be treated as a contribution by his employer. A participant's election hereunder shall be conditioned upon: (a) his right to defer the imposition of federal income tax on such contribution until a subsequent distribution of such amount under this Trust and Plan; and (b) the right of his employer to deduct such amount for federal income tax purposes after taking into account any contributions made by the employer under any other profit sharing, pension and stock bonus plans maintained by the employer which meet the requirements of Section 401(a) of the Code. The Administrator may prescribe the maximum amount of a participant's unpaid compensation that is subject to the election described in this Section 4.1. .2 All amounts paid to the Trustee pursuant to Section 4.1 above shall be paid in cash not later than the date on which such amounts can reasonably be segregated from the employer's general assets, which in no event shall be more than ninety (90) days after the date on which such amount would otherwise have been payable to the participant in cash. .3 Any amounts contributed to the Trust and Plan pursuant to Section 4.1 above on behalf of a participant shall be held by the Trustee as a part of the trust fund created under this Trust and Plan, shall be specifically allocated to a cash option account for the benefit of such participant and shall be invested, reinvested, and administered in accordance with the terms of this Trust and Plan. The amounts credited to a participant's cash option account shall be fully vested and nonforfeitable at all times. .4 Except as provided in Article 13, in no event may a participant withdraw any amounts credited to his cash option account prior to the time such amounts become distributable to him pursuant to Articles 9 and 10 hereof. .5 The amounts credited to a participant's cash option account shall not be alienated, disposed of or in any manner encumbered and are made expressly subject to the provisions against alienation set forth in Article 18 of this Trust and Plan. .6 In the event a participant receives a distribution from his cash option account as a result of hardship as described in Article 13, such participant's elective deferrals shall be suspended for 12 months after his receipt of such hardship distribution. In addition, for the calendar year immediately following the calendar year of the hardship distribution such participant shall be barred from making elective deferrals in excess of (a) minus (b) below where (a) equals the applicable limit under Code Section 402(g) for such immediately following calendar year; and (b) equals the amount of such participant's elective deferrals for the calendar year of the hardship distribution. .7 4 EMPLOYER CONTRIBUTIONS .1 With respect to any taxable year, a Participating Company may pay to the Trustee, not later than the last day upon which such Participating Company may make a contribution under this Trust and Plan and secure under the Code of the United States a deduction of such contribution in the computation of its Federal Income Taxes for such taxable year, a contribution in cash or other property in such amount as is determined by the Participating Company in its sole discretion. Such contribution shall be in addition to any amounts contributed under Article 4 and nothing contained herein shall require a Participating Company to make any contribution under this Article with respect to any plan year. .2 The Administrator shall, as soon as reasonably possible after the payment by a Participating Company of its contribution, furnish to the Trustee such information, including information concerning the compensation of participants during such taxable year, as may be necessary for the proper administration of this Trust and Plan. .3 5 ALLOCATION OF EMPLOYER CONTRIBUTIONS .1 Upon an employee becoming a participant the Administrator shall notify the Trustee and provide the Trustee with such information concerning said participant as the Trustee may need. Upon being notified by the Administrator that an employee has become a participant, the Trustee shall establish an employer contribution account in the name of such participant. .2 The Participating Companies' contributions for any taxable year shall be allocated among the employer contribution accounts of the participants who were active participants with respect to such taxable year. The employer contribution account of each such active participant shall be credited with that portion of the Participating Companies' contributions for such taxable year which bears the same relationship to the contributions of the Participating Companies as such active participant's compensation for such taxable year bears to the total compensation of all such active participants for such taxable year. .3 In no event may a participant withdraw any amounts credited to his employer contribution account prior to the time such amounts become distributable to him pursuant to Articles 9 and 10 hereof. .4 The amount determined to be credited to each participant's employer contribution account under this Article shall be added to amounts previously credited to said accounts which remain credited to such accounts, and shall for all purposes be deemed to have been credited on the aforesaid allocation date which coincides with the last day of the taxable year for which the contribution was made. Such crediting to the accounts of participants shall not vest any right, title or interest in or to any assets of the Trust in any participant. .5 6 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS .1 The amount and allocation of contributions under this Trust and Plan shall be subject to several limitations. Those limitations shall be as follows: (a) contributions made by the Participating Companies to the Trust and Plan pursuant to a participant's cash or deferred election under Article 4 of the Trust and Plan shall be subject to the individual deferral limit described in Section 7.2 hereof; (b) contributions made by the Participating Companies to the Trust and Plan pursuant to a participant's cash or deferred election under Article 4 of the Trust and Plan shall be subject to the limits set forth in Section 7.3 hereof; (c) all contributions made pursuant to Article 4 and Article 5 of the Trust and Plan, including contributions made pursuant to a participant's election under Article 4 and employer contributions made pursuant to Article 5, shall, in the aggregate, be subject to the deductibility limit set forth in Section 7.4 hereof; and (d) the allocation of all of the foregoing contributions shall, in the aggregate, be subject to the limitation on annual additions set forth in Article 22 hereof. .2 In no event shall contributions made pursuant to a participant's election under Article 4 of the Trust and Plan with respect to the taxable year of the participant plus similar amounts contributed on a similar basis by any other employer (whether or not related to a Participating Company) required by law to be aggregated with such contributions under this Trust and Plan exceed Nine Thousand Two Hundred and Forty Dollars ($9,240.00), plus any increase for cost-of-living as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code. In the event that the deferrals for a participant's taxable year shall exceed such limit, the excess deferrals, reduced by the amount of excess deferrals previously distributed to such participant in accordance with Section 7.5 hereof for the taxable year, together with any earnings allocable to such excess deferrals during the taxable year shall be refunded to the participant by the April 15th next following the close of such taxable year. The amount of any such refund shall be debited to the participant's cash option account. In the event that the Administrator shall receive notice from a participant by the March 1 next following the close of the participant's taxable year that the deferrals together with similar deferrals under plans of other employers shall have exceeded such limit, the Administrator shall cause the amount of excess deferrals specified by the participant, together with any earnings allocable to such excess elective deferrals during the taxable year, to be refunded to the participant by the April 15th next following the receipt of such notice. The amount of any such refund shall be debited to the participant's cash option account. .3 Deferrals shall be limited so that the average deferral percentage for the highly compensated participants shall not exceed an amount determined based upon the average deferral percentage for the participants who are not highly compensated participants, as follows: (A) (B) Average Deferral Limit on Average Percentage for Deferral Percentage Participants who for Highly Compensated are Not Highly Participants Compensated Less than 2% 2 times Column (A) 2% or more but less Column (A) plus 2% than 8% 8% or more 1.25 times Column (A) For purposes of the foregoing, the "deferral percentage" for a participant for any plan year shall equal the deferral allocated to his cash option account during the plan year that either would have been received by the participant in the plan year, if not for the deferral election, or are attributable to services performed during the plan year and would have been received by the employee within 2-1/2 months after the close of the plan year, if not for the deferral election, as a percentage of his compensation for such plan year. For purposes of determining the deferral percentage of a highly compensated participant, all contributions made on his behalf by the Participating Companies pursuant to a cash or deferred arrangement under all tax qualified retirement plans maintained by the Participating Companies shall be treated as if made under the Trust and Plan. For purposes of this Trust and Plan, an employee shall be considered to be "highly compensated" for a plan year if either: (c) during the preceding plan year, he: (i) was at any time a five percent (5%) actual or constructive owner of a Participating Company or its affiliate; or (ii) received total remuneration from the Participating Companies and their affiliates in excess of Seventy-Five Thousand Dollars ($75,000.00) (plus any increase for cost-of-living as shall be prescribed by the Secretary of the Treasury pursuant to Section 414(q)(1) of the Code); or (iii) received total remuneration from the Participating Companies and their affiliates in excess of Fifty Thousand Dollars ($50,000.00)(plus any increase for cost-of-living as shall be prescribed by the Secretary of the Treasury pursuant to Section 414(q)(1) of the Code) and was in the "top paid group" of employees of the Participating Companies and their affiliates for such plan year; or (iv) was at any time an officer of a Participating Company or one of its affiliates and received total remuneration in excess of Forty-Five Thousand Dollars ($45,000.00) or, if greater, fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Code for such plan year (plus any increase for cost of living after 1989 as determined by the Secretary of the Treasury or his delegate); or (d) during the current plan year, he either: (i) was at any time a five percent (5%) actual or constructive owner of a Participating Company or its affiliate; or (ii) was one of the one hundred (100) highest paid employees of the Participating Companies and their affiliates for the current plan year and meets the requirements of subparagraphs (a)(ii), (a)(iii) or (a)(iv) above for the current plan year. For purposes of determining whether an employee is "highly compensated," the words "total remuneration" shall mean for any participant all amounts paid to him as payment for services rendered by him to the Participating Companies or any affiliate which must be taken into account for purposes of satisfying one of the definitions of compensation contained in the Treasury regulations issued under Section 415 of the Code. For purposes of determining the members of the "top paid group" under subparagraph (a)(iii) above, a participant is a member of the top paid group for any plan year if for such plan year the participant is a member of a group consisting of the top paid twenty percent (20%) of employees of the Participating Companies, and all affiliates ranked on the basis of total remuneration from the Participating Companies and all affiliates during the plan year. In determining the members of the top paid group, the following employees shall be excluded: (A) employees who have not completed six (6) months service; (B) employees who normally work less than seventeen and one-half (17-1/2) hours per week; (C) employees who normally work not more than six (6) months during any year; (D) employees who have not attained age twenty-one (21); (E) except to the extent provided in regulations, employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and a Participating Company or any affiliate; and (F) employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) of the Code) from the Participating Companies or any affiliate which constitutes income from sources within the Unites States (within the meaning of Section 861(a)(3) of the Code). The Participating Companies may elect (in such manner as may be provided by the Secretary of the Treasury or his delegate) to apply subparagraph (A), (B), (C), or (D) above by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or age (as the case may be) than that specified in such subparagraph. For purposes of determining the number and identity of "officers" in subparagraph (a)(iv) above: (I) The total number of employees treated as officers shall be limited to the lesser of: (1) fifty (50); or (2) the greater of three (3) employees or ten percent (10%) of all employees of the Participating Companies and all affiliates; but (II) If no employee would be described as an officer pursuant to subparagraph (a)(iv) above, the highest paid officer shall be treated as described in such subparagraph. A former employee shall also be treated as a highly compensated participant if: (a) such employee was a highly compensated participant when he terminated employment; or (b) such employee was a highly compensated participant at any time after attaining age fifty-five (55). In addition, if any individual is a member of the family of a five percent (5%) owner or of a highly compensated employee in the group consisting of the ten (10) highly compensated employees paid the greatest total remuneration by the Participating Companies during the plan year, then for purposes of any Section of this Trust and Plan which uses the term highly compensated employee or highly compensated participant, (i) such individual shall not be considered a separate employee, and (ii) any such compensation paid to such individual by the Participating Companies (and any applicable contribution on behalf of such individual) shall be treated as if it were paid to (or on behalf of) the highly compensated employee or participant. For purposes of the foregoing, the word "family" shall mean, with respect to any employee, such employee's spouse and lineal ascendants or descendants and the spouses of such lineal ascendants or descendants. .1 In no event shall the amount of all contributions by the Participating Companies pursuant to Article 5, together with all amounts contributed by Participating Companies to the Trustee pursuant to participants' deferral elections under Section 4.1 hereof, exceed the maximum amount allowable as a deduction under Section 404(a)(3) of the Code or any statute of similar import, including the amount of any contribution carryforward allowable under said Section 404(a)(3). This limitation shall not apply to contributions which may be required in order to provide the minimum contributions described in Article 23 for any plan year in which this Trust and Plan is top-heavy. Nor shall this limitation apply to contributions which may be required in order to recredit the account of any rehired participant whose account is to be recredited with previously forfeited amounts as described in Section 9.3 hereof. .2 In the event that the limitations set forth in Section 7.3 hereof shall be exceeded, the Administrator shall take action to reduce future deferrals hereof as appropriate. Such action may include a reduction in the future rate of deferrals of any highly compensated employee pursuant to any legally permissible procedure. In the event that such action shall fail to prevent the excess, prior deferrals, reduced by the amount of excess deferrals previously distributed to such participant in accordance with Section 7.2 hereof for the plan year, plus any income and minus any loss allocable thereto to the end of the preceding plan year, shall be distributed to the affected highly compensated employees no later than two and one-half (2-1/2) months following the end of the plan year in which such contributions were made. In the event that distributions must be made in order to bring the Trust and Plan into compliance with Section 7.3 hereof, the Administrator shall reduce the deferral percentage or contribution percentage of highly compensated participants in descending order, beginning with the highly compensated participant(s) with the highest such percentage, until such limitations have been satisfied. In performing such reduction, the reduced deferral percentage or contribution percentage of any affected highly compensated participant shall in no event be lower than that of the highly compensated participant with the next highest such percentage. Distributions of excess deferrals or excess contributions shall be made to highly compensated employees on the basis of the respective portions of such contributions attributable to such employees taking into account the family aggregation rules contained in Section 7.3 hereof. Such contributions shall be treated as annual additions under Section 22.1 hereof. For purposes of adjusting excess deferrals and excess contributions to take into account income and losses to the end of the preceding plan year, the income or loss shall be equal to the income or loss for the plan year allocable to the account to which the excess was allocated multiplied by a fraction, the numerator of which is the excess deferrals or contributions credited to such account for the plan year and the denominator of which is the total account balance without regard to any income or loss occurring during such plan year. Any adjustments made in cash option accounts shall be made in a uniform and nondiscriminatory manner for similarly situated participants. 2 VALUATION OF ASSETS AND ADJUSTMENT OF UNSEGREGATED ACCOUNTS .1 To the extent the accounts have not been segregated for investment purposes pursuant to Article 16 hereof, the Trustee shall, as soon as practicable following each allocation date value all unsegregated assets of the Trust as of the allocation date. The Trustee shall use the fair market values of securities or other assets in making said determination. The Trustee shall then subtract from the total value of the unsegregated assets of said Trust the total of all unsegregated cash option accounts and employer contribution accounts as of said allocation date. Each such unsegregated account shall be credited with that portion of the excess of the value of the unsegregated assets over the total of all unsegregated accounts which bears the same relationship to the total of such excess as the amount in said unsegregated account bears to the total of all unsegregated accounts. The amount credited to each unsegregated account shall be reduced in similar proportion in the event the total of all unsegregated accounts as of said allocation date exceeds the total value of all unsegregated assets of the Trust as of said allocation date. Such adjustments in the amounts credited to unsegregated accounts shall be deemed to have been made on said allocation date. It is intended that this Article 8 operate to distribute among all unsegregated accounts in the Trust, all income of the Trust and changes in the value of the Trust's unsegregated assets, as the case may be. In adjusting unsegregated accounts after valuing unsegregated assets of the Trust as of any allocation date, no contributions of the Participating Companies pursuant to Article 4 or Article 5 hereof shall be taken into account until the allocation date coinciding with or next following the date such contributions were both actually paid to the Trustee by the Participating Companies and credited to the accounts of participants. .2 2 TERMINATION OF EMPLOYMENT .1 In the event of the termination of employment of a participant for any reason other than death, permanent and total disability, or retirement pursuant to Article 10 hereof, the participant shall be entitled to receive a distribution of the sum of the following amounts: (a) the amount credited to his cash option account; and (b) his vested interest. .2 The amount described in Section 9.1 above shall be distributed to the terminated participant in the form of an immediate lump sum payment as soon as practicable after his date of termination of employment, but not later than his normal retirement date. Notwithstanding the foregoing, in the event the amount to be distributed to a terminated participant exceeds Three Thousand Five Hundred Dollars ($3,500.00), such amount shall be distributed to a participant in the form of a single lump sum payment at any time prior to his normal retirement date as such participant shall select, provided that if the participant is married, the participant's spouse consents in writing to such distribution. Any such payment shall be made as soon as administratively feasible after the Trustee receives a request for payment from such terminated participant. If a participant does not receive the amounts distributable to him in accordance with the preceding paragraph prior to his normal retirement date, the amounts distributable to such participant shall be distributed in accordance with the provisions of Article 12 hereof as though he had retired on his normal retirement date under Article 10 hereof. .3 If a terminated participant's Vested Percentage in his employer contribution account is less than 100%, an amount equal to (a) minus (b) below where: (a) equals the amount credited to his employer contribution account; and (b) equals his vested interest; shall be forfeited as of the earliest of (1) the date on or after the participant's termination of employment on which the participant receives a distribution of the amounts described in Section 9.1 hereof; (2) the last day of the plan year during which the participant shall incur five consecutive One (l) Year Breaks-In-Service; or (3) the date the participant dies. Any such forfeited amount shall be debited to the participant's employer contribution account. If any amounts remain credited to his employer contribution account after said forfeiture, said amounts shall thereafter be held, administered and distributed in accordance with Section 9.2 above. Notwithstanding the preceding provisions of this Section 9.3, if a terminated participant's Vested Percentage is zero (0) and there are no amounts credited to his cash option account, the amounts which are credited to his employer contribution account shall be forfeited as of the date of the participant's termination of employment. If the terminated participant shall be rehired by a Participating Company or any affiliate prior to the time the terminated participant incurs five consecutive One (1) Year Breaks-In-Service, he shall immediately be reinstated as a participant in this Trust and Plan and the amount which had been previously debited to his employer contribution account and forfeited pursuant to the provisions of this Section 9.3 shall be recredited to his employer contribution account on the date such participant is rehired. Notwithstanding any other provision of this Trust and Plan to the contrary, in order to balance the accounts maintained under the Trust and Plan after giving effect to the recrediting of the rehired participant's employer contribution account and the later adjustment of such accounts pursuant to Article 8 or Article 16 hereof, the Company may, at its option: (b) if none of the accounts have been segregated for investment purposes pursuant to Article 16 hereof, reduce the gain, if any, in the value of the Trust and Plan's assets (since the most recent allocation date) for purposes of adjusting the accounts pursuant to Article 8 hereof as of any allocation dates which coincide with or follow the date of the participant's rehire up to and including the allocation date which coincides with the last day of the plan year during which such participant was rehired; and/or (c) reduce the value of the forfeitures which are otherwise reallocable as of the allocation date which coincides with the last day of the plan year during which such participant was rehired; and/or (d) reduce the amount of the employer contributions which are otherwise allocable among the employer contribution accounts of participants pursuant to Article 5 for the plan year during which such participant was rehired; and/or (e) take some combination of the actions described in (a), (b) and (c) above as the Company shall in its sole discretion determine; provided that the total of the amounts described in (a), (b) and (c) above with respect to any plan year shall not exceed the aggregate amounts which were recredited to the employer contribution accounts of all participants who were rehired during such plan year. Any amounts recredited to a rehired participant's employer contribution account pursuant to this Section 9.3 shall not be an annual addition for purposes of Article 22 of this Trust and Plan with respect to the plan year during which such recrediting occurs. To the extent that the sum of the amounts described in (a), (b) and (c) above for any plan year is less than the aggregate amounts which were recredited to the employer contribution accounts (as later adjusted pursuant to Article 8 or Article 16 hereof) of all participants who were rehired during the plan year, the Company shall cause the Participating Companies to contribute to the Trust and Plan an amount equal to the difference between the aggregate amounts which were recredited to the employer contribution accounts (as later adjusted pursuant to Article 8 or Article 16 hereof) of all participants who were rehired during the plan year and the sum of the amounts described in (a), (b) and (c) above, and such contribution shall be made by any such Participating Company no later than the close of the plan year next following the plan year during which such participants were rehired. .1 The amounts forfeited pursuant to Section 9.3 hereof shall be used to reduce the contributions to be made by the Participating Companies for the taxable year which includes the date of forfeiture. The amounts forfeited pursuant to Section 9.3 hereof shall be reallocated among the employer contribution accounts of active participants who are employed by one of the Participating Companies on the allocation date which is the last day of the taxable year which includes the date of forfeiture as though such amounts were contributed by the Participating Companies with respect to such taxable year. In no event shall forfeitures be used to increase the benefits any participant would otherwise receive under the Trust and Plan. .2 If the accounts have been segregated for investment purposes pursuant to Article 16 hereof, any amounts forfeited pursuant to Section 9.3 hereof shall be invested in such media as the Administrator shall direct until reallocated among the employer contribution accounts of the remaining active participants pursuant to Section 9.4 hereof. .3 2 RETIREMENT AND DISABILITY BENEFITS .1 A participant who retires on or after his normal retirement date shall be entitled to receive an amount equal to the amounts credited to his accounts. Except as provided in Section 12.1 hereof, such amount shall be distributed or commence to be distributed as soon as administratively feasible but in no event later than sixty (60) days after the close of the plan year which includes the date of his retirement. Such distribution shall be made in accordance with the provisions of Article 12 hereof. .2 Upon receipt from a participant or a person authorized by him or on his behalf of a request that distributions be made on account of such participant's permanent and total disability, or upon its own motion, the Administrator shall determine the extent of such participant's disability and may, to assist it in making such determination, cause appropriate medical diagnoses and tests to be made at the expense of the participant's employer. If the Administrator shall determine that the participant is permanently and totally disabled, as defined in Section 2.29 hereof, such disabled participant shall be entitled to receive an amount equal to the amounts credited to his accounts. Except as provided in Section 12.1 hereof, such amounts shall be distributed or commence to be distributed as soon as administratively feasible but in no event later than sixty (60) days after the close of the plan year which includes the later of the date the Administrator determines that such participant is permanently and totally disabled or the date said participant actually retires. Such distribution shall be made in accordance with the provisions of Article 12 hereof. .3 Each participant who is eligible for benefits under this Article 10 shall apply therefor on a form which shall be given to him for that purpose by the Administrator provided, however, that the foregoing requirement shall not apply in any case in which a participant shall be unable, for physical, mental or any other reason satisfactory to the Administrator to make such application. Upon finding that such participant satisfies the eligibility requirements for benefits under this Article 10, the Administrator shall promptly notify the Trustee in writing of his eligibility and of the method of distribution selected in accordance with Article 12. .4 3 DEATH BENEFITS .1 In the event of the termination of employment of a participant by reason of his death, his designated beneficiary shall be entitled to receive a distribution which shall be made or commence to be made as soon as administratively feasible but in no event later than sixty (60) days after the close of the plan year which includes the date of his death, unless such beneficiary defers the distribution until a later date pursuant to Section 12.1 hereof. The amount of such distribution shall be equal to the amounts then credited to the deceased participant's accounts. Such distribution shall be made in accordance with the provisions of Article 12 hereof. .2 In the event of the death of a retired or terminated participant prior to the date distribution has been made to him, his designated beneficiary shall be entitled to receive a distribution which shall be made or commence to be made as soon as administratively feasible but in no event later than sixty (60) days after the close of the plan year which includes the date of the former participant's death, unless such beneficiary defers the distribution until a later date pursuant to Section 12.1 hereof. The amount of such distribution shall be equal to the amounts then credited to his accounts. Such distribution shall be made in accordance with the provisions of Article 12 hereof. .3 In the event of the death of a participant after the date of distribution or the commencement of distribution to him, no benefits shall be payable to his beneficiary except to the extent provided for by the method under which the participant was receiving distributions under Article 12 hereof. .4 Notwithstanding anything contained in this Trust and Plan to the contrary, the designated beneficiary of a participant who is married at the time of his death shall, for all purposes of this Trust and Plan, be deemed to be the surviving spouse of the deceased participant unless either (a) both the deceased participant and the surviving spouse had signed a document designating some person or entity other than the surviving spouse as the participant's designated beneficiary and such spouse's signature was properly notarized or (b) it is established to the satisfaction of the Administrator that the signature of the spouse cannot be obtained either because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulations. Any consent given by a spouse pursuant to this Section 11.4 shall be effective only with respect to such spouse and shall not be effective with respect to any other spouse of such participant. .5 Subject to Section 11.4 hereof, upon becoming a participant, an employee shall designate in writing to the Administrator the beneficiary and/or contingent beneficiary to receive, in the event of his death, any amounts distributable pursuant to this Article 11. .6 Subject to Section 11.4 hereof, a participant may at any time change his designation of his beneficiary, or the amounts to be paid any beneficiary, by notifying the Administrator of any such change in writing. Each such change of designation shall be deemed to be a ratification and confirmation of any earlier designations insofar as they are not inconsistent with such change of designation. .7 Upon the death of a participant, the Administrator shall immediately deliver to the Trustee any designation of beneficiary or change of designation filed with it by such deceased participant and not previously delivered to the Trustee. .8 The Trustee shall be completely protected in making payments to any person in any sums in accordance with beneficiary designations. There shall be no liability on the part of the Administrator to any person because of any delay in filing with the Trustee any designation or change filed with it by a participant. If a new designation is filed with the Trustee after any disbursements have been made in accordance with a previous designation, or in accordance with Section 11.9 hereof because either no designation was on file or the designation on file did not dispose of all amounts distributable, a distribution made before receipt of such new designation shall be irrevocable, but all distributions after receipt by the Trustee of such new designation shall be made in accordance with such new designation. .9 In the event that upon the death of a participant, the beneficiary designation on file with the Trustee or Administrator which is in effect on the date of such participant's death does not dispose in its entirety of the amounts distributable under this Trust and Plan upon his death, or in the event no designation shall be on file with the Trustee or Administrator at the time of such death, then the amounts distributable on behalf of said participant, the disposition of which was not determined by the deceased participant's designation, shall be distributed to the participant's spouse if she survives the participant, or, if she does not survive, said amount shall be distributed to the personal representative of the participant for distribution as a part of the participant's estate. .10 Any ambiguity in a participant's designation shall be resolved by the Administrator. If so requested by the Trustee, the Administrator shall cause a participant to clarify his designation and, if necessary, execute a new designation containing such clarification. .11 4 DISTRIBUTIONS .1 Distributions will normally commence as of the dates specified in Articles 9 and 10 hereof. However, a participant or beneficiary may elect in writing to defer any distribution until a later date provided that: (a) in the case of a living participant or former participant, distribution must commence on or before the April 1 following the end of the calendar year in which he attains age seventy and one- half (70-1/2); or (b) in the case of a deceased participant or former participant, distributions after his death shall be payable either: (i) by the December 31 of the calendar year containing the 5th anniversary of the participant's death; or (ii) if distribution commences to his beneficiary, either: (A) on or before the December 31 of the calendar year immediately following the calendar year in which the participant died; or (B) if his spouse is his beneficiary, by the later of the December 31 of the calendar year immediately following the calendar year in which the participant died and the December 31 of the calendar year in which the participant would have attained age 70 1/2; over a period not extending beyond the life expectancy of such beneficiary; or (iii) if the participant's distribution had commenced prior to his death under a form of payment meeting the requirements of subparagraph (a)(ii) above, such distribution must be completed by the remainder of the period specified in said subparagraph (a)(ii); and (iv) if the participant's distribution had not commenced prior to his death under a form of payment meeting the requirements of subparagraph (a)(ii) above and the participant's spouse is entitled to a distribution hereunder but dies prior to the commencement of such distribution, then the limitations of this Section 12.1(b) shall be applied as if the spouse were the participant. If retirement benefits are paid to a participant's child, such payments shall be deemed to be paid to the participant's spouse if such benefits will become payable to such spouse upon such child reaching majority or any other event permitted under any lawful regulations issued by the Secretary of the Treasury. The life expectancy of a participant and his spouse may be redetermined from time to time but not more frequently than annually. .1 Subject to Section 12.1 above, a participant or beneficiary shall receive the amounts distributable to him under Articles 9 or 10 pursuant to a single lump sum payment. .2 All distributions required under this Article 12 shall be determined and made in accordance with the regulations under Section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the regulations. .3 The Administrator shall notify the Trustee immediately of a participant's or beneficiary's election of a method of distribution, and the Trustee shall make all distributions in accordance with such method of distribution. At any time that amounts remain credited to any accounts of such participant or beneficiary, he may file with the Administrator instructions changing the method of distribution. If a participant or beneficiary files such instructions, the Administrator shall promptly direct the Trustee in writing to adopt the new method of distribution for any amounts remaining credited to such person's accounts. In no case shall the Trustee be obligated to accept any instructions for a change in the method of distribution, if, in its judgment, it will be unduly expensive to carry out instructions. There shall be no liability on the part of the Administrator to any person because of any delay in notifying the Trustee of a change in method of distribution filed with it. .4 The Trustee shall, upon notification by the Administrator as to the eligibility of and method of distribution applicable to a participant or beneficiary, make payment directly from the trust fund to such person. .5 Any accounts which have been segregated for investment purposes pursuant to Article 16 hereof may, at the election of a distributee who is receiving a distribution in the form of a single lump sum payment, be distributed in the form of the assets which constitute the accounts being distributed, provided there is an active market for such assets. .6 Notwithstanding the preceding provisions of this Article 12, if the aggregate of the amounts credited to a participant's accounts under the Trust and Plan does not exceed or at the time of any prior distribution did not exceed Three Thousand Five Hundred Dollars ($3,500) as of the date distribution of the participant's accounts is commenced, the Administrator shall distribute the participant's accounts to the participant or beneficiary thereof in the form of a single lump sum payment. .7 As long as there remain any amounts credited to an account, the Trustee shall continue to maintain and administer said account in accordance with the terms and provisions of the Trust and Plan. .8 Each distributee shall have the right to direct that any distribution which, under Code Section 402(c), qualifies as an eligible rollover distribution be transferred directly to an eligible retirement plan. A distributee may direct that part of the distribution be transferred directly to an eligible retirement plan and the balance be paid to him, provided that the amount directly transferred to the eligible retirement plan shall be at least Five Hundred Dollars ($500.00). A distributee is not permitted to direct that this distribution be transferred directly to more than one eligible retirement plan. In the event that a distributee fails to make any direction, the distribution shall be paid directly to him after deduction of appropriate withholding taxes. Unless the context otherwise indicates, the following terms shall have the following meanings whenever used in this Section 12.9: (a) "eligible rollover distribution" shall mean 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: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (of 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; (ii) any distribution to the extent such distribution is required under Section 12.1 above which reflects the requirements under Section 401(a)(9) of the Code; and (iii) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) "eligible retirement plan" shall mean: (i) an individual retirement account described in Section 408(a) of the Code; (ii) an individual retirement annuity described in Section 408(b) of the Code; (iii) an annuity plan described in Section 403(a) of the Code; or (iv) a qualified trust described in Section 401(a) of the Code; that accepts the distributee's eligible rollover distribution. Notwithstanding the foregoing, 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. (e) "distributee" shall mean: (i) an employee or former employee; and (ii) an employee's or a former employee's surviving spouse and an 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, without regard to the interest of the spouse or former spouse. (f) "direct rollover" shall mean a payment by the Trust and Pan to the eligible retirement plan specified by the distributee. (g) 3 HARDSHIP BENEFITS .1 In case of hardship, a participant may apply to the Administrator for distribution of all or a portion of the amounts credited to his cash option account. For purposes of this Section 13.1, a distribution shall be on account of hardship only if the distribution both is made on account of an immediate and heavy financial need of the participant and is necessary to satisfy such financial need. In no event shall any amounts be distributed to a participant from his cash option account prior to his attainment of age fifty- nine and one-half (59-1/2), unless the Administrator determines that the participant is unable to eliminate the hardship out of other resources which are reasonably available to the participant. .2 A distribution will be made on account of an immediate and heavy financial need of the participant only if the distribution is on account of: (a) medical expenses described in Code Section 213(d) previously incurred by the participant, the participant's spouse, or any dependents of the participant (as defined in Code Section 152) or necessary for these persons to obtain medical care; (b) purchase (excluding mortgage payments) of a principal residence for the participant; (c) payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the participant, his or her spouse, children, or dependents; or (d) the need to prevent the eviction of the participant from his principal residence or foreclosure on the mortgage of the participant's principal residence. A distribution will be necessary to satisfy an immediate and heavy financial need of a participant only if both of the following requirements are satisfied: (a) the distribution is not in excess of the amount of the immediate and heavy financial need of the participant, including amounts to pay taxes or penalties reasonably anticipated to result from the distribution; and (b) the participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Participating Companies and affiliates. If the Administrator determines that the criteria set forth above are satisfied, it shall order a distribution from the participant's cash option account subject to the limits set forth in Section 13.3 below. Amounts distributed to a participant under this Section shall be debited to his cash option account as they are paid. .3 The amount of any such distribution (i) shall not exceed the amount determined by the Administrator as necessary to satisfy such immediate and heavy financial need of the participant, (ii) shall not exceed the amount of cash or deferred contributions made to such participant's cash option account and minus any withdrawals made from such participant's cash option account and (iii) shall not exceed the amount credited to such participant's cash option account on the date of such distribution. A distribution generally may be treated as necessary to satisfy a financial need if the Administrator relies upon the participant's written representation, unless the Administrator or its authorized employees have actual knowledge to the contrary that the need cannot reasonably be relieved: (1) through reimbursement or compensation by insurance or otherwise; (2) by liquidation of the participant's assets; (3) by cessation of deferral contributions under the Plan; or (4) by other distributions or nontaxable loans from plans maintained by the Company or by any other employer, or by borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need. Neither the application for nor payment of any distribution in accordance with Section 13.1 shall have the effect of terminating a participant's participation in the Plan. The Administrator may prescribe the use of such forms, conduct such investigation, and require the making of such representations and warranties, as it deems desirable to carry out the purpose of this Article 13. .4 Notwithstanding any other provision of this Article 13, in no event may a married participant receive a hardship distribution from the Plan unless either (a) within a period of ninety (90) days preceding the date the distribution is actually made to the participant, the participant's spouse consents in writing to such distribution and such spouse's signature is properly notarized, or (b) it is established to the satisfaction of the Administrator that the signature of the spouse cannot be obtained either because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulation. .5 2 THE TRUSTEE, ITS POWERS AND DUTIES .1 The Trustee shall not be obligated to institute any action or proceeding to compel any Participating Company to make any contributions to this Trust, nor shall the Trustee be obligated to make any inquiry as to whether any amount deposited with it is the amount provided to be deposited under the terms of the Trust and Plan. The Trustee shall keep books of account which shall show all receipts and disbursements and a complete record of the operation of the Trust, and the Trustee shall at least annually and at such other times as the Administrator shall so request render a report of the operation of this Trust to the Participating Companies and the Administrator. The Trustee shall file with the Internal Revenue Service such returns and other information concerning the Trust Fund as may be required of the Trustee by the Code and any valid Regulations thereunder. The Trustee shall not be obligated to pay any interest on any funds which may come into its hands. The Trustee is a party to this Trust and Plan solely for the purposes set forth in this instrument and to perform the acts herein set forth, and no obligation or duty shall be expected or required of it except as expressly stated herein or in the Employee Retirement Income Security Act of 1974 and any valid Regulations issued thereunder by the Secretary of Labor or the Secretary of the Treasury. The Trustee may consult with counsel (who may or may not be counsel for a Participating Company) selected by the Trustee concerning any question which may arise with reference to its powers or duties under this Trust and Plan, and the opinion of such counsel shall be full and complete authority and protection in respect of any action taken, suffered or omitted by the Trustee in good faith and in accordance with such opinion, provided due care is exercised in the selection of such counsel. .2 The Trustee may resign from this Trust by mailing to the Company a written notice of resignation addressed to the Company at the last address of the Company on file with the Trustee, or by delivering such written notice to the Company at such address. The Company may remove the Trustee by written notice of such removal mailed to the Trustee at the last address of the Trustee on file with the Company, or by delivering such written notice to the Trustee at such address. Such resignation or removal shall take effect on the date specified in the notice of resignation or removal, but not less than thirty (30) days, nor more than sixty (60) days, following the date of mailing of such notice or delivery of such notice if it be not mailed, unless the Company and the Trustee agree that the resignation or removal be effective on some other date. Upon such resignation or removal, the Trustee shall be entitled to its fees to the effective date of resignation or removal and any and all costs or expenses paid or incurred by the Trustee in connection with this Trust and Plan. In no event shall such resignation or removal terminate this Trust and Plan, but the Company shall forthwith appoint a successor Trustee to carry out the terms of this Trust and Plan, which successor Trustee shall be any individual, trust company or bank selected by the Company. In case of the resignation or removal of the Trustee, the Trustee shall forthwith turn over to the successor Trustee all assets in its possession, and copies of such records as may be necessary to permit the successor Trustee to carry out its duties. .3 The expenses of administration of the Trust incurred by the Trustee, including counsel fees and including Trustee's fees as such may from time to time be agreed upon between the Company and the Trustee, shall be paid in any one of the following manners as determined by the Company in its sole discretion: (a) the expenses may be paid directly by the Participating Companies to the Trustee; or (b) the expenses may be paid out of the Trust Fund. Fees and expenses of the Trustee which have not been paid will be a lien upon the Trust Fund. In no event will any Trustee who is a full- time employee of a Participating Company or any affiliate receive compensation from the Trust and Plan, except for reimbursement of expenses properly and actually incurred. .4 Subject to Section 12.2 hereof, any segregation or distribution of assets required under this Trust may be made in cash or in kind, or partly in cash and partly in kind, according to the discretion of the Trustee, but any such segregation or distribution shall be made on the basis of the most recent valuation made pursuant to Article 8 or Article 16 hereof. .5 In the event that the Company shall have appointed more than one individual, trust company or bank to act jointly as Trustee hereunder, any action which this Trust and Plan authorizes or requires the Trustee to do shall be done by action of the majority of the then acting co-trustees, or, in the case of two such persons acting jointly as Trustee, by action of both such trustees. Such action may be taken at any meeting of the co-trustees then acting, or by written authorization and affirmative consent without a meeting. The co-trustees by written agreement among themselves, a copy of which shall be filed with the Company and the Administrator, may allocate among themselves any of the powers and duties of the Trustee under this Trust and Plan. In such event the co-trustee to whom a power or duty is allocated may take action with respect thereto without the consent of any other co-trustee. Any person, firm, partnership or corporation may rely upon the written signatures of such number of the co-trustees as are hereunder empowered to take action as the signature of the Trustee hereunder. Notwithstanding any other provision of this Trust and Plan to the contrary, so long as at least one individual, trust company or bank shall continue to act as Trustee hereunder, the Company shall not be under any duty to appoint a successor to any co-trustee who shall resign or be removed. .6 3 INVESTMENTS .1 In addition to the powers and duties conferred and imposed upon the Trustee by the other provisions of this Trust and Plan, the Trustee shall, subject to the limitations set forth in this Trust and Plan, have the following powers and duties: (a) To invest and reinvest the principal and income of the Trust Fund and keep the same invested with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims, without distinction between principal and income and without regard to any limitations, other than such prudent man rule, prescribed by law or custom upon the investments of fiduciaries, in each and every kind of property, whether real, personal or mixed, tangible or intangible, and wherever situated, including but not limited to annuity contracts of an insurance company on the life of any participant, shares of any Regulated Investment Company, units of any common trust fund of any bank or trust company now in existence or hereafter established, shares of common, preference and preferred stock, put and call options, rights, options, subscriptions, warrants, trust receipts, investment trust certificates, mortgages, leases, bonds, notes, debentures, equipment or collateral trust certificates and other corporate, individual or government obligations, whether secured or unsecured; to invest and reinvest in and retain any stocks, bonds or other securities of any corporate trustee serving hereunder, or any parent or affiliate thereof; to invest in commodities and commodity contracts; to invest and reinvest in any time or savings deposits of the Trustee or any parent or affiliate thereof if such deposits bear a reasonable rate of interest or of any bank, trust company, or savings and loan institution, which deposits may but need not be guaranteed by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation; and in addition to become a general partner or limited partner in any partnership or limited partnership the purposes of which are to invest or reinvest the partnership assets in any such properties or deposits; (b) To invest a portion or all of the Trust Fund in units of any common or group trust created solely for the purpose of providing a satisfactory diversification of investments for participating trusts; provided that such common or group trust, (l) limits participation thereunder to pension and profit sharing trusts which qualify under Section 501(a) of the Code, as amended, (2) prohibits income and/or principal attributable to a participating trust from being used for any purpose other than the exclusive benefit of the employees or their beneficiaries of such participating trust, (3) prohibits assignment by a participating trust of any part of such participating trust's equity or interest in the common or group trust, (4) is created or organized in the United States and is maintained at all times as a domestic trust in the United States; as long as the Trustee holds such units hereunder, the instrument establishing such common or group trust (including all amendments thereto) shall be deemed to have been adopted and made a part of this Trust and Plan; (c) Upon written direction of the Company, to invest or reinvest all or a portion of the Trust Fund in qualifying employer securities or qualifying employer real property as such terms are defined in Section 4975 of the Code and Section 407(d) of the Employee Retirement Income Security Act of 1974, which investment may constitute not more than one hundred percent (100%) of the fair market value of the assets of the Trust Fund, and to retain, or to sell, exchange or otherwise dispose of any such securities or real property held in this Trust Fund. In the event of any such investment, the Trustee shall file with the appropriate District Director of Internal Revenue such returns and other information as shall be required from time to time by the Code and valid regulations, rulings and procedures thereunder; (d) To sell, convert, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any real or personal property, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency or propriety of any such disposal; (e) To manage, operate, repair, partition and improve and mortgage or lease (with or without option to purchase) for any length of time any real property held in the Trust Fund; to renew or extend any mortgage or lease, upon any terms the Trustee may deem expedient; to agree to reduction of the rate of interest on any mortgage note; to agree to any modification in the terms of any lease or mortgage or of any guarantee pertaining to either of them; to enforce any covenant or condition of any lease or mortgage or of any guarantee pertaining to either of them or to waive any default in the performance thereof; to exercise and enforce any right of foreclosure; to bid on property on foreclosure; to take a deed in lieu of foreclosure with or without paying consideration therefor and in, connection therewith to release the obligation on the bond secured by the mortgage; and to exercise and enforce in any action, suit or proceeding at law or in equity any rights or remedies in respect of any lease or mortgage or of any guarantee pertaining to either of them; (f) To exercise, personally or by general or limited proxy, the right to vote any shares of stock or other securities held in the Trust Fund; to delegate discretionary voting power to trustees of a voting trust for any period of time; and to exercise or sell, personally or by power of attorney, any conversion or subscription or other rights appurtenant to any securities or other property held in the Trust Fund; (g) To join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease (with or without an option to purchase), mortgage or sale of the property of any organization the securities of which are held in the Trust Fund; to pay from the Trust Fund any assessments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation, to deposit any property with any committee or depositary; and to retain any property allotted to the Trust Fund in any reorganization, recapitalization, consolidation, merger or liquidation; (h) To borrow money from any lender (including the Trustee hereunder, where applicable in its capacity as a banking corporation when permitted to do so by the applicable laws and regulations then in effect) in any amount and upon such terms and conditions and for such purposes as the Trustee shall deem necessary; for any money so borrowed the Trustee may issue its promissory note as Trustee and to secure the repayment of any such loan, with interest, may pledge or mortgage all or any part of the Trust Fund, and no person loaning money to the Trustee shall be obligated to see to the application of the money loaned or to inquire into the validity, expediency or propriety of any such borrowing; (i) To compromise, settle or arbitrate any claim, debt or obligation of or against the Trust Fund; to enforce or abstain from enforcing any right, claim, debt or obligation; and to abandon any property determined by it to be worthless; (j) To continue to hold any property of the Trust Fund whether or not productive of income; to reserve from investment and keep unproductive of income, without liability for interest, such cash as it deems advisable or, in its discretion, to hold the same, without limitation on duration, on deposit in the commercial department or in an interest-bearing account in the savings department of any bank, trust company, or savings and loan institution (including the Trustee where applicable in its capacity as a banking corporation) in which deposits are guaranteed by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation; (k) To hold property of the Trust Fund in its own name or in the name of a nominee, without disclosure of this Trust, or in bearer form so that it will pass by delivery, but no such holding shall relieve the Trustee of its responsibility for the safe custody and disposition of the Trust Fund in accordance with the provisions of this Trust and Plan, and the Trustee's records shall at all times show that such property is part of the Trust Fund; (l) To make, execute and deliver, as Trustee, any deeds, conveyances, leases (with or without option to purchase), mortgages, options, contracts, waiver or other instruments that the Trustee shall deem necessary or desirable in the exercise of its powers under this Trust; (m) To employ, at the expense of the Trust Fund, agents who are not regular employees of the Trustee, and to delegate in writing to them and authorize them to exercise such powers and perform such duties required of the Trustee hereunder without limitation as the Trustee may determine in its uncontrolled discretion; the Trustee shall not be responsible for any loss occasioned by any such agents selected by it with reasonable care; (n) To pay out of the Trust Fund all taxes imposed or levied with respect to the Trust Fund and in its discretion to contest the validity or amount of any tax, assessment, penalty, claim or demand respecting the Trust Fund; however, unless the Trustee shall have first been indemnified to its satisfaction or arrangements satisfactory to it shall have been made for the payment of all costs and expenses, it shall not be required to contest the validity of any tax, or to institute, maintain or defend against any other action or proceeding either at law or in equity; (o) Except as otherwise provided in this Trust and Plan, to do all acts, execute all instruments, take all proceedings and exercise all rights and privileges with relation to any assets constituting a part of the Trust Fund, which it may deem necessary or advisable to carry out the purposes of this Trust and Plan; (p) During the minority or incapacity of any participant, former participant or beneficiary under this Trust and Plan, to make payment to such participant, former participant or beneficiary or to an appropriate member, as determined by the Administrator, of such participant's, former participant's or beneficiary's family for the care, maintenance and support of such participant, former participant or beneficiary in such amounts and at such times as the Administrator may determine, and the receipt of such minor or incapacitated person or member of such minor's or incapacitated person's family to whom payment has been made shall be a full discharge and acquittance to the Trustee for the amount so paid; and (q) Upon direction by the Administrator, to purchase contracts of life insurance on the lives of key persons whose death might affect adversely the earnings of a Participating Company. Any such contracts shall be owned by the Trustee and any and all benefits, including any amounts payable upon the death of the person insured shall be payable to the Trustee and considered as an investment for the benefit of the Trust as a whole. .2 Notwithstanding any other provisions of this Trust and Plan, the Company may appoint, from time to time, one or more: (a) banks, as defined in the Investment Advisers Act of 1940; (b) persons registered as investment advisers under said Act; or (c) insurance companies qualified to perform investment advisory services under the laws of more than one state; to act as the Investment Manager of all or such portions of the Trust Fund as the Company in its sole discretion shall direct without regard to whether the accounts have been segregated for investment purposes pursuant to Article 16 hereof. In order to serve as Investment Manager, any such bank, person or insurance company must state in writing to the Company and the Trustee that it meets the requirements set forth in this Section 15.2 to be an Investment Manager and that it acknowledges that it shall be a fiduciary with respect to this Trust and Plan during all periods that it shall serve as such. During any period that an Investment Manager has been appointed with respect to the Trust Fund or a portion thereof, it shall have such powers and authority with respect to the management, acquisition or disposition of any asset of the Trust Fund or such portion thereof as shall be set forth in the investment management agreement between the Company and the Investment Manager, and, to the extent of the Investment Manager's powers and authority, the Trustee shall have no duties or obligations with respect to the investment, management, acquisition or disposition of such assets. The Company may, at any time, remove any Investment Manager or change the portion of the Trust Fund subject to its management by written notice to the Trustee and the Investment Manager. Any Investment Manager may resign by written notice to the Company and the Trustee. Unless the Company appoints a successor to an Investment Manager which has resigned or been removed, or which is no longer managing a portion of the Trust Fund, the powers, duties and obligations of the Trustee with respect to the portion of the Trust Fund formerly managed by the Investment Manager shall be automatically restored. .3 All income from investments and reinvestments made as provided in this Article 15 shall be treated as principal, and investments and reinvestments shall be made without distinction between income and principal. .4 In no case shall the Trustee enter into or engage in any transaction which is defined as a prohibited transaction by Section 4975 of the Code, or by Section 406 of the Employee Retirement Income Security Act of 1974, except to the extent any such transaction is permitted under another provision of said United States Code or under a valid regulation or exemption promulgated by a responsible agency of the Federal government. .5 4 SEGREGATION OF ACCOUNTS OF PARTICIPANTS .1 The Company may, in its sole discretion, from time to time, direct that some or all of the accounts of similarly situated participants and beneficiaries be segregated for investment purposes and that such persons be permitted to direct the investment of such accounts in such media, whether limited or unlimited, as shall be designated by the Company, from time to time, subject to the limitations of Section 16.2 hereof. Any direction of the Company pursuant to this Section 16.1 shall apply to all similarly situated participants and beneficiaries in a uniform and non-discriminatory manner. In the event the Company directs that the accounts be segregated for investment purposes, the Company shall give at least ten (10) days notice to participants, beneficiaries and the Trustee of such fact. .2 All segregated accounts of each participant and beneficiary, shall be invested in such media, whether limited or unlimited, as shall be designated by the Company, from time to time, as per the instructions of such participant or beneficiary, and pursuant to uniform rules and procedures promulgated by the Company. All such directions shall be deemed to be continuing directions until they shall have been revoked or changed. A participant or beneficiary may revoke or change his direction of investment at such uniform times as shall be prescribed by the Administrator and in accordance with such uniform rules and procedures promulgated by the Administrator. To the extent any participant or beneficiary fails to give investment directions to the Trustee, amounts credited to his accounts shall be invested in such media as the Trustee shall direct. .3 On the day immediately prior to the date the accounts become segregated for investment purposes pursuant to Section 16.1 hereof, the Trustee shall, in accordance with the provisions of Article 8 hereof, value the assets of the trust fund and adjust the accounts to reflect each such account's allocable portion of any change in the value of the assets of the Trust which has occurred since the most recent prior adjustment of said accounts, in accordance with the provisions of the Trust and Plan as it exists as of such day. .4 Each segregated account shall be valued and adjusted by the Trustee pursuant to uniform rules and procedures promulgated by the Administrator and approved by the Trustee, and which are similar to the rules and procedures for valuing assets and adjusting unsegregated accounts as described in Article 8 hereof as of each allocation date, each other date upon which a distribution, withdrawal or loan is made from such account, and the date immediately prior to the date the accounts cease to be segregated for investment purposes pursuant to Section 16.5 hereof. The Trustee shall use the fair market values of securities or other assets in determining the value of the assets of an account. Such account shall be adjusted as of such date to reflect the income received or accrued, realized, and unrealized profits and losses, expenses, payments to a participant or beneficiary and all other transactions of the period since the last valuation date. It is intended that this Section 16.4 operate to adjust each segregated account in the trust to reflect all income attributable to the account and changes in the value of the account's assets, as the case may be, as of any allocation date. .5 Upon ten (10) days written notice to the Trustee and the affected participants and beneficiaries, the Company may direct that the segregated accounts shall cease to be segregated effective as of a date specified by the Company. As of the date immediately preceding the date as of which the accounts shall cease to be segregated, the Trustee shall value the assets of the accounts pursuant to Section 16.4 hereof and credit or debit such accounts with any gain or loss in the value of the assets of said accounts since the most recent prior valuation date. Upon completion of said valuation and adjustment of accounts, the accounts shall cease to have specific assets allocated to them and shall thereafter be adjusted as provided in Article 8 hereof. .6 5 ADMINISTRATION .1 The Board of Directors of the Company shall appoint the Administrator which shall be any person or entity, including the Company or any Participating Company. Said Board of Directors shall notify the Trustee of the identity of the Administrator and of any change in the Administrator. Except as expressly set forth herein with respect to the duties and responsibilities of the Trustee, the Employee Benefits Committee, the Investment Manager or the Company, the Administrator shall administer the Trust and Plan and shall have all powers and duties granted or imposed on an "administrator" by the Employee Retirement Income Security Act of 1974. The Administrator shall determine any and all questions of fact, resolve all questions of interpretation of this instrument which may arise under any of the provisions of this Trust and Plan as to which no other provision for determination is made hereunder, and exercise all other powers and discretions necessary to be exercised under the terms of this Trust and Plan which it is herein given or for which no contrary provision is made. Subject to the provisions of Section 17.6, the Administrator's decision with respect to any matter shall be final and binding upon the Trustee and all other parties concerned, and neither the Administrator nor any of its directors, officers or employees, if applicable, shall be liable in that regard except for gross abuse of the discretion given it and them under the terms of this Trust and Plan. All determinations of the Administrator shall be made in a uniform, consistent and non-discriminatory manner with respect to all participants and beneficiaries in similar circumstances. The Administrator may, from time to time, designate one or more persons or agents to carry out any or all of its duties hereunder. .2 If any participant, any beneficiary, or the authorized representative of a participant or beneficiary shall file an application for benefits hereunder and such application is denied, in whole or in part, he shall be notified in writing of the specific reason or reasons for such denial unless the granting or denial of the application is in the sole discretion of the Administrator in which event the notice to the applicant shall state that the Administrator has denied the application pursuant to the exercise of its discretionary powers under the Trust and Plan. The notice shall also set forth the specific plan provisions upon which the denial is based, an explanation of the provisions of Section 17.6 hereof, and any other information deemed necessary or advisable by the Administrator. .3 The Board of Directors of the Company shall appoint the members of an Employee Benefits Committee which shall consist of three (3) or more members. The members of the Committee shall remain in office at the will of the Board of Directors and the Board of Directors may from time to time remove any of said members with or without cause. A member of the Committee may resign upon written notice to the remaining member or members of the Committee and to the Company respectively. The fact that a person is a participant or a former participant or a prospective participant shall not disqualify him from acting as a member of the Committee. In case of the death, resignation or removal of any member of the Committee, the remaining members shall act until a successor-member shall be appointed by the Board of Directors of the Company. The Secretary of the Company shall notify the Trustee and the Administrator in writing of the names of the original members of the Committee, of any and all changes in the membership of the Committee, of the member designated as Chairman, and the member designated as Secretary, and of any changes in either office. Until notified of a change, the Trustee and the Administrator shall be protected in assuming that there has been no change in the membership of the Committee or the designation of Chairman or of Secretary since the last notification was filed with it. The Trustee and the Administrator shall be under no obligation at any time to inquire into the membership of the Committee or its officers. All communications to the Committee shall be addressed to its Secretary at the address of the Company on file with the Trustee. .4 On all matters and questions the decision of a majority of the members of the Committee shall govern and control; but a meeting need not be called or held to make any decision. The Committee shall appoint one of its members to act as its Chairman and another member to act as Secretary. The terms of office of these members shall be determined by the Committee, and the Secretary and/or Chairman may be removed by the other members of the Committee for any reason which such other members may deem just and proper. The Secretary shall do all things directed by the Committee. Although the Committee shall act by decision of a majority of its members as above provided, nevertheless in the absence of written notice to the contrary, every person may deal with the Secretary and consider his acts as having been authorized by the Committee. Any notice served or demand made on the Secretary shall be deemed to have been served or made upon the Committee. .5 No member of the Committee shall be disqualified from acting on any question because of his interest therein. No fee or compensation shall be paid to any member of the Committee for his services as such, but the Committee shall be reimbursed for its expenses by the Participating Companies. The Committee and the Administrator may hire such attorneys, accountants, actuaries, agents, clerks, and secretaries as it may deem desirable in the performance of its functions, and the expense associated with the hiring or retention of any such person or persons shall be paid directly by the Participating Companies. .6 Any participant, any beneficiary, or any authorized representative of a participant or beneficiary whose application for benefits hereunder has been denied, in whole or in part, by the Administrator may upon written notice to the Committee request a review by the Committee of such denial of his application. Such review may be made by written briefs submitted by the applicant and the Administrator or at a hearing, or by both as shall be deemed necessary by the applicant. The Committee may, in its sole discretion, appoint an appeal examiner to conduct such review. Any appeal examiner shall be an officer of the Participating Company or affiliate which employs or most recently employed the applicant. Any hearing conducted by an appeal examiner shall be held in such location as shall be reasonably convenient to the applicant. Any hearing conducted by the Committee shall be held in the corporate headquarters of the Company, unless the Committee shall specify otherwise. The date and time of any such hearing shall be designated by the Committee or the appeal examiner upon not less than seven (7) days notice to the applicant and the Administrator unless both of them accept shorter notice. The Committee or the appeal examiner shall make every effort to schedule the hearing on a day and at a time which is convenient to both the applicant and the Administrator. The Committee may, in its sole discretion, establish such rules of procedure as it may deem necessary or advisable for the conduct of any such review or of any such hearing. After the review has been completed, the Committee or the appeal examiner shall render a decision in writing, a copy of which shall be sent to both the applicant and the Administrator. Such decision shall set forth the specific reasons for the decision and the specific provisions of the Trust and Plan upon which the decision is based and, if the decision is made by an appeal examiner, the rights of the applicant or the Administrator to request a review by the entire Committee of the decision of the appeal examiner. Either the applicant or the Administrator may request a review of an adverse decision of the appeal examiner by filing a written request with the Committee within thirty (30) days after receipt of a copy of the appeal examiner's decision. Any such request shall specify whether the review is to be based solely upon the written record or also upon a hearing before the Committee. The review of a decision of the appeal examiner shall be conducted by the Committee in accordance with the procedures of this Section 17.6. There shall be no further appeal from a decision rendered by the Committee. .7 The interpretations, determinations and decisions of the Administrator, or an appeal examiner, or the Committee shall, except to the extent provided in Section 17.6 above, be final and binding upon all persons with respect to any right, benefit or privilege hereunder. The review procedures of Section 17.6 above shall be the sole and exclusive remedy and shall be in lieu of all actions at law or in equity, whether pursuant to arbitration or otherwise, except as otherwise provided in the Employee Retirement Income Security Act of 1974. .8 Neither the Committee nor any of its members nor any appeal examiner shall be liable for any act taken by the Committee or the appeal examiner pursuant to any provision of this Trust and Plan except for gross abuse of the discretion given the Committee, or the member, or the appeal examiner hereunder. No member of the Committee shall be liable for the act of any other member. .9 Except as otherwise provided in ERISA, the Administrator, Committee, Board of Directors of the Company, Trustee (other than a corporate Trustee), and their respective officers, employees, members and agents shall incur no personal liability of any nature whatsoever in connection with any act done or omitted to be done in the administration of the Plan or its related Trust. The Company shall indemnify, defend, and hold harmless the Administrator, Committee, Board of Directors of the Company, Trustee (other than a corporate Trustee), and their respective officers, employees, members and agents, for all acts taken or omitted in carrying out their responsibilities under the terms of the Plan and its related Trust or other responsibilities imposed upon such persons by ERISA. The Company shall indemnify such persons for expenses of defending an action by a participant, beneficiary, government entity, or other persons, including all legal fees and other costs of such defense. The Company will also reimburse such a person for any monetary recovery in a successful action against such person in any federal or state court or arbitration. In addition, if the claim is settled out of court with the concurrence of the Company, the Company shall indemnify such person for any monetary liability under said settlement. This indemnification for all acts or omissions is intentionally broad, but shall not provide indemnification for embezzlement or diversion of Trust funds for the benefit of any such persons, nor shall it provide indemnification for excise taxes imposed under Section 4975 of the Code and for any corporate Trustee. .10 6 PROHIBITION AGAINST ALIENATION .1 Unless the context otherwise indicates, the following terms used herein shall have the following meanings whenever used in this Article 18: (a) The words "domestic relations order" shall mean, with respect to any participant, any judgment, decree or order (including approval of a property settlement agreement) which both: (i) related to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the participant; and (ii) is made pursuant to a State domestic relations law (including a community property law). (b) The words "qualified domestic relations order" shall mean a domestic relations order which satisfies the requirements of Section 414(p)(1)(A) of the Internal Revenue Code. .2 Except as otherwise provided in this Article 18, neither any property nor any interest in any property held for the benefit of any participant or beneficiary shall be alienated, disposed of or in any manner encumbered, voluntarily, involuntarily or by operation of law, while in the possession or control of the Trustee except by an act of the Trustee or the participant or beneficiary specifically authorized hereunder. .3 Section 18.2 hereof shall not apply to the creation, assignment or recognition of a right to any benefit under this Trust and Plan pursuant to a qualified domestic relations order and shall not apply to the payment of any benefits to an alternate payee pursuant to such an order. .4 In the event this Trust and Plan is served with a domestic relations order, the Administrator shall promptly notify the participant and any alternate payee to whom such order relates of the receipt of such order and this Trust and Plan's procedures for determining whether such order is a qualified domestic relations order. Within a reasonable time after receipt of such domestic relations order, the Administrator shall determine whether such order is a qualified domestic relations order and shall notify the participant and each concerned alternate payee of its determination. During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined, the Administrator shall direct the Trustee to credit the amounts which would have been payable to an alternate payee during such period if the order had been determined to be a qualified domestic relations order during such period to a segregated account under this Trust and Plan and to debit such amounts from the appropriate accounts of the participant. Notwithstanding anything in the Plan to the contrary, a "segregated account" established pursuant to this Section 18.4 shall be treated as an unsegregated account and invested by the Trustee pursuant to Article 14. If the domestic relations order is determined to be a qualified domestic relations order within eighteen (18) months after this Trust and Plan is served with such domestic relations order, the Administrator shall hold and dispose of the amounts credited to the segregated account in accordance with the terms of the qualified domestic relations order. If it is determined within eighteen (18) months after this Trust and Plan is served with such domestic relations order that either: (a) such domestic relations order is not a qualified domestic relations order; or (b) the issue with respect to whether such domestic relations order is a qualified domestic relations order is not resolved; the Administrator shall transfer the amounts credited to the segregated account to the appropriate accounts maintained for the benefit of the person who would have been entitled to such amounts if this Trust and Plan had never been served with such domestic relations order. If eighteen (18) months have elapsed since this Trust and Plan was served with such domestic relations order and such order is subsequently determined to be a qualified domestic relations order, such order shall only be applied prospectively. .5 Any alternate payee who is entitled to receive amounts from this Trust and Plan pursuant to a qualified domestic relations order shall, to the extent of his interest under this Trust and Plan and except as otherwise provided in such qualified domestic relations order, have the same rights as a beneficiary of a participant under this Trust and Plan. Notwithstanding anything in this Section 18.5 to the contrary, an alternate payee may receive a distribution of the amount specified under a qualified domestic relations order prior to the participant attaining his "earliest retirement age" (as defined by Internal Revenue Code Section 414(p)(4)(B)). .6 7 AMENDMENT AND TERMINATION .1 This Trust and Plan may be modified, altered, amended, changed or terminated by the Company with respect to all or any of the Participating Companies at any time or from time to time without the consent of any Participating Company but no rights of participants or beneficiaries receiving benefits under this Trust and Plan and no other vested rights under this Trust and Plan shall in any way be modified except that such rights may be modified if such a modification is necessary to establish or to continue the qualified status of this Trust and Plan under the terms of Section 401 of the Code or its successor section. This Trust and Plan may be modified and amended retroactively, if necessary, to secure exemption effective as of January 1, 1995 or any other date specified herein under Section 401 of the Code, or for any other lawful reason. No amendment shall be binding on the Trustee until the receipt of such amendment by the Trustee. .2 Upon termination of this Trust and Plan with respect to any Participating Company, the Trustee shall value all assets of the trust fund and adjust the accounts of participants. Any accrued expenses and fees of the Trustee and any expenses and fees relating to such termination incurred or to be incurred by the Trustee shall be equitably allocated among and charged to the then existing accounts of participants who are affected by such termination unless directly paid by the Participating Companies to the Trustee. If the accounts have not been segregated for investment purposes pursuant to Article 16 hereof, the assets of the Trust shall be valued and the accounts adjusted in accordance with Article 8 hereof. If the accounts have been segregated for investment purposes pursuant to Article 16 hereof, the accounts shall be valued pursuant to Section 16.4 hereof. .3 The amounts credited to any affected participant's accounts may either (a) in accordance with the provisions of Article 12 hereof, be distributed immediately to the participant if he is living on the date of termination or, if he shall have died before distribution, to his designated beneficiary, or (b) continue to be held in trust and distributed upon the participant's termination of employment as is provided in this Trust and Plan; provided, however, that no distribution of amounts contributed by a participant to his cash option account shall occur if a Participating Company establishes or maintains a successor plan. A successor plan shall mean a defined contribution plan, other than an employee stock ownership plan or a simplified employee pension plan maintained by a Participating Company. A plan shall not be successor plan if less than two percent of the participants in this Plan (determined as of the date of termination) were eligible to participate under the successor plan at any time during the 24 month period beginning 12 months before the time of termination. .4 Upon the partial termination of this Trust and Plan or upon complete discontinuance of contributions to this Trust and Plan, all amounts credited at the time of such partial termination or complete discontinuance to the accounts of participants affected by such partial termination or complete discontinuance shall be fully vested and nonforfeitable. However, after any such partial termination or complete discontinuance of contributions the Trustee shall continue to administer this Trust and Plan in the manner in which this Trust and Plan was administered before any such partial termination and a participant shall only be entitled to receive distribution of his accounts upon the occurrence of an event which under the terms of this Trust and Plan would entitle him to such a distribution. For purposes of this Section 19.4, no event shall be a "partial termination" unless: (i) the Company has so designated such event in a writing delivered to the Trustee; or (ii) such event has been finally and expressly determined to be a partial termination within the meaning of Section 411(d) of the Code of 1986, as amended, in an administrative or judicial proceeding to which both the Company and the Commissioner of Internal Revenue or his delegate were parties. .5 8 PARTICIPATING COMPANIES .1 Any subsidiary which has the same taxable year as the Company shall become a Participating Company in this Trust and Plan by order of the Board of Directors of the Company and the ratification of the subsidiary's Board of Directors. Each Participating Company (including the Company) and its Adoption Date shall be noted on Exhibit A attached hereto. .2 Upon order of its Board of Directors, a Participating Company may terminate this Trust and Plan with respect to participants employed by said Participating Company by an instrument in writing executed by the appropriate officers of the Participating Company and delivered to the Company and the Trustee. The Trustee shall thereupon make distributions of the accounts of participants employed by said Participating Company as provided in Section 19.3 hereof. .3 9 TRANSFERS INVOLVING OTHER QUALIFIED RETIREMENT PLANS .1 Transfers From Another Qualified Retirement Plan. In the event that: (a) any Covered Employee who shall be or shall have been a participant under another qualified retirement plan which satisfies the requirements of Section 401 of the Code; and (b) either (i) the custodian or trustee of the assets held pursuant to said plan on behalf of said Covered Employee; or (ii) the custodian or trustee of the assets of an individual retirement account established pursuant to Section 408 of the Code to hold the assets distributed to said employee from said plan; or (iii) a Covered Employee who holds assets distributed to him during the preceding sixty (60) days from such plan or from an individual retirement account described in paragraph (ii) above; shall agree to transfer said assets to the Trustee hereunder; and (a) the assets to be so transferred shall not be made available to said Covered Employee in the course of the transfer except to the extent permitted by paragraph (b)(iii) above; and (d) the Administrator consents to such transfer. the Trustee hereunder shall accept such transferred assets and hold and administer them pursuant to the terms and provisions of this Trust and Plan and this Article 21. Upon the receipt of said assets the Trustee shall value them and credit the fair market value of such assets to the appropriate accounts of the Covered Employee on whose behalf the assets were so transferred, as the Administrator shall direct. In no event shall any assets be transferred from another qualified retirement plan to this Trust and Plan if the transfer of such assets would require that the provisions of this Trust and Plan governing distributions be amended to comply with the provisions of Section 401(a)(11) or 411(d)(6) of the Code. .1 Transfers To Another Qualified Retirement Plan. In the event that: (a) any participant hereunder shall terminate his employment and subsequently become a participant under the qualified retirement plan of another employer, which plan meets the requirements of Section 401 of the Code; and (b) said former participant shall have amounts credited to an account held for him hereunder which shall not have been distributed to the former participant and which are distributable to him pursuant to terms of the Trust and Plan; and (c) such participant shall request that the assets of the trust fund representing the amounts credited to his accounts be transferred to said successor plan; and (d) either (i) the custodian or trustee of the assets held pursuant to said successor plan shall apply to the Trustee hereunder for transfer to it of assets held pursuant to this Trust and Plan representing said former participant's account; or (ii) said successor plan shall provide for the receipt of assets transferred to it from other qualified retirement plans; and (e) the assets to be transferred shall not be made available to said participant in the course of the transfer except to the extent permitted by Section 402(c)(3) of the Code; the Trustee hereunder shall transfer to the trustee or custodian of said successor plan assets of the trust representing the amount credited to the participant's account on the date of transfer. Said transfer shall not be made until the Administrator is assured to its full satisfaction that the participant's interest to be transferred shall be fully vested and nonforfeitable under the terms of the successor plan, and that said interest shall neither be alienable nor otherwise subject to disposition or encumbrance by the participant, except pursuant to a qualified domestic relations order. 2 LIMITATION ON ANNUAL ADDITIONS .1 Notwithstanding anything contained in this Trust and Plan to the contrary, in no event shall the annual additions to a participant's accounts for any plan year exceed the maximum amount allowable as an annual addition under Section 415 of the Code and lawful regulations promulgated thereunder. For purposes of this Section 22.1, the words "annual additions" shall mean for a participant, for any plan year, the sum of the amounts contributed by the Participating Companies to the Trustee pursuant to a participant's election under Section 4.1 hereof and employer contribution account under Article 5 hereof, plus all other amounts credited to the participant's accounts under any other defined contribution plan maintained by any Participating Company. .2 In the event that the limitations contained in Section 22.1 hereof otherwise would be exceeded for a participant, the annual benefits and annual additions on behalf of such participant under this Trust and Plan and all other plans of a Participating Company or any affiliate which meet the requirements of Section 401(a) of the Code shall be reduced in the following order so that such limitations shall be satisfied: (a) first, the participant's voluntary employee contributions shall be reduced; (b) second, the excess of the participant's projected employer funded annual benefit under any defined benefit pension plan of a Participating Company or affiliate over the participant's accrued employer funded annual benefit under such plan shall be reduced; (c) third, employer contributions on behalf of the participant pursuant to the participant's 401(k) election under any cash or deferred arrangement described in Section 401(k) of the Code shall be reduced; (d) fourth, employer contributions under any other defined contribution plan of a Participating Company or affiliate shall be reduced; (e) fifth, employer contributions under this Trust and Plan shall be reduced; and (f) sixth, accrued employer funded annual benefits under any defined benefit plan of a Participating Company or affiliate shall be reduced. If there is more than one plan maintained by a Participating Company or affiliate in a category described above, the reduction shall be made within a relevant category on a plan by plan basis in reverse order of the plans' respective effective dates. In lieu of the foregoing, the Administrator and the participant may agree to an alternative order for reduction of the participant's annual benefits and annual additions. In the event that, after the application of the preceding paragraph of this Trust and Plan, there still remain amounts which arise as a result of a reasonable error in estimating a participant's compensation, a reasonable error in determining the amount of deferrals made pursuant to Section 4.1 that may be made under the limits of Section 415, the allocation of forfeitures or other limited facts and circumstances which the Commissioner of Internal Revenue finds justify the availability of the rules set forth in this Section 22.2 and which, if allocated to a participant, would be in excess of the limits on annual additions set forth in Section 22.1, such excess amounts shall be used as of the next allocation date and any succeeding allocation dates, as necessary, to reduce the Participating Company contributions which would otherwise be made for such participant for the plan years ending on such allocation dates. In the event such participant is not employed by a Participating Company on the next allocation date or on any succeeding allocation date on which excess amounts still remain, such excess amounts shall be used as of such allocation date and on any succeeding allocation date to reduce the Participating Company contributions for all participants who are then entitled to allocations. Until any excess amounts described above are used to reduce Participating Company contributions, they shall be held in a suspense account. Such suspense account shall not be subject to the periodic valuation procedure described in Article 8 or Article 16 hereof and will in no event be adjusted to take account of the income and/or gains or losses of the Trust Fund. Notwithstanding any other provisions of the Trust and Plan to the contrary in the event the Trust and Plan is terminated at a time when there is an amount credited to a suspense account pursuant to this Section 22.2, such amount shall be returned to the Participating Companies on a pro rata basis. Notwithstanding anything in this Section 22.2 to the contrary, to the extent all or a portion of a participant's deferrals made pursuant to Section 4.1 constitutes an excess amount, such deferral shall be returned to the participant. 4 TOP-HEAVY PROVISIONS .1 During any plan year that this Trust and Plan is top-heavy as determined in accordance with Section 23.2 hereof, the special restrictions contained in Sections 23.3 and 23.4 hereof shall apply. .2 This Trust and Plan shall be considered to be top-heavy in any plan year if, as of the determination date for such plan year, all the aggregation groups of which this Trust and Plan is a member are top-heavy groups. In the event that in any plan year this Trust and Plan is a member of an aggregation group which is not a top-heavy group, this Trust and Plan shall not be considered to be top-heavy for such plan year. Unless the context otherwise indicates, the following terms used herein shall have the following meanings whenever used in this Article 23: (a) "determination date" shall mean, for any plan year, the last day of the preceding plan year; (b) "key employee" shall mean a "key employee" as described in Section 416(i) of the Code which is hereby incorporated by reference and which is described for informational purposes herein as any employee or former employee of a Participating Company or an affiliate who at any time during the plan year, or the four (4) preceding plan years is: (i) an officer of a Participating Company or an affiliate having compensation from the Participating Companies and all affiliates for the plan year of determination greater than Forty-Five Thousand Dollars ($45,000) or, if greater, one hundred fifty percent (150%) of the amount specified in Section 415(c)(1)(A) of the Code (plus any increase for cost-of-living as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code); (ii) a one-half of one percent (.5%) actual or constructive owner of a Participating Company or an affiliate who owns one of the ten (10) largest interests in a Participating Company or an affiliate and who is an employee of a Participating Company or an affiliate having compensation from a Participating Company and all affiliates for the plan year of determination greater than Thirty Thousand Dollars ($30,000) or, if greater, the amount specified in Section 415(c)(1)(A) of the Code (plus any increase for cost-of- living as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code); (iii) a five percent (5%) actual or constructive owner of a Participating Company or an affiliate; or (iv) a one percent (1%) actual or constructive owner of a Participating Company or an affiliate having compensation from a Participating Company and all affiliates for the plan year of determination greater than One Hundred Fifty Thousand Dollars ($150,000.00); provided that any such employee also performed services for a Participating Company or an affiliate during the five (5) plan year period ending on the determination date; and provided that an amount held for the beneficiary of a key employee who is deceased shall be deemed to be an amount held for a key employee; (a) "non-key employee" shall mean any employee of a Participating Company or an affiliate who is not a key employee including any employee who was formerly a key employee; (b) "permissive aggregation group" shall mean the required aggregation group plus each pension, profit sharing and stock bonus plan of a Participating Company or any affiliate, including each such terminated plan maintained by a Participating Company or an affiliate during the five (5) year period ending on the determination date, which, when considered as a group with the required aggregation group, would continue to comply with Sections 401(a)(4) and 410 of the Code; (c) "required aggregation group" shall mean each pension, profit sharing and stock bonus plan of a Participating Company or any affiliate, including each such terminated plan maintained by a Participating Company or an affiliate during the five (5) year period ending on the determination date, in which a key employee is a participant and each other pension, profit sharing and stock bonus plan which enables such plans to meet the requirements of Section 401(a)(4) or 410 of the Code including such a plan terminated within the five (5) year period ending on the determination date to the extent required by law; (d) "top-heavy group" shall mean any aggregation group if the sum, as of the determination date, of: (i) the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group; and (ii) the aggregate of the account balances of key employees under all defined contribution plans included in such group; exceeds sixty percent (60%) of a similar sum determined for all participants, former participants and beneficiaries permitted to be taken into account pursuant to Section 416(g) of the Code, with such values being determined for each plan as of the most recent valuation date occurring within the twelve (12) month period ending on the determination date and subject to appropriate adjustments under said Section 416(g) and lawful regulations issued thereunder. For purposes of this subsection (f), however, the accrued benefits and account balances of any individual who has not performed services for a Participating Company at any time during the five-year period ending on the determination date shall be disregarded; and (e) "valuation date" means: (i) in the case of a defined contribution plan, a date as of which account balances are valued, (ii) in the case of a defined benefit plan, a date as of which liabilities and assets are valued for computing plan costs for purposes of determining the plan's minimum funding requirements under Section 412 of the Code. In making any of the aforementioned determinations, contributions due but unpaid as of the determination date shall be included in determining the value of account balances, if any. In addition, the actuarial factors and assumptions set forth in the defined benefit plans included in the aggregation groups shall be utilized in determining the present value of cumulative accrued benefits. Furthermore, for purposes of making the aforementioned calculations with respect to defined benefit plans, proportional subsidies, and benefits not relating to retirement benefits such as pre-retirement death and disability benefits and post retirement medical benefits, are to be disregarded but nonproportional subsidies are to be taken into account. .1 During any plan year that this Trust and Plan is top-heavy, the Participating Companies shall make a contribution on behalf of each non-key employee who is a participant on the allocation date coinciding with the last day of such year, or was a participant whose employment terminated on or as of said allocation date which is at least equal to the greater of (a) or (b) below where: (a) equals the lesser of (i) or (ii) below where (i) equals three percent (3%) of the non-key employee's compensation from the Participating Companies and all affiliates during the plan year; and (ii) equals the largest percentage of compensation from the Participating Companies and all affiliates (disregarding any such compensation in excess of Two Hundred Thousand Dollars ($200,000) per plan year per key employee) provided to any key employee by the contributions of the Participating Companies; and (b) equals such other percent of the non-key employee's compensation from the Participating Companies and all affiliates as may be necessary to satisfy the requirements of Section 401 and 416 of the Code as prescribed by the Secretary of the Treasury in lawful regulations. For purposes of determining the percentage set forth in subparagraph (a)(ii) above, the Participating Companies' contributions made pursuant to Section 4.1 hereof in accordance with a participant's election under said Section shall be taken into account. If this Trust and Plan is top-heavy for a plan year and if a participant who is a non-key employee is also a participant in any other defined contribution plan maintained by a Participating Company, the minimum contribution provided hereunder shall be provided before any minimum under such other plan and shall reduce the amount of the top-heavy minimum, if any, required thereunder. Furthermore, if this Trust and Plan is top-heavy for a plan year and if a participant who is a non-key employee is also a participant in any defined benefit plan maintained by a Participating Company, the minimum benefit provided under such defined benefit plan shall be provided before any minimum contribution under this Trust and Plan and the benefit provided under such defined benefit plan shall be offset by the actuarial equivalent of the amounts, if any, credited to the participant's accounts for such year under this Trust and Plan and any other defined contribution plan maintained by a Participating Company. .1 During any plan year that this Trust and Plan is top-heavy, the limitations on annual additions and annual benefits set forth in Section 415 (e) of the Code shall be modified by the substitution of the phrase "one hundred percent (100%)" for the phrase "one hundred twenty-five percent (125%)" wherever the latter phrase appears in said Section 415 (e) and by the substitution of the amount 'Forty-One Thousand Five Hundred Dollars ($41,500)" for the amount "Fifty One Thousand Eight Hundred Seventy-Five Dollars ($51,875)" wherever the latter amount appears in Section 415(e)(6)(B)(i) of said Code. .2 2 MISCELLANEOUS .1 No insurance company shall be deemed to be a party to this Trust and Plan for any purpose, nor shall it be responsible for the validity of this Trust and Plan. No such company shall be required to look into the terms of this Trust and Plan or question any action of the Trustee hereunder, nor be responsible to see that any action of the Trustee is authorized by the terms of this Trust and Plan. Any such insurance company shall be fully discharged from any and all liability for any amount paid to the Trustee or paid in accordance with the direction of the Trustee, or for any change made or action taken by such insurance company upon such direction, and no insurance company shall be obligated to see to the distribution or further application of any moneys so paid by it. The certificate of the Trustee may be received by any insurance company as conclusive evidence of any of the matters mentioned in this Trust and Plan, and each insurance company shall be fully protected in taking or permitting any action on the faith thereof and shall incur no liability or responsibility for doing so. .2 In the event a Participating Company shall at any time be judicially declared bankrupt or insolvent, or in the event of its dissolution, merger or consolidation, without any provisions being made for the continuation of this Trust and Plan, the Trust and Plan created hereunder shall terminate with respect to such Participating Company and the Trustee shall make distributions as provided in Section 19.3 hereof. .3 In the event the Trust and Plan shall merge or consolidate with, or transfer any of its assets or liabilities to any other plan, each participant shall be entitled to receive, if the Trust and Plan were terminated immediately thereafter, a benefit which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer if the Trust and Plan had then terminated, in accordance with Section 414(1) of the Code and Section 208 of the Employee Retirement Income Security Act of 1974 and any lawful regulations issued thereunder. .4 Neither anything contained herein, nor any contribution made hereunder, nor any other acts done in pursuance of this Trust and Plan, shall be construed as entitling any participant to be continued in the employ of any Participating Company or any affiliate for any period of time nor as obliging any Participating Company or any affiliate to keep any participant in its employ for any period of time, nor shall any employee of any Participating Company or any affiliate nor anyone else have any rights whatsoever, legal or equitable, against any Participating Company or the Trustee as a result of this Trust and Plan except those expressly granted to him hereunder. .5 No contribution or payment by a Participating Company to the Trustee of this Trust and Plan, nor any income of the Trust Fund, shall in any event revert or be credited to or be used for the benefit of any Participating Company, and all such contributions, payments and income shall be used solely and exclusively for the benefit of the participants and their beneficiaries under this Trust and Plan, except that the Trustee shall return to a Participating Company upon written direction of the Administrator: (a) any contributions made by the Participating Company by a mistake of fact, provided such contributions are returned to the Participating Company within one (1) year after the date such contributions were made; (b) any contributions made for plan years during which this Trust and Plan does not (either initially or because of an amendment) qualify under Section 401(a) of the Code, provided such contributions are returned to the Participating Company within one (l) year after the date of denial of qualification; and (c) any contributions, to the extent that their deduction is disallowed under Section 404 of the Code, provided that such disallowed contributions are returned to the Participating Company within one (l) year after the disallowance of the deduction. .6 Whenever any pronoun is used herein, it shall be construed to include the masculine pronoun, the feminine pronoun or the neuter pronoun as shall be appropriate. Wherever the singular is used herein it shall include the plural and vice-versa as the context shall require. .7 This Trust and Plan shall be construed under and in accordance with the law and laws of the State of Delaware and of the United States of America. appropri appropriate officers duly authorized, and JOHN T. ST. JAMES, the Trustee, have caused this Trust and Plan to be executed this ___ day of ___________, 1995, effective for all purposes, except as otherwise provided herein, as of January 1, 1995. NEW HORIZONS EDUCATION CORPORATION By --------------------------------- And -------------------------------- ----------------------------------- JOHN T. ST. JAMES, Trustee NH.PLN EXHIBIT A Participating Company Adoption Date New Horizons Franchising, Inc. January 1, 1995 New Horizons Computer Learning January 1, 1995 Centers, Inc. NH.PLN EX-5 7 REGISTRANT'S REVISED 401(K) Automatic Paragraph Numbering used. Definition follows this Comment.HANDEX ENVIRONMENTAL RECOVERY, INC. 401(k) PROFIT SHARING TRUST AND PLAN Amended and Restated Generally Effective January 1, 1994 TABLE OF CONTENTS ARTICLE NO. NAME AND PURPOSE 1 DEFINITIONS 2 ELIGIBILITY AND PARTICIPATION 3 CASH OR DEFERRED OPTION 4 EMPLOYER MATCHING CONTRIBUTIONS 5 REGULAR EMPLOYER CONTRIBUTIONS 6 ALLOCATION OF REGULAR EMPLOYER CONTRIBUTIONS 7 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS 8 INSURANCE CONTRACTS 9 VALUATION OF ASSETS AND ADJUSTMENT OF UNSEGREGATED ACCOUNTS 10 TERMINATION OF EMPLOYMENT 11 RETIREMENT AND DISABILITY BENEFITS 12 DEATH BENEFITS 13 DISTRIBUTIONS 14 HARDSHIP BENEFITS 15 THE TRUSTEE, ITS POWERS AND DUTIES 16 INVESTMENTS 17 SEGREGATION OF ACCOUNTS OF PARTICIPANTS 18 ADMINISTRATION 19 PROHIBITION AGAINST ALIENATION 20 AMENDMENT AND TERMINATION 21 PARTICIPATING COMPANIES 22 TRANSFERS INVOLVING OTHER QUALIFIED RETIREMENT PLANS 23 LIMITATION ON ANNUAL ADDITIONS 24 TOP-HEAVY PROVISIONS 25 MISCELLANEOUS 26 INDEX ARTICLE NO. ADMINISTRATION 19 ALLOCATION OF REGULAR EMPLOYER CONTRIBUTIONS 7 AMENDMENT AND TERMINATION 21 CASH OR DEFERRED OPTION 4 DEATH BENEFITS 13 DEFINITIONS 2 DISTRIBUTIONS 14 ELIGIBILITY AND PARTICIPATION 3 EMPLOYER MATCHING CONTRIBUTIONS 5 HARDSHIP BENEFITS 15 INSURANCE CONTRACTS 9 INVESTMENTS 17 LIMITATION ON ANNUAL ADDITIONS 24 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS 8 MISCELLANEOUS 26 NAME AND PURPOSE 1 PARTICIPATING COMPANIES 22 PROHIBITION AGAINST ALIENATION 20 REGULAR EMPLOYER CONTRIBUTIONS 6 RETIREMENT AND DISABILITY BENEFITS 12 SEGREGATION OF ACCOUNTS OF PARTICIPANTS 18 TERMINATION OF EMPLOYMENT 11 THE TRUSTEE, ITS POWERS AND DUTIES 16 TOP-HEAVY PROVISIONS 25 TRANSFERS INVOLVING OTHER QUALIFIED RETIREMENT PLANS 23 VALUATION OF ASSETS AND ADJUSTMENT OF UNSEGREGATED ACCOUNTS 10 AMENDMENT AND RESTATEMENT OF THE HANDEX ENVIRONMENTAL RECOVERY, INC. 401(k) PROFIT SHARING PLAN IN THE FORM OF THE HANDEX ENVIRONMENTAL RECOVERY, INC. 401(k) PROFIT SHARING TRUST AND PLAN THIS AMENDMENT AND RESTATEMENT is entered into and executed this ____ day of ____________, 1994, by and between HANDEX ENVIRONMENTAL RECOVERY, INC., a corporation organized and existing under and by virtue of the laws of the State of Delaware (hereinafter called the "Company"), and JOHN T. St. JAMES, the Trustee hereunder (hereinafter called the "Trustee"); WITNESSETH: WHEREAS, effective January 1, 1987, the Company adopted the Handex Environmental Recovery, Inc. 401(k) Profit Sharing Plan (the "Prior Plan") in the form of an adoption of the Massachusetts Financial Services 401(k) Cash or Deferred Profit Sharing Retirement Plan and Trust for Corporations, Associations and Self-Employed Individuals, a prototype plan; and WHEREAS, the Company previously amended and restated the Prior Plan in its entirety in the form of an individually designed, nonprototype plan (the "Existing Plan"), to conform it to the provisions of the Tax Reform Act of 1986 and the Omnibus Budget Reconciliation Act of 1987, and to effect such other changes as the Company deemed necessary or desirable; and WHEREAS, the Company desires to amend the Existing Plan to conform the Plan to final regulations under Section 401(k) and 401(m) of the Code, and to effect certain other changes as the Company deems necessary or desirable; and NOW, THEREFORE, in consideration of the mutual covenants and undertakings of the parties hereto, it is agreed that the Prior Plan shall be amended and restated effective, except as otherwise provided herein, as of January 1, 1994, as follows: 1 NAME AND PURPOSE .1 The name of this Trust and Plan is the HANDEX ENVIRONMENTAL RECOVERY, INC. 401(k) PROFIT SHARING TRUST AND PLAN. The Trust and Plan was originally created and is hereby continued in the form of this instrument for the purpose of providing benefits to the participants upon their retirement and for the purpose of providing such other benefits to such participants and their beneficiaries as are hereinafter described. .2 2 DEFINITIONS Unless the context otherwise indicates, the following terms shall have the following meanings whenever used in this instrument: .1 The word "accounts" shall mean "cash option accounts" established pursuant to Article 4 hereof, "matching employer contribution accounts" established pursuant to Article 5 hereof, and "regular employer contribution accounts" established pursuant to Article 6 hereof. .2 The words "active participant" shall mean, with respect to any plan year, either a participant who (a) is credited with at least One Thousand (1,000) hours as a Covered Employee with respect to such plan year and is employed by a Participating Company on the last day of such plan year; or (b) with respect to a participant whose employment terminates during such plan year by reason of his death, permanent and total disability, or retirement, either was credited with at least One Thousand (1,000) hours as a Covered Employee with respect to such plan year or, based on a reasonable projection of hours worked by such participant at the date of his termination of employment, would have been credited with at least One Thousand (1,000) hours as a Covered Employee with respect to such plan year if he had continued to be employed by the Participating Companies until the end of the plan year. .1 The word "Administrator" shall mean the person or entity designated as Administrator under Article 19 hereof. .2 The words "Adoption Date" shall mean, with respect to each Participating Company, the date as of which it shall have adopted this Trust and Plan pursuant to Article 22 hereof. .3 The word "affiliate" shall mean any person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with a Participating Company, and particularly shall mean any corporation or unincorporated trade or business which is a member of a controlled group of corporations or trades or businesses which includes a Participating Company (within the meaning of Sections 414(b) and 414(c) of the Code), is a member of an affiliated service group which includes a Participating Company (within the meaning of Section 414(m) of the Internal Revenue Code) or is a member of an arrangement within the meaning of Section 414(o) of the Code which includes a Participating Company. .4 The words "allocation date" shall mean the last day of each taxable year ending after the effective date, and such other uniform dates as the Administrator shall prescribe. .5 The words "alternate payee" shall mean any spouse, former spouse, child or other dependent of a participant who is recognized by a domestic relations order as having a right to receive all, or a portion of, the amounts credited to the accounts of such participant. .6 The word "beneficiary" shall mean any person who receives or is designated to receive payment of any benefit under the terms of this Trust and Plan because of the participation of another person in this Trust and Plan. .7 The word "Committee" shall mean the Employee Benefits Committee constituted under the provisions of Article 19 of this Trust and Plan. .8 The word "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. .9 The word "Company" shall mean Handex Environmental Recovery, Inc., a Delaware corporation, or any corporation or any other business organization which shall assume the obligations of Handex Environmental Recovery, Inc. under this Trust and Plan. .10 The word "compensation" shall mean all remuneration paid by the Participating Companies to an active participant for services rendered as a Covered Employee, including wages, salaries and commissions, but shall not include: (a) bonuses, whether discretionary or non-discretionary, except for such purposes as they are by law specifically required to be included; (b) any extra benefits such as payment by a Participating Company of hospitalization, group insurance, expense reimbursement, amounts contributed under this Trust and Plan (except as provided below in this Section 2.12) or any other qualified retirement plan; (c) overtime pay; and (d) other special benefits. The amount of a participant's compensation for any plan year shall not include any amounts paid to the participant by a Participating Company prior to the date as of which he became a participant pursuant to Article 3 hereof. Except as otherwise indicated in the Trust and Plan, a participant's compensation shall include amounts contributed by a Participating Company to the Trustee pursuant to a participant's election under Section 4.1 hereof. For purposes of the Trust and Plan, the amount of a participant's compensation for any plan year shall not exceed One Hundred and Fifty Thousand Dollars ($150,000) plus such adjustments for increases in the cost of living as shall be prescribed by the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code. .11 The words "continuous service" shall mean for any employee any period during which he is or was employed by a Participating Company or any affiliate. Each such period shall be measured from his date of hire to the date of termination of employment which follows such date of hire. Notwithstanding the preceding provisions of this Section 2.13, if any employee is rehired within twelve (12) months of: (1) the date of his termination of employment, or (2) if earlier, the first day of any period of leave of absence, layoff, or military service after the end of which the employee did not return to work for a Participating Company or any affiliate prior to his termination of employment, such employee's continuous service shall include the period of severance measured from his date of termination until his subsequent date of rehire. Two or more periods of employment that are included in a participant's continuous service and that contain fractions of a year (computed in months and days) shall be aggregated on the basis of twelve (12) months constituting a year and thirty (30) days constituting a month. .12 The words "Covered Employee" shall mean an employee of a Participating Company who is neither a non-resident alien employed by a Participating Company outside of the United States nor covered by a collective bargaining agreement to which such Participating Company is a party. An employee shall cease to be a "Covered Employee" upon the earliest to occur of: (a) his termination of employment; (b) his transfer to employment with an affiliate which is not a Participating Company; (c) his becoming covered by a collective bargaining agreement to which a Participating Company is a party; or (d) his becoming a non-resident alien employed by a Participating Company outside of the United States. .13 The words "date of hire" shall mean the date on which an employee commences employment and works at least one (1) hour for a Participating Company or any affiliate. .14 The word "deferral" shall mean contributions made pursuant to Section 4.1. .15 The words "domestic relations order" shall mean, with respect to any participant, any judgment, decree or order (including approval of a property settlement agreement) which both: (a) relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the participant; and (b) is made pursuant to a State domestic relations law (including a community property law). .16 The words "effective date" shall mean January 1, 1987, the Trust and Plan's original effective date. .17 The words "eligibility break-in-service" shall mean for any employee a period of sixty (60) consecutive months commencing on the earliest to occur of: (a) his termination of employment; or (b) the first day of any period of leave of absence, layoff, or military service after the end of which the employee did not return to work for a Participating Company or any affiliate prior to his termination of employment; during which the employee was not employed by a Participating Company or any affiliate. Notwithstanding the foregoing provisions of this Section 2.19, in the event any employee is on a leave of absence either; (a) by reason of the pregnancy of such employee; or (b) by reason of the birth of a child of such employee; or (c) by reason of the placement of a child with such employee in connection with the adoption of such child by such employee; or (d) by reason of caring for such child for a period beginning immediately following such birth or placement; such employee shall, solely for the purposes of determining whether such employee has incurred an eligibility break-in-service pursuant to this Section 2.19, be deemed to have terminated his employment on the first anniversary of the date of his termination of employment. The Administrator may require any employee who leaves his employment by reason of any such pregnancy, birth or placement to furnish to the Administrator such timely information as the Administrator may reasonably require to establish that the employee's leave of absence was by reason of such pregnancy, birth or placement. .18 The word "employee" shall mean any employee of a Participating Company or an affiliate, as the case may be, or where the context may require, a former employee of a Participating Company or an affiliate. .19 The word "employer" shall mean, with respect to any participant, the Participating Company or, where the context requires, the affiliate by which he is employed. .20 The word "hours" shall generally mean for any employee the actual number of hours for which he was directly or indirectly paid or entitled to payment by a Participating Company or any affiliate, including payments pursuant to an award or agreement requiring a Participating Company or an affiliate to pay back wages, irrespective of mitigation of damages. Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b- 2(b) and (c) of the Department of Labor Regulations which are incorporated herein by reference. Notwithstanding the foregoing, (a) no employee shall be credited with more than 501 hours with respect to payments he receives or is entitled to receive during any single continuous period during which he performed no services for a Participating Company or an affiliate (irrespective of whether he has terminated employment) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence; (b) no employee shall be credited with hours with respect to payments he receives or is entitled to receive during a period when he performed no services for a Participating Company or an affiliate under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation, disability insurance or Federal Social Security laws; and (c) no employee shall be credited with hours with respect to payments he receives or is entitled to receive under a pension benefit plan to which a Participating Company or an affiliate has contributed during a period when he performed no services for a Participating Company or an affiliate. Notwithstanding the foregoing provisions of this Section 2.22, in the event any employee does not perform services for a Participating Company or any affiliate for any period either: (a) by reason of the pregnancy of such employee; or (b) by reason of the birth of a child of such employee; or (c) by reason of the placement of a child with such employee in connection with the adoption of such child by such employee; or (d) by reason of such employee caring for such child for a period beginning immediately following such birth or placement; such employee shall, solely for purposes of determining whether such employee has incurred a One (1) Year Break-In-Service pursuant to Section 2.28 hereof, be credited either with the hours which otherwise would normally have been credited to such employee but for such absence or, in any case in which the Administrator is unable to determine the hours described in the preceding clause, eight hours per day of such absence provided, however, that the total number of hours which an employee may be credited with by reason of any such pregnancy, birth or placement shall not exceed 501 hours. An employee shall be credited with the hours described in the preceding sentence only in the plan year in which the absence from work begins if the employee would be prevented from incurring a One (1) Year Break-In-Service in such plan year solely because the employee is credited with hours pursuant to the preceding sentence or, in any other case, in the immediately following plan year. The Administrator may require any employee who is absent from work because of any such pregnancy, birth or placement to furnish to the Administrator such timely information as the Administrator may reasonably require to establish both that the employee's absence from work is because of such pregnancy, birth or placement and the number of days during which the employee was absent is because of such pregnancy, birth or placement. .21 The words "insurance company" shall mean any legal reserve life insurance company licensed to issue annuity contracts in the State of New Jersey. .22 The words "Joint and Survivor Annuity" shall mean an annuity contract purchased from an insurance company which provides that the amounts distributable to a participant under the Trust and Plan shall be paid to the participant for his lifetime in equal monthly amounts commencing on the date specified in this Trust and Plan until the payment made as of the first day of the month during which the participant shall die and that an amount which is not less than fifty percent (50%) nor more than one hundred percent (100%) of the monthly amount payable to the participant shall be payable to the person who was the spouse of the participant on the date distribution commenced to the participant, commencing on the first day of the month following the death of the participant, if such person is then living, and ending with the payment made on the first day of the month during which such person shall die. .23 The words "Life Annuity" shall mean an annuity contract purchased from an insurance company which provides that the amounts distributable to an unmarried participant or a beneficiary who is a deceased participant's surviving spouse under the Trust and Plan shall be paid to the participant or beneficiary for his lifetime in equal monthly amounts commencing on the date specified in the Trust and Plan and payable each month thereafter until the month during which the participant or beneficiary dies. .24 The words "military service" shall mean duty in the Armed Forces of the United States, whether voluntary or involuntary, provided that the employee serves not more than one voluntary enlistment or tour of duty, and further provided that such voluntary enlistment or tour of duty does not follow involuntary duty. .25 The words "normal retirement date" shall mean for each participant the date upon which he attains age sixty-five (65). .26 The words "One (1) Year Break-In-Service" shall mean for any employee a taxable year ending after his termination of employment during which the employee was not credited with more than five hundred (500) hours. .27 The word "participant" shall mean any person who becomes a participant in the Trust and Plan in accordance with Article 3 hereof and shall also mean, as the context may require, any person who has terminated his employment and was formerly a participant in the Trust and Plan. .28 The words "Participating Company" shall mean the Company and any subsidiary which has adopted this Trust and Plan pursuant to Article 22 hereof. .29 The words "permanent and total disability" shall mean any disability which continuously disables and wholly prevents a participant from performing the duties of his occupation and which is expected to be of a permanent duration, as shall be determined under the provisions of Section 12.3 hereof except that no participant shall be deemed to be permanently and totally disabled if such disability was (a) contracted, suffered or incurred while the participant was engaged in, or resulted from his having engaged in, a criminal act or enterprise, or (b) resulted from his habitual drunkenness or addiction to narcotics, or (c) resulted from any intentionally self-inflicted injury. .30 The words "plan year" shall mean the Company's taxable year. .31 The words "qualified domestic relations order" shall mean a domestic relations order which satisfies the requirements of Section 414(p)(1)(A) of the United States Internal Revenue Code. .32 The words "restatement date" shall mean January 1, 1989, the date on which this instrument generally became effective. .33 The word "subsidiary" shall mean any corporation organized under the laws of any State of the United States or under the laws of any foreign country in which the Company owns directly or indirectly any outstanding shares either beneficially or of record. .34 The words "taxable year" shall mean the Company's annual accounting period, which presently is the calendar year. .35 The words "termination of employment" shall mean for any employee the occurrence of any one of the following events: (a) he is discharged by a Participating Company or any affiliate unless he is subsequently reemployed and given pay back to his date of discharge; (b) he voluntarily terminates employment with a Participating Company or any affiliate; (c) he retires from employment with a Participating Company or any affiliate; (d) he fails to return to work at the end of any leave of absence authorized by a Participating Company or any affiliate, or within ninety (90) days following such employee's release from military service or within any other period following military service in which his right to reemployment with a Participating Company or any affiliate is guaranteed by law, or within three (3) days after he has been recalled to work following a period of layoff; or (e) he has been continuously laid-off for twenty-four (24) months. In the case of the occurrence of any event described in (d) or (e) of this Section 2.37, the date of such employee's termination of employment shall be deemed to be the first day of any such period of leave of absence, layoff, or military service. .36 The words "Trust and Plan" shall mean this instrument as originally executed and as it may be amended from time to time, or, where the context requires, the Handex Environmental Recovery, Inc. 401(k) Profit Sharing Plan, an adoption of the Massachusetts Financial Services 401(k) Cash or Deferred Profit Sharing Retirement Plan and Trust for Corporations, Associations and Self-Employed Individuals, a prototype plan, as it existed from time to time prior to the restatement date. .37 The word "Trustee" shall mean the trustee herein named and any successor Trustee. .38 The words "vested interest" shall mean with respect to any participant the sum of (a) plus (b) minus (c) below where: (a) equals the amounts credited to his regular employer contribution account and matching employer contribution account, multiplied by his Vested Percentage; (b) equals any distributions made to the participant from his regular employer contribution account and matching employer contribution account since his earliest date of hire which has not been followed by five (5) consecutive One (1) Year Breaks-In- Service, multiplied by his Vested Percentage; and (c) equals the amount of any distributions made to the participant from his regular employer contribution account and matching employer contribution account since his earliest date of hire which has not been followed by five (5) consecutive One (1) Year Breaks-In-Service. .39 The words "Vested Percentage" shall mean for any participant a percentage determined on the basis of his number of years of vesting service in accordance with the following table: Years of Vesting Service Vested Percentage Less than 1 year 0% 1 but less than 2 years 20% 2 " " " 3 " 40% 3 " " " 4 " 60% 4 " " " 5 " 80% 5 or more years 100% Notwithstanding the preceding provisions of this Section 2.41, the Vested Percentage of a participant who has attained his normal retirement date shall be 100%. .1 The words "vesting service" shall mean for any employee the number of taxable years during which the employee has been or was previously employed by a Participating Company or any affiliate, excluding: (a) any taxable years during which the employee was credited with less than one thousand (1,000) hours; and (b) any years of vesting service which a terminated and rehired participant had prior to a termination of employment if: (i) such participant did not have a vested interest on such date of termination of employment; and (ii) no amount was credited to his cash option account on such date of termination of employment; and (iii) such participant has had five consecutive One (1) Year Breaks-In-Service since the last day of such vesting service. 2 ELIGIBILITY AND PARTICIPATION .1 Every employee of the Participating Companies who was a participant in the Trust and Plan as it existed immediately prior to the restatement date shall continue to be a participant on and after the restatement date. .2 An employee of a Participating Company shall be qualified to become a participant under the Trust and Plan when he has met all of the following requirements: (a) he is a Covered Employee; (b) he has completed six (6) months of continuous service; and (c) he has attained the age of twenty-one (21) years. In the case of an employee who is rehired after a termination of employment, such employee's date of hire for purposes of this Section 3.2 shall be deemed to be his earliest date of hire unless all of the following apply: (a) the employee did not have a vested interest on such date of termination of employment; (b) the employee did not have any amount credited to his cash option account on such date of termination of employment; (c) the employee has incurred an eligibility break-in-service; and (d) the employee's period of continuous service determined under this Section 3.2 on such termination of employment shall have been less than or equal to the period between his termination of employment and his date of rehire. In the event that (a), (b), (c) and (d) above all apply with respect to a rehired employee, any periods of continuous service prior to such termination of employment shall be cancelled and such employee's date of rehire shall then be deemed to be his date of hire for purposes of determining his period of continuous service under this Section 3.2. .3 Every employee of a Participating Company who is eligible as of the restatement date shall become a participant as of that date. Every employee of a Participating Company who becomes eligible after the restatement date shall become a participant as of the January 1 or July 1 coinciding with or next following the date he becomes qualified. .4 In the event that a Participating Company or an affiliate shall reemploy a former participant whose continuous service as a former employee is not excluded pursuant to Section 3.2 hereof, such former participant shall again become a participant in the Trust and Plan on his date of rehire, provided he is then a Covered Employee. Any other former participant must requalify under the provisions of Section 3.2 hereof before he is eligible to again become a participant. .5 3 CASH OR DEFERRED OPTION .1 Pursuant to uniform rules and procedures promulgated by the Administrator, a participant may elect in writing that a portion (such portion being within limits prescribed by the Administrator) of his unpaid compensation for a taxable year be paid by his employer to the Trustee hereunder and be treated as a contribution by his employer. A participant's election hereunder shall be conditioned upon: (a) his right to defer the imposition of federal income tax on such contribution until a subsequent distribution of such amount under this Trust and Plan; and (b) the right of his employer to deduct such amount for federal income tax purposes after taking into account any contributions made by such employer under Article 5 hereunder and after taking into account any contributions made by the employer under any other profit sharing, pension and stock bonus plans maintained by the employer which meet the requirements of Section 401(a) of the Code. The Administrator may prescribe the maximum amount of a participant's unpaid compensation that is subject to the election described in this Section 4.1. .2 All amounts paid to the Trustee pursuant to Section 4.1 above shall be paid in cash not later than the date on which such amounts can reasonably be segregated from the employer's general assets, which in no event shall be more than ninety (90) days after the date on which such amount would otherwise have been payable to the participant in cash. .3 Any amounts contributed to the Trust and Plan pursuant to Section 4.1 above on behalf of a participant shall be held by the Trustee as a part of the trust fund created under this Trust and Plan, shall be specifically allocated to a cash option account for the benefit of such participant and shall be invested, reinvested, and administered in accordance with the terms of this Trust and Plan. The amounts credited to a participant's cash option account shall be fully vested and nonforfeitable at all times. .4 Except as provided in Article 15, in no event may a participant withdraw any amounts credited to his cash option account prior to the time such amounts become distributable to him pursuant to Articles 11 and 12 hereof. .5 The amounts credited to a participant's cash option account shall not be alienated, disposed of or in any manner encumbered and are made expressly subject to the provisions against alienation set forth in Article 20 of this Trust and Plan. .6 In the event a participant receives a distribution from his cash option account as a result of hardship as described in Article 15, such participant's elective deferrals shall be suspended for 12 months after his receipt of such hardship distribution. In addition, for the calendar year immediately following the calendar year of the hardship distribution such participant shall be barred from making elective deferrals in excess of (a) minus (b) below where (a) equals the applicable limit under Code Section 402(g) for such immediately following calendar year; and (b) equals the amount of such participant's elective deferrals for the calendar year of the hardship distribution. .7 4 MATCHING EMPLOYER CONTRIBUTIONS .1 The Participating Companies may make a contribution to the Trust and Plan on behalf of each participant on whose behalf a deferral is made. The amount of such matching contribution, if any, shall be determined by the Company through action of its Board of Directors and shall be announced to the participants prior to the beginning of the plan year in which such matching contribution shall be allocated. Such amount, if any, shall be credited to the matching employer contribution account of each participant on whose behalf contributions are made pursuant to Section 4.1 hereof. .2 Notwithstanding Section 5.1 above, no matching contributions shall be made under Section 5.1 with respect to any participant to the extent any contributions made on behalf of such Participant under Section 4.1 hereof are in excess of any limitation described in Section 8.2 or 8.3 hereof. .3 The Administrator shall, as soon as reasonably possible after the payment by the Participating Companies of their contribution, furnish to the Trustee such information, including information concerning the compensation of participants during such taxable year, as may be necessary for the proper administration of this Trust and Plan. .4 In no event may a participant withdraw any amounts credited to his matching employer contribution account prior to the time such amounts become distributable to him pursuant to Articles 11 and 12 hereof. .5 The amount determined to be credited to each participant's matching employer contribution account under this Article 5 shall be added to amounts previously credited to said accounts which remain credited to such accounts, and shall for all purposes be deemed to have been credited on the aforesaid allocation date which coincides with the last day of the taxable year for which the contribution was made. Such crediting to the accounts of participants shall not vest any right, title or interest in or to any assets of the Trust in any participant. .6 5 REGULAR EMPLOYER CONTRIBUTIONS .1 With respect to any taxable year, a Participating Company may pay to the Trustee, not later than the last day upon which such Participating Company may make a contribution under this Trust and Plan and secure under the Code of the United States a deduction of such contribution in the computation of its Federal Income Taxes for such taxable year, a contribution in cash or other property in such amount as is determined by the Participating Company in its sole discretion. Such contribution shall be in addition to any amounts contributed under Articles 4 and 5 hereof and nothing contained herein shall require a Participating Company to make any contribution under this Article 6 with respect to any plan year. .2 The Administrator shall, as soon as reasonably possible after the payment by a Participating Company of its contribution, furnish to the Trustee such information, including information concerning the compensation of participants during such taxable year, as may be necessary for the proper administration of this Trust and Plan. .3 6 ALLOCATION OF REGULAR EMPLOYER CONTRIBUTIONS .1 Accounts being maintained by the Trustee immediately prior to the restatement date shall continue to be maintained under the Trust and Plan as amended and restated herein, and shall be credited debited and adjusted as provided in this Trust and Plan. Such accounts shall be categorized, as of the restatement date, as follows: (a) To the extent a participant's account was credited with cash or deferred contributions made by a Participating Company on his behalf, such account shall be deemed to be a cash option account; and (b) To the extent a participant's account was credited with employer matching contributions made by a Participating Company on his behalf, such account shall be deemed to be a matching employer contribution account. .2 Upon an employee becoming a participant the Administrator shall notify the Trustee and provide the Trustee with such information concerning said participant as the Trustee may need. Upon being notified by the Administrator that an employee has become a participant, the Trustee shall establish a regular employer contribution account in the name of such participant. .3 The Participating Companies' regular contributions for any taxable year shall be allocated among the regular employer contribution accounts of the participants who were active participants with respect to such taxable year. The regular employer contribution account of each such active participant shall be credited with that portion of the Participating Companies' regular contributions for such taxable year which bears the same relationship to the regular contributions of the Participating Companies as such active participant's compensation for such taxable year bears to the total compensation of all such active participants for such taxable year. .4 In no event may a participant withdraw any amounts credited to his regular employer contribution account prior to the time such amounts become distributable to him pursuant to Articles 11 and 12 hereof. .5 The amount determined to be credited to each participant's regular employer contribution account under this Article 7 shall be added to amounts previously credited to said accounts which remain credited to such accounts, and shall for all purposes be deemed to have been credited on the aforesaid allocation date which coincides with the last day of the taxable year for which the contribution was made. Such crediting to the accounts of participants shall not vest any right, title or interest in or to any assets of the Trust in any participant. .6 7 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS The following Sections of this Article shall be effective as of January 1, 1989: .1 The amount and allocation of contributions under this Trust and Plan shall be subject to several limitations. Those limitations shall be as follows: (a) contributions made by the Participating Companies to the Trust and Plan pursuant to a participant's cash or deferred election under Article 4 of the Trust and Plan shall be subject to the individual deferral limit described in Section 8.2 hereof; (b) contributions made by the Participating Companies to the Trust and Plan pursuant to a participant's cash or deferred election under Article 4 of the Trust and Plan and the matching employer contributions made pursuant to Article 5 of the Trust and Plan shall be subject to the limits set forth in Section 8.3 hereof; (c) all contributions made pursuant to Article 4, Article 5 and Article 6 of the Trust and Plan, including contributions made pursuant to a participant's election under Article 4, matching employer contributions made pursuant to Article 5, and regular employer contributions made pursuant to Article 6, shall, in the aggregate, be subject to the deductibility limit set forth in Section 8.4 hereof; and (d) the allocation of all of the foregoing contributions shall, in the aggregate, be subject to the limitation on annual additions set forth in Article 24 hereof. .2 In no event shall contributions made pursuant to a participant's election under Article 4 of the Trust and Plan with respect to the taxable year of the participant plus similar amounts contributed on a similar basis by any other employer (whether or not related to a Participating Company) required by law to be aggregated with such contributions under this Trust and Plan exceed Seven Thousand Dollars ($7,000.00), plus any increase for cost-of- living as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code. In the event that the deferrals for a participant's taxable year shall exceed such limit, the excess deferrals, reduced by the amount of excess deferrals previously distributed to such participant in accordance with Section 8.5 hereof for the taxable year, together with any earnings allocable to such excess deferrals during the taxable year shall be refunded to the participant by the April 15th next following the close of such taxable year. The amount of any such refund shall be debited to the participant's cash option account. In the event that the Administrator shall receive notice from a participant by the March 1 next following the close of the participant's taxable year that the deferrals together with similar deferrals under plans of other employers shall have exceeded such limit, the Administrator shall cause the amount of excess deferrals specified by the participant together with any earnings allocable to such excess elective deferrals during the taxable year to be refunded to the participant by the April 15th next following the receipt of such notice. The amount of any such refund shall be debited to the participant's cash option account. .3 Deferrals shall be limited so that the average deferral percentage for the highly compensated participants shall not exceed an amount determined based upon the average deferral percentage for the participants who are not highly compensated participants, as follows: (A) (B) Average Deferral Limit on Average Percentage for Deferral Percentage Participants who for Highly Compensated are Not Highly Participants Compensated Less than 2% 2 times Column (A) 2% or more but less Column (A) plus 2% than 8% 8% or more 1.25 times Column (A) For purposes of the foregoing, the "deferral percentage" for a participant for any plan year shall equal the deferral allocated to his cash option account during the plan year that either would have been received by the participant in the plan year, if not for the deferral election, or are attributable to services performed during the plan year and would have been received by the employee within 2-1/2 months after the close of the plan year, if not for the deferral election, as a percentage of his compensation for such plan year. For purposes of determining the deferral percentage of a highly compensated participant, all contributions made on his behalf by the Participating Companies pursuant to a cash or deferred arrangement under all tax qualified retirement plans maintained by the Participating Companies shall be treated as if made under the Trust and Plan. For purposes of this Trust and Plan, an employee shall be considered to be "highly compensated" for a plan year if either: (c) during the preceding plan year, he: (i) was at any time a five percent (5%) actual or constructive owner of a Participating Company or its affiliate; or (ii) received total remuneration from the Participating Companies and their affiliates in excess of Seventy-Five Thousand Dollars ($75,000.00) (plus any increase for cost-of-living as shall be prescribed by the Secretary of the Treasury pursuant to Section 414(q)(1) of the Code); or (iii) received total remuneration from the Participating Companies and their affiliates in excess of Fifty Thousand Dollars ($50,000.00)(plus any increase for cost-of-living as shall be prescribed by the Secretary of the Treasury pursuant to Section 414(q)(1) of the Code) and was in the 'top paid group' of employees of the Participating Companies and their affiliates for such plan year; or (iv) was at any time an officer of a Participating Company or one of its affiliates and received total remuneration in excess of Forty-Five Thousand Dollars ($45,000.00) or, if greater, fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Code for such plan year (plus any increase for cost of living after 1989 as determined by the Secretary of the Treasury or his delegate); or (d) during the current plan year, he either: (i) was at any time a five percent (5%) actual or constructive owner of a Participating Company or its affiliate; or (ii) was one of the one hundred (100) highest paid employees of the Participating Companies and their affiliates for the current plan year and meets the requirements of subparagraphs (a)(ii), (a)(iii) or (a)(iv) above for the current plan year. For purposes of determining whether an employee is "highly compensated," the words "total remuneration" shall mean for any participant all amounts paid to him as payment for services rendered by him to the Participating Companies or any affiliate which must be taken into account for purposes of satisfying one of the definitions of compensation contained in the Treasury regulations issued under Section 415 of the Code. For purposes of determining the members of the "top paid group" under subparagraph (a)(iii) above, a participant is a member of the top paid group for any plan year if for such plan year the participant is a member of a group consisting of the top paid twenty percent (20%) of employees of the Participating Companies, and all affiliates ranked on the basis of total remuneration from the Participating Companies and all affiliates during the plan year. In determining the members of the top paid group, the following employees shall be excluded: (A) employees who have not completed six (6) months service; (B) employees who normally work less than seventeen and one-half (17-1/2) hours per week; (C) employees who normally work not more than six (6) months during any year; (D) employees who have not attained age twenty-one (21); (E) except to the extent provided in regulations, employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and a Participating Company or any affiliate; and (F) employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) of the Code) from the Participating Companies or any affiliate which constitutes income from sources within the Unites States (within the meaning of Section 861(a)(3) of the Code). The Participating Companies may elect (in such manner as may be provided by the Secretary of the Treasury or his delegate) to apply subparagraph (A), (B), (C), or (D) above by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or age (as the case may be) than that specified in such subparagraph. For purposes of determining the number and identity of 'officers' in subparagraph (a)(iv) above: (I) The total number of employees treated as officers shall be limited to the lesser of: (1) fifty (50); or (2) the greater of three (3) employees or ten percent (10%) of all employees of the Participating Companies and all affiliates; but (II) If no employee would be described as an officer pursuant to subparagraph (a)(iv) above, the highest paid officer shall be treated as described in such subparagraph. A former employee shall also be treated as a highly compensated participant if: (a) such employee was a highly compensated participant when he terminated employment; or (b) such employee was a highly compensated participant at any time after attaining age fifty-five (55). In addition, the matching employer contributions made under Article 5 hereof for a plan year shall be limited so that the average contribution percentage for the highly compensated participants shall not exceed an amount determined based upon the average contribution percentage for the participants who are not highly compensated participants, as follows: (A) (B) Average Contribution Limit on Average Percentage for Contribution Percentage Participants who for Highly Compensated are Not Highly Participants Compensated Less than 2% 2 times Column (A) 2% or more but less Column (A) plus 2% than 8% 8% or more 1.25 times Column (A) For purposes of the foregoing, the "contribution percentage" for a participant in any plan year shall equal the matching employer contributions which: (a) were made on his behalf under Article 5 hereof; (b) were allocated to his account during the plan year; and (c) were paid to the Trust by the end of the subsequent plan year; as a percentage of his compensation for such plan year. For purposes of determining the contribution percentage of a highly compensated participant, all matching employer contributions made on his behalf under all tax qualified retirement plans maintained by the Participating Companies shall be treated as if made under the Trust and Plan. If, for any plan year, the Trust and Plan satisfies the average deferral percentage test, then the Participating Companies may elect, in such manner as the Secretary of the Treasury or his delegate may provide, to take into account as additional amounts for purposes of satisfying the average contribution percentage test, amounts contributed to the Trust and Plan pursuant to a participant's election under Section 4.1 hereof. If both the average deferral percentage and the average contribution percentage of the highly compensated participants exceeds one and twenty-five hundredths (1.25) multiplied by the corresponding average deferral percentage and average contribution percentage of the non-highly compensated participants, deferrals made for a plan year plus the matching employer contributions made by the Participating Companies for such plan year shall be limited so that the sum of the average deferral percentage and the average contribution percentage for the highly compensated participants does not exceed the "aggregate limit." The "aggregate limit" is equal to the greater of (a) and (b) below where: (a) equals the sum of (i) and (ii) below, where: (i) equals 1.25 times the greater of the deferral percentage or the contribution percentage for the non-highly compensated participants; and (ii) equals two (2) percentage points plus the lesser of the deferral percentage or the contribution percentage for the non-highly compensated participants. In no event, however, shall this amount exceed twice the lesser of the deferral percentage or the contribution percentage for the non-highly compensated participants; and (b) equals the sum of (i) and (ii) below, where: (i) equals 1.25 times the lesser of the deferral percentage or the contribution percentage for the non-highly compensated participants; and (ii) equals two (2) percentage points plus the greater of the deferral percentage or the contribution percentage for the non-highly compensated participants. In no event, however, shall this amount exceed twice the greater of the deferral percentage or the contribution percentage for the non-highly compensated participants. In addition, if any individual is a member of the family of a five percent (5%) owner or of a highly compensated employee in the group consisting of the ten (10) highly compensated employees paid the greatest total remuneration by the Participating Companies during the plan year, then for purposes of any Section of this Trust and Plan which uses the term highly compensated employee or highly compensated participant, (i) such individual shall not be considered a separate employee, and (ii) any such compensation paid to such individual by the Participating Companies (and any applicable contribution on behalf of such individual) shall be treated as if it were paid to (or on behalf of) the highly compensated employee or participant. For purposes of the foregoing, the word "family" shall mean, with respect to any employee, such employee's spouse and lineal ascendants or descendants and the spouses of such lineal ascendants or descendants. .1 In no event shall the amount of all contributions by the Participating Companies pursuant to Article 5 and Article 6 hereof, together with all amounts contributed by Participating Companies to the Trustee pursuant to participants' deferral elections under Section 4.1 hereof, exceed the maximum amount allowable as a deduction under Section 404(a)(3) of the Code or any statute of similar import, including the amount of any contribution carryforward allowable under said Section 404(a)(3). This limitation shall not apply to contributions which may be required in order to provide the minimum contributions described in Article 25 for any plan year in which this Trust and Plan is top-heavy. Nor shall this limitation apply to contributions which may be required in order to recredit the account of any rehired participant whose account is to be recredited with previously forfeited amounts as described in Section 11.3 hereof. .2 In the event that the limitations set forth in Section 8.3 hereof shall be exceeded, the Administrator shall take action to reduce future deferrals hereof and/or matching employer contributions made pursuant to Article 5 as appropriate. Such action may include a reduction in the future rate of deferrals of any highly compensated employee pursuant to any legally permissible procedure. In the event that such action shall fail to prevent the excess, prior deferrals, reduced by the amount of excess deferrals previously distributed to such participant in accordance with Section 8.2 hereof for the plan year, plus any income and minus any loss allocable thereto to the end of the preceding plan year, shall be distributed to the affected highly compensated employees no later than two and one-half (2-1/2) months following the end of the plan year in which such contributions were made. In the event of any such distribution of deferrals, any matching employer contribution, plus any income and minus any loss allocable thereto to the end of the preceding plan year, shall be returned to the Participating Companies and the participant's cash option account, and if applicable, his matching employer contribution account shall be debited with the amount of such distribution. In the event that distributions must be made in order to bring the Trust and Plan into compliance with Section 8.3 hereof, the Administrator shall reduce the deferral percentage or contribution percentage of highly compensated participants in descending order, beginning with the highly compensated participant(s) with the highest such percentage, until such limitations have been satisfied. In performing such reduction, the reduced deferral percentage or contribution percentage of any affected highly compensated participant shall in no event be lower than that of the highly compensated participant with the next highest such percentage. Distributions of excess deferrals or excess contributions shall be made to highly compensated employees on the basis of the respective portions of such contributions attributable to such employees taking into account the family aggregation rules contained in Section 8.3 hereof. Such contributions shall be treated as annual additions under Section 24.1 hereof. For purposes of adjusting excess deferrals and excess contributions to take into account income and losses to the end of the preceding plan year, the income or loss shall be equal to the income or loss for the plan year allocable to the account to which the excess was allocated multiplied by a fraction, the numerator of which is the excess deferrals or contributions credited to such account for the plan year and the denominator of which is the total account balance without regard to any income or loss occurring during such plan year. Any adjustments made in cash option accounts or matching employer contribution accounts shall be made in a uniform and nondiscriminatory manner for similarly situated participants. 2 INSURANCE CONTRACTS .1 Prior to January 1, 1994, the Company, pursuant to uniform rules and procedures promulgated by the Administrator, and whether or not the accounts have been segregated for investment purposes pursuant to Article 18 hereof, permitted participants to use part of the amounts credited to their accounts to purchase insurance on their individual lives. The proceeds upon the maturity by death in whole or in part of any contract shall have been for the benefit of the beneficiaries of the participant with respect to whom the maturity occurs subject to the other provisions of this Trust and Plan. The contract shall be issued in the name of the Trustee who shall retain until its maturity by death or its disposition under the terms of this Trust and Plan all incidents of ownership therein. The proceeds of said contract shall be payable directly to the beneficiary of the participant for whose benefit it was purchased. The premium on any such contract purchased for a participant's benefit shall be paid from the amounts credited to such participant's accounts and said accounts shall be debited by the amount of premiums so paid. In no event shall the aggregate of the entire amounts paid for term life insurance plus 50% of the amount paid for ordinary life insurance contracts for any participant be as much as 25% of the aggregate of contributions which have been allocated to his accounts since the date he first became a participant. .2 All contracts purchased shall contain such provisions against alienation and levying thereon as the Administrator may deem appropriate and shall be procurable. Premium payments for such insurance shall be on a single premium or level premium basis and premium payments shall be charged against applicable accounts as of the date of payment. .3 During the time any contract is held under the provisions of the Trust and Plan, the participant whose life is insured by such contract may, in his discretion, direct the Trustee to instruct the insurance company to apply the dividends or returns of premium accumulated under the contract in any manner permitted by such contract. .4 When, on any premium payment date, the premiums then due on all contracts held by the Trustee for the benefit of any participant shall exceed the amount credited to such participant's accounts or the amount which may under the 25% limitation stated in Section 9.1 hereof be used to pay premiums upon ordinary life insurance contracts for a participant, the participant shall proceed as follows: (a) direct the Trustee to instruct the insurance company to apply any dividends, endowments or returns of premium accumulated under such contracts for the payment of premiums to the extent necessary; and (b) in the event the Trustee applies the dividends, endowments and returns of premium accumulated as aforesaid, but said amount is insufficient to meet premium payments due under such contracts, such participant may pay any remaining premiums or a portion thereof then due himself; and (c) in the event payment of the premiums is not made under subsections (a) and (b) above, the Trustee may borrow the contracts' cash surrender value to pay said premiums, to the extent said borrowings are insufficient to pay said premiums. The Trustee shall instruct the insurance company to have the contracts placed upon a paid-up basis, to the extent necessary, provided that in the event said contracts may not be placed upon a paid-up basis according to the general practice of the insurance company, such contracts shall be reduced to cash and the amounts received thereby shall be credited to the partici pant's accounts. .5 If available, any contract purchased by the Trustee shall contain an automatic premium loan provision exercisable by the Trustee at the direction of the participant in the event of non-payment of the premium and shall also permit conversion to paid up insurance by the Trustee at the direction of the participant. .6 Insurance contracts purchased may contain double indemnity and waiver of premium provisions, insofar as permitted by the insurance company. In any event the cost of such benefits with respect to a participant shall be borne by him. .7 If the Trustee shall hold an insurance contract on the life of a terminated participant on his date of termination of employment (if his employment terminates for some reason other than death), the terminated participant shall have the right to purchase any such contract from the Trust and Plan by paying to the Trustee an amount equal to its cash surrender value within thirty (30) days after his termination of employment. If such amount is so paid, the Trustee shall assign all its right, title and interest in and to such contract to the terminated participant. If any such contract is not purchased by the terminated participant, the Trustee shall surrender said contract to the insurance company for its cash surrender value. As of the date the participant terminates his employment, such participant's accounts will be credited with any such contract's cash surrender value. In the event that the participant shall die after his termination of employment but prior to the date such contract is either transferred to the participant or surrendered to the insurance company for its cash surrender value, such participant shall be deemed to have died while an employee and, pursuant to Section 13.1 hereof, the proceeds of such contract shall be payable to the participant's beneficiary in accordance with the provisions of Article 13 hereof, and the deceased participant's accounts shall be debited by an amount equal to the amount that was credited to such accounts upon such participant's termination of employment as provided in the preceding sentence. .8 3 VALUATION OF ASSETS AND ADJUSTMENT OF UNSEGREGATED ACCOUNTS .1 To the extent the accounts have not been segregated for investment purposes pursuant to Article 18 hereof, the Trustee shall, as soon as practicable following each allocation date value all unsegregated assets of the Trust as of the allocation date. The Trustee shall use the fair market values of securities or other assets in making said determination. The Trustee shall then subtract from the total value of the unsegregated assets of said Trust the total of all unsegregated cash option accounts, matching employer contribution accounts and regular employer contribution accounts as of said allocation date. Each such unsegregated account shall be credited with that portion of the excess of the value of the unsegregated assets over the total of all unsegregated accounts which bears the same relationship to the total of such excess as the amount in said unsegregated account bears to the total of all unsegregated accounts. The amount credited to each unsegregated account shall be reduced in similar proportion in the event the total of all unsegregated accounts as of said allocation date exceeds the total value of all unsegregated assets of the Trust as of said allocation date. Such adjustments in the amounts credited to unsegregated accounts shall be deemed to. have been made on said allocation date. It is intended that this Article 10 operate to distribute among all unsegregated accounts in the Trust, all income of the Trust and changes in the value of the Trust's unsegregated assets, as the case may be. In adjusting unsegregated accounts after valuing unsegregated assets of the Trust as of any allocation date, no contributions of the Participating Companies pursuant to Article 4, Article 5 or Article 6 hereof shall be taken into account until the allocation date coinciding with or next following the date such contributions were both actually paid to the Trustee by the Participating Companies and credited to the accounts of participants. .2 2 TERMINATION OF EMPLOYMENT .1 In the event of the termination of employment of a participant for any reason other than death, permanent and total disability, or retirement pursuant to Article 12 hereof, the participant shall be entitled to receive a distribution of the sum of the following amounts: (a) the amount credited to his cash option account; and (b) his vested interest. .2 The amount described in Section 11.1 above shall be distributed to the terminated participant in the form of an immediate lump sum payment as soon as practicable after his date of termination of employment, but not later than his normal retirement date. Notwithstanding the foregoing, in the event the amount to be distributed to a terminated participant exceeds Three Thousand Five Hundred Dollars ($3,500.00), such amount shall be distributed to a participant in the form of a single lump sum payment at any time prior to his normal retirement date as such participant shall select, provided that if the participant is married, the participant's spouse consents in writing to such distribution. Any such payment shall be made as soon as administratively feasible after the Trustee receives a request for payment from such terminated participant. If a participant does not receive the amounts distributable to him in accordance with the preceding paragraph prior to his normal retirement date, the amounts distributable to such participant shall be distributed in accordance with the provisions of Article 14 hereof as though he had retired on his normal retirement date under Article 12 hereof. .3 If a terminated participant's Vested Percentage in his regular employer contribution account and matching employer contribution account is less than 100%, an amount equal to (a) minus (b) below where: (a) equals the amount credited to his regular employer contribution account and matching employer contribution account; and (b) equals his vested interest; shall be forfeited as of the earliest of (1) the date on or after the participant's termination of employment on which the participant receives a distribution of the amounts described in Section 11.1 hereof; (2) the last day of the plan year during which the participant shall incur five consecutive One (l) Year Breaks-In-Service; or (3) the date the participant dies. Any such forfeited amount shall be debited to the participant's regular employer contribution account and/or matching employer contribution account. If any amounts remain credited to his regular employer contribution account or matching employer contribution account after said forfeiture, said amounts shall thereafter be held, administered and distributed in accordance with Section 11.2 above. Notwithstanding the preceding provisions of this Section 11.3, if a terminated participant's Vested Percentage is zero (0) and there are no amounts credited to his cash option account, the amounts which are credited to his regular employer contribution account and matching employer contribution account shall be forfeited as of the date of the participant's termination of employment. If the terminated participant shall be rehired by a Participating Company or any affiliate prior to the time the terminated participant incurs five consecutive One (1) Year Breaks-In-Service, he shall immediately be reinstated as a participant in this Trust and Plan and the amount which had been previously debited to his regular employer contribution account and/or matching employer contribution account and forfeited pursuant to the provisions of this Section 11.3 shall be recredited to his regular employer contribution account and/or matching employer contribution account on the date such participant is rehired. Notwithstanding any other provision of this Trust and Plan to the contrary, in order to balance the accounts maintained under the Trust and Plan after giving effect to the recrediting of the rehired participant's regular employer contribution account and matching employer contribution account and the later adjustment of such accounts pursuant to Article 10 or Article 18 hereof, the Company may, at its option: (b) if none of the accounts have been segregated for investment purposes pursuant to Article 18 hereof, reduce the gain, if any, in the value of the Trust and Plan's assets (since the most recent allocation date) for purposes of adjusting the accounts pursuant to Article 10 hereof as of any allocation dates which coincide with or follow the date of the participant's rehire up to and including the allocation date which coincides with the last day of the plan year during which such participant was rehired; and/or (c) reduce the value of the forfeitures which are otherwise reallocable as of the allocation date which coincides with the last day of the plan year during which such participant was rehired; and/or (d) reduce the amount of the regular employer contributions which are otherwise allocable among the regular employer contribution accounts of participants pursuant to Article 6 for the plan year during which such participant was rehired; and/or (e) take some combination of the actions described in (a), (b) and (c) above as the Company shall in its sole discretion determine; provided that the total of the amounts described in (a), (b) and (c) above with respect to any plan year shall not exceed the aggregate amounts which were recredited to the regular employer contribution accounts and matching employer contribution accounts of all participants who were rehired during such plan year. Any amounts recredited to a rehired participant's regular employer contribution account and matching employer contribution account pursuant to this Section 11.3 shall not be an annual addition for purposes of Article 24 of this Trust and Plan with respect to the plan year during which such recrediting occurs. To the extent that the sum of the amounts described in (a), (b) and (c) above for any plan year is less than the aggregate amounts which were recredited to the regular employer contribution accounts and matching employer contribution accounts (as later adjusted pursuant to Article 10 or Article 18 hereof) of all participants who were rehired during the plan year, the Company shall cause the Participating Companies to contribute to the Trust and Plan an amount equal to the difference between the aggregate amounts which were recredited to the regular employer contribution accounts and matching employer contribution accounts (as later adjusted pursuant to Article 10 or Article 18 hereof) of all participants who were rehired during the plan year and the sum of the amounts described in (a), (b) and (c) above, and such contribution shall be made by any such Participating Company no later than the close of the plan year next following the plan year during which such participants were rehired. .1 The amounts forfeited pursuant to Section 11.3 hereof shall be used to reduce the contributions to be made by the Participating Companies for the taxable year which includes the date of forfeiture. The amounts forfeited pursuant to Section 11.3 hereof shall be reallocated first among the matching employer contribution accounts and then among the regular employer contribution accounts of active participants who are employed by one of the Participating Companies on the allocation date which is the last day of the taxable year which includes the date of forfeiture as though such amounts were contributed by the Participating Companies with respect to such taxable year. In no event shall forfeitures be used to increase the benefits any participant would otherwise receive under the Trust and Plan. .2 If the accounts have been segregated for investment purposes pursuant to Article 18 hereof, any amounts forfeited pursuant to Section 11.3 hereof shall be invested in such media as the Administrator shall direct until reallocated among the employer contribution accounts of the remaining active participants pursuant to Section 11.4 hereof. .3 2 RETIREMENT AND DISABILITY BENEFITS .1 A participant who retires on or after his normal retirement date shall be entitled to receive an amount equal to the amounts credited to his accounts. Except as provided in Section 14.1 hereof, such amount shall be distributed or commence to be distributed as soon as administratively feasible but in no event later than sixty (60) days after the close of the plan year which includes the date of his retirement. Such distribution shall be made in accordance with the provisions of Article 14 hereof. .2 A participant who continues in the employ of a Participating Company or an affiliate until his completion of ten (10) years of vesting service and his attainment of age fifty-five (55), but not his normal retirement date, shall be eligible to retire. Such a participant shall be deemed to have retired upon the date of his termination of employment and shall be entitled to receive the amount credited to the accounts held for his benefit. Except as provided in Section 14.1 hereof, such amount shall be distributed to the participant as soon as administratively feasible after his early retirement date but not later than sixty (60) days after the close of the plan year which includes his normal retirement date as such retired participant shall select. Such distribution shall be made in accordance with the provisions of Article 14 hereof. .3 Upon receipt from a participant or a person authorized by him or on his behalf of a request that distributions be made on account of such participant's permanent and total disability, or upon its own motion, the Administrator shall determine the extent of such participant's disability and may, to assist it in making such determination, cause appropriate medical diagnoses and tests to be made at the expense of the participant's employer. If the Administrator shall determine that the participant is permanently and totally disabled, as defined in Section 2.31 hereof, such disabled participant shall be entitled to receive an amount equal to the amounts credited to his accounts. Except as provided in Section 14.1 hereof, such amounts shall be distributed or commence to be distributed as soon as administratively feasible but in no event later than sixty (60) days after the close of the plan year which includes the later of the date the Administrator determines that such participant is permanently and totally disabled or the date said participant actually retires. Such distribution shall be made in accordance with the provisions of Article 14 hereof. .4 Each participant who is eligible for benefits under this Article 12 shall apply therefor on a form which shall be given to him for that purpose by the Administrator provided, however, that the foregoing requirement shall not apply in any case in which a participant shall be unable, for physical, mental or any other reason satisfactory to the Administrator to make such application. Upon finding that such participant satisfies the eligibility requirements for benefits under this Article 12, the Administrator shall promptly notify the Trustee in writing of his eligibility and of the method of distribution selected in accordance with Article 14. .5 3 DEATH BENEFITS .1 In the event of the termination of employment of a participant by reason of his death, his designated beneficiary shall be entitled to receive a distribution which shall be made or commence to be made as soon as administratively feasible but in no event later than sixty (60) days after the close of the plan year which includes the date of his death, unless such beneficiary defers the distribution until a later date pursuant to Section 14.1 hereof. The amount of such distribution shall be equal to the amounts then credited to the deceased participant's accounts. Such distribution shall be made in accordance with the provisions of Article 14 hereof. .2 In the event of the death of a retired or terminated participant prior to the date distribution has been made to him, his designated beneficiary shall be entitled to receive a distribution which shall be made or commence to be made as soon as administratively feasible but in no event later than sixty (60) days after the close of the plan year which includes the date of the former participant's death, unless such beneficiary defers the distribution until a later date pursuant to Section 14.1 hereof. The amount of such distribution shall be equal to the amounts then credited to his accounts. Such distribution shall be made in accordance with the provisions of Article 14 hereof. .3 In the event of the death of a participant after the date of distribution or the commencement of distribution to him, no benefits shall be payable to his beneficiary except to the extent provided for by the method under which the participant was receiving distributions under Article 14 hereof. .4 Notwithstanding anything contained in this Trust and Plan to the contrary, the designated beneficiary of a participant who is married at the time of his death shall, for all purposes of this Trust and Plan, be deemed to be the surviving spouse of the deceased participant unless either (a) both the deceased participant and the surviving spouse had signed a document designating some person or entity other than the surviving spouse as the participant's designated beneficiary and such spouse's signature was properly notarized or (b) it is established to the satisfaction of the Administrator that the signature of the spouse cannot be obtained either because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulations. Any consent given by a spouse pursuant to this Section 13.4 shall be effective only with respect to such spouse and shall not be effective with respect to any other spouse of such participant. .5 Subject to Section 13.4 hereof, upon becoming a participant, an employee shall designate in writing to the Administrator the beneficiary and/or contingent beneficiary to receive, in the event of his death, any amounts distributable pursuant to this Article 13. .6 Subject to Section 13.4 hereof, a participant may at any time change his designation of his beneficiary, or the amounts to be paid any beneficiary, by notifying the Administrator of any such change in writing. Each such change of designation shall be deemed to be a ratification and confirmation of any earlier designations insofar as they are not inconsistent with such change of designation. .7 Upon the death of a participant, the Administrator shall immediately deliver to the Trustee any designation of beneficiary or change of designation filed with it by such deceased participant and not previously delivered to the Trustee. .8 The Trustee shall be completely protected in making payments to any person in any sums in accordance with beneficiary designations. There shall be no liability on the part of the Administrator to any person because of any delay in filing with the Trustee any designation or change filed with it by a participant. If a new designation is filed with the Trustee after any disbursements have been made in accordance with a previous designation, or in accordance with Section 13.9 hereof because either no designation was on file or the designation on file did not dispose of all amounts distributable, a distribution made before receipt of such new designation shall be irrevocable, but all distributions after receipt by the Trustee of such new designation shall be made in accordance with such new designation. .9 In the event that upon the death of a participant, the beneficiary designation on file with the Trustee or Administrator which is in effect on the date of such participant's death does not dispose in its entirety of the amounts distributable under this Trust and Plan upon his death, or in the event no designation shall be on file with the Trustee or Administrator at the time of such death, then the amounts distributable on behalf of said participant, the disposition of which was not determined by the deceased participant's designation, shall be distributed to the participant's spouse if she survives the participant, or, if she does not survive, said amount shall be distributed to the personal representative of the participant for distribution as a part of the participant's estate. .10 Any ambiguity in a participant's designation shall be resolved by the Administrator. If so requested by the Trustee, the Administrator shall cause a participant to clarify his designation and, if necessary, execute a new designation containing such clarification. .11 4 DISTRIBUTIONS .1 Distributions will normally commence as of the dates specified in Articles 11 and 12 hereof. However, a participant or beneficiary may elect in writing to defer any distribution until a later date provided that: (a) in the case of a living employee or former employee: (i) distribution must commence on or before the April 1 following the end of the calendar year in which he attains age seventy and one-half (70-1/2); and (ii) annuities and distributions in installments shall not be payable beyond the life expectancy of the participant and beyond the joint life expectancies of the participant and his spouse or beneficiary; and (b) in the case of a deceased employee or former employee, distributions after his death shall be payable either: (i) by the December 31 of the calendar year containing the 5th anniversary of the participant's death; or (ii) if distribution commences to his beneficiary, either: (A) on or before the December 31 of the calendar year immediately following the calendar year in which the participant died; or (B) if his spouse is his beneficiary, by the later of the December 31 of the calendar year immediately following the calendar year in which the participant died and the December 31 of the calendar year in which the participant would have attained age 70 1/2; over a period not extending beyond the life expectancy of such beneficiary; or (iii) if the employee's distribution had commenced prior to his death under a form of payment meeting the requirements of subparagraph (a)(ii) above, such distribution must be completed by the remainder of the period specified in said subparagraph (a)(ii); and (iv) if the employee's distribution had not commenced prior to his death under a form of payment meeting the requirements of subparagraph (a)(ii) above and the employee's spouse is entitled to a distribution hereunder but dies prior to the commencement of such distribution, then the limitations of this Section 14.1(b) shall be applied as if the spouse were the employee. If retirement benefits are paid to a participant's child, such payments shall be deemed to be paid to the participant's spouse if such benefits will become payable to such spouse upon such child reaching majority or any other event permitted under any lawful regulations issued by the Secretary of the Treasury. If amounts are distributable in some form other than a Joint and Survivor Annuity or a Life Annuity, the life expectancy of a participant and his spouse may be redetermined from time to time but not more frequently than annually. .1 Subject to Section 14.1 above and Sections 14.3 and 14.4 below, a participant or beneficiary may elect to receive the amounts distributable to him under Articles 11 or 12 pursuant to one or a combination of the following optional methods of distribution: (a) In a single lump sum payment; or (b) In nearly equal installments payable to the distributee from the trust fund over a period of years specified by the distributee or, if he shall die after the commencement of payments but prior to the completion of said installments, to his designated beneficiary; or (c) In equal monthly payments under an annuity contract purchased by the Trustee from an insurance company. To elect either one or a combination of said methods of distribution, a participant or beneficiary shall notify the Administrator of such election in writing prior to the date the amounts credited to his accounts are distributed pursuant to Articles 11 and 12. Notwithstanding the foregoing provisions of this Section 14.2, an unmarried participant shall receive his distribution in the form of a Life Annuity purchased from an insurance company unless he shall elect some other method of distribution. .2 Notwithstanding any other provisions of this Article 14 (except Section 14.10), a married participant shall receive the amounts distributable to him under Articles 11 or 12 hereof in the form of a Joint and Survivor Annuity unless either (a) both the participant and his spouse sign a document electing another form of payment and the spouse's signature is properly notarized or (b) it is established to the satisfaction of the Administrator that the signature of the spouse cannot be obtained either because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulations. Any consent given by a spouse pursuant to this Section 14.3 shall be effective only with respect to such spouse and shall not be effective with respect to any other spouse of such participant. Any married participant shall be allowed to elect, in accordance with this Section 14.3, to receive the amounts distributable to him pursuant to a method of distribution (described in Section 14.2 above) other than in the form of a Joint and Survivor Annuity during the period commencing ninety (90) days after such married participant receives a written explanation of the Joint and Survivor Annuity. The date amounts otherwise become distributable to a participant pursuant to this Trust and Plan shall be postponed if necessary to provide such ninety (90) days notice. Subject to the spousal consent requirement pertaining to married participants, any married participant may revoke a prior distribution election and elect another method of distribution, if desired, as long as such ninety (90) day period has not expired. .3 Notwithstanding any other provisions of this Article 14 (except Section 14.10), in the event a participant dies before the distribution of his benefits under the Trust and Plan has been made or commenced to be made and the surviving spouse of such participant is the deceased participant's beneficiary, such surviving spouse shall receive the amounts distributable to her in the form of a Life Annuity unless such surviving spouse signs a document electing another form of payment and such signature is properly notarized. Any such surviving spouse shall be allowed to elect to receive the amounts distributable to her pursuant to a method of distribution (described in Section 14.2 above) other than a Life Annuity during the period commencing ninety (90) days after such surviving spouse receives a written explanation of the Life Annuity. The date any amounts otherwise become distributable to a surviving spouse pursuant to Article 13 hereof shall be postponed if necessary to provide such ninety (90) days notice. Any such surviving spouse may revoke a prior distribution election and elect another method of distribution, if desired, as long as such ninety (90) day period has not expired. .4 For calendar years on and after January 1, 1989, all distributions required under this Article 14 shall be determined and made in accordance with the regulations under Section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the regulations. .5 The Administrator shall notify the Trustee immediately of a participant's or beneficiary's election of a method of distribution, and the Trustee shall make all distributions in accordance with such method of distribution. Subject to Sections 14.3 and 14.4 hereof, at any time that amounts remain credited to any accounts of such participant or beneficiary, he may file with the Administrator instructions changing the method of distribution. If a participant or beneficiary files such instructions, the Administrator shall promptly direct the Trustee in writing to adopt the new method of distribution for any amounts remaining credited to such person's accounts. In no case shall the Trustee be obligated to accept any instructions for a change in the method of distribution, if, in its judgment, it will be unduly expensive to carry out instructions. There shall be no liability on the part of the Administrator to any person because of any delay in notifying the Trustee of a change in method of distribution filed with it. .6 The Trustee shall, upon notification by the Administrator as to the eligibility of and method of distribution applicable to a participant or beneficiary, take either of the following actions to effect distributions to such person as directed by the Administrator: (a) purchase from an insurance company an appropriate annuity contract; or (b) make payment directly from the trust fund to such person. Any amounts paid to an insurance company for an annuity contract shall be debited to the accounts of the participant with respect to whom the annuity contract was purchased. .7 In the event that the Trustee obtains an annuity contract for the benefit of a participant or beneficiary, the Trustee may transfer ownership of the contract to such participant or beneficiary and deliver said contract to him. .8 Any accounts which have been segregated for investment purposes pursuant to Article 18 hereof may, at the election of a distributee who is receiving a distribution in the form of a single lump sum payment, be distributed in the form of the assets which constitute the accounts being distributed, provided there is an active market for such assets. .9 Notwithstanding the preceding provisions of this Article 14 (including, without limitation Sections 14.3 and 14.4 hereof), if the aggregate of the amounts credited to a participant's accounts under the Trust and Plan does not exceed Three Thousand Five Hundred Dollars ($3,500) as of the date distribution of the participant's accounts is commenced, the Administrator shall distribute the participant's accounts to the participant or beneficiary thereof in the form of a single lump sum payment. .10 As long as there remain any amounts credited to an account, the Trustee shall continue to maintain and administer said account in accordance with the terms and provisions of the Trust and Plan. .11 Effective on and after January 1, 1993, each distributee shall have the right to direct that any distribution which, under Code Section 402(c), qualifies as an eligible rollover distribution be transferred directly to an eligible retirement plan. A distributee may direct that part of the distribution be transferred directly to an eligible retirement plan and the balance be paid to him, provided that the amount directly transferred to the eligible retirement plan shall be at least Five Hundred Dollars ($500.00). A distributee is not permitted to direct that this distribution be transferred directly to more than one eligible retirement plan. In the event that a distributee fails to make any direction, the distribution shall be paid directly to him after deduction of appropriate withholding taxes. Unless the context otherwise indicates, the following terms shall have the following meanings whenever used in this Section 14.12: (a) "eligible rollover distribution" shall mean 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: (i) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (of 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; (ii) any distribution to the extent such distribution is required under Section 14.1 above which reflects the requirements under Section 401(a)(9) of the Code; and (iii) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) "eligible retirement plan" shall mean: (i) an individual retirement account described in Section 408(a) of the Code; (ii) an individual retirement annuity described in Section 408(b) of the Code; (iii) an annuity plan described in Section 403(a) of the Code; or (iv) a qualified trust described in Section 401(a) of the Code; that accepts the distributee's eligible rollover distribution. Notwithstanding the foregoing, 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. (e) "distributee" shall mean: (i) an employee or former employee; and (ii) an employee's or a former employee's surviving spouse and an 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, without regard to the interest of the spouse or former spouse. (f) "direct rollover" shall mean a payment by the Trust and Pan to the eligible retirement plan specified by the distributee. 3 HARDSHIP BENEFITS The following Sections of this Article 14 shall be effective as of January 1, 1989: .1 In case of hardship, a participant may apply to the Administrator for distribution of all or a portion of the amounts credited to his cash option account. For purposes of this Section 15.1, a distribution shall be on account of hardship only if the distribution both is made on account of an immediate and heavy financial need of the participant and is necessary to satisfy such financial need. In no event shall any amounts be distributed to a participant from his cash option account prior to his attainment of age fifty- nine and one-half (59-1/2), unless the Administrator determines that the participant is unable to eliminate the hardship out of other resources which are reasonably available to the participant. .2 A distribution will be made on account of an immediate and heavy financial need of the participant only if the distribution is on account of: (a) medical expenses described in Code Section 213(d) previously incurred by the participant, the participant's spouse, or any dependents of the participant (as defined in Code Section 152) or necessary for these persons to obtain medical care; (b) purchase (excluding mortgage payments) of a principal residence for the participant; (c) payment of tuition and related educational fees for the next twelve (12) months of post-secondary education for the participant, his or her spouse, children, or dependents; or (d) the need to prevent the eviction of the participant from his principal residence or foreclosure on the mortgage of the participant's principal residence. A distribution will be necessary to satisfy an immediate and heavy financial need of a participant only if both of the following requirements are satisfied: (a) the distribution is not in excess of the amount of the immediate and heavy financial need of the participant, including amounts to pay taxes or penalties reasonably anticipated to result from the distribution; and (b) the participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Participating Companies and affiliates. If the Administrator determines that the criteria set forth above are satisfied, it shall order a distribution from the participant's cash option account subject to the limits set forth in Section 15.3 below. Amounts distributed to a participant under this Section shall be debited to his cash option account as they are paid. .3 The amount of any such distribution (i) shall not exceed the amount determined by the Administrator as necessary to satisfy such immediate and heavy financial need of the employee, (ii) shall not exceed the amount credited to such participant's cash option account on December 31, 1988 plus the amount of cash or deferred contributions made to such participant's cash option account after December 31, 1988 and minus any withdrawals made from such participant's cash option account after December 31, 1988 and (iii) shall not exceed the amount credited to such participant's cash option account on the date of such distribution. A distribution generally may be treated as necessary to satisfy a financial need if the Administrator relies upon the participant's written representation, unless the Administrator or its authorized employees have actual knowledge to the contrary that the need cannot reasonably be relieved: (1) through reimbursement or compensation by insurance or otherwise; (2) by liquidation of the participant's assets; (3) by cessation of deferral contributions under the Plan; or (4) by other distributions or nontaxable loans from plans maintained by the Company or by any other employer, or by borrowing from commercial sources on reasonable commercial terms in an amount sufficient to satisfy the need. Neither the application for nor payment of any distribution in accordance with Section 15.1 shall have the effect of terminating a participant's participation in the Plan. The Administrator may prescribe the use of such forms, conduct such investigation, and require the making of such representations and warranties, as it deems desirable to carry out the purpose of this Article 15. .4 Notwithstanding any other provision of this Article 15, in no event may a married participant receive a hardship distribution from the Plan unless either (a) within a period of ninety (90) days preceding the date the distribution is actually made to the participant, the participant's spouse consents in writing to such distribution and such spouse's signature is properly notarized, or (b) it is established to the satisfaction of the Administrator that the signature of the spouse cannot be obtained either because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulation. .5 2 THE TRUSTEE, ITS POWERS AND DUTIES .1 The Trustee shall not be obligated to institute any action or proceeding to compel any Participating Company to make any contributions to this Trust, nor shall the Trustee be obligated to make any inquiry as to whether any amount deposited with it is the amount provided to be deposited under the terms of the Trust and Plan. The Trustee shall keep books of account which shall show all receipts and disbursements and a complete record of the operation of the Trust, and the Trustee shall at least annually and at such other times as the Administrator shall so request render a report of the operation of this Trust to the Participating Companies and the Administrator. The Trustee shall file with the Internal Revenue Service such returns and other information concerning the Trust Fund as may be required of the Trustee by the Code and any valid Regulations thereunder. The Trustee shall not be obligated to pay any interest on any funds which may come into its hands. The Trustee is a party to this Trust and Plan solely for the purposes set forth in this instrument and to perform the acts herein set forth, and no obligation or duty shall be expected or required of it except as expressly stated herein or in the Employee Retirement Income Security Act of 1974 and any valid Regulations issued thereunder by the Secretary of Labor or the Secretary of the Treasury. The Trustee may consult with counsel (who may or may not be counsel for a Participating Company) selected by the Trustee concerning any question which may arise with reference to its powers or duties under this Trust and Plan, and the opinion of such counsel shall be full and complete authority and protection in respect of any action taken, suffered or omitted by the Trustee in good faith and in accordance with such opinion, provided due care is exercised in the selection of such counsel. .2 The Trustee may resign from this Trust by mailing to the Company a written notice of resignation addressed to the Company at the last address of the Company on file with the Trustee, or by delivering such written notice to the Company at such address. The Company may remove the Trustee by written notice of such removal mailed to the Trustee at the last address of the Trustee on file with the Company, or by delivering such written notice to the Trustee at such address. Such resignation or removal shall take effect on the date specified in the notice of resignation or removal, but not less than thirty (30) days, nor more than sixty (60) days, following the date of mailing of such notice or delivery of such notice if it be not mailed, unless the Company and the Trustee agree that the resignation or removal be effective on some other date. Upon such resignation or removal, the Trustee shall be entitled to its fees to the effective date of resignation or removal and any and all costs or expenses paid or incurred by the Trustee in connection with this Trust and Plan. In no event shall such resignation or removal terminate this Trust and Plan, but the Company shall forthwith appoint a successor Trustee to carry out the terms of this Trust and Plan, which successor Trustee shall be any individual, trust company or bank selected by the Company. In case of the resignation or removal of the Trustee, the Trustee shall forthwith turn over to the successor Trustee all assets in its possession, and copies of such records as may be necessary to permit the successor Trustee to carry out its duties. .3 The expenses of administration of the Trust incurred by the Trustee, including counsel fees and including Trustee's fees as such may from time to time be agreed upon between the Company and the Trustee, shall be paid in any one of the following manners as determined by the Company in its sole discretion: (a) the expenses may be paid directly by the Participating Companies to the Trustee; or (b) the expenses may be paid out of the Trust Fund. Fees and expenses of the Trustee which have not been paid will be a lien upon the Trust Fund. In no event will any Trustee who is a full- time employee of a Participating Company or any affiliate receive compensation from the Trust and Plan, except for reimbursement of expenses properly and actually incurred. .4 Subject to Section 14.2 hereof, any segregation or distribution of assets required under this Trust may be made in cash or in kind, or partly in cash and partly in kind, according to the discretion of the Trustee, but any such segregation or distribution shall be made on the basis of the most recent valuation made pursuant to Article 10 or Article 18 hereof. .5 In the event that the Company shall have appointed more than one individual, trust company or bank to act jointly as Trustee hereunder, any action which this Trust and Plan authorizes or requires the Trustee to do shall be done by action of the majority of the then acting co-trustees, or, in the case of two such persons acting jointly as Trustee, by action of both such trustees. Such action may be taken at any meeting of the co-trustees then acting, or by written authorization and affirmative consent without a meeting. The co-trustees by written agreement among themselves, a copy of which shall be filed with the Company and the Administrator, may allocate among themselves any of the powers and duties of the Trustee under this Trust and Plan. In such event the co-trustee to whom a power or duty is allocated may take action with respect thereto without the consent of any other co-trustee. Any person, firm, partnership or corporation may rely upon the written signatures of such number of the co-trustees as are hereunder empowered to take action as the signature of the Trustee hereunder. Notwithstanding any other provision of this Trust and Plan to the contrary, so long as at least one individual, trust company or bank shall continue to act as Trustee hereunder, the Company shall not be under any duty to appoint a successor to any co-trustee who shall resign or be removed. .6 3 INVESTMENTS .1 In addition to the powers and duties conferred and imposed upon the Trustee by the other provisions of this Trust and Plan, the Trustee shall, subject to the limitations set forth in this Trust and Plan, have the following powers and duties: (a) To invest and reinvest the principal and income of the Trust Fund and keep the same invested with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims, without distinction between principal and income and without regard to any limitations, other than such prudent man rule, prescribed by law or custom upon the investments of fiduciaries, in each and every kind of property, whether real, personal or mixed, tangible or intangible, and wherever situated, including but not limited to annuity contracts of an insurance company on the life of any participant, shares of any Regulated Investment Company, units of any common trust fund of any bank or trust company now in existence or hereafter established, shares of common, preference and preferred stock, put and call options, rights, options, subscriptions, warrants, trust receipts, investment trust certificates, mortgages, leases, bonds, notes, debentures, equipment or collateral trust certificates and other corporate, individual or government obligations, whether secured or unsecured; to invest and reinvest in and retain any stocks, bonds or other securities of any corporate trustee serving hereunder, or any parent or affiliate thereof; to invest in commodities and commodity contracts; to invest and reinvest in any time or savings deposits of the Trustee or any parent or affiliate thereof if such deposits bear a reasonable rate of interest or of any bank, trust company, or savings and loan institution, which deposits may but need not be guaranteed by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation; and in addition to become a general partner or limited partner in any partnership or limited partnership the purposes of which are to invest or reinvest the partnership assets in any such proper,ties or deposits; (b) To invest a portion or all of the Trust Fund in units of any common or group trust created solely for the purpose of providing a satisfactory diversification of investments for participating trusts; provided that such common or group trust, (l) limits participation thereunder to pension and profit sharing trusts which qualify under Section 501(a) of the Code, as amended, (2) prohibits income and/or principal attributable to a participating trust from being used for any purpose other than the exclusive benefit of the employees or their beneficiaries of such participating trust, (3) prohibits assignment by a participating trust of any part of such participating trust's equity or interest in the common or group trust, (4) is created or organized in the United States and is maintained at all times as a domestic trust in the United States; as long as the Trustee holds such units hereunder, the instrument establishing such common or group trust (including all amendments thereto) shall be deemed to have been adopted and made a part of this Trust and Plan; (c) Upon written direction of the Company, to invest or reinvest all or a portion of the Trust Fund in qualifying employer securities or qualifying employer real property as such terms are defined in Section 4975 of the Code of 1986, as amended, and Section 407(d) of the Employee Retirement Income Security Act of 1974, which investment may constitute not more than one hundred percent (100%) of the fair market value of the assets of the Trust Fund, and to retain, or to sell, exchange or otherwise dispose of any such securities or real property held in this Trust Fund. In the event of any such investment, the Trustee shall file with the appropriate District Director of Internal Revenue such returns and other information as shall be required from time to time by the Code of 1986, as amended, and valid regulations, rulings and procedures thereunder; (d) To sell, convert, redeem, exchange, grant options for the purchase or exchange of, or otherwise dispose of, any real or personal property, at public or private sale, for cash or upon credit, with or without security, without obligation on the part of any person dealing with the Trustee to see to the application of the proceeds of or to inquire into the validity, expediency or propriety of any such disposal; (e) To manage, operate, repair, partition and improve and mortgage or lease (with or without option to purchase) for any length of time any real property held in the Trust Fund; to renew or extend any mortgage or lease, upon any terms the Trustee may deem expedient; to agree to reduction of the rate of interest on any mortgage note; to agree to any modification in the terms of any lease or mortgage or of any guarantee pertaining to either of them; to enforce any covenant or condition of any lease or mortgage or of any guarantee pertaining to either of them or to waive any default in the performance thereof; to exercise and enforce any right of foreclosure; to bid on property on foreclosure; to take a deed in lieu of foreclosure with or without paying consideration therefor and in, connection therewith to release the obligation on the bond secured by the mortgage; and to exercise and enforce in any action, suit or proceeding at law or in equity any rights or remedies in respect of any lease or mortgage or of any guarantee pertaining to either of them; (f) To exercise, personally or by general or limited proxy, the right to vote any shares of stock or other securities held in the Trust Fund; to delegate discretionary voting power to trustees of a voting trust for any period of time; and to exercise or sell, personally or by power of attorney, any conversion or subscription or other rights appurtenant to any securities or other property held in the Trust Fund; (g) To join in or oppose any reorganization, recapitalization, consolidation, merger or liquidation, or any plan therefor, or any lease (with or without an option to purchase), mortgage or sale of the property of any organization the securities of which are held in the Trust Fund; to pay from the Trust Fund any assessments, charges or compensation specified in any plan of reorganization, recapitalization, consolidation, merger or liquidation, to deposit any property with any committee or depositary; and to retain any property allotted to the Trust Fund in any reorganization, recapitalization, consolidation, merger or liquidation; (h) To borrow money from any lender (including the Trustee hereunder, where applicable in its capacity as a banking corporation when permitted to do so by the applicable laws and regulations then in effect) in any amount and upon such terms and conditions and for such purposes as the Trustee shall deem necessary; for any money so borrowed the Trustee may issue its promissory note as Trustee and to secure the repayment of any such loan, with interest, may pledge or mortgage all or any part of the Trust Fund, and no person loaning money to the Trustee shall be obligated to see to the application of the money loaned or to inquire into the validity, expediency or propriety of any such borrowing; (i) To compromise, settle or arbitrate any claim, debt or obligation of or against the Trust Fund; to enforce or abstain from enforcing any right, claim, debt or obligation; and to abandon any property determined by it to be worthless; (j) To continue to hold any property of the Trust Fund whether or not productive of income; to reserve from investment and keep unproductive of income, without liability for interest, such cash as it deems advisable or, in its discretion, to hold the same, without limitation on duration, on deposit in the commercial department or in an interest-bearing account in the savings department of any bank, trust company, or savings and loan institution (including the Trustee where applicable in its capacity as a banking corporation) in which deposits are guaranteed by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation; (k) To hold property of the Trust Fund in its own name or in the name of a nominee, without disclosure of this Trust, or in bearer form so that it will pass by delivery, but no such holding shall relieve the Trustee of its responsibility for the safe custody and disposition of the Trust Fund in accordance with the provisions of this Trust and Plan, and the Trustee's records shall at all times show that such property is part of the Trust Fund; (l) To make, execute and deliver, as Trustee, any deeds, conveyances, leases (with or without option to purchase), mortgages, options, contracts, waiver or other instruments that the Trustee shall deem necessary or desirable in the exercise of its powers under this Trust; (m) To employ, at the expense of the Trust Fund, agents who are not regular employees of the Trustee, and to delegate in writing to them and authorize them to exercise such powers and perform such duties required of the Trustee hereunder without limitation as the Trustee may determine in its uncontrolled discretion; the Trustee shall not be responsible for any loss occasioned by any such agents selected by it with reasonable care; (n) To pay out of the Trust Fund all taxes imposed or levied with respect to the Trust Fund and in its discretion to contest the validity or amount of any tax, assessment, penalty, claim or demand respecting the Trust Fund; however, unless the Trustee shall have first been indemnified to its satisfaction or arrangements satisfactory to it shall have been made for the payment of all costs and expenses, it shall not be required to contest the validity of any tax, or to institute, maintain or defend against any other action or proceeding either at law or in equity; (o) Except as otherwise provided in this Trust and Plan, to do all acts, execute all instruments, take all proceedings and exercise all rights and privileges with relation to any assets constituting a part of the Trust Fund, which it may deem necessary or advisable to carry out the purposes of this Trust and Plan; (p) During the minority or incapacity of any participant, former participant or beneficiary under this Trust and Plan, to make payment to such participant, former participant or beneficiary or to an appropriate member, as determined by the Administrator, of such participant's, former participant's or beneficiary's family for the care, maintenance and support of such participant, former participant or beneficiary in such amounts and at such times as the Administrator may determine, and the receipt of such minor or incapacitated person or member of such minor's or incapacitated person's family to whom payment has been made shall be a full discharge and acquittance to the Trustee for the amount so paid; and (q) Upon direction by the Administrator, to purchase contracts of life insurance on the lives of key persons whose death might affect adversely the earnings of a Participating Company. Any such contracts shall be owned by the Trustee and any and all benefits, including any amounts payable upon the death of the person insured shall be payable to the Trustee and considered as an investment for the benefit of the Trust as a whole. .2 Notwithstanding any other provisions of this Trust and Plan, the Company may appoint, from time to time, one or more: (a) banks, as defined in the Investment Advisers Act of 1940; (b) persons registered as investment advisers under said Act; or (c) insurance companies qualified to perform investment advisory services under the laws of more than one state; to act as the Investment Manager of all or such portions of the Trust Fund as the Company in its sole discretion shall direct without regard to whether the accounts have been segregated for investment purposes pursuant to Article 18 hereof. In order to serve as Investment Manager, any such bank, person or insurance company must state in writing to the Company and the Trustee that it meets the requirements set forth in this Section 17.2 to be an Investment Manager and that it acknowledges that it shall be a fiduciary with respect to this Trust and Plan during all periods that it shall serve as such. During any period that an Investment Manager has been appointed with respect to the Trust Fund or a portion thereof, it shall have such powers and authority with respect to the management, acquisition or disposition of any asset of the Trust Fund or such portion thereof as shall be set forth in the investment management agreement between the Company and the Investment Manager, and, to the extent of the Investment Manager's powers and authority, the Trustee shall have no duties or obligations with respect to the investment, management, acquisition or disposition of such assets. The Company may, at any time, remove any Investment Manager or change the portion of the Trust Fund subject to its management by written notice to the Trustee and the Investment Manager. Any Investment Manager may resign by written notice to the Company and the Trustee. Unless the Company appoints a successor to an Investment Manager which has resigned or been removed, or which is no longer managing a portion of the Trust Fund, the powers, duties and obligations of the Trustee with respect to the portion of the Trust Fund formerly managed by the Investment Manager shall be automatically restored. .3 All income from investments and reinvestments made as provided in this Article 17 shall be treated as principal, and investments and reinvestments shall be made without distinction between income and principal. .4 In no case shall the Trustee enter into or engage in any transaction which is defined as a prohibited transaction by Section 4975 of the Code, or by Section 406 of the Employee Retirement Income Security Act of 1974, except to the extent any such transaction is permitted under another provision of said United States Code or under a valid regulation or exemption promulgated by a responsible agency of the Federal government. .5 4 SEGREGATION OF ACCOUNTS OF PARTICIPANTS .1 The Company may, in its sole discretion, from time to time, direct that some or all of the accounts of similarly situated participants and beneficiaries be segregated for investment purposes and that such persons be permitted to direct the investment of such accounts in such media, whether limited or unlimited, as shall be designated by the Company, from time to time, subject to the limitations of Section 18.2 hereof. Any direction of the Company pursuant to this Section 18.1 shall apply to all similarly situated participants and beneficiaries in a uniform and non-discriminatory manner. In the event the Company directs that the accounts be segregated for investment purposes, the Company shall give at least ten (10) days notice to participants, beneficiaries and the Trustee of such fact. .2 All segregated accounts of each participant and beneficiary, shall be invested in such media, whether limited or unlimited, as shall be designated by the Company, from time to time, as per the instructions of such participant or beneficiary, and pursuant to uniform rules and procedures promulgated by the Company. All such directions shall be deemed to be continuing directions until they shall have been revoked or changed. A participant or beneficiary may revoke or change his direction of investment at such uniform times as shall be prescribed by the Administrator and in accordance with such uniform rules and procedures promulgated by the Administrator. To the extent any participant or beneficiary fails to give investment directions to the Trustee, amounts credited to his accounts shall be invested in such media as the Trustee shall direct. .3 On the day immediately prior to the date the accounts become segregated for investment purposes pursuant to Section 18.1 hereof, the Trustee shall, in accordance with the provisions of Article 10 hereof, value the assets of the trust fund and adjust the accounts to reflect each such account's allocable portion of any change in the value of the assets of the Trust which has occurred since the most recent prior adjustment of said accounts, in accordance with the provisions of the Trust and Plan as it exists as of such day. .4 Each segregated account shall be valued and adjusted by the Trustee pursuant to uniform rules and procedures promulgated by the Administrator and approved by the Trustee, and which are similar to the rules and procedures for valuing assets and adjusting unsegregated accounts as described in Article 10 hereof as of each allocation date, each other date upon which a distribution, withdrawal or loan is made from such account, and the date immediately prior to the date the accounts cease to be segregated for investment purposes pursuant to Section 18.5 hereof. The Trustee shall use the fair market values of securities or other assets in determining the value of the assets of an account. Such account shall be adjusted as of such date to reflect the income received or accrued, realized, and unrealized profits and losses, expenses, payments to a participant or beneficiary and all other transactions of the period since the last valuation date. It is intended that this Section 18.4 operate to adjust each segregated account in the trust to reflect all income attributable to the account and changes in the value of the account's assets, as the case may be, as of any allocation date. .5 Upon ten (10) days written notice to the Trustee and the affected participants and beneficiaries, the Company may direct that the segregated accounts shall cease to be segregated effective as of a date specified by the Company. As of the date immediately preceding the date as of which the accounts shall cease to be segregated, the Trustee shall value the assets of the accounts pursuant to Section 18.4 hereof and credit or debit such accounts with any gain or loss in the value of the assets of said accounts since the most recent prior valuation date. Upon completion of said valuation and adjustment of accounts, the accounts shall cease to have specific assets allocated to them and shall thereafter be adjusted as provided in Article 10 hereof. .6 5 ADMINISTRATION .1 The Board of Directors of the Company shall appoint the Administrator which shall be any person or entity, including the Company or any Participating Company. Said Board of Directors shall notify the Trustee of the identity of the Administrator and of any change in the Administrator. Except as expressly set forth herein with respect to the duties and responsibilities of the Trustee, the Employee Benefits Committee, the Investment Manager or the Company, the Administrator shall administer the Trust and Plan and shall have all powers and duties granted or imposed on an "administrator" by the Employee Retirement Income Security Act of 1974. The Administrator shall determine any and all questions of fact, resolve all questions of interpretation of this instrument which may arise under any of the provisions of this Trust and Plan as to which no other provision for determination is made hereunder, and exercise all other powers and discretions necessary to be exercised under the terms of this Trust and Plan which it is herein given or for which no contrary provision is made. Subject to the provisions of Section 19.6, the Administrator's decision with respect to any matter shall be final and binding upon the Trustee and all other parties concerned, and neither the Administrator nor any of its directors, officers or employees, if applicable, shall be liable in that regard except for gross abuse of the discretion given it and them under the terms of this Trust and Plan. All determinations of the Administrator shall be made in a uniform, consistent and non-discriminatory manner with respect to all participants and beneficiaries in similar circumstances. The Administrator may, from time to time, designate one or more persons or agents to carry out any or all of its duties hereunder. .2 If any participant, any beneficiary, or the authorized representative of a participant or beneficiary shall file an application for benefits hereunder and such application is denied, in whole or in part, he shall be notified in writing of the specific reason or reasons for such denial unless the granting or denial of the application is in the sole discretion of the Administrator in which event the notice to the applicant shall state that the Administrator has denied the application pursuant to the exercise of its discretionary powers under the Trust and Plan. The notice shall also set forth the specific plan provisions upon which the denial is based, an explanation of the provisions of Section 19.6 hereof, and any other information deemed necessary or advisable by the Administrator. .3 The Board of Directors of the Company shall appoint the members of an Employee Benefits Committee which shall consist of three (3) or more members. The members of the Committee shall remain in office at the will of the Board of Directors and the Board of Directors may from time to time remove any of said members with or without cause. A member of the Committee may resign upon written notice to the remaining member or members of the Committee and to the Company respectively. The fact that a person is a participant or a former participant or a prospective participant shall not disqualify him from acting as a member of the Committee. In case of the death, resignation or removal of any member of the Committee, the remaining members shall act until a successor-member shall be appointed by the Board of Directors of the Company. The Secretary of the Company shall notify the Trustee and the Administrator in writing of the names of the original members of the Committee, of any and all changes in the membership of the Committee, of the member designated as Chairman, and the member designated as Secretary, and of any changes in either office. Until notified of a change, the Trustee and the Administrator shall be protected in assuming that there has been no change in the membership of the Committee or the designation of Chairman or of Secretary since the last notification was filed with it. The Trustee and the Administrator shall be under no obligation at any time to inquire into the membership of the Committee or its officers. All communications to the Committee shall be addressed to its Secretary at the address of the Company on file with the Trustee. .4 On all matters and questions the decision of a majority of the members of the Committee shall govern and control; but a meeting need not be called or held to make any decision. The Committee shall appoint one of its members to act as its Chairman and another member to act as Secretary. The terms of office of these members shall be determined by the Committee, and the Secretary and/or Chairman may be removed by the other members of the Committee for any reason which such other members may deem just and proper. The Secretary shall do all things directed by the Committee. Although the Committee shall act by decision of a majority of its members as above provided, nevertheless in the absence of written notice to the contrary, every person may deal with the Secretary and consider his acts as having been authorized by the Committee. Any notice served or demand made on the Secretary shall be deemed to have been served or made upon the Committee. .5 No member of the Committee shall be disqualified from acting on any question because of his interest therein. No fee or compensation shall be paid to any member of the Committee for his services as such, but the Committee shall be reimbursed for its expenses by the Participating Companies. The Committee and the Administrator may hire such attorneys, accountants, actuaries, agents, clerks, and secretaries as it may deem desirable in the performance of its functions, and the expense associated with the hiring or retention of any such person or persons shall be paid directly by the Participating Companies. .6 Any participant, any beneficiary, or any authorized representative of a participant or beneficiary whose application for benefits hereunder has been denied, in whole or in part, by the Administrator may upon written notice to the Committee request a review by the Committee of such denial of his application. Such review may be made by written briefs submitted by the applicant and the Administrator or at a hearing, or by both as shall be deemed necessary by the applicant. The Committee may, in its sole discretion, appoint an appeal examiner to conduct such review. Any appeal examiner shall be an officer of the Participating Company or affiliate which employs or most recently employed the applicant. Any hearing conducted by an appeal examiner shall be held in such location as shall be reasonably convenient to the applicant. Any hearing conducted by the Committee shall be held in the corporate headquarters of the Company, unless the Committee shall specify otherwise. The date and time of any such hearing shall be designated by the Committee or the appeal examiner upon not less than seven (7) days notice to the applicant and the Administrator unless both of them accept shorter notice. The Committee or the appeal examiner shall make every effort to schedule the hearing on a day and at a time which is convenient to both the applicant and the Administrator. The Committee may, in its sole discretion, establish such rules of procedure as it may deem necessary or advisable for the conduct of any such review or of any such hearing. After the review has been completed, the Committee or the appeal examiner shall render a decision in writing, a copy of which shall be sent to both the applicant and the Administrator. Such decision shall set forth the specific reasons for the decision and the specific provisions of the Trust and Plan upon which the decision is based and, if the decision is made by an appeal examiner, the rights of the applicant or the Administrator to request a review by the entire Committee of the decision of the appeal examiner. Either the applicant or the Administrator may request a review of an adverse decision of the appeal examiner by filing a written request with the Committee within thirty (30) days after receipt of a copy of the appeal examiner's decision. Any such request shall specify whether the review is to be based solely upon the written record or also upon a hearing before the Committee. The review of a decision of the appeal examiner shall be conducted by the Committee in accordance with the procedures of this Section 19.6. There shall be no further appeal from a decision rendered by the Committee. .7 The interpretations, determinations and decisions of the Administrator, or an appeal examiner, or the Committee shall, except to the extent provided in Section 19.6 above, be final and binding upon all persons with respect to any right, benefit or privilege hereunder. The review procedures of Section 19.6 above shall be the sole and exclusive remedy and shall be in lieu of all actions at law or in equity, whether pursuant to arbitration or otherwise, except as otherwise provided in the Employee Retirement Income Security Act of 1974. .8 Neither the Committee nor any of its members nor any appeal examiner shall be liable for any act taken by the Committee or the appeal examiner pursuant to any provision of this Trust and Plan except for gross abuse of the discretion given the Committee, or the member, or the appeal examiner hereunder. No member of the Committee shall be liable for the act of any other member. .9 Except as otherwise provided in ERISA, the Administrator, Committee, Board of Directors of the Company, Trustee (other than a corporate Trustee), and their respective officers, employees, members and agents shall incur no personal liability of any nature whatsoever in connection with any act done or omitted to be done in the administration of the Plan or its related Trust. The Company shall indemnify, defend, and hold harmless the Administrator, Committee, Board of Directors of the Company, Trustee (other than a corporate Trustee), and their respective officers, employees, members and agents, for all acts taken or omitted in carrying out their responsibilities under the terms of the Plan and its related Trust or other responsibilities imposed upon such persons by ERISA. The Company shall indemnify such persons for expenses of defending an action by a participant, beneficiary, government entity, or other persons, including all legal fees and other costs of such defense. The Company will also reimburse such a person for any monetary recovery in a successful action against such person in any federal or state court or arbitration. In addition, if the claim is settled out of court with the concurrence of the Company, the Company shall indemnify such person for any monetary liability under said settlement. This indemnification for all acts or omissions is intentionally broad, but shall not provide indemnification for embezzlement or diversion of Trust funds for the benefit of any such persons, nor shall it provide indemnification for excise taxes imposed under Section 4975 of the Code and for any corporate Trustee. .10 6 PROHIBITION AGAINST ALIENATION .1 Unless the context otherwise indicates, the following terms used herein shall have the following meanings whenever used in this Article 20: (a) The words "domestic relations order" shall mean, with respect to any participant, any judgment, decree or order (including approval of a property settlement agreement) which both: (i) related to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the participant; and (ii) is made pursuant to a State domestic relations law (including a community property law). (b) The words "qualified domestic relations order" shall mean a domestic relations order which satisfies the requirements of Section 414(p)(1)(A) of the Internal Revenue Code. .2 Except as otherwise provided in this Article 20, neither any property nor any interest in any property held for the benefit of any participant or beneficiary shall be alienated, disposed of or in any manner encumbered, voluntarily, involuntarily or by operation of law, while in the possession or control of the Trustee except by an act of the Trustee or the participant or beneficiary specifically authorized hereunder. .3 Section 20.2 hereof shall not apply to the creation, assignment or recognition of a right to any benefit under this Trust and Plan pursuant to a qualified domestic relations order and shall not apply to the payment of any benefits to an alternate payee pursuant to such an order. .4 In the event this Trust and Plan is served with a domestic relations order, the Administrator shall promptly notify the participant and any alternate payee to whom such order relates of the receipt of such order and this Trust and Plan's procedures for determining whether such order is a qualified domestic relations order. Within a reasonable time after receipt of such domestic relations order, the Administrator shall determine whether such order is a qualified domestic relations order and shall notify the participant and each concerned alternate payee of its determination. During any period in which the issue of whether a domestic relations order is a qualified domestic relations order is being determined, the Administrator shall direct the Trustee to credit the amounts which would have been payable to an alternate payee during such period if the order had been determined to be a qualified domestic relations order during such period to a segregated account under this Trust and Plan and to debit such amounts from the appropriate accounts of the participant. Notwithstanding anything in the Plan to the contrary, a "segregated account" established pursuant to this Section 20.4 shall be treated as an unsegregated account and invested by the Trustee pursuant to Article 16. If the domestic relations order is determined to be a qualified domestic relations order within eighteen (18) months after this Trust and Plan is served with such domestic relations order, the Administrator shall hold and dispose of the amounts credited to the segregated account in accordance with the terms of the qualified domestic relations order. If it is determined within eighteen (18) months after this Trust and Plan is served with such domestic relations order that either: (a) such domestic relations order is not a qualified domestic relations order; or (b) the issue with respect to whether such domestic relations order is a qualified domestic relations order is not resolved; the Administrator shall transfer the amounts credited to the segregated account to the appropriate accounts maintained for the benefit of the person who would have been entitled to such amounts if this Trust and Plan had never been served with such domestic relations order. If eighteen (18) months have elapsed since this Trust and Plan was served with such domestic relations order and such order is subsequently determined to be a qualified domestic relations order, such order shall only be applied prospectively. .5 Any alternate payee who is entitled to receive amounts from this Trust and Plan pursuant to a qualified domestic relations order shall, to the extent of his interest under this Trust and Plan and except as otherwise provided in such qualified domestic relations order, have the same rights as a beneficiary of a participant under this Trust and Plan. Notwithstanding anything in this Section 20.5 to the contrary, an alternate payee may receive a distribution of the amount specified under a qualified domestic relations order prior to the participant attaining his "earliest retirement age" (as defined by Internal Revenue Code Section 414(p)(4)(B)). .6 7 AMENDMENT AND TERMINATION .1 This Trust and Plan may be modified, altered, amended, changed or terminated by the Company with respect to all or any of the Participating Companies at any time or from time to time without the consent of any Participating Company but no rights of participants or beneficiaries receiving benefits under this Trust and Plan and no other vested rights under this Trust and Plan shall in any way be modified except that such rights may be modified if such a modification is necessary to establish or to continue the qualified status of this Trust and Plan under the terms of Section 401 of the Code or its successor section. This Trust and Plan may be modified and amended retroactively, if necessary, to secure exemption effective as of January 1, 1989 or any other date specified herein, under Section 401 of the Code. No amendment shall be binding on the Trustee until the receipt of such amendment by the Trustee. .2 Upon termination of this Trust and Plan with respect to any Participating Company, the Trustee shall value all assets of the trust fund and adjust the accounts of participants. Any accrued expenses and fees of the Trustee and any expenses and fees relating to such termination incurred or to be incurred by the Trustee shall be equitably allocated among and charged to the then existing accounts of participants who are affected by such termination unless directly paid by the Participating Companies to the Trustee. If the accounts have not been segregated for investment purposes pursuant to Article 18 hereof, the assets of the Trust shall be valued and the accounts adjusted in accordance with Article 10 hereof. If the accounts have been segregated for investment purposes pursuant to Article 18 hereof, the accounts shall be valued pursuant to Section 18.4 hereof. .3 The amounts credited to any affected participant's accounts may either (a) in accordance with the provisions of Article 14 hereof, be distributed immediately to the participant if he is living on the date of termination or, if he shall have died before distribution, to his designated beneficiary, or (b) continue to be held in trust and distributed upon the participant's termination of employment as is provided in this Trust and Plan; provided, however, that no distribution of amounts contributed by a participant to his cash option account shall occur if a Participating Company establishes or maintains a successor plan. A successor plan shall mean a defined contribution plan, other than an employee stock ownership plan or a simplified employee pension plan maintained by a Participating Company. A plan shall not be successor plan if less than two percent of the participants in this Plan (determined as of the date of termination) were eligible to participate under the successor plan at any time during the 24 month period beginning 12 months before the time of termination. .4 Upon the partial termination of this Trust and Plan or upon complete discontinuance of contributions to this Trust and Plan, all amounts credited at the time of such partial termination or complete discontinuance to the accounts of participants affected by such partial termination or complete discontinuance shall be fully vested and nonforfeitable. However, after any such partial termination or complete discontinuance of contributions the Trustee shall continue to administer this Trust and Plan in the manner in which this Trust and Plan was administered before any such partial termination and a participant shall only be entitled to receive distribution of his accounts upon the occurrence of an event which under the terms of this Trust and Plan would entitle him to such a distribution. For purposes of this Section 21.4, no event shall be a "partial termination" unless: (i) the Company has so designated such event in a writing delivered to the Trustee; or (ii) such event has been finally and expressly determined to be a partial termination within the meaning of Section 411(d) of the Code of 1986, as amended, in an administrative or judicial proceeding to which both the Company and the Commissioner of Internal Revenue or his delegate were parties. .5 8 PARTICIPATING COMPANIES .1 Any subsidiary which has the same taxable year as the Company shall become a Participating Company in this Trust and Plan by order of the Board of Directors of the Company and the ratification of the subsidiary's Board of Directors. Each Participating Company (including the Company) and its Adoption Date shall be noted on Exhibit A attached hereto. .2 Upon order of its Board of Directors, a Participating Company may terminate this Trust and Plan with respect to participants employed by said Participating Company by an instrument in writing executed by the appropriate officers of the Participating Company and delivered to the Company and the Trustee. The Trustee shall thereupon make distributions of the accounts of participants employed by said Participating Company as provided in Section 21.3 hereof. .3 9 TRANSFERS INVOLVING OTHER QUALIFIED RETIREMENT PLANS .1 Transfers From Another Qualified Retirement Plan. In the event that: (a) any Covered Employee who shall be or shall have been a participant under another qualified retirement plan which satisfies the requirements of Section 401 of the Code; and (b) either (i) the custodian or trustee of the assets held pursuant to said plan on behalf of said Covered Employee; or (ii) the custodian or trustee of the assets of an individual retirement account established pursuant to Section 408 of the Code to hold the assets distributed to said employee from said plan; or (iii) a Covered Employee who holds assets distributed to him during the preceding sixty (60) days from such plan or from an individual retirement account described in paragraph (ii) above; shall agree to transfer said assets to the Trustee hereunder; and (a) the assets to be so transferred shall not be made available to said Covered Employee in the course of the transfer except to the extent permitted by paragraph (b)(iii) above; and (d) the Administrator consents to such transfer. the Trustee hereunder shall accept such transferred assets and hold and administer them pursuant to the terms and provisions of this Trust and Plan and this Article 23. Upon the receipt of said assets the Trustee shall value them and credit the fair market value of such assets to the appropriate accounts of the Covered Employee on whose behalf the assets were so transferred, as the Administrator shall direct. In no event shall any assets be transferred from another qualified retirement plan to this Trust and Plan if the transfer of such assets would require that the provisions of this Trust and Plan governing distributions be amended to comply with the provisions of Section 401(a)(11) or 411(d)(6) of the Code. .1 Transfers To Another Qualified Retirement Plan. In the event that: (a) any participant hereunder shall terminate his employment and subsequently become a participant under the qualified retirement plan of another employer, which plan meets the requirements of Section 401 of the Code; and (b) said former participant shall have amounts credited to an account held for him hereunder which shall not have been distributed to the former participant and which are distributable to him pursuant to terms of the Trust and Plan; and (c) such participant shall request that the assets of the trust fund representing the amounts credited to his accounts be transferred to said successor plan; and (d) either (i) the custodian or trustee of the assets held pursuant to said successor plan shall apply to the Trustee hereunder for transfer to it of assets held pursuant to this Trust and Plan representing said former participant's account; or (ii) said successor plan shall provide for the receipt of assets transferred to it from other qualified retirement plans; and (e) the assets to be transferred shall not be made available to said participant in the course of the transfer except to the extent permitted by Section 402(a)(5) of the Code; the Trustee hereunder shall transfer to the trustee or custodian of said successor plan assets of the trust representing the amount credited to the participant's account on the date of transfer. Said transfer shall not be made until the Administrator is assured to its full satisfaction that the participant's interest to be transferred shall be fully vested and nonforfeitable under the terms of the successor plan, and that said interest shall neither be alienable nor otherwise subject to disposition or encumbrance by the participant, except pursuant to a qualified domestic relations order. 2 LIMITATION ON ANNUAL ADDITIONS .1 Notwithstanding anything contained in this Trust and Plan to the contrary, in no event shall the annual additions to a participant's accounts for any plan year exceed the maximum amount allowable as an annual addition under Section 415 of the Code and lawful regulations promulgated thereunder. For purposes of this Section 24.1, the words "annual additions" shall mean for a participant, for any plan year, the sum of the amounts contributed by the Participating Companies to the Trustee pursuant to a participant's election under Section 4.1 hereof, contributions credited to the participant's matching employer contribution account under Article 5 hereof and regular employer contribution account under Article 6 hereof, plus all other amounts credited to the participant's accounts under any other defined contribution plan maintained by any Participating Company. .2 In the event that the limitations contained in Section 24.1 hereof otherwise would be exceeded for a participant, the annual benefits and annual additions on behalf of such participant under this Trust and Plan and all other plans of a Participating Company or any affiliate which meet the requirements of Section 401(a) of the Code shall be reduced in the following order so that such limitations shall be satisfied: (a) first, the participant's voluntary employee contributions shall be reduced; (b) second, the excess of the participant's projected employer funded annual benefit under any defined benefit pension plan of a Participating Company or affiliate over the participant's accrued employer funded annual benefit under such plan shall be reduced; (c) third, matching employer contributions under this Trust and Plan shall be reduced; (d) fourth, employer contributions on behalf of the participant pursuant to the participant's 401(k) election under any cash or deferred arrangement described in Section 401(k) of the Code shall be reduced; (e) fifth, employer contributions under any other defined contribution plan of a Participating Company or affiliate shall be reduced; (f) sixth, regular employer contributions under this Trust and Plan shall be reduced; and (g) seventh, accrued employer funded annual benefits under any defined benefit plan of a Participating Company or affiliate shall be reduced. If there is more than one plan maintained by a Participating Company or affiliate in a category described above, the reduction shall be made within a relevant category on a plan by plan basis in reverse order of the plans' respective effective dates. In lieu of the foregoing, the Administrator and the participant may agree to an alternative order for reduction of the participant's annual benefits and annual additions. In the event that, after the application of the preceding paragraph of this Trust and Plan, there still remain amounts which arise as a result of a reasonable error in estimating a participant's compensation, a reasonable error in determining the amount of deferrals made pursuant to Section 4.1 that may be made under the limits of Section 415, the allocation of forfeitures or other limited facts and circumstances which the Commissioner of Internal Revenue finds justify the availability of the rules set forth in this Section 24.2 and which, if allocated to a participant, would be in excess of the limits on annual additions set forth in Section 24.1, such excess amounts shall be used as of the next allocation date and any succeeding allocation dates, as necessary, to reduce the Participating Company contributions which would otherwise be made for such participant for the plan years ending on such allocation dates. In the event such participant is not employed by a Participating Company on the next allocation date or on any succeeding allocation date on which excess amounts still remain, such excess amounts shall be used as of such allocation date and on any succeeding allocation date to reduce the Participating Company contributions for all participants who are then entitled to allocations. Until any excess amounts described above are used to reduce Participating Company contributions, they shall be held in a suspense account. Such suspense account shall not be subject to the periodic valuation procedure described in Article 10 or Article 18 hereof and will in no event be adjusted to take account of the income and/or gains or losses of the Trust Fund. Notwithstanding any other provisions of the Trust and Plan to the contrary in the event the Trust and Plan is terminated at a time when there is an amount credited to a suspense account pursuant to this Section 24.2, such amount shall be returned to the Participating Companies on a pro rata basis. Notwithstanding anything in this Section 24.2 to the contrary, to the extent all or a portion of a participant's deferrals made pursuant to Section 4.1 constitutes an excess amount, such deferral shall be returned to the participant. 4 TOP-HEAVY PROVISIONS .1 During any plan year that this Trust and Plan is top-heavy as determined in accordance with Section 25.2 hereof, the special restrictions contained in Sections 25.2, 25.3 and 25.4 hereof shall apply. .2 This Trust and Plan shall be considered to be top-heavy in any plan year if, as of the determination date for such plan year, all the aggregation groups of which this Trust and Plan is a member are top-heavy groups. In the event that in any plan year this Trust and Plan is a member of an aggregation group which is not a top-heavy group, this Trust and Plan shall not be considered to be top-heavy for such plan year. Unless the context otherwise indicates, the following terms used herein shall have the following meanings whenever used in this Article 25: (a) "determination date" shall mean, for any plan year, the last day of the preceding plan year; (b) "key employee" shall mean a "key employee" as described in Section 416(i) of the Code which is hereby incorporated by reference and which is described for informational purposes herein as any employee or former employee of a Participating Company or an affiliate who at any time during the plan year, or the four (4) preceding plan years is: (i) an officer of a Participating Company or an affiliate having compensation from the Participating Companies and all affiliates for the plan year of determination greater than Forty-Five Thousand Dollars ($45,000) or, if greater, one hundred fifty percent (150%) of the amount specified in Section 415(c)(1)(A) of the Code (plus any increase for cost-of-living as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code); (ii) a one-half of one percent (.5%) actual or constructive owner of a Participating Company or an affiliate who owns one of the ten (10) largest interests in a Participating Company or an affiliate and who is an employee of a Participating Company or an affiliate having compensation from a Participating Company and all affiliates for the plan year of determination greater than Thirty Thousand Dollars ($30,000) or, if greater, the amount specified in Section 415(c)(1)(A) of the Code (plus any increase for cost-of- living as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code); (iii) a five percent (5%) actual or constructive owner of a Participating Company or an affiliate; or (iv) a one percent (1%) actual or constructive owner of a Participating Company or an affiliate having compensation from a Participating Company and all affiliates for the plan year of determination greater than One Hundred Fifty Thousand Dollars ($150,000.00); provided that any such employee also performed services for a Participating Company or an affiliate during the five (5) plan year period ending on the determination date; and provided that an amount held for the beneficiary of a key employee who is deceased shall be deemed to be an amount held for a key employee; (a) "non-key employee" shall mean any employee of a Participating Company or an affiliate who is not a key employee including any employee who was formerly a key employee; (b) "permissive aggregation group" shall mean the required aggregation group plus each pension, profit sharing and stock bonus plan of a Participating Company or any affiliate, including each such terminated plan maintained by a Participating Company or an affiliate during the five (5) year period ending on the determination date, which, when considered as a group with the required aggregation group, would continue to comply with Sections 401(a)(4) and 410 of the Code; (c) "required aggregation group" shall mean each pension, profit sharing and stock bonus plan of a Participating Company or any affiliate, including each such terminated plan maintained by a Participating Company or an affiliate during the five (5) year period ending on the determination date, in which a key employee is a participant and each other pension, profit sharing and stock bonus plan which enables such plans to meet the requirements of Section 401(a)(4) or 410 of the Code including such a plan terminated within the five (5) year period ending on the determination date to the extent required by law; (d) "top-heavy group" shall mean any aggregation group if the sum, as of the determination date, of: (i) the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in such group; and (ii) the aggregate of the account balances of key employees under all defined contribution plans included in such group; exceeds sixty percent (60%) of a similar sum determined for all participants, former participants and beneficiaries permitted to be taken into account pursuant to Section 416(g) of the Code, with such values being determined for each plan as of the most recent valuation date occurring within the twelve (12) month period ending on the determination date and subject to appropriate adjustments under said Section 416(g) and lawful regulations issued thereunder. For purposes of this subsection (f), however, the accrued benefits and account balances of any individual who has not performed services for a Participating Company at any time during the five-year period ending on the determination date shall be disregarded; and (e) "valuation date" means: (i) in the case of a defined contribution plan, a date as of which account balances are valued, (ii) in the case of a defined benefit plan, a date as of which liabilities and assets are valued for computing plan costs for purposes of determining the plan's minimum funding requirements under Section 412 of the Code. In making any of the aforementioned determinations, contributions due but unpaid as of the determination date shall be included in determining the value of account balances, if any. In addition, the actuarial factors and assumptions set forth in the defined benefit plans included in the aggregation groups shall be utilized in determining the present value of cumulative accrued benefits. Furthermore, for purposes of making the aforementioned calculations with respect to defined benefit plans, proportional subsidies, and benefits not relating to retirement benefits such as pre-retirement death and disability benefits and post retirement medical benefits, are to be disregarded but nonproportional subsidies are to be taken into account. .1 During any plan year that this Trust and Plan is top-heavy, the Participating Companies shall make a contribution on behalf of each non-key employee who is a participant on the allocation date coinciding with the last day of such year, or was a participant whose employment terminated on or as of said allocation date which is at least equal to the greater of (a) or (b) below where: (a) equals the lesser of (i) or (ii) below where (i) equals three percent (3%) of the non-key employee's compensation from the Participating Companies and all affiliates during the plan year; and (ii) equals the largest percentage of compensation from the Participating Companies and all affiliates (disregarding any such compensation in excess of Two Hundred Thousand Dollars ($200,000) per plan year per key employee) provided to any key employee by the contributions of the Participating Companies; and (b) equals such other percent of the non-key employee's compensation from the Participating Companies and all affiliates as may be necessary to satisfy the requirements of Section 401 and 416 of the Code as prescribed by the Secretary of the Treasury in lawful regulations. For purposes of determining the percentage set forth in subparagraph (a)(ii) above, the Participating Companies' contributions made pursuant to Section 4.1 hereof in accordance with a participant's election under said Section shall be taken into account. If this Trust and Plan is top-heavy for a plan year and if a participant who is a non-key employee is also a participant in any other defined contribution plan maintained by a Participating Company, the minimum contribution provided hereunder shall be provided before any minimum under such other plan and shall reduce the amount of the top-heavy minimum, if any, required thereunder. Furthermore, if this Trust and Plan is top-heavy for a plan year and if a participant who is a non-key employee is also a participant in any defined benefit plan maintained by a Participating Company, the minimum benefit provided under such defined benefit plan shall be provided before any minimum contribution under this Trust and Plan and the benefit provided under such defined benefit plan shall be offset by the actuarial equivalent of the amounts, if any, credited to the participant's accounts for such year under this Trust and Plan and any other defined contribution plan maintained by a Participating Company. .1 During any plan year that this Trust and Plan is top-heavy, the limitations on annual additions and annual benefits set forth in Section 415 (e) of the Code shall be modified by the substitution of the phrase "one hundred percent (100%)" for the phrase "one hundred twenty-five percent (125%)" wherever the latter phrase appears in said Section 415 (e) and by the substitution of the amount 'Forty-One Thousand Five Hundred Dollars ($41,500)" for the amount "Fifty One Thousand Eight Hundred Seventy-Five Dollars ($51,875)" wherever the latter amount appears in Section 415(e)(6)(B)(i) of said Code. .2 2 MISCELLANEOUS .1 No insurance company shall be deemed to be a party to this Trust and Plan for any purpose, nor shall it be responsible for the validity of this Trust and Plan. No such company shall be required to look into the terms of this Trust and Plan or question any action of the Trustee hereunder, nor be responsible to see that any action of the Trustee is authorized by the terms of this Trust and Plan. Any such insurance company shall be fully discharged from any and all liability for any amount paid to the Trustee or paid in accordance with the direction of the Trustee, or for any change made or action taken by such insurance company upon such direction, and no insurance company shall be obligated to see to the distribution or further application of any moneys so paid by it. The certificate of the Trustee may be received by any insurance company as conclusive evidence of any of the matters mentioned in this Trust and Plan, and each insurance company shall be fully protected in taking or permitting any action on the faith thereof and shall incur no liability or responsibility for doing so. .2 In the event a Participating Company shall at any time be judicially declared bankrupt or insolvent, or in the event of its dissolution, merger or consolidation, without any provisions being made for the continuation of this Trust and Plan, the Trust and Plan created hereunder shall terminate with respect to such Participating Company and the Trustee shall make distributions as provided in Section 21.3 hereof. .3 In the event the Trust and Plan shall merge or consolidate with, or transfer any of its assets or liabilities to any other plan, each participant shall be entitled to receive, if the Trust and Plan were terminated immediately thereafter, a benefit which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer if the Trust and Plan had then terminated, in accordance with Section 414(1) of the Code and Section 208 of the Employee Retirement Income Security Act of 1974 and any lawful regulations issued thereunder. .4 Neither anything contained herein, nor any contribution made hereunder, nor any other acts done in pursuance of this Trust and Plan, shall be construed as entitling any participant to be continued in the employ of any Participating Company or any affiliate for any period of time nor as obliging any Participating Company or any affiliate to keep any participant in its employ for any period of time, nor shall any employee of any Participating Company or any affiliate nor anyone else have any rights whatsoever, legal or equitable, against any Participating Company or the Trustee as a result of this Trust and Plan except those expressly granted to him hereunder. .5 No contribution or payment by a Participating Company to the Trustee of this Trust and Plan, nor any income of the Trust Fund, shall in any event revert or be credited to or be used for the benefit of any Participating Company, and all such contributions, payments and income shall be used solely and exclusively for the benefit of the participants and their beneficiaries under this Trust and Plan, except that the Trustee shall return to a Participating Company upon written direction of the Administrator: (a) any contributions made by the Participating Company by a mistake of fact, provided such contributions are returned to the Participating Company within one (1) year after the date such contributions were made; (b) any contributions made for plan years during which this Trust and Plan does not (either initially or because of an amendment) qualify under Section 401(a) of the Code, provided such contributions are returned to the Participating Company within one (l) year after the date of denial of qualification; and (c) any contributions, to the extent that their deduction is disallowed under Section 404 of the Code, provided that such disallowed contributions are returned to the Participating Company within one (l) year after the disallowance of the deduction. .6 Whenever any pronoun is used herein, it shall be construed to include the masculine pronoun, the feminine pronoun or the neuter pronoun as shall be appropriate. Wherever the singular is used herein it shall include the plural and vice-versa as the context shall require. .7 This Trust and Plan shall be construed under and in accordance with the law and laws of the State of Delaware and of the United States of America. .8 Notwithstanding any provision of this Amendment and Restatement to the contrary, this Amendment and Restatement shall not affect the balances credited to the accounts of any participant as of the restatement date, which balances shall remain credited to his accounts until such date subsequent to the retirement date as of which his accounts shall be credited, debited or adjusted as provided in this Trust and Plan. IN WITNESS WHEREOF, HANDEX ENVIRONMENTAL RECOVERY, INC., by its appropriate officers duly authorized, and JOHN T. ST. JAMES, the Trustee, have caused this Trust and Plan to be executed this ___ day of ___________, 1994, effective for all purposes, except as otherwise provided herein, as of January 1, 1994. HANDEX ENVIRONMENTAL RECOVERY, INC. By ----------------------------------- And ---------------------------------- ------------------------------------- JOHN T. ST. JAMES, Trustee 091/18746CJF.60K EXHIBIT A Participating Company Adoption Date Handex Environmental Recovery, Inc. January 1, 1989 Handex Environmental Management, Inc. January 1, 1989 Handex of New Jersey, Inc. January 1, 1989 Handex of Maryland, Inc. January 1, 1989 Handex of Florida, Inc. January 1, 1989 Handex of New England, Inc. January 1, 1989 Handex of Ohio, Inc. March 11, 1993 Handex of the Carolinas, Inc. August 15, 1991 Handex of Colorado, Inc. January 11, 1994 Handex of Illinois, Inc. September 13, 1994 091/18746CJF.60K EX-6 8 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF HANDEX Handex Corporation has the following subsidiaries, all of which are incorporated in the State of Delaware, except New Horizons Franchising, Inc., which is a California corporation. 1. Handex of New Jersey, Inc. 2. Handex of Maryland, Inc. 3. Handex of Florida, Inc. 4. Handex of New England, Inc. 5. Handex Environmental Management, Inc. 6. Handex of the Carolinas, Inc. 7. Handex of Illinois, Inc. 8. Handex of Ohio, Inc. 9. Handex of Colorado, Inc. 10. Handex Environmental, Inc. 11. Handex of Pennsylvania, LLC 12. New Horizons Computer Learning Centers, Inc. 13. New Horizons Education Corporation 14. New Horizons Franchising, Inc. 15. New Horizons Computer Learning Center of Chicago, Inc. 16. New Horizons Computer Learning Center of Metropolitan New York, Inc. EX-7 9 CONSENT OF KPMG PEAT MARWICK LLP The Board of Directors and Stockholders Handex Corporation: We consent to incorporation by reference in the Registration Statement (No. 33- 32239) on Form S-8 of Handex Corporation of our report dated February 16, 1996, relating to the consolidated balance sheets of Handex Corporation and subsidiaries as of December 30, 1995 and December 31, 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 30, 1995, and all related schedules, which report appears in the December 30, 1995 annual report on Form 10-K of Handex Corporation. /s/ KPMG Peat Markwick LLP - - ----------------------------- KPMG Peat Marwick LLP Cleveland, Ohio March 28, 1996 EX-8 10 COVER LETTER TO SEC March 28, 1996 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: Pursuant to the requirements of the Securities and Exchange Act of 1934, we are transmitting herewith the attached Form 10-K. Very truly yours, Handex Corporation By: /s/ John T. St. James -------------------------- John T. St. James Vice President, Treasurer -----END PRIVACY-ENHANCED MESSAGE-----