-----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, Tvp/Swn6h/MmEsC0FRgYAn1f81q+SMuHgsES0QBUdUuAyXepyzim32zGRAwebg5P v9HUYc4v9fzIhTLJq44LfQ== 0000950116-97-000468.txt : 19970313 0000950116-97-000468.hdr.sgml : 19970313 ACCESSION NUMBER: 0000950116-97-000468 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970312 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSS INDUSTRIES INC CENTRAL INDEX KEY: 0000020629 STANDARD INDUSTRIAL CLASSIFICATION: GREETING CARDS [2771] IRS NUMBER: 131920657 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02661 FILM NUMBER: 97555545 BUSINESS ADDRESS: STREET 1: 1845 WALNUT ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2155699900 FORMER COMPANY: FORMER CONFORMED NAME: CITY STORES CO DATE OF NAME CHANGE: 19851212 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) x --- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the year ended December 31, 1996 OR --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to --------------- -------------- Commission File number 1-2661 CSS INDUSTRIES, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-1920657 ------------------------------ ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1845 Walnut Street, Philadelphia, PA 19103 - --------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 569-9900 ---------------- Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registered - ---------------------------- ----------------------------------------- Common Stock, $.10 par value New York Stock Exchange (Page 1 of Cover Page) Securities registered pursuant to Section 12(g) of the Act: None -------------- (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. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant is approximately $171,497,000. Such aggregate market value was computed by reference to the closing price of the Common Stock of the Registrant on the New York Stock Exchange on February 28, 1997 ($27.75 per share). Such calculation excludes the shares of Common Stock beneficially owned at such date by certain directors and officers of the Registrant, by the Farber Foundation and by the Farber Family Foundation, as described under the section entitled "CSS SECURITY OWNERSHIP" in the Proxy Statement to be filed by the Registrant for its 1997 Annual Meeting of Stockholders. In making such calculation, Registrant does not determine the affiliate or non-affiliate status of any holders of the shares of Common Stock for any other purpose. At February 28, 1997, there were outstanding 10,804,722 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders are incorporated by reference in Part III (under Items 10, 11, 12 and 13). (Page 2 of Cover Page) Part I Item 1. Business - ------- -------- General - ------- CSS Industries, Inc. ("CSS" or the "Company") is a diversified company with two groups of businesses -- the Consumer Products Group and the Direct Mail Business Products Group. The Consumer Products Group is primarily engaged in the manufacture and sale to mass market retailers of seasonal gift wrap, gift bags, boxed greeting cards, gift tags, tissue paper, paper and vinyl decorations, calendars, classroom exchange Valentines, decorative ribbons and bows, Halloween masks, costumes, make-ups and novelties and Easter egg dyes and novelties. The Consumer Products Group is comprised of The Paper Magic Group, Inc. ("Paper Magic"), acquired by the Company in August 1988, Berwick Industries, Inc. ("Berwick"), acquired in May 1993, and Cleo Inc. ("Cleo"), acquired in November 1995. The Direct Mail Business Products Group, composed of Rapidforms, Inc. and its subsidiaries ("Rapidforms"), develops and sells business forms, business supplies, in-store retail merchandising products, holiday greeting cards and advertising specialties to small and medium sized businesses in the United States, primarily through the direct mailing of catalogs and brochures. Rapidforms was acquired by CSS in January 1985. The Company has experienced significant growth through a combination of acquisitions and the expansion of existing operations. The Company's goal is to continue to expand by developing new or complementary products, by entering new markets, by acquiring companies that are complementary with its existing groups of operating businesses and by acquiring other businesses with leading market positions. Consumer Products Group - ----------------------- General - ------- The Consumer Products Group was formed in November 1995 with the acquisition of Cleo and with the objective of providing superior customer satisfaction through the blending, where appropriate, of the marketing, sales, operations and administrative functions of Paper Magic, Berwick and Cleo. Paper Magic - ----------- Principal Products Paper Magic designs, manufactures and distributes a broad range of seasonal and decorative products to the consumer primarily through the mass market distribution channel. Paper Magic Winter products include Christmas boxed greeting cards, gift tags, classroom exchange Valentine cards, and seasonal decorations for both inside and outside the home. Paper Magic Spring products include the Dudley's(R) brand of Easter egg dyes and related Easter seasonal products. Paper Magic Fall products include a full line of Halloween merchandise ranging from make-up to costumes to masks, including the Illusive Concepts' brand of highly crafted masks and collectibles. In addition, Paper Magic also designs and markets everyday decorative products and teachers aids to the education market through school supply distributors and direct to retail teachers' stores. On January 17, 1997 Paper Magic acquired all of the outstanding stock of Color Clings, Inc. ("Color Clings") for approximately $8,000,000. Color Clings, headquartered in Bloomington, Minnesota, is a designer and marketer of seasonal and everyday vinyl home decorations sold primarily to mass market retailers in the United States and Canada. 1 The wide range of products within each season permits Paper Magic customers the opportunity to use a single vendor for major retail seasons with key categories shipped and invoiced together, simplifying the ordering, receiving and accounts payable processes for the customer. Paper Magic's products are produced and warehoused in four facilities in central and northeastern Pennsylvania, a facility in Bloomington, Minnesota and a facility in Reynosa, Mexico. Manufacturing processes include a wide range of finishing and assembly operations leading into high volume, high speed packaging. As a result of the Cleo acquisition, incremental volumes of boxed Christmas cards, gift tags and classroom exchange Valentine cards were processed through existing Paper Magic facilities in 1996. Paper Magic Halloween make-up and Easter egg dye products are manufactured to specific proprietary formulae by contract manufacturers who meet regulatory requirements for the formularization and packaging of such products. Paper Magic has maximized market share by structuring its organization around key selling seasons. Separate product marketing groups representing Spring, Fall, Winter and Everyday receive product development input from consumer focus groups, key retail customers, and the Paper Magic creative staff. Each group is dedicated to increasing market share profitably and in developing both strategic and tactical plans to meet that objective. Paper Magic is product driven, and creative design is critical to the success of Paper Magic products. Paper Magic maintains creative offices in Scranton, Pennsylvania; Minneapolis and Bloomington, Minnesota; and Concord, California. As seasonal opportunities continue to increase, Paper Magic continues to increase its use of computerized graphic hardware and software systems to assist the creative personnel in maintaining volume and schedule needs. Sales and Marketing Paper Magic products are sold in the United States and Canada by national and regional account sales managers and by a network of independent manufacturers' representatives. Products are displayed and presented in showrooms maintained by these representatives in major cities in the United States and Canada. Relationships are developed with key retail customers by Paper Magic sales management personnel and the independent manufacturers representatives. Customers are generally mass merchandise retailers, warehouse clubs, drug and food chains, independent card shops and retail teacher stores. Paper Magic's revenues are seasonal with approximately 60% being Winter season related and the remainder spread over Spring, Fall, and Everyday products. Seasonal products are generally designed and sold beginning well over a year before the event and manufactured during a 8-10 month production cycle. With such long lead time requirements, timely communication with outsourcing factories, retail customers and independent manufacturers' representatives is critical to the timely production of seasonal inventory. Because the products themselves are seasonal, sales terms do not generally require payment until after the holiday in accordance with industry practices. In general, Paper Magic products are not sold under guaranteed or return privilege terms. Each of the major seasonal product groups is sold in a cycle of annual introduction programs, and Paper Magic together with Berwick and Cleo, maintain permanent showrooms for this purpose in New York City and Memphis, Tennessee. Toy Fair in February is a major trade show for the introduction of the new Christmas lines. The March Halloween Show in Chicago serves a similar purpose for Halloween. Major retail buyers will typically visit Paper Magic's or the manufacturers' representatives' showroom for a presentation and review of the new lines. Due to the seasonal nature of the majority of Paper Magic products, the development and communication of accurate sales projections of specific products by season are critical to the operation of Paper Magic's business. This translation of internal sales projections to specific material requirements is a continuous process. Because of the many seasonal designs offered on both a domestic and import basis, the increased demand by retailers for special designs, configurations and packaging, and the relatively short seasonal shipping period, flexible short-term production scheduling is critical to the operational success of Paper Magic. Competition Paper Magic competes with a wide range of companies in its various product lines. In Christmas boxed cards and gift trims sold to mass merchandisers and both drug and food retail chain stores, Paper Magic competes with the Plus Mark(R) line of American Greetings Corporation and the Kristen(R) line 2 of Burgoyne, Inc., among many others. Paper Magic Spring's Dudley's(R) brand Easter egg dye products compete with several brands including the PAAS(R) brand of Schering-Plough HealthCare Products. Paper Magic Fall has many competitors in all categories, notably Fun World, Inc. and Rubie's. Certain of these competitors are larger and have greater resources than the Company. Historically, Paper Magic has not competed directly, except to a limited extent, with Hallmark Cards, Inc. and other product offerings of American Greetings Corporation. More recently, however, certain of these companies have penetrated mass market retail outlets to which Paper Magic sells with similar brand offerings. Paper Magic believes its brands are well positioned for continued growth in their primary markets. Since competition is based primarily on price, timely delivery, creative design and increasingly, the ability to serve major retail customers with single, combined products for each holiday event, Paper Magic's product driven focus combined with consistent service levels allows it to compete effectively in its core markets. Berwick - ------- Principal Products Berwick designs, manufactures and distributes an array of decorative ribbons, bows and related products to various markets under the following registered trademarks: Berwick(R), Flora Satin(R), Grand Prix(R), Brilliance(R), The Perfect Bow(R), Splendorette(R), Ribbon Magic(R), and Veltex(R). Approximately 90% of its products are manufactured by Berwick using extruded polypropylene resins. These products, together with fabric ribbon and accessories, which are either manufactured or purchased for resale, are sold to a diverse base of customers in the United States and in forty-one countries around the world. On October 29, 1996 Berwick acquired the assets and business of Ribbon Magic, Inc. ("Ribbon Magic"). In consideration for the purchase of this business, Berwick assumed and paid off $1,581,000 of outstanding debt. Ribbon Magic, headquartered in Minneapolis, Minnesota, manufactures and distributes a line of upscale ribbon and bow products to mass market retailers in the United States and Canada. Berwick manufactures and warehouses its products in five facilities located in northeast Pennsylvania. The manufacturing process is vertically integrated. Most ribbon and bow products are made from polypropylene resin, a petroleum-based product, which is mixed with color pigment, melted and pressed through an extruder. Large rolls of extruded film go through various combinations of processes such as slitting, crimping, embossing, printing, laminating and hot-stamping before being made into bows or packaged on ribbon spools or reels as required by various markets and customers. Iridescent and metallic ribbon products are also made from polypropylene produced ribbon that is coated or laminated with a special film to produce an iridescent or metallic sheen. Berwick imports several products for resale and also ships certain unfinished material, primarily large rolls of ribbon, to subcontractors for conversion into finished bows used, for example, to decorate Christmas trees and wreaths. Such items are more labor intensive than items produced at Berwick's manufacturing facilities and are manufactured to Berwick's specifications by subcontractors based in The People's Republic of China. Sales and Marketing Berwick sells its products to customers primarily through three distribution channels. Seasonal and everyday products are sold to mass merchandise retailers, warehouse clubs, drug store chains, supermarket chains and variety stores. These customers are served by national account sales managers and a network of independent manufacturers' representatives. Products are also sold through independent sales representatives to wholesale distributors who serve the floral, craft and retail packaging trades. And, lastly, the company sells custom products to private label customers, to other social expression companies, and to converters of the company's bulk ribbon products. Custom products are sold and marketed by both independent manufacturers' representatives and by Berwick sales managers. Berwick's sales are highly seasonal with approximately 76% shipped for the Christmas selling season. 3 Competition Berwick competes primarily with a variety of large and small domestic companies, including the Plus Mark(R) line of American Greetings Corp., Hollywood Ribbon, Inc., CPS Corporation, Delaware Ribbon Manufacturers, Inc., C. M. Offray and Son, Inc. and Variety Accessories. Certain of these competitors are larger and have greater financial resources than the Company. Berwick believes that its products are established in its various markets and are positioned for continued growth. Berwick's new product development, product quality, breadth of product line, cost effective manufacturing techniques, extensive sales network and product pricing allow it to compete effectively in its various markets. Cleo - ---- Principal Products Prior to the acquisition by CSS in November 1995, Cleo designed, manufactured and distributed a wide array of social expression products, including Christmas gift wrap, gift bags, tissue, boxed greeting cards, gift boxes, gift tags and ribbons and bows. In addition, "contra seasonal" offerings included classroom exchange Valentine cards, calendars and all-occasion gift wrap and gift bags. Subsequent to the acquisition, the Cleo line of gift tags and ribbons and bows were blended with those of Paper Magic and Berwick, respectively, while the gift box line was sold. In 1996, Cleo product offerings included Christmas and all-occasion gift wrap and gift wrap alternative products, such as gift bags and tissue, as well as calendars, boxed greeting cards and classroom exchange Valentines sold under the Cleo(R) brand name. Cleo's 1995 products were manufactured in six facilities and warehoused in and distributed from five other permanent and temporary facilities. Subsequent to the acquisition by CSS, five of the manufacturing facilities were closed and four of the warehouse and distribution facilities were vacated. Manufacturing of gift wrap, including web printing, finishing, rewinding and packaging, as well as the assembly of calendars, are performed in one facility in Memphis, Tennessee. Finished goods are distributed from a separate Memphis facility. Although designed to the specifications of Cleo, gift bags and tissue, as well as the manufacturing of calendar components, are all purchased from outside vendors. Cleo(R) brand boxed greeting cards and classroom exchange Valentine cards sold in 1996 were manufactured and packaged by Paper Magic in existing Paper Magic facilities in central and northeastern Pennsylvania. The blending of gift tags and ribbons and bows into the Paper Magic and Berwick lines, the elimination of redundant facilities, the consolidation of Cleo's boxed card and Valentine manufacturing and packaging requirements with those of Paper Magic, and the refocus on gift wrap as Cleo's core product category served to improve Cleo's operational and financial performance in 1996. During the past two years, the quality and caliber of the design of the product lines were significantly enhanced through a refocused effort toward trend and color marketing. The revitalized positioning of the lines has been further enhanced in 1997 by the use of state-of-the-art computerized graphic hardware and software systems. Sales and Marketing Cleo products are sold in the United States (including Puerto Rico), Canada and Mexico through a combination of an in-house dedicated sales organization as well as independent manufacturers' representatives. Customers represent various classes of trade, including mass merchandise retailers, drug and food chains and warehouse clubs. In addition to the above markets, through sales and licensing agreements, Cleo also sells products to Hong Kong/China and Australia. Sales efforts are conducted through a combination of travel to retailers' offices, use of regional showrooms maintained by manufacturers' representatives, and an annual trade show in New York. Furthermore, because Cleo enjoys a strong working relationship with its key customers, many of them travel to Memphis annually to conduct their business in on-site showrooms. 4 Cleo's revenues are highly seasonal with approximately 90% being Christmas related. Industry practices require production based on commitments or bookings early in the selling cycle with actual purchase orders received within a short period of time prior to shipment. Because the products are seasonal, sales terms do not require payment until after the Christmas season in accordance with industry practices. Due to the ever increasing competitive retail environment, Cleo plays a crucial role in helping the customer to develop retail programs to meet product performance objectives while appealing to consumers' tastes. These objectives are met through the development and manufacture of custom configured and designed products. Cleo's years of experience in program development and product quality are key competitive advantages in helping the retailers meet their objectives. Competition In its core product line of Christmas gift wrap, Cleo competes primarily with Plus Mark(R), a division of American Greetings Corporation, and CPS Corporation. Historically, Cleo has not competed directly, except to a limited extent, with Hallmark Cards, Inc. and other product offerings of American Greetings Corporation. More recently, however, these companies have begun to penetrate the mass market retail outlets in which Cleo sells its products. Direct Mail Business Products Group - ----------------------------------- General - ------- The Direct Mail Business Products Group, composed of Rapidforms and its subsidiaries, designs and sells business forms, business supplies, in-store retail merchandising products, holiday greeting cards and advertising specialties to small and medium size businesses primarily through the direct mailing of catalogs and brochures. On January 8, 1997 Rapidforms sold its Standard Forms, Ltd. subsidiary ("Standard Forms") for $4,300,000 resulting in an immaterial financial gain. Standard Forms, a British company headquartered in Romsey, England, sold business forms and related products by direct mail to automotive dealers and repair shops in the United Kingdom and France. Principal Products Rapidforms has developed and sells a wide range of standard business forms, including snap-apart, register, continuous and laser forms. Rapidforms also sells a variety of other products for small businesses and other organizations, including office supplies (such as labels, envelopes and stationery), promotional products (such as printed pens, postcards and appointment reminders), retail merchandising products (such as price cards and tags, bags, sales kits, baskets and hangers), products for the healthcare industry (such as prescription pads, patient record forms and superbills), human resources products (such as motivational posters, awards and products for employee administration) and greeting cards. Rapidforms maintains an active new product development program and holds several trademarks covering a small number of items sold by it. Rapidforms(R) and Rapidforms Design(R) are registered trademarks of Rapidforms. Snap-apart forms produce multiple copies of information manually written or typed on the first sheet of the form and are available in carbon and carbonless designs. Register forms are used with countertop registers, and continuous and laser forms are used for printing information generated by personal computers. The continuous and laser forms product lines consist principally of forms compatible with various business software applications developed by software companies. Many of such companies have endorsed Rapidforms' continuous and laser forms for use with their computer software packages. Rapidforms offers imprinting (of customer names, addresses and logos) and numbering on most of its standard business forms and supplies. Approximately 69% of the products sold by Rapidforms in 1996 were imprinted and/or numbered. In addition to standard forms, Rapidforms offers a full range of custom products including continuous, laser, snap-apart and register forms, labels, tags, envelopes and stationery. 5 Although many of the forms sold by Rapidforms are produced by outside vendors, Rapidforms also manufactures a portion of its continuous forms for its base stock. Rapidforms believes that alternate sources are available for most merchandise appearing in its catalogs, and has generally not had any problems obtaining necessary items. Inventory is maintained at a high level in order to fill customer orders promptly. Non-imprinted products are generally shipped by the day after receipt of an order and standard imprinted products are shipped within three to five working days. Custom products are generally shipped within ten working days of approval of proofs. In November 1994, Rapidforms acquired the assets and business of Histacount Corporation ("Histacount"), located in Melville, New York. Histacount sells, by direct mail, personalized printed products such as stationery, envelopes, labels and business forms, as well as other supply items to physicians, dentists, veterinarians, accountants, lawyers and other professionals under the names Histacount, Expressions, ASH Accountants' (America's Supply House), and Napco Press. Rapidforms moved the Histacount operations into its facility in Thorofare, New Jersey during the spring of 1995. In December 1994, Rapidforms acquired the assets and business of Business Envelope Manufacturers, Inc. ("Business Envelope"), located in Deer Park, New York and with fulfillment in Claysburg, Pennsylvania. Business Envelope is a direct mail marketer of a wide variety of envelopes, labels, business forms, stationery and supply items, to small businesses of many types. In 1995, the sellers continued to fulfill most Business Envelope orders for Rapidforms. Early in 1996, the fulfillment operations of Business Envelope were moved into the Thorofare facility and integrated with the operations of Rapidforms. Sales and Marketing Rapidforms sells to customers located throughout the United States (including Puerto Rico), and to a limited extent, in Canada. Its typical customers are small to medium sized manufacturing, wholesale, retail, and automotive businesses, and professionals such as physicians, dentists, veterinarians, accountants and lawyers. Sales at wholesale (principally to distributors of business forms, supplies and merchandising products as well as pharmaceutical wholesalers) are made to a smaller number of customers. Rapidforms sells its products primarily through the direct mailing of catalogs and brochures to existing and prospective customers. Rapidforms uses various types of catalogs which are revised regularly to reflect product line and price changes. It also periodically mails a variety of brochures featuring one product or a few related products. Rapidforms now has approximately 800,000 customers. In 1996, approximately 22,500,000 catalogs and brochures were mailed to customers and prospective customers. In addition to catalog sales, products are also sold to a limited extent through distributors and dealers and in the case of retail merchandising products, direct to large end-users. Continuous and laser forms are marketed, among other ways, through brochures which are inserted in the software packages for various computer software. Retail orders are received by mail, facsimile and over toll-free telephone lines provided by Rapidforms. Rapidforms' business is characterized by a high volume of small orders, with an average order totaling approximately $152. To handle these orders efficiently, Rapidforms generally has computerized its operations. The computer systems are also used for customer profile analysis in order to determine which customers should receive Rapidforms mailings. Rapidforms has a 100% satisfaction guaranteed customer return and cancellation policy, consistent with industry practices. Competition The direct mail industry is highly competitive. Rapidforms believes that its business forms, supplies and other products are well positioned in its industry, and that it offers a wide selection of forms designed specially to meet the needs of the businesses in which its customers are involved. Rapidforms competes primarily with other direct mail companies, some of which have more extensive customer lists and greater financial resources. The company is aware of approximately twenty companies marketing competitive products by mail, which include New England Business Services, Inc., Deluxe Check Printers, Inc., Viking Office Products and Executive Greetings, Inc. Rapidforms competes with these firms 6 through a combination of methods, including product selection, design and quality, speed of delivery, price, selection of markets and quality of its customer and prospect lists. To a lesser extent, Rapidforms also competes with non-mail distributors, local job printers and retail stationery stores located throughout the United States. Most local job printers have no sales people and their markets are typically limited to small geographic areas. Local printers have the advantage of physical proximity to their customers but frequently lack design expertise and are generally unable to offer products of complex construction. Typically, pre-printed business forms offered by stationers are limited to general purpose forms suitable for use by a broad cross-section of businesses and not designed for specific types of business firms. Continuing growth in the availability and use of computers and copy machines by Rapidforms' customers also affects Rapidforms, and, in certain respects, Rapidforms' products compete with forms that can be designed by computer users with "desk-top publishing" or forms software capabilities. Employees - --------- At February 28, 1997, approximately 725 persons were employed by Paper Magic, 682 persons were employed by Berwick, 440 were employed by Cleo (with personnel increasing to approximately 1,390; 1,280 and 1,400, respectively, as seasonal employees are added), 586 persons were employed at Rapidforms, and 22 persons were employed at the Company's headquarters. With the exception of the bargaining unit at Cleo, which includes 254 employees as of February 28, 1997, the employees at Paper Magic, Berwick and Rapidforms are not represented by labor unions. Because of the seasonal nature of certain of its businesses, the number of Paper Magic, Berwick and Cleo production employees fluctuate during the year. The Company believes that relationships with all of its employees are good. Item 2. Properties - ------- ---------- Paper Magic operates out of 810,000 square feet of owned production and warehouse space in northeast Pennsylvania and 192,000 square feet of leased production and warehouse space in Bloomington, Minnesota and Reynosa, Mexico. Paper Magic also leases 52,000 square feet of space for creative design activities and general administrative purposes in Scranton, Pennsylvania, Concord, California, New York, New York and Minneapolis, Minnesota. Berwick owns four buildings in northeast Pennsylvania which represent 623,000 square feet of production, warehouse and office space and leases 345,000 square feet of additional warehouse space in one building located in northeast Pennsylvania. Cleo operates principally in two facilities in Memphis, Tennessee. The manufacturing operations, raw materials warehouse and offices are in a 1,003,000 square foot leased facility while finished goods warehousing and distribution are in a 1,135,000 square foot owned facility. Rapidforms maintains principal facilities in a 121,000 square foot owned facility in southern New Jersey. Rapidforms also has other owned and leased facilities totaling approximately 137,000 square feet located in southern New Jersey and Santa Fe Springs, California. The Company believes such facilities are adequate for current production requirements. The headquarters and principal executive office of the Company are located in Philadelphia, Pennsylvania. The Company is also the lessee of approximately 242,000 square feet of office, loft, retail and warehouse space (which was related to former operations) which have been subleased by the Company, as sublessor, to various sublessees. 7 Item 3. Legal Proceedings - ------- ----------------- Effective November 15, 1995, CSS acquired all of the outstanding shares of Cleo from Gibson Greetings, Inc. ("Gibson") in accordance with a stock purchase agreement dated October 3, 1995. The purchase price is subject to adjustment based on the Closing Date Statement of Net Equity of Cleo at November 15, 1995 (the "Statement"). Based upon the Statement prepared by Cleo, CSS has requested that Gibson consent to the release to CSS of the $12,000,000 of the purchase price currently held in escrow for the resolution of such purchase price adjustments and the payment of any indemnification claims. Gibson has indicated that it disagrees with the Statement and believes that none of the $12,000,000 held in escrow should be released to CSS. The disagreement relates primarily to the valuation of Cleo's inventory. CSS and Gibson have engaged an independent public accounting firm to resolve the disputed items on the Statement. Gibson's current and Cleo's former public accountants have completed their audit of the Statement and have issued an adverse opinion. CSS disagrees with that conclusion. Regardless of the outcome of the arbitration, CSS now believes that Gibson's current and Cleo's former public accountants will never be willing to issue an unqualified opinion on the Statement. As such, CSS will be unable to satisfy the financial requirements of Form 8-K with regard to the Cleo acquisition. CSS has sent to the Securities and Exchange Commission, contemporaneously with the filing of this Annual Report, a request to waive CSS' requirement to file historical audited Cleo financial statements. CSS believes at this point that audited pre-acquisition Cleo financial statements are not material to an investor, in part, because of material changes in the financial position of Cleo since the acquisition and, in part, because the relevant current financial information regarding Cleo is included in CSS' audited financial statements. CSS cannot estimate at this time the timing for determination of the waiver request and there is no assurance that any waiver will be granted. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- Not applicable. Part II Item 5. Market for Common Equity and Related Stockholder Matters - ------- -------------------------------------------------------- (a) Principal Market for Common Stock --------------------------------- The Common Stock of the Company is listed for trading on the New York Stock Exchange. The following table sets forth the high and low sales prices per share of that stock for each of the calendar quarters during 1996 and 1995.
High Low ---- --- 1996 ---- First Quarter....................................... $22 1/4 $20 1/2 Second Quarter...................................... 25 3/4 22 1/8 Third Quarter....................................... 23 1/2 21 1/4 Fourth Quarter...................................... 26 1/4 23 1995 ---- First Quarter........................................ $17 3/4 $15 1/2 Second Quarter....................................... 18 15 3/4 Third Quarter........................................ 24 3/4 17 Fourth Quarter....................................... 23 20 5/8
8 (b) Holders of Common Stock ----------------------- At February 28, 1997, there were approximately 2,100 holders of the Company's Common Stock. (c) Dividends --------- The Company has not declared or paid any dividends on its Common Stock for more than the past three fiscal years. The ability of the Company to pay any cash dividends on its Common Stock is dependent on the Company's earnings and profits and cash requirements and is further limited by the terms of the Company's revolving line of credit. The Company does not anticipate that it will declare or pay any cash dividends on its Common Stock for the foreseeable future. At February 28, 1997, there were no shares of preferred stock outstanding. Item 6. Selected Financial Data - ------- ----------------------- (In thousands, except per share amounts)
Years Ended December 31, ---------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Statement of Operations Data: Sales.................................... $412,079 $288,412 $218,235 $205,743 $151,679 Income from continuing operations before income taxes and minority interest................. 37,273 27,386 24,462 24,385 18,643 Net income from continuing operations ........................... 22,344 15,775 14,027 13,975 10,001 Gain on sale and income from discontinued operation, net of income taxes........ - - 9,775 3,019 2,876 Net income............................... 22,344 15,775 23,802 16,994 12,877 Net income from continuing operations per common share - Primary .......................... 2.03 1.45 1.21 1.18 .91 Fully diluted ..................... 2.01 1.43 1.21 1.17 .88 Balance Sheet Data: Working capital.......................... 71,780 66,395 72,075 85,288 86,467 Total assets ............................ 346,364 374,961 205,081 200,143 151,923 Short-term debt.......................... 100,016 135,078 1,293 11,650 3,087 Long-term debt........................... 4,612 17,865 11,043 11,810 5,796 Shareholders' equity .................... $176,752 $153,856 $142,980 $133,952 $111,843
9 Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - --------------------- Business Acquisitions and Divestitures - -------------------------------------- On January 17, 1997 Paper Magic acquired all of the outstanding stock of Color Clings, Inc. ("Color Clings") for approximately $8,000,000. Color Clings, headquartered in Bloomington, Minnesota, is a designer and marketer of seasonal and everyday vinyl home decorations sold primarily to mass market retailers in the United States and Canada. On January 8, 1997 Rapidforms sold its Standard Forms subsidiary for $4,300,000 resulting in an immaterial financial gain. Standard Forms, a British company headquartered in Romsey, England, sold business forms and related products by direct mail to automotive dealers and repair shops in the United Kingdom and France. On October 29, 1996 Berwick acquired the assets and business of Ribbon Magic. In consideration for the purchase of this business, Berwick assumed and paid off $1,581,000 of outstanding debt. Ribbon Magic, headquartered in Minneapolis, Minnesota , manufactures and distributes a line of upscale ribbon and bow products to mass market retailers in the United States and Canada. CSS acquired all of the outstanding stock of Cleo Inc., effective November 15, 1995, for approximately $135,000,000 which includes $12,000,000 held in escrow for certain post closing adjustments and indemnification obligations. The Company and the seller have disagreed on the disbursement of the escrow and have engaged an independent accounting firm to resolve the disputed items. Cleo, based in Memphis, Tennessee, designs, manufactures and distributes a wide range of promotional gift wrap and gift wrap accessories to mass market retailers in the United States and Canada. Concurrent with the acquisition of Cleo, CSS divided its businesses into two distinct business units - the Consumer Products Group ("CPG"), comprised of Paper Magic, Berwick and Cleo and the Direct Mail Business Products Group ("BPG"), comprised of Rapidforms and its subsidiaries. Subsequent to the acquisition of Cleo, the Company's management initiated a restructuring plan that was substantially implemented by December 31, 1995. Prior to its acquisition by CSS, Cleo's 1995 products were manufactured in six facilities and warehoused in and distributed from five other permanent and temporary facilities. As a part of this plan, five of Cleo's six manufacturing facilities were closed and four of the five warehouse and distribution facilities were vacated. Cleo's boxed card, Valentine, gift tags and ribbon and bow manufacturing and packaging requirements were blended into existing lines at Paper Magic and Berwick in early 1996. In addition, all applicable inventory was transferred from Cleo to Paper Magic and Berwick. As a result of the closure of facilities and consolidation of manufacturing processes, employees at the affected facilities were severed and staffing at the headquarters was reduced. The unaudited consolidated results of operations of the Company and Cleo on a pro forma basis as though the transaction had been consummated at the beginning of the respective years were as follows: 1995 1994 ---- ---- Sales............................ $429,106 $392,478 Net income....................... 5,634 5,313 Net income per common share Primary....................... $.52 $.46 Fully diluted................. $.51 $.46 10 Pro forma adjustments included in the above results reflect (1) increased inventory obsolescence reserves required for the periods prior to November 15, 1995, (2) reduced rental expense related to a renegotiated lease and to leases on terminated facilities, (3) reduction of administrative payroll costs and management fees, and (4) the effect of purchase accounting adjustments on interest, depreciation, amortization and tax expense. On June 6, 1995, Paper Magic acquired the assets and businesses of Topstone Industries, Inc. and Illusive Concepts, Inc. for approximately $8,740,000 in cash. Topstone is a designer and distributor of a broad range of Halloween masks, wigs, costumes, accessories and novelties sold to mass merchandisers, drug chains and party stores. Illusive Concepts, based in Concord, California, designs and markets highly crafted latex masks, accessories and decorative displays sold primarily to party and gift stores and limited edition collectibles sold through various channels. Seasonality - ----------- The seasonal nature of the CPG businesses (Paper Magic, Berwick and Cleo) results in low sales and operating profits for the first two quarters and high shipment levels and operating profits for the second half of the year, thereby causing significant fluctuations in the quarterly results of operations of the Company. Quarterly fluctuation of sales and earnings were further pronounced in 1996 due to the acquisition of Cleo. Because of the seasonality and the general industry practice of deferred payment terms, the CPG businesses experience significant collections of accounts receivable in December and January, thus enabling them to make major reductions in the short-term debt borrowed during the year to fund their inventory and accounts receivable build-up. Results of Operations - --------------------- Consolidated sales for 1996 increased by 43% to $412,079,000 from $288,412,000. The increase was primarily attributable to incremental sales provided by the November 15, 1995 acquisition of Cleo. Excluding Cleo, sales decreased 2% as CPG sales decreased 5%, but this decrease was partially offset by BPG sales increases. The sales decline at CPG was the result of discontinuance and divestiture of certain product categories, anticipated Christmas volume erosion, the effect of significant Cleo closeout sales on existing Paper Magic and Berwick accounts and weak sales in Berwick's wholesale markets. The increase in BPG sales was attributable to price increases as overall volume was modestly down from a year ago, reflecting lower orders for business forms. The increase in sales of 32% to $288,412,000 in 1995 from $218,235,000 in 1994 was primarily attributable to incremental sales of companies acquired in 1994 and 1995, as well as 12% growth in CPG sales and 4% growth in sales of BPG. As a percentage of sales, cost of sales was 65% in 1996, 62% in 1995 and 59% in 1994. CPG cost of sales as a percentage of sales increased to 71% in 1996 from 70% in 1995 due primarily to the inclusion of lower margin Cleo sales in 1996. BPG cost of sales percentage increased to 45% in 1996 from 44% in 1995 as a result of higher material costs. The increase in cost of sales as a percentage of sales in 1995 reflected competitive pricing pressures in consumer products business, the timing of the Cleo acquisition, the acquisition of lower margin businesses in 1995, the increasing importance of consumer product direct import sales and higher paper and resin costs. Selling, general and administrative expenses, as a percentage of sales, was 24% in 1996, 28% in 1995 and 30% in 1994. The decrease in 1996 and 1995 was due to incrementally lower selling, general and administrative costs of acquired companies and the increased mix of CPG businesses which require less selling, general and administrative expenses compared to advertising intensive BPG businesses. 11 Interest expense, net was $8,235,000 in 1996, $3,957,000 in 1995 and $923,000 in 1994. The increase in 1996 and 1995 was primarily due to increased borrowings to fund acquisitions in 1994 and 1995 and to finance additional working capital requirements. Rental and other income, net was $1,131,000 in 1996, $1,727,000 in 1995 and $910,000 in 1994. The decrease in 1996 was due to the absence of sublease income related to a leasehold interest which expired in late 1995 and lower gains from sales of marketable securities. The increase in 1995 compared to 1994 was primarily due to gains realized on the sale of marketable securities in 1995. Income before income taxes and minority interest was $37,273,000, or 9% of sales in 1996, $27,386,000, or 10% of sales in 1995 and $24,462,000, or 11% of sales in 1994. Income taxes as a percentage of income before income taxes was 39% in 1996, 40% in 1995 and 41% in 1994. The decrease in 1996 was attributable to lower state tax expense . The decrease in 1995 was primarily due to permanent differences in book and tax income. Minority interest in income of subsidiaries was $540,000 in 1996, or 2% of income before minority interest, $615,000 or 4% in 1995 and $388,000 or 3% in 1994. The decrease in 1996 was directly related to reduced earnings of the BPG. Historically, the Company's business strategy provided in certain instances for the purchase by subsidiary operating management of minority interests in the businesses they were managing. With the 1993 acquisition of Berwick, the Company began offering operating management the opportunity to purchase stock of the Company by participating in the Company's then Incentive Stock Option Plan and thereafter by participating in its Equity Compensation Plan. With the retirement of a significant Paper Magic shareholder in 1994, the Company offered the remaining minority shareholders of Paper Magic the opportunity to redeem their shares for cash and to exchange any outstanding Paper Magic stock options for CSS stock options. The remaining minority interest liability on the consolidated balance sheet relates to Rapidforms' minority ownership and the appreciation on unexercised Rapidforms' stock options. Net income from continuing operations increased 42% in 1996 to $22,344,000, and increased 13% in 1995 to $15,775,000. Fully diluted net income from continuing operations per share rose 41% in 1996 to $2.01 per share and increased 18% in 1995 to $1.43 per share. Net income to common shareholders of $23,802,000 in 1994 reflected the $9,661,000 gain on the sale of its former Ellisco subsidiary, net of income taxes. Inflation - --------- The Company attempts to alleviate inflationary material and labor pressures by increasing selling prices to help offset rising costs (subject to competitive conditions), increasing productivity, and improving design and manufacturing techniques. Raw material cost decreases in certain grades of paper, polypropylene resin and corrugated positively impacted 1996 margins by approximately 1% as a percentage of sales. Liquidity and Capital Resources - ------------------------------- At December 31, 1996, the Company had working capital of $71,780,000 and shareholders' equity of $176,752,000. The decrease in accounts receivable, net of reserves, from $174,832,000 in 1995 to $159,008,000 in 1996 reflected collection of accounts receivable of Cleo and Paper Magic product lines divested in 1996. Inventories, net of reserves, decreased from $76,397,000 to $58,189,000 due primarily to the sale and disposal of excess acquired inventories of Cleo. This reduction was somewhat offset by increased 12 raw paper purchases at the end of 1996. Property increased from $44,995,000 in 1995 to $53,246,000 in 1996 due to incremental investments in information systems and manufacturing equipment. Current liabilities were reduced due to payments of $7,615,000 made to reduce Cleo's restructuring reserve and a net reduction of the Company's Notes Payable of $29,283,000. The decrease in long-term debt was due to the repayment of Cleo economic development revenue bonds as well as repayment of the mortgage on the primary Rapidforms' facility. The Company relies primarily on cash generated from its operations and seasonal borrowings to meet its liquidity requirements. Most Paper Magic, Berwick and Cleo revenues are seasonal with approximately 70 percent of sales being Christmas and Halloween related. As payment for sales of Christmas and Halloween related products is usually not received until after the respective holiday in accordance with general industry practice, short-term borrowing needs increase throughout the second and third quarters, peaking prior to Christmas and dropping thereafter. Seasonal borrowings are made under a $195,000,000 unsecured revolving credit facility with thirteen banks and financial institutions. The facility is available to fund the seasonal borrowing needs and to provide the Company with a source of capital for general corporate purposes. At December 31, 1996, there was $98,375,000 outstanding under this facility. For information concerning the bank credit facility, see Note 6 of Notes to Consolidated Financial Statements. Based on its current operating plan, the Company believes its sources of available capital are adequate to meet its ongoing cash needs for the foreseeable future. 13 Item 8. Financial Statements - ------- -------------------- CSS INDUSTRIES, INC. AND SUBSIDIARIES
INDEX ----- Page ---- Report of Independent Public Accountants 15 Consolidated Balance Sheets - December 31, 1996 and 1995 16 - 17 Consolidated Statements of Operations - for the years ended December 31, 1996, 1995 and 1994 18 Consolidated Statements of Cash Flows - for the years ended December 31, 1996, 1995 and 1994 19 Consolidated Statements of Shareholders' Equity - for the years ended December 31, 1996, 1995 and 1994 20 - 21 Notes to Consolidated Financial Statements 22 - 34
14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of CSS Industries, Inc.: We have audited the accompanying consolidated balance sheets of CSS Industries, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three years in the period ended December 31, 1996. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CSS Industries, Inc. and subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental schedule listed in Item 14(a) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, PA February 20, 1997 15 CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
December 31, -------------------------------- ASSETS 1996 1995 ------ ---------- --------- CURRENT ASSETS Cash and temporary investments...................................... $ 2,755 $ 3,102 Marketable securities............................................... -- 800 Accounts receivable, net of allowance for doubtful accounts of $3,838 and $4,684.................................... 159,008 174,832 Inventories ........................................................ 58,189 76,397 Deferred income taxes............................................... 1,883 -- Other current assets................................................ 7,269 8,349 --------- --------- Total current assets............................................. 229,104 263,480 --------- --------- PROPERTY, PLANT AND EQUIPMENT Land ............................................................... 1,828 1,876 Buildings, leasehold interests and improvements..................... 33,469 33,836 Machinery, equipment and other...................................... 62,603 53,024 --------- --------- 97,900 88,736 Less - Accumulated depreciation and amortization................... 44,654 43,741 --------- --------- Net property, plant and equipment .............................. 53,246 44,995 --------- --------- OTHER ASSETS Intangible assets, net of accumulated amortization of $7,364 and $7,299 .............................................. 49,388 50,019 Deferred income taxes.............................................. -- 1,829 Other ........................................................... 14,626 14,638 --------- --------- Total other assets ............................................. 64,014 66,486 --------- --------- $346,364 $374,961 ========= =========
16
December 31, ------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 ------------------------------------ ---------- ---------- CURRENT LIABILITIES Notes payable..................................................... $ 99,264 $128,547 Current portion of long-term debt................................. 752 6,531 Accounts payable.................................................. 15,553 15,337 Accrued payroll and other compensation............................ 10,708 7,951 Accrued income taxes.............................................. 6,371 4,278 Accrued expenses ................................................. 24,676 32,342 Deferred income taxes............................................. -- 2,099 ---------- ---------- Total current liabilities ..................................... 157,324 197,085 ---------- ---------- LONG-TERM DEBT, NET OF CURRENT PORTION........................................................... 4,612 17,865 ---------- ---------- OTHER LONG-TERM OBLIGATIONS.......................................... 2,824 2,547 ---------- ---------- MINORITY INTEREST.................................................... 3,862 3,608 ---------- ---------- DEFERRED INCOME TAXES................................................ 990 -- ---------- ---------- COMMITMENTS AND CONTINGENCIES (Notes 2 and 9)........................ -- -- SHAREHOLDERS' EQUITY Preferred stock, Class 2, $.01 par, authorized 1,000,000 shares ............................................. -- -- Common stock, $.10 par, authorized 20,000,000 shares, issued 12,293,090 shares and 12,193,848 shares ................ 1,229 1,219 Additional paid-in capital........................................ 28,675 27,087 Retained earnings................................................. 171,658 149,314 Unrealized gain on marketable securities.......................... -- 327 Cumulative foreign currency translation adjustment ............... (188) (463) Common stock in treasury, 1,523,780 and 1,479,832 shares, at cost ............................................... (24,622) (23,628) ---------- ---------- Total shareholders' equity..................................... 176,752 153,856 ---------- ---------- $346,364 $374,961 ========== ==========
See notes to consolidated financial statements. 17 CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Years Ended December 31, --------------------------------------------- 1996 1995 1994 --------- --------- --------- SALES................................................ $412,079 $288,412 $218,235 --------- --------- --------- COSTS AND EXPENSES Cost of sales...................................... 266,964 178,481 129,079 Selling, general and administrative expenses....... 100,738 80,315 64,681 Interest expense, net of interest income of $148, $316 and $704................................... 8,235 3,957 923 Rental and other income, net....................... (1,131) (1,727) (910) --------- --------- --------- 374,806 261,026 193,773 --------- --------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST...................................... 37,273 27,386 24,462 INCOME TAXES............................................. 14,389 10,996 10,047 --------- --------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST............................... 22,884 16,390 14,415 MINORITY INTEREST IN INCOME OF SUBSIDIARIES........................................ 540 615 388 --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS............................................. 22,344 15,775 14,027 DISCONTINUED OPERATION Income from discontinued operation, net of income taxes of $95 in 1994.................. -- -- 114 Gain on sale of subsidiary, net of income taxes of $6,145 in 1994.............................. -- -- 9,661 --------- --------- --------- NET INCOME............................................... $22,344 $15,775 $23,802 ========= ========= ========= NET INCOME PER COMMON SHARE Primary: Continuing operations............................... $ 2.03 $ 1.45 $ 1.21 Discontinued operation.............................. -- -- .01 Gain on sale of subsidiary.......................... -- -- .83 --------- --------- --------- $ 2.03 $ 1.45 $ 2.05 ========= ========= ========= Fully diluted: Continuing operations............................... $ 2.01 $ 1.43 $ 1.21 Discontinued operation.............................. -- -- .01 Gain on sale of subsidiary.......................... -- -- .83 --------- --------- --------- $ 2.01 $ 1.43 $ 2.05 ========= ========= =========
See notes to consolidated financial statements. 18 CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended December 31, ----------------------------------- 1996 1995 1994 --------- --------- --------- Cash flows from operating activities: Net income............................................................... $22,344 $15,775 $23,802 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................................... 8,626 8,170 6,800 Provision for doubtful accounts....................................... 2,295 1,698 910 Deferred tax (benefit)................................................ (1,163) (912) (284) Minority interest in income of subsidiaries........................... 540 615 388 (Gain) on sale of assets.............................................. (97) (40) (61) (Gain) on sale of marketable securities............................... (251) (1,061) (Gain) on sale of discontinued operation.............................. -- -- (9,661) Changes in assets and liabilities of discontinued operation............................................. -- -- (6,915) Changes in assets and liabilities, net of effects from purchases and disposal of businesses: Decrease in accounts receivable.................................... 14,446 7,645 3,074 Decrease (increase) in inventories................................. 20,392 5,438 (1,313) Decrease (increase) in other assets................................ 684 (1,443) (282) (Decrease) increase in accounts payable............................ (201) 5,876 2,277 Increase in accrued taxes.......................................... 2,218 3,419 579 (Decrease) increase in accrued expenses............................ (6,155) (20,090) 752 --------- --------- --------- Total adjustments............................................... 41,334 9,315 (3,736) --------- --------- --------- Net cash provided by operating activities....................... 63,678 25,090 20,066 --------- --------- --------- Cash flows from investing activities: Purchases of marketable securities....................................... -- (2,080) -- Proceeds on sale of marketable securities................................ 724 2,668 -- Purchases of businesses, net of cash received of $50, $63 and $0......... (1,581) (143,298) (19,341) Purchase of property, plant and equipment................................ (15,980) (8,823) (5,602) Proceeds from sale of business........................................... -- -- 30,431 Proceeds from sale of assets............................................. 1,753 313 397 --------- --------- --------- Net cash (used for) provided by investing activities............ (15,084) (151,220) 5,885 --------- --------- --------- Cash flows from financing activities: Payments on long-term obligations........................................ (19,827) (2,444) (1,263) Borrowings (repayments) of notes payable................................. (29,283) 128,123 (10,351) Dividends paid to minority shareholders of a subsidiary.................. (118) (120) (110) Purchase of treasury stock............................................... (994) (6,133) (16,237) Purchase of subsidiary stock from minority shareholders.................. (168) -- (3,123) Proceeds from exercise of stock options ................................. 1,473 1,007 1,390 --------- --------- --------- Net cash (used for) provided by financing activities............. (48,917) 120,433 (29,694) --------- --------- --------- Effect of exchange rate changes on cash..................................... (24) 25 58 --------- --------- --------- Net decrease in cash and temporary investments.............................. (347) (5,672) (3,685) Cash and temporary investments at beginning of year......................... 3,102 8,774 12,459 --------- --------- --------- Cash and temporary investments at end of year............................... $ 2,755 $ 3,102 $ 8,774 ========= ========= =========
See notes to consolidated financial statements. 19 CSS INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except share amounts)
Preferred Stock Common Stock Additional ------------------ -------------------- Paid-in Shares Amount Shares Amount Capital ------ ------ ------ ------ ------- BALANCE, JANUARY 1, 1994 -- $ -- 11,966,648 $1,197 $24,938 Issuance of common stock upon exercise of stock options -- -- 130,000 13 1,259 Increase in treasury shares -- -- -- -- -- Foreign currency translation adjustment -- -- -- -- -- Net income -- -- -- -- -- ------ ------ ---------- ------- ------- BALANCE, DECEMBER 31, 1994 -- -- 12,096,648 1,210 26,197 Issuance of common stock upon exercise of stock options -- -- 97,200 9 890 Increase in treasury shares -- -- -- -- -- Unrealized gain on marketable securities -- -- -- -- -- Foreign currency translation adjustment -- -- -- -- -- Net income -- -- -- -- -- ------ ------ ---------- ------- ------- BALANCE, DECEMBER 31, 1995 -- -- 12,193,848 1,219 27,087 Issuance of common stock upon exercise of stock options -- -- 99,242 10 1,588 Increase in treasury shares -- -- -- -- -- Sale of marketable securities -- -- -- -- -- Foreign currency translation adjustment -- -- -- -- -- Net income -- -- -- -- -- ------ ------ ---------- ------- ------- BALANCE, DECEMBER 31, 1996 -- $ -- 12,293,090 $1,229 $28,675 ====== ====== ========== ====== =======
20
Cumulative Unrealized Foreign Common Stock Gain on Currency in Treasury Retained Marketable Translation ---------------------- Earnings Securities Adjustment Shares Amount Total - -------- ---------- ---------- ------ ------ ----- $109,737 $ -- $ (662) (91,190) $(1,258) $133,952 -- -- -- -- -- 1,272 -- -- -- (1,010,685) (16,237) (16,237) -- -- 191 -- -- 191 23,802 -- -- -- -- 23,802 - -------- ------------ ---------- ----------- --------- -------- 133,539 -- (471) (1,101,875) (17,495) 142,980 -- -- -- -- -- 899 -- -- -- (377,957) (6,133) (6,133) -- 327 -- -- -- 327 -- -- 8 -- -- 8 15,775 -- -- -- -- 15,775 - -------- ------------ ---------- ----------- --------- -------- 149,314 327 (463) (1,479,832) (23,628) 153,856 -- -- -- -- -- 1,598 -- -- -- (43,948) (994) (994) -- (327) -- -- -- (327) -- -- 275 -- -- 275 22,344 -- -- -- -- 22,344 ------- ------------- ---------- ----------- --------- -------- $171,658 $ -- $ (188) (1,523,780) $(24,622) $176,752 ======== ============= ========== =========== ========= ========
See notes to consolidated financial statements. 21 CSS INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ------------------------------------------- Principles of Consolidation - ----------------------------- The consolidated financial statements include the accounts of CSS Industries, Inc. ("Company") and all subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. The assets and liabilities of International Subsidiaries are translated into U.S. dollars at the year-end exchange rate; income and expense items are translated at the average exchange rate for the period. Translation adjustments are charged or credited to a separate component of shareholders' equity. Gains and losses on foreign currency transactions are included in the consolidated statements of income. Nature of Business - -------------------- CSS is a diversified company with two groups of businesses - the Consumer Products Group and the Direct Mail Business Products Group. The Consumer Products Group is primarily engaged in the manufacture and sale to mass market retailers of seasonal gift wrap, gift bags, boxed greeting cards, gift tags, tissue paper, paper and vinyl decorations, calendars, classroom exchange Valentines, decorative ribbons and bows, Halloween masks, costumes, make-ups and novelties and Easter egg dyes and novelties. Due to the seasonality of the Consumer Products Group with the majority of sales occurring in the third and fourth quarters, a material portion of the Company's trade receivables are due in December and January of each year. The Consumer Products Group is comprised of The Paper Magic Group, Inc. ("Paper Magic"), acquired by the Company in August 1988, Berwick Industries, Inc. ("Berwick"), acquired in May 1993, and Cleo Inc. ("Cleo"), acquired in November 1995. The Direct Mail Business Products Group, composed of Rapidforms, Inc. and its subsidiaries ("Rapidforms"), develops and sells business forms, business supplies, in-store retail merchandising products, holiday greeting cards and advertising specialties to small and medium sized businesses in the United States, primarily through the direct mailing of catalogs and brochures. Rapidforms was acquired by CSS in January 1985. Use of Estimates - ------------------ The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Marketable Securities - ----------------------- In accordance with Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), the Company values certain equity securities at market value at the end of each accounting period. Unrealized market value gains and losses are charged to earnings if the securities are traded for short-term profit. Otherwise, such unrealized gains and losses are charged or credited to a separate component of shareholders' equity. Management determines the proper classifications of investments in marketable equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. During 1996, all remaining marketable securities were sold resulting in a pre-tax gain of $251,000. At December 31, 1995, all securities covered by SFAS No. 115 were designated as available for sale. Accordingly, these securities are stated at fair 22 value, with unrealized gains and losses reported in a separate component of shareholders' equity. Realized gains and losses on sales of investments, as determined in a specific identification basis, are included in the Consolidated Statements of Operations. Inventories - ------------- Inventories are generally stated at the lower of first-in, first-out (FIFO) cost or market. The remaining portion of the inventory is valued at the lower of last-in, first-out cost or market. Had all inventories been valued at the lower of FIFO cost or market, inventories would have been greater by $1,917,000 and $1,643,000 at December 31, 1996 and 1995, respectively. Inventories consisted of the following: 1996 1995 ----------- ------------ Raw material.................................. $17,372,000 $21,926,000 Work-in-process............................... 8,025,000 13,196,000 Finished goods................................ 32,792,000 41,275,000 ------------ ------------ $58,189,000 $76,397,000 Advertising Materials - ----------------------- Product catalogs for direct mail advertising at Rapidforms are revised and printed in large quantities several times during the year. The costs of such catalogs are expensed when mailed. The direct costs of prep work, printing and binding relating to unmailed catalogs and catalogs in the process of completion were $1,587,000 and $2,322,000 at December 31, 1996 and 1995, and were included in other current assets. Property, Plant and Equipment - ------------------------------- Property, plant and equipment are stated at cost. Depreciation and amortization are provided generally on the straight-line method and are based on estimated useful lives or terms of leases as follows: Buildings, leasehold interests and improvements. . . Lease term to 40 years Machinery, equipment and other. . . . . . . . . . . 3 to 12 years When property is retired or otherwise disposed of, the related cost and accumulated depreciation and amortization are eliminated from the accounts. Any gain or loss from the disposition of property, plant and equipment is included in other income. Maintenance and repairs are expensed as incurred while improvements are capitalized and depreciated over their estimated useful lives. Intangible Assets - ------------------- The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of its intangible assets may warrant revision or that the remaining balance of goodwill may not be recoverable. Intangible assets, including goodwill, are amortized over a period not to exceed 40 years. Income Taxes - -------------- The Company follows the liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities. Deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. 23 Revenue Recognition - --------------------- The Company recognizes revenues in accordance with its shipping terms. Returns and allowances are reserved for based on historical experience. Net Income Per Common Share - ----------------------------- Primary net income per common share is based on the weighted average number of common and common equivalent shares outstanding during the period - 11,006,822 in 1996, 10,890,825 in 1995, and 11,578,956 in 1994. Average outstanding shares used in the computation of fully diluted net income per share were 11,127,300 in 1996, 11,031,022 in 1995, and 11,578,956 in 1994. Accounting Changes - -------------------- The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This statement requires review and measurement methods to calculate impairment of long-lived assets, including certain identifiable intangibles and goodwill. The statement also requires that long-lived assets to be disposed of be reported at the lower of the carrying amount or fair value less costs to sell. The adoption of this statement in 1996 did not result in a material write-down of assets. The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation" during 1996. This statement provides for alternatives relating to the measurement of compensation expense for stock options and other stock-based compensation. One option is to recognize compensation expense in the consolidated financial statements using a fair-value based method, applied to virtually all stock-based compensation. The alternative does not change the current intrinsic-value approach to expense recognition, but requires pro forma disclosure in the notes to the consolidated financial statements of the impact using the fair-value method. The Company adopted the pro forma disclosure option, and reference is made to the disclosure in Note 3. Statements of Cash Flows - -------------------------- For purposes of the statements of cash flows, the Company considers all holdings of highly liquid debt instruments with original maturity of less than three months to be temporary investments.
Supplemental Schedule of Cash Flow Information ---------------------------------------------- (In thousands) 1996 1995 1994 -------- -------- ------ Cash paid during the year for: Interest......................................... $ 8,790 $ 2,804 $ 1,542 ======== ========= ======== Income taxes..................................... $ 13,561 $ 8,044 $ 15,339 ======== ========= ======== Details of acquisitions: Fair value of assets acquired.................... $ 2,430 $ 192,772 $ 24,460 Liabilities assumed.............................. 799 49,411 5,119 -------- --------- -------- Cash paid........................................ 1,631 143,361 19,341 Less cash acquired............................... 50 63 - -------- --------- -------- Net cash paid for acquisitions $ 1,581 $ 143,298 $ 19,341 ======== ========= ========
See Note 2 for supplemental disclosure of noncash investing activities. 24 Reclassification - ------------------ Certain prior-period amounts have been reclassified to conform with current-year classifications. (2) BUSINESS ACQUISITIONS AND DIVESTITURES: --------------------------------------- On October 29, 1996 Berwick acquired the assets and business of Ribbon Magic, Inc. ("Ribbon Magic"). In consideration for the purchase of this business, Berwick assumed and paid off $1,581,000 of outstanding debt. Ribbon Magic, headquartered in Minneapolis, Minnesota, manufacturers and distributes a line of upscale ribbon and bow products to mass retailers in the United States and Canada. CSS acquired all of the outstanding stock of Cleo, effective November 15, 1995, for approximately $135,000,000. The purchase price included $12,000,000 held in escrow for certain post closing adjustments and indemnification obligations which is included in other assets in the consolidated balance sheet. The Company and the seller have disagreed on the disbursement of the escrow and have engaged an independent public accounting firm to resolve the disputed items. Cleo designs, manufactures and distributes a wide range of promotional gift wrap and gift wrap accessories to mass market retailers in the United States and Canada. The acquisition was accounted for as a purchase and the excess of historical book value over the purchase price was recorded as a $28,528,000 reduction to property, plant and equipment, an accrual for restructuring expenses of $10,034,000, and a credit to goodwill of $7,243,000. Negative goodwill is included in intangible assets in the accompanying balance sheet and is being amortized over ten years. Subsequent to the acquisition of Cleo, the Company's management initiated a restructuring plan that was substantially implemented by December 31, 1995. Cleo's 1995 products were manufactured in six facilities and warehoused in and distributed from five other permanent and temporary facilities. As a part of this plan, five of Cleo's six manufacturing facilities were closed and four of the five warehouse and distribution facilities were vacated. Cleo's boxed card, Valentine, gift tags and ribbon and bow manufacturing and packaging requirements were blended into existing lines at Paper Magic and Berwick in early 1996. In addition, all applicable inventory was transferred from Cleo to Paper Magic and Berwick. As a result of the closure of facilities and consolidation of manufacturing processes, employees at the affected facilities were severed and staffing at the headquarters was reduced. The restructuring accrual was reduced to $2,419,000 at December 31, 1996 due to (1) the payment of $2,247,000 of severance and related termination costs, (2) the payment of $3,432,000 of lease and occupancy costs related to idle facilities and (3) the payment of $1,936,000 of other costs associated with the integration and restructuring of Cleo. The unaudited consolidated results of operations of the Company and Cleo on a pro forma basis as though the transaction had been consummated at the beginning of the respective years were as follows: 1995 1994 ---- ---- Sales............................ $429,106 $392,478 Net income....................... 5,634 5,313 Net income per common share Primary........................ $.52 $.46 Fully diluted.................. $.51 $.46 25 Pro forma adjustments included in the above results reflect (1) increased inventory obsolescence reserves required for the periods prior to November 15, 1995, (2) reduced rental expense related to a renegotiated lease and to leases on terminated facilities, (3) reduction of administrative payroll costs and management fees, and (4) the effect of purchase accounting adjustments on interest, depreciation, amortization and tax expense. On June 6, 1995, Paper Magic acquired substantially all of the assets and the business of Topstone Industries, Inc. ("Topstone") and Illusive Concepts, Inc. ("Illusive Concepts"). Topstone designs, markets and distributes Halloween masks, wigs, costumes, accessories and novelties sold to mass merchandisers, drug chains and party stores. Illusive Concepts designs and markets highly crafted latex masks, accessories and decorative displays sold primarily to party and gift shops and limited edition collectibles sold through various channels. In consideration for the purchase of these businesses, Paper Magic assumed and paid off $8,740,000 of outstanding debt. The acquisition was accounted for as a purchase and the excess of cost over fair market value of $3,598,000 was recorded as goodwill in the accompanying balance sheet and is being amortized over forty years. On December 22, 1994, Rapidforms acquired certain assets and the business of Business Envelope Manufacturers, Inc., a direct marketer of envelopes, business forms, stationery, labels and other office supplies for $4,743,000 in cash. The acquisition was accounted for as a purchase and the excess of cost over fair market value of $4,748,000 was recorded as goodwill and other intangible assets in the accompanying balance sheet and is being amortized over 20 to 40 years. On November 4, 1994, Rapidforms acquired substantially all of the assets and business of Histacount Corporation ("Histacount"), for $14,598,000 in cash. Histacount is a direct marketer of customized business forms, stationery and other related office products sold primarily to the healthcare, legal and accounting professions. The acquisition was accounted for as a purchase and the excess cost over fair market value of $15,446,000 was recorded as goodwill and other intangible assets in the accompanying balance sheet and is being amortized over 20 to 40 years. On March 30, 1994, the Company sold its 96% interest in its Ellisco subsidiary for total proceeds to the Company of $30,431,000. The after-tax gain on the sale was $9,661,000 while the net after-tax cash proceeds was approximately $24,000,000. Sales from the discontinued operation were $8,307,000 in 1994 and $38,834,000 in 1993. Operating income was $316,000 in 1994 and $3,726,000 in 1993. (3) STOCK OPTION PLANS: ------------------- Under the terms of the CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee Directors ("1995 Plan"), non-qualified stock options to purchase up to 300,000 shares of common stock are available for grant to non-employee directors at exercise prices of not less than fair market value on the date of grant. Options to purchase 4,000 shares of the Company's common stock are to be granted automatically to each non-employee director on the last day of November through the year 2000. Options may be exercised at the rate of 25% per year commencing one year after the date of grant. At December 31, 1996, options to acquire 272,000 shares were available under the 1995 Plan. Under the terms of the 1994 Equity Compensation Plan ("1994 Plan"), the Human Resources Committee ("Committee") of the Board of Directors may grant incentive stock options, non-qualified stock options, restricted stock grants, stock appreciation rights or combinations thereof to officers and other key employees. Grants under the 1994 Plan may be made through November 2004 and are exercisable at the discretion of the Committee but in no event greater than ten years from the date of grant. At December 31, 1996, options to acquire 320,000 shares were available for grant under the 1994 plan. 26 Under the terms of the 1991 Stock Option Plan for Non-Employee Directors ("1991 Plan"), stock options to purchase up to 150,000 shares of common stock were available for grant to non-employee directors at exercise prices of not less than fair market value on the date of grant. Options to purchase 4,000 shares of the Company's common stock were granted automatically to each non-employee director on the last day of November in each year from 1991 through 1995 and options may be exercised at the rate of 25% per year commencing one year after the date of grant. At December 31, 1996, options to acquire 10,000 shares were available for grant under the 1991 Plan. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been reduced in 1996 and 1995 as follows: 1996 1995 ---- ---- Net income - as reported...................... $22,344 $15,775 Net income - pro forma........................ 21,366 15,451 Fully diluted earnings per share - as reported $2.01 $1.43 Fully diluted earnings per share - pro forma.. $1.94 $1.41 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: 1996 1995 ---- ---- Expected dividend yield.................. 0% 0% Expected stock price volatility.......... 21.8% 22.9% Risk-free interest rate.................. 5.5% 5.7% Expected life of option.................. 4.5 years 4.5 years Transactions from January 1, 1994 through December 31, 1996, under the above plans were as follows:
Weighted Weighted Number Option Price Average Average Life of Shares per Share Price Remaining --------- --------- ----- --------- Options outstanding at January 1, 1994..... 626,000 $9.06 - $19.13 $13.43 2.77 years Granted................................... 460,500 16.00 - 20.00 17.02 Exercised................................. (130,000) 9.06 - 9.94 9.78 Canceled.................................. (134,000) 15.06 - 20.00 18.22 -------- ------ ------ ------- Options outstanding at December 31, 1994... 822,500 9.25 - 20.00 15.24 3.41 years Granted................................... 255,000 15.38 - 22.25 17.42 Exercised................................. (97,200) 9.25 9.25 Canceled.................................. (75,300) 9.25 - 16.25 $15.48 -------- ------ ------ --------
27
Options outstanding at December 31, 1995..... 905,000 13.88 - 22.25 16.47 3.18 years Granted................................... 478,500 20.63 - 25.63 21.04 Exercised................................. (99,242) 13.88 - 16.00 14.84 Canceled.................................. (60,000) 15.81 - 20.63 17.70 ------- ------- ------ ------- Options outstanding at December 31, 1996..... 1,224,258 $14.38 - $25.63 $18.26 2.95 years ========= ================= ====== Options exercisable at December 31, 1996..... 396,383 $14.38 - $22.25 $16.37 1.96 years ========= ================= ======
Rapidforms and certain of its subsidiaries maintain incentive stock option plans in which options to acquire common shares may be granted to key employees at the fair market value per share on the date of grant. See Note 8. (4) PROFIT SHARING PLANS: --------------------- The Company's principal operating subsidiaries maintain profit sharing plans covering substantially all of their employees. Corporate officers and employees are covered by the Rapidforms, Inc. Profit Sharing Plan. Annual contributions under the plans are determined by the Board of Directors of the Company or each subsidiary, as appropriate. Consolidated profit sharing expense for the years ended December 31, 1996, 1995 and 1994 was $2,817,000, $1,862,000 and $1,798,000. (5) FEDERAL INCOME TAXES: --------------------- The following table summarizes the provision for U.S. federal, state and foreign taxes on income:
1996 1995 1994 ------- ------- ------ Current: Federal............................................... $13,795 $10,298 $ 8,406 State................................................. 1,167 1,342 1,957 Foreign............................................... 590 268 (32) ----------- ---------- ---------- 15,552 11,908 10,331 ----------- ---------- ---------- Deferred: Federal............................................... (1,732) (1,252) (1) State................................................. 569 340 (283) Foreign............................................... - - - ----------- ---------- ---------- (1,163) (912) (284) ----------- ---------- ---------- $14,389 $10,996 $10,047 =========== ========== ==========
The differences between the statutory and effective federal income tax rates on income from continuing operations before income taxes and minority interest were as follows:
1996 1995 1994 ------- ------- ------ U.S. federal statutory rate........................... 35.0% 35.0% 35.0% State income taxes, less federal benefit.............. 3.0 4.0 4.4 Other. . ............................................. .6 1.2 1.7 ------ ------ ----- 38.6% 40.2% 41.1% ====== ====== =====
Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities and available tax credit carryforwards. The following temporary differences gave rise to net deferred tax assets (liabilities) as of December 31, 1996 and 1995: 28
1996 1995 --------- --------- Deferred tax assets: Inventory............................................... $ 2,556 $ - Property, plant and equipment........................... 3,158 7,407 Accrued expenses........................................ 2,403 4,964 Other................................................... 2,390 878 --------- --------- 10,507 13,249 --------- --------- Deferred tax liabilities: Accounts receivable..................................... 3,084 6,836 Inventory............................................... - 2,695 Unremitted earnings of foreign subsidiaries............. 1,253 331 Other................................................... 5,277 3,657 --------- --------- 9,614 13,519 --------- --------- Net deferred tax asset (liability)...................... $ 893 $ (270) ========= ==========
(6) LONG-TERM DEBT AND CREDIT ARRANGEMENTS: --------------------------------------- Long-term debt consisted of the following:
1996 1995 ------------ ------------ Mortgage on Rapidforms' facility, payable monthly through March 1996, interest at 10.5% .................. $ - $4,287,000 Economic development revenue bonds (tax exempt) bearing interest at a weighted average rate of 7.17% with annual serial maturities through 1999 and a term maturity in 2004, less unamortized discount of $130,000 to yield an effective rate of 7.29%.......... - 8,075,000 Economic development revenue bonds (taxable) bearing interest at 9.10% with annual sinking fund payments through 2004, less unamortized discount of $127,000 to yield an effective rate of 9.35%..................... - 5,678,000 Other mortgages, payable monthly through 2001, interest at rates ranging from prime plus 1% to 11.5%........................................ 941,000 1,180,000 Industrial Development Revenue Bonds, payable periodically through 2005, interest at rates ranging from 3% to 9.25% ............................... 1,824,000 2,468,000 Berwick acquisition debt, payable in 2003, interest at 8%.......................................... 2,077,000 2,355,000 Other...................................................... 522,000 353,000 ------------ ------------ 5,364,000 24,396,000 Less - current portion..................................... (752,000) (6,531,000) ------------- ------------- $4,612,000 $17,865,000 ============ ===========
In conjunction with the acquisition of Cleo and the consolidation of other credit facilities, the Company entered into a $195,000,000 unsecured revolving credit facility with thirteen banks and financial institutions on November 15, 1995. The facility expires on November 15, 2000 and provides that borrowings are limited 29 during a consecutive 30 day period during each year of the agreement. At the Company's option, interest on the facility accrues at (1) the greater of the prime rate or 1/2% in excess of the Federal Funds Rate, or (2) LIBOR plus 1 1/4%. The loan agreement contains provisions to reduce the interest pricing spread over LIBOR based upon the achievement of certain benchmarks related to the ratio of earnings to interest expense. The loan agreement also contains covenants, the most restrictive of which pertain to net worth; earnings before interest, income taxes and depreciation; capital expenditures; the ratio of operating cash flow to fixed charges; the ratio of earnings to interest expense and the ratio of debt to capitalization. The weighted average interest rate under the loan agreement for 1996 was 6.65%. On August 13, 1996, CSS entered into an interest rate swap agreement to reduce the impact of changes in interest rates on its floating rate revolving credit facility. At December 31, 1996 the Company has a swap agreement with a total notional amount of $20,000,000. This agreement fixes the interest rate on $20,000,000 of the borrowings under the revolving credit facility to 7.125%. The interest rate swap agreement matures on February 13, 1998. This agreement involves the exchange of fixed-rate and floating-rate interest payments periodically over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is accrued as interest rates change and recognized over the life of the agreement as an adjustment to interest expense. The fair value of this swap agreement, which is not material at December 31, 1996, is not recognized in the financial statements. The counter party to the interest rate swap agreement is a major financial institution. Management believes the risk of incurring losses related to credit risk is remote and any potential losses would be immaterial. On September 18, 1996, CSS entered into a $20,000,000 term loan with a bank to provide additional capacity for seasonal requirements and general corporate purposes. The term loan was repaid on December 23, 1996. In connection with the acquisition of Cleo on November 15, 1995, the Company entered into a short-term note with the seller for $24,574,000. The note accrued interest at the rate of 8% and was repaid on January 29, 1996. Prior to November 15, 1995, Paper Magic had a $40,000,000 unsecured revolving credit facility with four banks. In addition, the Company maintained a $15,000,000 unsecured demand line of credit with a bank. On August 1, 1996, CSS utilized proceeds from its $195,000,000 unsecured revolving credit facility to redeem the outstanding principal balance of $12,880,000 related to economic development revenue bonds assumed in connection with the acquisition of Cleo. Cleo financed the construction of its primary distribution facility with the proceeds from these economic development revenue bonds. Cleo also maintained an Urban Development Action Grant ("UDAG") bearing interest at 8% and payable in quarterly installments. The UDAG was also repaid on October 2, 1996. Rapidforms had a $4,287,000 note outstanding with a financial institution which accrued interest at 10.5% and was secured by a mortgage on its primary office, manufacturing and warehouse facility. This note was repaid in full in February 1996. The Company and Berwick maintain various notes relating to the financing of manufacturing facilities which are secured by mortgages on the facilities. A subsidiary of Rapidforms obtained financing through the issuance of Industrial Development Revenue Bonds for the construction of a manufacturing, office and warehouse facility and the purchases of new equipment. The bonds, which bear interest at a rate that approximates 75% of prime, are secured by a mortgage on the facility, security interests in the equipment and the guarantee of Rapidforms. 30 The Company and Berwick maintain second mortgages on several facilities financed with Industrial Development Revenue Bonds. The bonds mature between 1998 and 2001, accrue interest at rates ranging from 3% to 9.25% and are secured by mortgages on the facilities. In connection with the acquisition of Berwick in 1993, the Company entered into a term loan with the primary selling shareholder. The original term loan of $3,000,000 was reduced for indemnification claims to $2,077,000 and is payable on May 3, 2003 with interest payable quarterly at a rate of 8% per year. The note is callable at the option of the noteholder after May 3, 1996, subject to then unresolved claims. Long-term debt matures as follows: 1997...........................................$ 752,000 1998........................................... 749,000 1999........................................... 829,000 2000........................................... 356,000 2001........................................... 151,000 Thereafter..................................... 2,527,000 ---------- Total...................................... $5,364,000 ========== (7) OPERATING LEASES: ----------------- The future minimum rental payments associated with all noncancelable lease obligations are as follows: 1997............................................ $ 3,868,000 1998............................................ 3,165,000 1999............................................ 3,122,000 2000............................................ 2,740,000 2001............................................ 2,460,000 Thereafter...................................... 3,644,000 ----------- Total........................................ $18,999,000 =========== Rent expense was $5,173,000, $2,792,000 and $2,510,000 in 1996, 1995 and 1994, respectively. (8) CONCENTRATION RISKS: -------------------- During 1996, one customer accounted for 14% of the Company's sales. (9) COMMITMENTS AND CONTINGENCIES: ------------------------------ Rapidforms has entered into agreements with minority shareholders or stock option grantees that require the subsidiary to repurchase shares or options held upon death, termination of employment or upon the permissible voluntary tender of shares by the shareholder. The repurchase price is established by reference to a multiple of pre-tax earnings or the fair market value of such shares or options as determined by Rapidforms' board of directors. During 1994, Paper Magic agreed to purchase for $9,781,000 all shares of Paper Magic common stock held by its minority shareholders. As of December 31, 1996 and 1995, only Rapidforms and certain of its subsidiaries had minority shareholders and outstanding stock options. The liability of Rapidforms to repurchase such shares was $3,862,000 and $3,608,000 at December 31, 1996 and 1995, respectively, and was reported as minority interest in the accompanying balance sheet. 31 (10) SEGMENT INFORMATION: -------------------- The Company operates in two business segments - consumer products and direct mail business products. Operations within the consumer products segment includes the manufacture and sale primarily to mass market retailers of seasonal gift wrap, gift bags, boxed greeting cards, gift tags, tissue paper, paper and vinyl decorations, calendars, classroom exchange Valentines, decorative ribbon and bows, Halloween masks, costumes, make-ups and novelties and Easter egg dyes and novelties. The direct mail business products segment develops and sells business forms, business supplies, in-store retail merchandising products, holiday greeting cards and advertising specialties to small and medium sized businesses in the United States primarily through the direct mailing of catalogs and brochures.
Operations by Business Segment (In thousands) Consumer Products Direct Mail Business Products Consolidated ------------------------------- ------------------------------ -------------------------- 1996 1995 1994 1996 1995 1994 1996 1995 1994 ---- ---- ---- ---- ---- ---- ---- ---- ---- Sales to unaffiliated customers $323,051 $202,274 $153,440 $89,028 $86,138 $64,795 $412,079 $288,412 $218,235 ========= ======== ======== ======== ======= ======= Operating profit $ 39,710 $ 21,542 $ 17,091 $10,000 $11,222 $10,031 49,710 32,764 27,122 ========= ======== ======== ======== ======= ======= General corporate expenses (5,333) (3,148) (2,647) Interest expense, net (8,235) (3,957) (923) Rental and other income, net 1,131 1,727 910 -------- -------- -------- Income before income taxes $ 37,273 $ 27,386 $ 24,462 ======== ======== ======== Identifiable assets at December 31 $ 273,696 $297,791 $124,681 $62,077 $60,970 $60,901 $335,773 $358,761 $185,582 ========= ======== ======== ======= ======= ======= Corporate assets 10,591 16,200 19,499 -------- -------- -------- Total assets $346,364 $374,961 $205,081 ======== ======== ======== Depreciation and amortization $ 3,975 $ 4,398 $ 4,076 $3,739 $ 3,205 $ 2,212 ========= ======== ======== ====== ======= ======= Capital expenditures $ 13,407 $ 4,895 $ 4,008 $2,528 $ 3,855 $ 1,651 ========= ======== ======== ====== ======= =======
32
(11) QUARTERLY FINANCIAL DATA (UNAUDITED): (In thousands, except per share amounts) Quarters --------------------------------------------------------- 1996 First Second Third Fourth ---- ----------- ----------- ----------- ------------ Sales.............................................. $47,270 $47,305 $147,527 $169,977 ======== ======== ======== ======== Gross profit....................................... $19,782 $18,777 $ 49,552 $ 57,004 ======== ======== ======== ======== Net Income......................................... $(2,085) $(1,757) $ 11,141 $ 15,045 ======== ======== ======== ======== Net income per common share: Primary......................................... $ (.19) $ (.16) $ 1.01 $ 1.36 ======== ======== ======== ======== Fully diluted................................... $ (.19) $ (.16) $ 1.01 $ 1.35 ======== ======== ======== ========
Quarters --------------------------------------------------------- 1995 First Second Third Fourth ---- ----------- ----------- ----------- ------------ Sales.............................................. $42,529 $43,038 $100,736 $102,109 ======= ======= ======== ======== Gross profit....................................... $19,221 $18,606 $ 36,693 $ 35,411 ======= ======= ======== ======== Net income......................................... $ 501 $ 1,260 $ 8,120 $ 5,894 ======= ======= ======== ======== Net income per common share: Primary......................................... $ .05 $ .12 $ .75 $ .54 ======= ======= ======== ======== Fully diluted................................... $ .05 $ .12 $ .74 $ .54 ======= ======= ======== ========
Most Paper Magic, Berwick and Cleo revenues are seasonally oriented, with approximately 70% of sales being Christmas and Halloween related. As a result, consolidated revenues and profits are typically lowest in the first half of the year when Paper Magic, Berwick and Cleo are producing their inventory of Christmas and Halloween products and highest in the second half when their products are shipped. Quarterly fluctuations of sales and earnings were further pronounced in 1996 with the inclusion of a full year of Cleo's results. (11) SUBSEQUENT EVENTS: ------------------ On January 17, 1997 Paper Magic acquired all of the outstanding stock of Color Clings for approximately $8,000,000. Color Clings, headquartered in Bloomington, Minnesota, is a designer and marketer of seasonal and everyday vinyl home decorations sold primarily to mass market retailers in the United States and Canada. The acquisition was accounted for as a purchase and the excess of cost over fair market value of $11,375,000 was recorded as goodwill and will be amortized over twenty years. 33 On January 8, 1997 Rapidforms sold its Standard Forms, Ltd. subsidiary for $4,300,000 resulting in an immaterial financial gain. Sales and operating income (loss) were $8,237,000 and $19,000 in 1996, $7,925,000 and $220,000 in 1995 and $6,672,000 and $(203,000) in 1994. Item 9. Disagreements on Accounting and Financial Disclosure - ------- ---------------------------------------------------- None 34 Part III Item 10. Directors and Executive Officers of the Registrant - -------- -------------------------------------------------- See "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS OF CSS" in the Proxy Statement for the 1997 Annual Meeting of Stockholders of the Company, which will be incorporated herein by reference. Item 11. Executive Compensation - -------- ---------------------- See "EXECUTIVE COMPENSATION" in the Proxy Statement for the 1997 Annual Meeting of Stockholders of the Company, which will be incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- See "CSS SECURITY OWNERSHIP" in the Proxy Statement for the 1997 Annual Meeting of Stockholders of the Company, which will be incorporated herein by reference. Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- See "CERTAIN TRANSACTIONS AND SUBSIDIARY MATTERS" in the Proxy Statement for the 1997 Annual Meeting of Stockholders of the Company, which will be incorporated herein by reference. Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------- ---------------------------------------------------------------- (a) Attached hereto and filed as part of this report are the financial statement schedules and the exhibits listed below. 1. Financial Statements -------------------- Report of Independent Public Accountants Consolidated Balance Sheets - December 31, 1996 and 1995 Consolidated Statements of Operations - for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity - for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements 35 2. Financial Statement Schedules ----------------------------- Schedule II - Valuation and Qualifying Accounts (b) Reports on Form 8-K filed during the last quarter of 1996 --------------------------------------------------------- None. (c) Exhibits, Including Those Incorporated by Reference The following is a list of exhibits filed as part of this annual report on Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses. Articles of Incorporation and By-laws - ------------------------------------- 3.1 Restated Certificate of Incorporation filed December 5, 1990. (1) (Exhibit 3.1) 3.2 Amendment to Restated Certificate of Incorporation filed May 8, 1992. (2) (Exhibit 3.2) 3.3 Certificate eliminating Class 2, Series A, $1.35 Preferred stock filed September 27, 1991. (3) (Exhibit 3.2) 3.4 Certificate eliminating Class 1, Series B, Convertible Preferred Stock filed January 28, 1993. (2) (Exhibit 3.5) *3.5 By-laws of the Company, as amended to date (as last amended November 18, 1996). Material Contracts - ------------------ 10.1 CSS Industries, Inc. 1991 Stock Option Plan for Non-Employee Directors. (2) (Exhibit 10.1) *10.2 CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee Directors. 10.3 Registration Rights Grant dated January 21, 1993, between the Company and certain former holders of common stock in Philadelphia Industries, Inc. (2) (Exhibit 10.2) 10.4 Shareholders' Agreement, dated as of February 4, 1985, by and among shareholders of Rapidforms, Inc. (4) (Exhibit 4 (B)) 10.5 First Amendment to Shareholders' Agreement, dated as of December 17, 1990, by and among shareholders of Rapidforms, Inc. (3) (Exhibit 10.7) 10.6 Loan Agreement among CSS Industries, Inc., the Lending Institutions listed therein, CoreStates Bank, N.A. as the Administrative Agent, and Merrill Lynch & Co. as the Syndication Agent, dated as of November 15, 1995 (8) (Exhibit 10.1) 10.7 Stock Purchase Agreement dated as of October 3, 1995 between the Company and Gibson Greetings, Inc. (9) (Exhibit 2.1) *10.8 Interest Rate Swap Master Agreement dated as of August 9, 1996 between CoreStates Bank, N.A. and CSS Industries, Inc. 36 Executive Compensation Plans and Arrangements - --------------------------------------------- 10.9 CSS Industries, Inc. 1985 Incentive Stock Option Plan, as last amended in 1991. (3) (Exhibit 10.1) *10.10 CSS Industries, Inc. 1994 Equity Compensation Plan (as last amended January 23, 1996) 10.11 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement Agreements, dated March 3, 1993, with certain executive officers of the Company. (2) (Exhibit 10.15) 10.12 CSS Industries, Inc. Non-Qualified Supplemental Executive Retirement Plan Guidelines, dated January 25, 1994. (5) (Exhibit 10.14) 10.13 Deferred Compensation Agreement between Jack Farber and CSS Industries, Inc., restated as of December 8, 1994. (7) (Exhibit 10.8) 10.14 CSS Industries, Inc. Annual Incentive Compensation Arrangement, Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.17) 10.15 Rapidforms, Inc. Incentive Stock Option Plan, dated June 25, 1987, and form of stock option agreement. (6) (Exhibit 10.5) 10.16 Amendment to Rapidforms, Inc. Incentive Stock Option Plan, dated December 11, 1990. (1) (Exhibit 10.5) *10.17 Rapidforms, Inc. Profit Sharing Plan, as last amended and restated effective as of July 1, 1996. 10.18 Rapidforms, Inc. Annual Incentive Compensation Arrangement, Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.22) 10.19 The Paper Magic Group, Inc. Management Incentive Bonus Program, Administrative Guidelines, dated March 15, 1993. (2) (Exhibit 10.28) 10.20 1994 Amendment to The Paper Magic Group, Inc. Management Incentive Bonus Program, Administrative Guidelines, dated March 2, 1994. (5) (Exhibit 10.26) 10.21 The Paper Magic Group, Inc. 1994 Incentive Stock Option Plan. (7) (Exhibit 10.16) 10.22 Berwick Industries, Inc. Incentive Bonus Plan, dated January 1, 1994. (5) (Exhibit 10.27) 10.23 Employment Agreement between John Pinti and Berwick Industries, Incorporated, dated October 1, 1992. (7) (Exhibit 10.18) 10.24 Amendment to Employment Agreement between Berwick Industries, Incorporated and John Pinti, dated May 3, 1993. (7) (Exhibit 10.19) 10.25 Cleo Inc. Management Incentive Plan , dated March 7, 1996. (10) (Exhibit 10.23) *10.26 Berwick Industries, Inc. Non-Qualified Supplemental Executive Retirement Plan, dated November 18, 1996. *10.27 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive Retirement Plan, dated December 5, 1996. Subsidiaries - ------------ *21. List of Significant Subsidiaries of the Registrant 37 Footnotes to List of Exhibits ----------------------------- * Filed with this Annual Report on Form 10-K. (1) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the fiscal year ended December 31, 1990 and incorporated herein by reference. (2) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the fiscal year ended December 31, 1992 and incorporated herein by reference. (3) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the fiscal year ended December 31, 1991 and incorporated herein by reference. (4) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the fiscal year ended February 2, 1985 and incorporated herein by reference. (5) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the fiscal year ended December 31, 1993 and incorporated herein by reference. (6) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the fiscal year ended December 31, 1988 and incorporated herein by reference. (7) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the fiscal year ended December 31, 1994. (8) Filed as an exhibit to the Current Report on Form 8-K (No. 1-2661) dated November 15, 1995. (9) Filed as an exhibit to the Quarterly Report on Form 10-Q (No. 1-2661) for the fiscal quarter ended September 30, 1995. (10) Filed as an exhibit to the Annual Report on Form 10-K (No. 1-2661) for the fiscal year ended December 31, 1995 and incorporated herein by reference. The Company agrees to provide the SEC upon request with copies of certain long-term debt obligations of CSS Industries, Inc., Cleo Inc., Berwick Industries, Inc., and a subsidiary of Rapidforms, Inc. The Company agrees to furnish supplementally a copy of omitted Schedules and Exhibits, if any, with respect to Exhibits listed above upon request. Stockholders who have been furnished a copy of this Report may obtain copies of any Exhibit listed above on payment of $.50 per page for reproduction and mailing charges by writing to Secretary, CSS Industries, Inc., 1845 Walnut Street, Philadelphia, Pennsylvania 19103. 38 CSS INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Column A Column B Column C Column D Column E -------- -------- ------------------------ -------- -------- Additions ----------------------- Balance Charged at to costs Charged Balance Beginning and to Other at End of of Period Expenses Accounts Deductions Period --------- -------- -------- ---------- ------ Year ended December 31, 1996 Doubtful accounts receivable-customers $4,684 $2,295 $ -- $3,141 $3,838 Year ended December 31, 1995 Doubtful accounts receivable-customers $1,950 $1,698 $2,036 (a) $1,000 $4,684 Year ended December 31, 1994 Doubtful accounts receivable-customers $1,587 $ 910 $ 64 (b) $ 611 $1,950
Notes: (a) Balance at acquisition of Cleo, Topstone and Illusive Concepts. (b) Balance at acquisition of Histacount and Business Envelope. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on behalf of the undersigned hereunto duly authorized. CSS INDUSTRIES, INC. ---------------------------------------- Registrant By /s/ Jack Farber ---------------------------------------- Jack Farber, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Dated: March 5, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities on the date indicated. Dated: March 5, 1997 /s/ Jack Farber -------------------------------------------- Jack Farber, Chairman of the Board, President and Chief Executive Officer (principal executive officer) Dated: March 5, 1997 /s/ James G. Baxter -------------------------------------------- James G. Baxter, President-Consumer Products Group and Chief Financial Officer (principal financial and accounting officer and a director) Dated: March 5, 1997 /s/ Willard M. Bright -------------------------------------------- Willard M. Bright, Director Dated: March 5, 1997 /s/ James H. Bromley -------------------------------------------- James H. Bromley, Director Dated: March 5, 1997 /s/ John R. Bunting, Jr. -------------------------------------------- John R. Bunting, Jr., Director Dated: March 5, 1997 /s/ Stephen V. Dubin -------------------------------------------- Stephen V. Dubin, Director Dated: March 5, 1997 /s/ Richard G. Gilmore -------------------------------------------- Richard G. Gilmore, Director Dated: March 5, 1997 /s/ Leonard E. Grossman -------------------------------------------- Leonard E. Grossman, Director Dated: March 5, 1997 /s/ James E. Ksansnak -------------------------------------------- James E. Ksansnak, Director Dated: March 5, 1997 /s/ Michael L. Sanyour -------------------------------------------- Michael L. Sanyour, Director Dated: March 5, 1997 /s/ William C. Warren -------------------------------------------- William C. Warren, Director 40 INDEX TO EXHIBITS -----------------
Exhibit No. Page - ----------- ---- 3.5 By-Laws of the Company, as amended to date (as last amended November 18, 1996) 10.2 CSS Industries, Inc. 1995 Stock Option Plan for Non-Employee Directors 10.8 Interest Rate Swap Master Agreement dated as of August 9, 1996 between CoreStates Bank, N.A. and CSS Industries, Inc. 10.10 CSS Industries, Inc. 1994 Equity Compensation Plan (as last amended January 23, 1996) 10.17 Rapidforms, Inc. Profit Sharing Plan, as last amended and restated effective as of July 1, 1996 10.26 Berwick Industries, Inc. Non-Qualified Supplemental Executive Retirement Plan, dated November 18, 1996. 10.27 The Paper Magic Group, Inc. Non-Qualified Supplemental Executive Retirement Plan, dated December 5, 1996.
EX-3 2 EXHIBIT 3.5 CSS INDUSTRIES, INC. (formerly known as City Stores Company) (A Delaware Corporation) BY - LAWS (As Amended to and including November 19, 1996) OFFICES 1. The principal office shall be in the City of Wilmington, County of New Castle, State of Delaware and the name of the resident agent in charge thereof is The Corporation Trust Company. 2. The Corporation may also have an office in the City of New York, State of New York, and also offices at such other places as the Board of Directors may from time to time appoint or the business of the Corporation may require. SEAL 3. The corporate seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". Said seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or reproduced or otherwise. STOCKHOLDERS' MEETINGS 4. All meetings of the stockholders shall be held at such place as may be designated from time to time by the Board of Directors. 5. The annual meeting of the stockholders of the Corporation shall be held on a date and at a time set by the Board of Directors, when they shall elect by a plurality vote, by ballot, a Board of Directors, and transact that other business as may properly come before the meeting. When a quorum is present at any meeting, a majority in interest of the stock entitled to vote represented thereat shall decide any question brought before said meeting, unless the question is one upon which, by express provisions of law or of the Certificate of Incorporation or of these By-Laws, a larger or different vote is required, in which case such express provision shall govern and control the decision of such question. 6. The holders of a majority of the stock issued and outstanding, and entitled to vote thereat, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person, or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting until the requisite amount of voting stock shall be present. At such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder or record entitled to vote at the meeting. 7. At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than one year prior to said meeting, unless said instrument provides for a longer period. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the Corporation. 8. Written notice of every meeting of stockholders shall be given to each stockholder of record entitled to vote at the meeting not less than ten nor more than 60 days prior to the date of the meeting, unless a greater period of notice is required in a particular case by law. 9. A complete list of the stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order, with the address of each, and the number of voting shares registered in the name of each, shall be prepared by the Secretary and filed at a place within the city where the meeting is to be held, at least ten (10) days before every meeting, and shall at all times, during the usual hours of business, and during the whole time of said meeting, be open to the examination of any stockholders for any purpose germaine to the meeting. 10. At each meeting of the stockholders for the election of Directors, proxies and ballots shall be received and be taken in charge, and the validity of proxies and the acceptance or rejection of votes, shall be decided by two inspectors. Such inspectors may be appointed by the Board of Directors before or at the meeting, or, if no appointment shall have been made, then by the presiding officer at the meeting. If for any reason any of the inspectors previously appointed shall fail to attend or refuse or be unable to serve, inspectors 2 in place of any so failing to attend or refusing or unable to attend, shall be appointed in like manner. The inspectors shall be sworn faithfully to perform their duties and shall in writing certify to the returns. No person, who is a candidate for the office of Director, shall be an inspector. 11. Special meetings of the stockholder shall be held whenever called by a majority of the Board of Directors or whenever three or more stockholders, holding at least twenty-five percentum (25%) in interest of the capital stock, shall make written application to the President or Chairman of the Board, stating the time, place and purpose of the meeting applied for. 12. Business transacted at all special meetings shall be confined to the objects stated in the call. 13. At the annual meetings of stockholders the following shall be the order of business, unless the stockholders otherwise decide: 1. Declaration of quorum. 2. Proof of notice of meeting. 3. Reading of Minutes of last meeting. 4. Election of Directors. 5. Reports of Officers. 6. Miscellaneous business. DIRECTORS 14. The property and business of this Corporation shall be managed by its Board of Directors, not less than seven (7) nor more than twenty-five (25) in number. Directors need not be stockholders. They shall be elected at the annual meeting of the stockholders, and each Director shall be elected to serve until his successor shall be elected and shall qualify or until his earlier resignation or removal. The number of Directors as aforesaid for each next ensuing year shall be fixed by the Directors at a meeting of the Board prior to the annual meeting of stockholders. Should the Board of Directors fail to fix the number of Directors as aforesaid, the number shall be fixed by the stockholders at such annual meeting. Within the limits on the number of Directors set forth in this By-Law, the number of Directors may be increased or may be decreased in lieu of filling a vacancy in the office of Director at any time by the Board of Directors. 3 15. The Directors may hold their meetings and have one or more offices, and keep the books of the Corporation, except the original or duplicate stock ledger, outside of Delaware, in the city of New York, or at such other places as they may from time to time determine. 16. If the office of any Director or Directors become vacant by reason of death, resignation, retirement, disqualification, removal from office, increase in the number of directors, or otherwise, a majority of the remaining Directors, though less than a quorum, may choose a person or persons to fill such vacancy, who shall hold office until the next annual election and until a successor or successors has or have been duly elected and qualified or until the earlier resignation or removal of such person or persons. 17. In addition to the powers and authorities by these By-Laws expressly conferred upon it, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. 18. At meetings of the Board of Directors , the business shall be transacted in the following order, or in such other order as from time to time the Board, or the presiding officer may determine: 1. Reading the minutes of last regular meeting and of any special meeting held since the last regular meeting. 2. Reading of the minutes of all meetings of the Executive Committee, held since the last regular meeting of the Board. 3. Report of the President. 4. Report of the Treasurer. 5. Report of Committees. 6. Unfinished business. 7. New business. At all meetings of the Board of Directors, the Chairman of the Board, or in his absence, the President, or in the absence of both, a Vice-President, shall preside. 4 EXECUTIVE COMMITTEE 19. The Board of Directors shall elect from its members by a majority of the whole Board an Executive Committee of not less than three (3) nor more than nine (9). Any member of the Executive Committee may be removed by a majority of the entire Board of Directors and vacancies in the Committee shall be filled in like manner. 20. Powers - The Executive Committee shall have and may exercise all and any of the powers of the Board of Directors in the management of the business and affairs of the Corporation during the intervals between the meetings of the Board of Directors except as otherwise provided by law, and may cause the corporate seal to be affixed to such papers as may require it in connection therewith. The Executive Committee shall also have such other powers as may be conferred upon it by these By-Laws or from time to time by resolution of the Board. 21. Quorum - In all cases the affirmative vote of a majority of all the members of the Executive Committee shall be necessary for its adoption of any resolution. 22. Procedure - The Executive Committee shall keep regular minutes of its proceedings, and all action by the Executive Committee shall be reported to the Board of Directors at its special or regular meeting next succeeding such action and shall be subject to revision and alteration by the Board of Directors, provided that no rights or acts of third parties shall be affected by such revision or alteration. 23. The Executive Committee may fix its own rules and procedure and shall meet when and as provided by such rules or by resolution of the Board of Directors. COMMITTEE OF DIRECTORS 24. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate standing committees, each committee to consist of two or more of the Directors of the Corporation, which, to the extent provided in said resolution or resolutions, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, except as otherwise provided by law, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. 25. The committees shall keep minutes of their proceedings and shall report to the 5 Board when required. COMPENSATION OF DIRECTORS 26. Directors shall receive such compensation as may be set from time to time by resolution of the Board; PROVIDED, that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. 27. Members of special, standing committees and the Executive Committee may be allowed like compensation for attending committee meetings. MEETINGS OF THE BOARD 28. Each newly elected Board may meet either within or without the State of Delaware, and no notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a majority of the whole Board shall be present. 29. Regular meeting of the Board may be held without notice at such time and place either within or without the State of Delaware as shall from time to time be determined by the Board. 30. Special meetings of the Board of Directors may be held at any time or place either within or without the State of Delaware, whenever called by the Chairman of the Board, or the President, or a Vice President, or three or more Directors, notice thereof being given to each Director by the Secretary or Assistant Secretary or officer calling the meeting, or at any time without formal notice provided all the Directors are present or when those not present may waive notice thereof in writing. Notice of special meetings, stating the time and place thereof, shall be given by mailing the same to each Director at his residence or business address at least five (5) days before the meeting, or by delivering the same to him personally or telephoning or telegraphing the same to him at his residence or business address, unless, in case of exigency, the Chairman of the Board of Directors or the President shall prescribe a shorter notice to be given personally or by telephoning or telegraphing such Director at his residence or business address, which notice, however, shall be sufficient to enable all the members of the Board by usual means of travel, to be in attendance at such meeting. Such special meeting shall be held at such times and places as the notice thereof or waiver shall specify. 6 31. Quorum - A majority of the Board of Directors shall constitute a quorum for the transaction of business and the act of the majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, the Certificate of Incorporation or these By-Laws. If a quorum is not present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. OFFICERS 32. The Executive Officers of the Corporation shall be a Chairman of the Board of Directors, President, Vice-Presidents in such number as the Board shall from time to time determine, Secretary and Treasurer, all of whom shall be elected by the Board of Directors. One person may hold more than one office, except as prohibited by law. The Board of Directors may designate from time to time the Executive Officer who shall be Chief Executive Officer of the Corporation. 33. The Executive Officers shall be elected by the Board of Directors after its election by the stockholders, and a meeting may be held for this purpose without notice immediately after the annual meeting of the stockholders, and at the same place. 34. The Board may appoint such other officers, counsel and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. 35. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. 36. The officers of the Corporation shall hold office until their successors are chosen and qualify in their stead or until their earlier resignation or removal. Any officers elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board of Directors. 7 CHAIRMAN OF THE BOARD 37. The Chairman of the Board of Directors shall be a member of the Board of Directors and shall preside at all meetings of the stockholders and of the Board of Directors, and by virtue of his office shall be Chairman of and a member of the Executive Committee, and a member of all standing committees except the Audit Committee. He shall supervise all such matters as may be delegated to him by the Board of Directors or the Executive Committee. THE PRESIDENT 38. The President shall be a member of the Board of Directors, and shall in the absence of the Chairman of the Board be Chairman of the Executive Committee. He shall, in the absence of the Chairman of the Board, preside at all meetings of the Directors, and shall also, in the absence of the Chairman of the Board, preside at all meetings of the stockholders. He shall appoint all persons other than officers, employed in the service of the Corporation, and may suspend or remove them. At each regular meeting of the Board of Directors he shall do and perform such other duties as may from time to time be assigned to him by the Board of Directors or Executive Committee, or as may be authorized by law. VICE PRESIDENTS 39. In the absence, vacancy or disability of the President and if so designated by the Board of Directors or Executive Committee, a Vice President shall perform the duties and exercise the powers of the President. The Vice Presidentsshall otherwise perform such other duties as the Board of Directors shall prescribe. THE SECRETARY AND ASSISTANT SECRETARIES 40. The Secretary shall attend all sessions of the Board and Executive Committee and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he shall be. He shall keep in safe custody the seal of the Corporation, and affix or cause to be affixed the same to any instrument requiring it, and when so affixed, it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary or an Assistant Treasurer. 8 41. The Assistant Secretaries shall perform such duties as the Board of Directors shall from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS 42. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. 43. He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. 44. The Assistant Treasurers shall perform such duties as the Board of Directors shall from time to time prescribe. BONDS 45. Any officer or employee having the care or custody of any of the securities or cash of the Corporation may be required to give the Corporation a bond in such sum and in such form and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of his office. DUTIES OF OFFICERS MAY BE DELEGATED 46. In case of the absence of any officer of the Corporation, or for any other reasons that the Board may deem sufficient, the Board may delegate, for the time being, the power or duties, or any of them, of such officer to any other officer, or to any Director. CERTIFICATE OF STOCK 47. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the Chairman of the Board of Directors, President or a Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. If the Corporation has a transfer agent or an assistant transfer 9 agent acting on its behalf and a registrar, the signatures of any such officer may be facsimile. The designations, preferences and relative participating option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificates which the Corporation shall issue to represent such class or series of stock. TRANSFERS OF STOCK 48. Transfers of stock shall be made on the books of the Corporation only upon surrender of the certificate therefor endorsed by the person named in the certificate or by attorney, lawfully constituted in writing. CLOSING OF TRANSFER BOOKS 49. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding sixty (60) days preceding the date of any meeting of the stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding sixty (60) days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) nor less than ten (10) days preceding the date of any meeting of stockholders, or not exceeding sixty (60) days before the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. Where such a record date has not been fixed by the Board of Directors and the Board of Directors has not closed the stock transfer book as above provided, the record date shall be fixed as otherwise provided by law. 10 REGISTERED STOCKHOLDERS 50. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof, and accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. LOST CERTIFICATE 51. Any person claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit or affirmation of that fact and the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or his legal representative, to give the Corporation a bond, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate. A new certificate of the same tenor and for the same number of shares as the one alleged to be lost, stolen or destroyed shall, upon compliance with the aforesaid provisions, be issued by the Company. FISCAL YEAR 52. The fiscal year of the Corporation shall begin on January 1 and end on December 31 in each year or shall be for such period as the Board of Directors may from time to time hereafter designate. DIVIDENDS 53. Dividends upon the capital stock of the Corporation subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meetings, pursuant to law. Dividends may be paid in cash, property, or in shares of the capital stock. 54. Before any payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interests of the Corporation, and the Directors may abolish any such reserve in the manner in which it was created. 11 NOTICES 55. Whenever under the provisions of these By-Laws notice is required to be given to any Director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, or by telegraph by depositing the same in a post office or letter box, in a postpaid sealed wrapper, addressed to such stockholder or Director at such address as appears on the books of the Corporation, or with a telegraph office for transmission to such person and such notice shall be deemed to be given at the time when the same shall be thus mailed or deposited. 56. Any stockholder or Director may waive any notice required to be given under these By-Laws. CHECKS 57. All checks, notes, drafts, acceptances or other demands or orders for the payment of money of the Corporation, shall be signed by such officer or officers, or person or persons as the Board of Directors may from time to time designate. VOTING UPON STOCKS 58. Unless otherwise ordered by the Board of Directors or by the Executive Committee, the Chairman of the Board, or the President, and in their absence any Vice President of the Corporation, shall have full power and authority on behalf of the Corporation, to attend, to act and to vote at any meetings of the stockholders of any corporation in which the Corporation may hold stock, and at any such meeting shall possess and may exercise any and all rights, and powers incident to the ownership of such stock which, as the owner thereof, the Corporation might have possessed and exercised if present. The Board of Directors or the Executive Committee, by resolution from time to time, may confer like powers upon any other person or persons. CONTRACTS 59. Inasmuch as the Directors of this Corporation are men of large and varied business interests and it is contemplated that the Directors of this Corporation shall be men of large and varied business interests, it is hereby provided that in the absence of fraud no contract or other transaction between the Corporation and any other corporation and no act of the Corporation shall in any manner be affected or invalidated by the fact that any of the Directors of the Corporation are pecuniarily or otherwise interested in or are directors or 12 officers of such other corporation. In the absence of fraud, any Director individually, or any firm or association of which any Director may be a member, may be a party to or may be pecuniarily or otherwise interested in any contract or transaction of the Corporation, provided that the fact that he or such firm or association is so interested shall be disclosed or shall have been known to the Board of Directors or to a majority thereof; and provided that such contract or transaction shall be approved by the affirmative votes of a majority of the disinterested Directors of this Corporation; and any Director of the Corporation who is also a director or officer of such other corporation or who is so interested may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall authorize any such contract or transaction, and may vote thereat to authorize any such contract or transaction or with respect thereto, and such contract or transaction shall not be void or voidable solely because his or their vote is counted for such purposes. Any Director and/or officer of this Corporation may act as a director and/or officer of any subsidiary or affiliated corporation and may vote or act without restriction or qualification with regard to any transaction between such corporations. AMENDMENTS 60. These By-Laws may be altered or amended or repealed by the affirmative vote of the holders of record of a majority of the stock issued and outstanding and entitled to vote thereat, at any regular or annual meeting of the stockholders, or at any special meeting of the stockholders, if notice of the proposed alteration or amendment or repeal be contained in the notice of such annual or special meeting or these By-Laws may be altered or amended or repealed by the affirmative vote of a majority of the Board of Directors at any regular meeting of the Board, or at any special meeting of the Board, if notice of the proposed alteration, amendment or repeal be contained in the notice of such special meeting, provided, however, that no change of the time or place for the election of Directors shall be made within sixty days next before the day on which such election is to be held and that in case of any change of such time and place, notice thereof shall be given to each stockholder in person or by letter mailed to his last known post office address at least twenty days before the election is held. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES 61. (A) The Company shall, subject to the provisions of subparagraph (C) below, indemnify each person who is or was a director, officer or employee of the Company or of any other corporation which he serves or served as such at the request of the Company, against any and all liability and reasonable expense that may be incurred by him in connection with or resulting from any claim, action, suit or other proceeding (whether actual 13 or threatened or brought by or in the right of the Company or such other corporation or otherwise), civil, criminal, administrative or investigative, including any appeal relating thereto, in which he may become involved, as a party or otherwise, by reason of his being or having been a director, officer or employee of the Company or such other corporation, or by reason of his serving or having served as a trustee of a trust at the request of the Company, or by reason of any past or future action taken or not taken in his capacity as such director, officer, trustee or employee, whether or not he continues to be such at the time such liability or expense is incurred, provided (a) in the case of a claim, action, suit or other proceeding brought by or in the right of the Company or such other corporation to procure a judgment in its favor, that such person has not been adjudged to be liable for negligence or misconduct in the performance of his duty to it, (b) in the case of a claim, action, suit or other proceeding not covered by clause (a) such person acted in the best interests of the Company or such other corporation, as the case may be and (c) in addition, in any criminal action or proceeding he had not reasonable cause to believe that his conduct was unlawful. Indemnification pursuant to this Section 61 of the By-Laws, however, shall (i) not include any amount payable by such person to the Company or to such other corporation in satisfaction of any judgment or settlement, and (ii) be reduced by the amount of other indemnification or reimbursement of such person in respect of the liability and expense with respect to which indemnification is claimed. As used in this Section 61, the term "liability" shall include, but shall not be limited to, amounts of judgments, fines or penalties against, and amounts paid in settlement by, such person; the term "expense" shall include, but shall not be limited to, counsel fees and disbursements; and the term "employee" shall mean an executive (other than an executive who is a director or officer of the Company) of the Company, of any operating division of the Company, of any subsidiary of the Company in which the Company owns a majority of the voting control or power, or of any other corporation which such executive serves or served at the request of the Company, whom the Board of Directors of the Company, in its discretion, may determine, in each instance, to be an "employee" for the purpose of this Section 61. The termination of any claim, action, suit or other proceeding, by judgment, order, settlement (whether with or without court approval) or conviction or upon a plea of guilty or of nolo contendere or its equivalent, shall not create a presumption that such person did not meet the standards of conduct as set forth in this Section. (B) Every person referred to in the foregoing subparagraph (A) of this Section 61 who has been successful on the merits or otherwise, in defense of any action, suit or other proceeding of the character described in said subparagraph, or in defense of any claim, issue or matter therein, shall be entitled to indemnification as of right against reasonable expenses incurred by him in connection with such successful defense. (C) Except as provided in the foregoing subparagraph (B) of this Section 61, 14 any indemnification under subparagraph (A) shall be made solely at the discretion of the Company, but only upon a determination that the person seeking indemnification has met the standards of conduct set forth in said subparagraph (A). Such determination shall be made (a) by the Board of Directors, acting by a majority vote of a quorum consisting of directors who were not parties to such claim, action, suit or other proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, such a quorum by such vote so directs, by independent legal counsel (who may be counsel regularly retained by the Company) in a written opinion delivered to the Company. (D) Expense incurred in defending any claim, action, suit or other proceeding of the character described in subparagraph (A) of this Section may be advanced by the Company prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount unless it shall ultimately be determined that he is entitled to indemnification for such expense under this Section. (E) The provisions for indemnification set forth in this Section, (a) shall be in addition to any rights to which any person referred to in subparagraph (A) of this Section may otherwise be entitled by contract or as a matter of law; (b) may apply as to any such person who has ceased to be a director, officer or employee; (c) shall inure to the benefit of the heirs, executors and administrators of any such person referred to in subparagraph (A); and (d) shall be applicable whether or not the claim asserted against such person is based on matters which antedate the adoption of this Section 61. 62. Section 203 of the Delaware General Corporation Law shall not applicable to the Company. Anything of the foregoing to the contrary, Section 62 of the By-Laws may not be altered, modified or repealed by the Board of Directors. 15 EX-10 3 EXHIBIT 10.2 CSS INDUSTRIES, INC. 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Purpose. The purpose of this 1995 Stock Option Plan for Non-Employee Directors (the "Plan") of CSS Industries, Inc. (the "Company") is to increase the ownership interest in the Company of Non-Employee Directors whose services are considered essential to the Company's continued progress and to provide a further incentive to serve as a Director of the Company. 2. The Plan. The Plan shall consist of options to acquire Shares of the Common Stock of the Company, $.10 par value (the "Shares"). 3. Administration. The Plan shall be administered by a Committee of the Board of Directors consisting of Directors who are not eligible to participate in the Plan (the "Committee"). Subject to the provisions of the Plan, the Committee shall be authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make all other determinations necessary or advisable for the administration of the Plan; providing, however, that the Committee shall have no discretion with respect to the eligibility or selection of Directors to receive options under the Plan, the number of Shares subject to any such options, other than by reason of an adjustment pursuant to Section 8 hereof, or the purchase price of options or the frequency of option grants thereunder, and provided further that the Committee shall not have the authority to take any action to make any determination that would materially increase the benefits accruing to participants under the Plan. The determination of the Committee in the administration of the Plan, as described herein, shall be final and conclusive and binding upon all persons including, without limitation, the Company, its stockholders and persons granted options under the Plan. The Secretary of the Company shall be authorized to implement the Plan in accordance with its terms and to take such actions of a ministerial nature as shall be necessary to effectuate the intent and purposes thereof. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware. 4. Participation in the Plan. Directors of the Company who are not employees of the Company or any subsidiary or affiliate of the Company shall be eligible to participate in the Plan ("Eligible Directors"). 5. Shares Subject to the Plan. Subject to adjustment as provided in Section 8, an aggregate of Three Hundred Thousand (300,000) Shares shall be available for issuance upon the exercise of options granted under the Plan. The Shares deliverable upon the exercise of an option may be made available from unissued Shares not reserved for any other purpose 2 or Shares reacquired by the Company, including Shares purchased in the open market or in private transactions. If any option granted under the Plan shall expire or terminate for any reason without having been exercised in full, the Shares subject to, but not delivered under, such option may again become available for the grant of other options under the Plan. 6. Non-Statutory Stock Options. All options granted under the Plan shall be non- statutory options not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 7. Terms, Conditions and Forms of Options. Each option granted under this Plan shall be evidenced by a written agreement with the Company in such form as the Committee shall from time to time approve, which agreements shall comply with and be subject to the following terms and conditions: (i) Option Grant Dates. Options to purchase 4,000 Shares (as adjusted pursuant to Section 8) shall be granted automatically to each Eligible Director on the last day that the Company's Shares are traded on the New York Stock Exchange or other national securities exchange upon which the shares are traded or if the Shares are not then listed on a national securities exchange and are not traded over-the-counter on the date of the last trade as reported by NASDAQ or, if not reported by NASDAQ, the last trade which was 3 reported, in each November through 2000, except that any such grant shall be subject to and contingent upon approval of the Plan by the stockholders of the Company at the 1996 Annual Meeting of Stockholders. (ii) Purchase Price. The purchase price of Shares upon exercise of an option shall be 100% of the fair market value of the Shares on the date of grant of an option; which shall be: (i) if the Shares are then listed on a national securities exchange, the closing price of the Shares on such date; provided, however, if on such date the Shares were traded on more than one national securities exchange, then the closing price on the exchange on which the greatest volume of Shares were traded on such day; (ii) if the Shares are not then listed on a national securities exchange and are traded over-the-counter, the last sale price of the Shares on such date as reported by NASDAQ or, if not reported by NASDAQ, the average of the closing bid and asked prices for the Shares on such date; and (iii) if the Shares are neither then listed on a national securities exchange nor traded in the over-the-counter market, such value as the Committee shall in good faith determine. If the Shares are then listed on a national securities exchange or are traded over-the-counter but are not traded on the date of grant, then the purchase price of such shares shall be the closing price on the last day prior thereto on which such Shares were traded. (iii) Exercisability and Term of Options. Each option granted under the 4 Plan will become exercisable and mature in four equal installments, commencing on the first anniversary of the date of grant and annually thereafter. Each option granted under the Plan shall expire five years from the date of the grant, and shall be subject to earlier termination as hereinafter provided. (iv) Termination of Service. In the event of the termination of service on the Board by the holder of any option, other than by reason of death as set forth in Paragraph (v) hereof or by reason of such holders commencement of employment with the Company, the then outstanding options of such holder may be exercised only to the extent that they were exercisable on the date of such termination and shall expire three months after such termination, or on their stated expiration date, whichever occurs first. (v) Death. In the event of the death of the holder of any option, each of the then outstanding options of such holder will immediately mature in full and become exercisable by the holder's legal representative at any time within a period of six months after death, but in no event after the expiration date of the term of the option. (vi) Payment. Options may be exercised only upon payment to the Company in full of the purchase price of the Shares to be delivered. Such payment shall be made (a) in cash or check at the time of purchase, (b) by delivering Shares already owned by the holder and having a fair market value (as defined in Section 7(ii)) on the date 5 immediately preceding the date of exercise equal to the option price, or a combination of (a) and (b). Notwithstanding the foregoing, the Committee reserves the right not to permit such payment to be made by delivering Shares already owned by the holder if it determines that the same would not be in the best interests of the Company. 8. Adjustment upon Changes in Shares; Acceleration and Cancellation of Options. (i) In the event of any reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants, rights or debentures, stock dividend, stock split or reverse stock split, extraordinary cash dividend, property dividend, combination or exchange of shares, repurchase of shares or any other change in corporate structure which in the judgment of the Committee materially affects the value of Shares, the Committee may determine the appropriate adjustments, if any, to the number and class of Shares available for issuance upon the exercise of options granted under the Plan, the number and class of Shares and the exercise price per Share set forth in any option theretofore granted. (ii) In the event of (a) the disposition of all or substantially all of the assets of the Company, (b) the dissolution of the Company, (c) the merger or consolidation of the Company with or into any other entity or the merger or consolidation of any other entity into the Company in each case whereby the Company is not the surviving entity, or (d) the 6 making of a tender offer or exchange offer to purchase all or substantially all of the Shares of the Company, all outstanding options awarded under the Plan shall become exercisable in full immediately prior to such event and such options shall be canceled by the Company, which shall remit to each Eligible Director a cash payment equal to the difference between (y) the aggregate fair market value of all Shares subject to the unexercised portion of such options less (z) the aggregate exercise price of such unexercised options above. 9. Options Non-Assignable and Non-Transferable. Each option and all rights thereunder shall be non-assignable and non-transferable other than by will or the laws of descent and distribution and shall be exercisable during the holder's lifetime only by the holder or the holder's guardian or legal representative. 10. Limitations of Rights. (i) No Right to Continue as a Director. Neither the Plan nor the granting of an option nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that an Eligible Director has a right to continue as a Director for any period of time, or at any particular rate of compensation. (ii) No Stockholders' Rights for Holders of Options. A holder of options 7 shall have no rights as a stockholder with respect to the Shares covered by options granted hereunder until the date of the issuance of a stock certificate therefor, and no adjustment will be made for any cash dividend distributions for which the record date is prior to the date such certificate is issued. 11. Effective Date and Duration of Plan. The Plan is effective upon its adoption by the Board of Directors, subject to approval by the stockholders of the Company at the 1996 Annual Meeting of Stockholders. The period during which option grants shall be made under the Plan shall terminate on December 31, 2000 (unless the Plan is extended or is terminated on an earlier date by action of the stockholders), but such termination shall not affect the terms of any then outstanding options. 12. Amendment, Suspension or Termination of the Plan. Subject to the limitations described in this Section, the Committee may amend, suspend or terminate the Plan; provided, however, that no such action shall adversely affect the rights of Directors who hold outstanding options previously granted hereunder and, provided further, however, that any stockholder approval necessary or desirable in order to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended, shall be obtained in the manner required therein. Amendments to Sections 4 and 7(i) and (ii) shall not be effected more than once every six months, unless such amendments are implemented to comport with changes in the 8 Code or regulations thereunder. 13. Notice. Any notice to the Company required by any of the provisions of this Plan shall be in writing and addressed to the Secretary of the Company at the Company's then Executive Offices and shall become effective when it is received. 14. Use of Proceeds. Proceeds from the sale of Shares pursuant to options granted under the Plan shall constitute general funds of the Company. 15. No Fractional Shares. No fractional Shares shall be issued pursuant to options granted hereunder. 16. Expenses of the Plan. All of the expenses of administering the Plan shall be paid by the Company. 17. Compliance with Applicable Law. Notwithstanding anything herein to the contrary, the Company shall not be obligated to cause to be issued or any certificate for Shares to be delivered pursuant to the exercise of an option unless and until the Company is advised by its counsel that the issuance and delivery of such certificate is in compliance with all applicable laws, regulations or governmental authority and the requirements of any 9 exchange upon which Shares are traded. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of any such certificate to comply with any such law, regulations or requirement. The Committee may require, as a condition of the issuance and delivery of any such certificate and in order to insure compliance with such laws, regulations and requirements, such representations as the Committee, in its sole discretion, deems necessary or desirable. Each option shall be subject to the further requirement that if at any time the Committee shall determine in its discretion that the listing or qualification of the Shares subject to such option, is required under any securities exchange or association requirements or under any applicable law, or that the consent or approval of any governmental regulatory body is necessary as a condition of, or in connection with, the granting of such option or the issuance of Shares thereunder, such option may not be exercised in whole or in part unless such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 18. Governing Law. Except to the extent pre-empted by federal law, this Plan shall be construed and enforced in accordance with, and governed by, the laws of the State of Delaware. 10 EX-10 4 EXHIBIT 10.8 (Local Currency-Single Jurisdiction) ISDA(R) International Swap Dealers Association, Inc. MASTER AGREEMENT dated as of August 9, 1996 CoreStates Bank/ N.A. CSS Industries, Inc .................................... and...................................... have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows:- 1. Interpretation (a) Definitions. The terms defined in Section 12 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. Obligations (a) General Conditions. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. Copyright (C) 1992 by International Swap Dealers Association, Inc. (b) Change of Account. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) Netting. If on any date amounts would otherwise be payable:- (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply-separately to each pairing of branches or offices through which the parties make and receive payments or deliveries. (d) Default Interest; Other Amounts. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. Representations Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into) that:- (a) Basic Representations. (i) Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing; (ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance; (iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; 2 (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party. (c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. (d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. 4. Agreements Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:- (a) Furnish Specified Information. It will deliver to the other party any forms, documents or certificates specified in the Schedule or any Confirmation by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. (b) Maintain Authorisations. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) Comply with Laws. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. 5. Events of Default and Termination Events (a) Events of Default. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party:- (i) Failure to Pay or Deliver. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(d) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) Breach of Agreement. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(d) or to give notice of a Termination Event) to be complied with or performed 3 by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (ii) Credit Support Default. (1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) Misrepresentation. A representation made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) Default under Specified Transaction. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) Cross Default. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) Bankruptcy. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party:- (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its 4 winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) Merger Without Assumption. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer:- (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) Termination Events. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (ii) below or an Additional Termination Event if the event is specified pursuant to (iii) below:- (i) Illegality. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party):- (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction; (ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or 5 (iii) Additional Termination Event. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) Event of Default and Illegality. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default. 6. Early Termination (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)( 1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) Right to Terminate Following Termination Event. (i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1) occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iii) Right to Terminate. If:- (1) an agreement under Section 6(b)(ii) has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality other than that referred to in Section 6(b)(ii), a Credit Event Upon Merger or an Additional Termination Event occurs, either party in the case of an Illegality, any Affected Party in the case of an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) Effect of Designation. (i) if notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. 6 (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(d) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) Calculations. (i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) Payment Date. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment), from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) Payments on Early Termination. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) Events of Default. If the Early Termination Date results from an Event of Default:- (1) First Method and Market Quotation. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party over (B) the Unpaid Amounts owing to the Defaulting Party. (2) First Method and Loss. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) Second Method and Market Quotation. If the Second Method and Market Quotation apply, an amount, will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party less (B) the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) Second Method and Loss. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative 7 number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) Termination Events. If the Early Termination Date results from a Termination Event:- (1) One Affected Party. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) Two Affected Parties. If there are two Affected Parties:- (A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Unpaid Amounts owing to X less (II) the Unpaid Amounts owing to Y; and (B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y. (iii) Adjustment for Bankruptcy. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). (iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. Transfer Neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that:- (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8 8. Miscellaneous (a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) Amendments. No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system. (c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. (d) Remedies Cumulative. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law. (e) Counterparts and Confirmations. (i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. (f) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege. (g) Headings. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 9. Expenses A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 10. Notices (a) Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:- (i) if in writing and delivered in person or by courier, on the date it is delivered; (ii) if sent by telex, on the date the recipient's answerback is received; 9 (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 11. Governing Law and Jurisdiction (a) Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other Jurisdiction. (c) Waiver of Immunities. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 12. Definitions As used in this Agreement:- "Additional Termination Event" has the meaning specified in Section 5(b). "Affected Party" has the meaning specified in Section 5(b). 10 "Affected Transactions" means (a) with respect to any Termination Event consisting of an Illegality, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "Affiliate" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "Applicable Rate" means:- (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and (d) in all other cases, the Termination Rate. "consent" includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent. "Credit Event Upon Merger" has the meaning specified in Section 5(b). "Credit Support Document" means any agreement or instrument that is specified as such in this Agreement. "Credit Support Provider" has the meaning specified in the Schedule. "Default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. "Defaulting Party" has the meaning specified in Section 6(a). "Early Termination Date" means the date determined in accordance with Section 6(a) or 6(b)(iii). "Event of Default" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "Illegality" has the meaning specified in Section 5(b). "law" includes any treaty, law, rule or regulation and "lawful" and "unlawful" will be construed accordingly. "Local Business Day" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "Loss" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain 11 resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 9. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "Market Quotation" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "Non-default Rate" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount. "Non-defaulting Party" has the meaning specified in Section 6(a). "Potential Event of Default" means any event which, with the giving, of notice or the lapse of time or both, would constitute an Event of Default. "Reference Market-makers" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "Scheduled Payment Date" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "Set-off" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under 12 this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "Settlement Amount" means, with respect to a party and any Early Termination Date, the sum of:- (a) the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "Specified Entity" has the meaning specified in the Schedule. "Specified Indebtedness" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "Specified Transaction" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "Terminated Transactions" means with respect to any Early Termination Date (a) if resulting from a Termination Event, aLl Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "Termination Event" means an Illegality or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "Termination Rate" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "Unpaid Amounts" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined 13 by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the fair market values reasonably determined by both parties. IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. CoreStates Bank, N.A. CSS Industries, Inc. ---------------------- --------------------- (Name of Party) (Name of Party) By:/s/ Daniel J. Thomas By: /s/ Clifford E. Pietrafitt -------------------- -------------------------- Name: Daniel J. Thomas Name: Clifford E. Pietrafitt Title: Vice President Title: Vice President Finance Date: September 5, 1996 Date: September 9, 1996 14 (Local Currency-Single Jurisdiction) ISDA(R) International Swap Dealers Association, Inc. SCHEDULE to the Master Agreement dated as of August 9, 1996 between CoreStates Bank, N.A. and CSS Industries, Inc. ("Party A") ("Party B") Part 1. Termination Provisions. (a) "Specified Entity" means in relation to Party A for the purpose of:-- Section 5(a)(v), none Section S(a)(vi), none Section 5(a)(vii), none Section 5(b)(ii), none and in relation to Party B for the purpose of:-- Section 5(a)(v), none Section 5(a)(vi), none Section 5(a)(vii), none Section 5(b)(ii), none (b) "Specified Transactions" will have the meaning specified in Section 12 of this Agreement. (C) The "Cross Default" provisions of Section 5(a)(vi) will apply to Party A will apply to Party B If such provisions apply:-- "Specified Indebtedness" will have the meaning specified in Section 12 of this Agreement except that such term shall not include obligations in respect of deposits received in the ordinary course of a party's banking business. Threshold Amount" means, with respect to Party A, an amount (including its equivalent in another currency) equal to the higher of $10,000,000 or 2% of its stockholder's equity as reflected on its most recent financial statements or call reports, and with respect to Party B, $50,000. (d) The "Credit Event Upon Merger" provisions of Section 5(b)(ii) will apply to Party A will apply to Party B (e) The "Automatic Early Termination" provision of Section 6(a) will not apply to Party A will not apply to Party B (f) Payments on Early Termination. For purpose of Section 6(e) of this Agreement:-- (i) Market Quotation will apply. (ii) The Second Method will apply. (g) Additional Termination Event will not apply. Part 2. Agreement to Deliver Documents. For the purpose of Section 4(a) of this Agreement, each party agrees to deliver the following documents, as applicable:--
Party required to Form/Document/ Date by which Covered by deliver document Certificate to be delivered Section 3(d) Representation Party B Certificate Upon Execution Yes substantially in of this Agreement the form of Exhibit II Party B Opinion of Counsel Upon Execution No substantially in the of this Agreement form of Exhibit III
Part 3. Miscellaneous -2- (a) Addresses for Notices. For the purpose of Section 10 (a) of this Agreement:-- Address for notices or communications to Party A:-- Street Address: 1345 Chestnut Street, Philadelphia, PA 19107 Mailing Address: P.O. Box 8590, Philadelphia, PA 19101-8590 Attention: Investment Operations, F.C. 1-1-8-4 Attention: Ms. Wendy Havens FAX: (215) 973-8388 Phone: (215) 973-2385 Address for notices or communications to Party B:-- Address: 1845 Walnut Street\ Suite 800\ Phila, PA 19103-4755 Attention: Mr. Cliff Pietrafitta Telex No.: .................... Answerback: ...................... Facsimile No.: (215) 569-9979 Telephone No.: (215) 569-9900 Electronic Messaging System Details: ................................ (b) Calculation Agent. The Calculation Agent is Party A unless otherwise specified in a Confirmation in relation to the relevant Transaction. (c) Credit Support Document. N/A (d) Credit Support Provider. Credit Support Provider means in relation to Party A. None Credit Support Provider. Credit Support Provider means in relation to Party B. None (e) Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). 2(f) Netting of Payments. Subparagraph (ii) of Section 2(c) of this Agreement will not apply to any Transaction unless otherwise specified in a Confirmation in relation to the relevant Transaction. (g) "Affiliate" will have the meaning specified in Section 12 of this Agreement. Part 4. Other Provisions. -3- (a) Confirmations. Notwithstanding anything to the contrary in this Agreement: (i) The parties hereto agree that with respect to each Transaction hereunder a legally binding agreement shall exist from the moment that the parties hereto agree on the essential terms of such Transaction, which the parties anticipate will occur by telephone. (ii) For each Transaction Party A and Party B agree to enter into hereunder, Party A shall promptly send to Party B a Confirmation, substantially in the form of Exhibit I setting forth the terms of such Transaction. Party B shall execute and return the Confirmation to Party A or request correction of any error within three Business Days of receipt. Failure of Party B to respond within such period shall not affect the validity or enforceability of such Transaction and shall be deemed to be an affirmation of such terms. (b) Additional Agreements. (i) Each party agrees, upon learning of the occurrence of any event or commencement of any condition that constitutes (or that with the giving of notice or passage of time or both would constitute) an Event of Default or Termination Event with respect to the party, promptly to give the other party notice of such event or condition (or, in lieu of giving notice of such event or condition in the case of an event or condition that with the giving of notice or passage of time or both would constitute an Event of Default or Termination Event with respect to the party, to cause such event or condition to cease to exist before becoming an Event of Default or Termination Event). (ii) Party B agrees to give all notices described in (b)(i) of this Part 4 with respect to any Credit Support Provider. (c) Additional Representations. Section 3 of the Agreement is hereby amended by adding at the end thereof the following subsections (e) and (f): "(e) Eligible Swap Participant. It is an "eligible swap participant" as that term is defined by the Commodity Futures Trading Commission at 17 C.F.R. Section 35.1(b)(2)." "(f) Line of Business. It has entered into this Agreement (including each Transaction evidenced hereby) in conjunction with its line of business (including financial intermediation services) or the financing of its business." (d) FDIC Requirements. The following Additional Representations and Agreements will apply to Party A and will not apply to Party B: (i) The necessary action to authorize referred to in the -4- representation in Section 3 (a)(ii) of this Agreement includes all authorizations required under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and any regulations and guidelines thereunder. (ii) At all times during the term of this Agreement, it will continuously include and maintain as part of its official written books and records, this Agreement, this Schedule and all other exhibits, supplements, and attachments hereto and documents incorporated by reference herein, all Confirmations and evidence of all necessary approvals. In addition to any other remedies which the other party may have under this Agreement or otherwise, if it breaches or defaults on any of its obligations set forth in this subparagraph (ii), the other party shall be entitled to apply to any court of competent jurisdiction for an order requiring specific performance of such obligations, and it shall not contest any such application and shall comply with any such order. (e) Set-off. Section 6 of the Agreement is amended by adding the following new subsection 6(f): "(f) Set-off. Without affecting the provisions of this Agreement requiring the calculation of certain net payment amounts, all payments under this Agreement shall be made without set-off or counterclaim and will not be subject to any conditions except as provided in Section 2 of this Agreement and except as provided in this Section 6(f). Any amount (the 'Early Termination Amount') payable to one party (the 'Payee') by the other party (the 'Payer') under Section 6(e), in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5(b) has occurred, will, at the option of the party ('X') other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any amount(s) (the 'Other Agreement Amount') payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer (irrespective of the currency, place of payment or booking office of the obligation) under any other agreement(s) between the Payee and the Payer or instrument(s) or undertaking(s) issued or executed by one party to, or in favor of, the other party (and the other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off). X will give notice to the other party of any set-off effected under this Section 6(f). "For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency. -5- "If an obligation is unascertained, X may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained. "Nothing in this Section 6(f) shall be effective to create a charge or other security interest. This Section 6(f) shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise)." (f) Consent to Recording. Each Party (i) consents to the recording of the telephone conversations of trading and marketing personnel of the Parties and their Affiliates in connection with this Agreement or any potential Transaction and (ii) agrees to obtain any necessary consent of, and give notice of such recording to, such personnel of it and its Affiliates. (g) No Reliance. In connection with the negotiation of, the entering into, and the confirming of the execution of this Agreement, any Credit Support Document to which it is a party, each Transaction, and any other documentation relating to this Agreement that it is required by this Agreement to deliver, each party agrees and confirms that:(i) the other party hereto or thereto is not acting as a fiduciary or financial, investment, or commodity trading advisor for it; (ii) it is not relying (for purposes of making any investment decision or otherwise) upon any advice, counsel or representations (whether written or oral) of the other party hereto or thereto other than the representations expressly set forth in this Agreement, in such Credit Support Document, and in any Conformation; (iii) the other party hereto or thereto has not given to it (directly or indirectly through any other person) any assurance or guaranty whatsoever as to the merits (either legal, regulatory, tax, financial, accounting or otherwise) of this Agreement, such Credit Support Document, such Transaction or such other documentation; (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent deemed necessary, and it has made its own judgment and upon any advice as it has deemed necessary and not upon any view expressed by the other party hereto or thereto; (v) it has determined that all trading decisions have been the result of arm's length negotiations between the parties; (vi) it is entering into this Agreement, such Credit Support Document, such Transaction and such other documentation with a full understanding of all or the terms, condition and risks hereof and thereof (economic and otherwise), and it is capable of assuming and willing to assume (financially and otherwise) those risks; and (vii) it is a sophisticated investor. (h) Interest Rate Caps, Collars, Floors and Options. The condition precedent in Section 2(a)(iii)(1) of the Agreement does not apply to -6- a payment and delivery owing by a party if the other party shall have satisfied in full all its payments and delivery obligations under Section 2(a)(i) of this Agreement and shall at the relevant time have no future payment delivery obligations, whether absolute or contingent, under Section 2(a)(i). (i) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR ANY TRANSACTION CONTEMPLATED HEREBY. -7- 2000 One Logan Square Morgan, Lewis Philadelphia, PA 19103-6993 215-963-5000 & Bockius LLP Fax: 215-963-5299 C O U N S E L 0 R S A T L A W September 17, 1996 CoreStates Bank, N.A. 1345 Chestnut Street P.O. Box 7618 Philadelphia, PA 19101-7618 Re: ISDA Master Agreement, dated as of August 9, 1996, with CSS Industries, Inc. ----------------------------------------- Ladies and Gentlemen: We have acted as counsel to CSS Industries, Inc., a Delaware corporation (the "Company"), in connection with the execution and delivery of a Master Agreement (Local Currency--Single Jurisdiction), dated as of August 9, 1996 (the "Master Agreement"), between your Bank and the Company, on a standard form of the International Swap Dealers Association, Inc., providing for the completion from time to time of swap and other Transactions (as defined in the Master Agreement) between the parties thereto pursuant to the provisions thereof. This opinion is furnished to you pursuant to Part 2 of the schedule to the Master Agreement. In such capacity, we have examined facsimile copies of executed counterparts of the Master Agreement with its Schedule, dated as of August 9, 1996, attached thereto (which copies we assume conform with their originals in all respects) and such other documents and instruments, and we have conducted such other investigations of law and fact, as we have deemed necessary for purposes of this opinion. As to certain questions of fact material to the opinions expressed herein, we have, with your permission, relied without independent investigation on certificates of officers of the Company. Based on the foregoing, we are of the opinion that: 1. The Company is duly incorporated and validly existing under the laws of the State of Delaware and has the necessary power and authority to execute and deliver, and to perform its obligations under, the Master Agreement. Philadelphia Washington New York Los Angeles Miami Harrisburg Pittsburgh Princeton London Brussels Frankfurt Tokyo Singapore Jakarta Morgan, Lewis CoreStates Bank, N.A. & Bockius LLP September 17, 1996 Page 2 2. The execution and delivery of the Master Agreement by the Company and the performance by the Company of its obligations thereunder have been duly authorized by all necessary corporate action and do not contravene any provision of the certificate of incorporation or bylaws of the Company or any law or regulation binding upon the Company or any restriction under any contract, known to us, to which the Company is a party or by which it may be bound or by which any of its properties may be affected. References herein to matters "known to us" are limited to the actual knowledge of the attorneys of this firm who have primary responsibility for this firm's representation of the Company or who have been actively engaged in connection with the Master Agreement and the Loan Agreement, dated November 15, 1995, among the Company, your Bank as Administrative Agent and the lenders identified therein. This opinion is limited to matters governed by the federal laws of the United States, the laws of the Commonwealth of Pennsylvania and the State of New York and the General Corporation Law of the State of Delaware, and no opinion is herein expressed with respect to the laws of any other jurisdiction. This opinion is intended for your exclusive benefit in connection with the transactions contemplated by the Master Agreement and without our permission may not be furnished to or relied upon by any other person or in connection with any other transaction, except that a copy of this opinion may be furnished to and relied upon by any other institutional lender acquiring any interest in any of the transactions contemplated by the Master Agreement. Very truly yours, /s/ Morgan, Lewis & Bockius LLP - ------------------------------- CERTIFICATE OF SECRETARY OF CSS INDUSTRIES, INC. -------------------- I, the undersigned Secretary of CSS Industries, Inc., (the "Company"), DO HEREBY CERTIFY as such officer that: 1. Attached hereto as Exhibit A is a true, correct and complete copy of resolutions duly adopted by the Executive Committee of the Board of Directors of the Company, which resolutions have not been revoked, modified, amended or rescinded and are in full force and effect as of the date hereof 2. The person(s) named below has(have) been duly elected to and currently hold the office or offices set forth opposite their respective names. Each respective officer's genuine signature has been set forth after his name and title. Name Title Stephen V. Dubin Senior Vice President, Law and Human Resources and Secretary Clifford E. Pietrafitta Vice President of Finance, Treasurer and Assistant Secretary IN WITNESS WHEREOF, I have executed this certificate this 16th day of September, 1996. /s/ Stephen V. Dubin ------------------------------- Stephen V. Dubin, Secretary I, Vice President of Finance, Treasurer and Assistant Secretary of the Company, do hereby certify that Stephen V. Dubin is the duly elected and acting Secretary of the Company and that the signature above is his genuine signature. /s/ Clifford E. Pietrafitta ----------------------------------------------- Clifford E. Pietrafitta, Vice President of Finance, Treasurer and Assistant Secretary EXHIBIT "A" ----------- RESOLUTIONS OF THE EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS OF CSS INDUSTRIES, INC. -------------------- RESOLVED, that the terms and provisions of the International Swap Dealers Association, Inc. Master Agreement dated as of August 9, 1996 ("Agreement"), a copy of which has been marked as Exhibit "A" for identification and is attached hereto, between CoreStates Bank, N.A. and CSS Industries, Inc. be, and they hereby are, ratified and approved in all respects, and be it further RESOLVED, that the officers of CSS Industries, Inc., and any of the acting singly, be, and they hereby are, authorized to execute and deliver such Agreement on behalf of CSS Industries, Inc. and to take such further or other action as is deemed necessary or appropriate to implement such Agreement. EX-10 5 EXHIBIT 10.10 CSS INDUSTRIES, INC. EQUITY COMPENSATION PLAN ------------------------ (as amended effective 5/7/96) The purpose of the Equity Compensation Plan (the "Plan") of CSS Industries, Inc. (the "Company") is to promote the interests of the Company by providing incentives to designated officers and other employees of the Company or a Subsidiary Corporation (as defined herein), to encourage them to acquire a proprietary interest, or to increase their proprietary interest, in the Company. The Company believes that the Plan will cause participants to contribute materially to the growth of the Company, thereby benefitting the Company's stockholders. For purposes of the Plan, the terms "Parent Corporation" and "Subsidiary Corporation" shall have the meanings set forth in subsections (e) and (f) of Section 424 of the Internal Revenue Code of 1986, as amended (the "Code"). 1. Administration -------------- The Plan shall be administered and interpreted by the Human Resources Committee of the Board of Directors (the "Committee") consisting of not less than three persons, all of whom shall be "disinterested persons" as defined under Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") or any successor provisions and all of whom shall be "outside directors" as defined under section 162(m) of the Code and related Treasury regulations. The Committee shall have the sole authority to determine (i) who is eligible to receive Grants (as defined in Section 2 below) under the Plan; (ii) the type, size and terms of each Grant under the Plan (subject to Section 4 below); (iii) the time when each Grant will be made and the duration of any exercise or restriction period; (iv) any restrictions on resale applicable to the shares to be issued or transferred pursuant to the Grant; and (v) any other matters arising under the Plan. The Committee may, if it so desires, base any of the foregoing determination upon the recommendations of management of the Company. The Committee shall have full power and authority to administer and interpret the Plan and to adopt or amend such rules, regulations, agreements and instruments as it may deem appropriate for the proper administration of the Plan. The Committee's interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interests in the Plan or in any Grants under the Plan. No person acting under this Section shall be held liable for any action or determination made in good faith with respect to the Plan or any Grant under the Plan. 2. Grants ------ Incentives under the Plan shall consist of Incentive Stock Options (as defined in Section 5(b) below), Non-Qualified Stock Options (as defined in Section 5(b) below), Restricted Stock Grants (as defined in Section 6 below) and SARs (as defined in Section 7 below) (hereinafter collectively referred to as "Grants"). All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions of any nature as long as they are not inconsistent with the Plan as the Committee deems appropriate and specifies in writing to the participant (the "Grant Letter"). The Committee shall approve the form and provisions of each Grant Letter. Grants under any section of the Plan need not be uniform as among the participants receiving the same type of Grant, and Grants under two or more sections of the Plan may be combined in one Grant Letter. 3. Shares Subject to the Plan -------------------------- (a) The aggregate number of shares of the Common Stock, par value $.10 ("Common Stock"), of the Company that may be issued or transferred under the Plan is 1,000,000 shares, subject to adjustment pursuant to Section 3(b) below. The maximum aggregate number of shares of Company Stock that shall be subject to options or restricted stock grants under the Plan to any single individual shall be 50% of the aggregate number of shares specified in the preceding sentence. The shares may be authorized but unissued shares or reacquired shares. If and to the extent that options granted under the Plan terminate, expire or are cancelled without having been exercised (including shares cancelled as part of an exchange of Grants), or if any shares of restricted stock are forfeited, the shares subject to such Grant shall again be available for subsequent Grants under the Plan. (b) If any change is made to the Common Stock (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination of shares, or exchange of shares or any other change in capital structure made without receipt of consideration), then unless such event or change results in the termination of all outstanding Grants under the Plan, the Committee shall preserve the value of the outstanding Grants by adjusting the maximum number and class of shares issuable under the Plan to reflect the effect of such event or change in the Company's capital structure, and by making appropriate adjustments to the number and class of shares, the exercise price of each outstanding option and otherwise, except that any fractional shares resulting from each adjustments shall be eliminated by rounding any portion of a share equal to .500 or greater up, and any portion of a share equal to less than .500 down, in each case to the nearest whole number. 4. Eligibility for Participation ----------------------------- Officers and other employees of the Company or a Subsidiary Corporation shall be eligible to participate in the Plan (referred to individually as an "Eligible Participant" and collectively as "Eligible Participants"). The Committee shall select from among the Eligible Participants those who will receive Grants (referred to individually as "Grantee" and collectively as "Grantees") and shall determine the number of shares of Common Stock subject to each Grant. The Committee may, if it so desires, base any such selections or determinations upon the recommendations of management of the Company. Nothing contained in the Plan shall be construed to limit in any manner whatsoever the right of the Company to grant rights or options to acquire Common Stock or awards of Common Stock otherwise than pursuant to the Plan. 5. Stock Options ------------- (a) Number of Shares. The Committee, in its sole discretion, shall determine the number of shares of Common Stock that will be subject to each option. 2 (b) Type of Option and Option Price. (1) The Committee may grant options qualifying as incentive stock options within the meaning of Section 422 of the Code ("Incentive Stock Options") and other stock options ("NonQualified Stock Options"), in accordance with the terms and conditions set forth herein, or may grant any combination of Incentive Stock Options and NonQualified Stock Options (hereinafter referred to collectively as "Stock Options"). The option price per share of an Incentive Stock Option shall be the fair market value (as defined herein) of a share of Common Stock on the date of grant. However, if the Grantee of an Incentive Stock Option is the owner of Common Stock (as determined under section 424(d) of the Code) who possesses more than 10% of the total combined voting power of all classes of stock of the Company or a Parent Corporation or Subsidiary Corporation, the option price per share in the case of an Incentive Stock Option shall not be less than 110% of the fair market value of a share of Common Stock on the date of grant. The option price per share of a Non-Qualified Stock Option shall be an amount determined by the Committee in the exercise of its discretion, but in no event shall such option price be less than the book value of a share of Common Stock on the date of grant unless an option price of less than such book value is approved by the Board of Directors of the Company. (2) For all valuation purposes under the Plan, the fair market value of a share of Common Stock shall be determined in accordance with the following provisions: (A) If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded either on the over-the-counter market or listed on Nasdaq National Market segment of the Nasdaq Stock Market, the fair market value shall be the closing selling price of one share of Common Stock on the date immediately preceding the date in question as such price is reported by the NASDAQ system or any successor system. If there is no reported closing selling price for the Common Stock on the date immediately preceding the date in question, then the closing selling price on the next preceding date for which such quotation exists shall be determinative of fair market value. (B) If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the fair market value shall be the closing selling price of one share of Common Stock on the date immediately preceding the date in question on the stock exchange determined by the Committee to be the primary market for the Common Stock, as such prices are officially quoted on such exchange. If there is no reported closing selling price of Common Stock on such exchange on the date immediately preceding the date in question, then the fair market value shall be the closing selling price on the 3 next preceding date for which such quotation exists. (C) If the Common Stock is at the time neither listed or admitted to trading on any stock exchange nor traded in the over-the-counter market (or, if the Committee determines that the value as determined pursuant to Section 5(b) (2) (A) or (B) above does not reflect fair market value), then the Committee shall determine fair market value after taking into account such factors as it deems appropriate. (c) Exercise Period. The Committee shall determine the option exercise period of each Stock Option. The exercise period shall not exceed ten years from the date of grant. However, if the Grantee of an Incentive Stock Option is the owner of Common Stock (as determined under Section 424(d) of the Code) who then possesses more than 10% of the total combined voting power of all classes of stock of the Company or a Parent Corporation or Subsidiary Corporation, the exercise period shall not exceed five years. (d) Vesting of Options and Restrictions on Shares. The vesting period for Stock Options shall commence on the date of grant and shall end on the date or dates, determined by the Committee, that shall be specified in the Grant Letter. The Committee may impose upon the shares of Common Stock issuable upon the exercise of a Stock Option such restrictions as it deems appropriate and specifies in the Grant Letter. During any period in which such restrictions apply, the provisions of Section 6(d) below shall be applicable to such shares, and the Committee, in such circumstances as it deems equitable, may determine that all such restrictions shall lapse. (e) Manner of Exercise. A Grantee may exercise a Stock Option by delivering a duly completed notice of exercise to the Secretary of the Company, together with payment of the option price. (f) Termination of Employment, Disability or Death. (1) If a Grantee ceases to be an Eligible Participant for any reason other than either by reason of the death of such Grantee, the termination for cause of the Grantee's employment by the Company, or the Grantee's voluntary termination of his or her employment with the Company, any Stock Option which is otherwise exercisable by the Grantee shall terminate unless exercised within ninety days following the date on which the Grantee ceases to be an Eligible Participant (or within such other period of time, which may be longer or shorter than ninety days, as may be specified in the Grant Letter). (2) In the event of a death of a Grantee while he or she is an Eligible Participant or within not more than ninety days following the date on which the Grantee ceases to be an Eligible Participant (or within such other period of time, which may be longer or shorter than ninety days, as may be specified in the Grant Letter), any Stock Option which was otherwise exercisable by the Grantee at the date of death may be exercised by the 4 Grantee's personal representative at any time prior to the expiration of one hundred eighty days from the date of death, but in any event no later than the date of expiration of the option exercise period. (3) If a Grantee ceases to be an Eligible Participant either by reason of termination of the Grantee's employment by the Company for cause or the Grantee's voluntary termination of such employment, any Stock Option which is otherwise exercisable by the Grantee shall terminate on the date of termination of employment with the Company. (g) Satisfaction of Option Price. The Grantee shall pay the option price specified in the Grant Letter in (i) cash, (ii) with the consent of the Committee in its sole discretion, by delivering shares of Common Stock already owned by the Grantee and having a fair market value on the date immediately preceding the date of exercise equal to the option price (iii)* with the consent of the Committee in its sole discretion, with the proceeds of a promissory note payable by the Optionee to the Company, but only in accordance with the provisions of a Loan Program established by the Company, or any successor program as in effect from time to time, (A) in a principal amount of up to 100% of the payment due upon the exercise of the Stock Option, or such applicable lower percentage as may be specified by the Committee pursuant to the Loan Program, and (B) bearing interest at a rate not less than the applicable Federal rate prescribed by Section 1274 of the Code, or such higher rate as may be specified by the Committee pursuant to the Loan Program or (iv) through any combination of (i), (ii) or (iii). The Optionee shall pay the option price and the amount of withholding tax due, if any, at the time of exercise. Shares of Company Stock shall not be issued or transferred upon exercise of a Stock Option until the option price is fully paid. (h) Limits on Incentive Stock Options. Each Grant of an Incentive Stock Option shall provide that: (1) the Stock Option is not transferable by the Grantee, except, in the case of an individual Grantee, by will or the laws of descent and distribution; (2) the Stock Option is exercisable only by the Grantee, except as otherwise provided herein or in the Grant Letter in the event of the death of an individual Grantee; (3) the aggregate fair market value of the Common Stock on the date of the Grant with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year under the Plan and under any other stock option plan of the Company shall not exceed $100,000; and (4) unless the Grantee could otherwise transfer Common Stock issued pursuant to the Stock Option without incurring liability under Section 16(b) of the Exchange Act, at least six months must elapse from the date of acquisition of the Stock Option until the date of disposition of the Common Stock issued upon exercise 5 thereof. 6. Restricted Stock Grants ----------------------- The Committee may issue shares of Common Stock to an Eligible Participant pursuant to an incentive or long range compensation plan, program or contract approved by the Committee (a "Restricted Stock Grant"). The following provisions are applicable to Restricted Stock Grants: (a) General Requirements. Shares of Common Stock issued pursuant to a Restricted Stock Grant will be issued for or in consideration for cash or services rendered having a value, as determined by the Committee, at least equal to the par value thereof. All conditions and restrictions imposed under each Restricted Stock Grant, and the period of years during which the Restricted Stock Grant will remain subject to such restrictions, shall be set forth in the Grant Letter and designated therein as the "Restriction Period." All restrictions imposed under any Restricted Stock Grant shall lapse on such date or dates as the Committee may approve until the restrictions have lapsed as to 100% of the shares. In addition, the Committee, in circumstances that it deems equitable, may determine as to any or all Restricted Stock Grants, that all the restrictions shall lapse, notwithstanding any Restriction Period. (b) Number of Shares. The Committee, in its sole discretion, shall determine the number of shares of Common Stock that will be granted in each Restricted Stock Grant. (c) Requirement of Relationship with Company. If the Grantee's relations with the Company as an employee terminates during the period designated in the Grant Letter as the Restriction Period, the Restricted Stock Grant shall terminate as to all shares covered by the Grant as to which restrictions on transfer have not lapsed, and such shares shall be immediately returned to the Company. The Committee may, in its sole discretion, provide for complete or partial exceptions to the provisions of this Section 6(c). (d) Restrictions on Transfer and Legend on Stock Certificate. During the Restriction Period, a Grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares of Common Stock to which such Restriction Period applies except to a Successor Grantee pursuant to Section 8 below. Each certificate representing a share of Common Stock issued or transferred under a Restricted Stock Grant shall contain a legend giving appropriate notice of the restrictions in the Grant. The Grantee shall be entitled to have the legend removed from the stock certificate or certificates representing any such shares as to which all restrictions have lapsed. (e) Stockholder Rights. Except as provided in this Section 6, the Grantee shall have, with respect to shares of Common Stock issued pursuant to a Restricted Stock Grant, all of the rights of a stockholder, including the right to vote the shares and the right to receive any dividends thereon. 7. Stock Appreciation Rights ------------------------- 6 (a) General Provisions. Stock Appreciation Rights ("SARs") may be granted in conjunction with all or part of any Stock Option granted under the Plan. In the case of a NonQualified Stock Option, such rights may be granted either at or after the time of grant of such Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of grant of such Stock Option. The exercise price of each SAR shall be equal to (i) the exercise price or option price of the related Stock Option or (ii) the fair market value of a share of Common Stock as of the date of grant of such SARs (as determined in accordance with the valuation method set forth in Section 5(b)(2) hereof), but only in such circumstances where the SAR is granted subsequent to the date of grant of the related Stock Option and an exercise price established in accordance with clause (i) above would result in the disallowance of the Company's expense deduction pursuant to Section 162(m) of the Code. (b) Number of SARs. The number of SARs granted to a Grantee which shall be exercisable during any given period of time shall not exceed the number of shares of Common Stock which the Grantee may purchase upon the exercise of the related Stock Option during such period. Upon the exercise of a Stock Option, the SARs relating to the Common Stock covered by the Stock Option shall terminate. Upon the exercise of any SARs, the related Stock Option shall terminate to the extent of an equal number of shares of Common Stock. (c) Settlement Amount. Upon a Grantee's exercise of some or all of the Grantee's SARs, the Grantee shall receive in settlement of such SARs an amount equal to the stock appreciation (as defined herein) for the number of SARs exercised, payable in cash, Common Stock or a combination thereof. The "stock appreciation" for an SAR is the difference between the option price specified for the related Stock Option and the fair market value of the underlying Common Stock (as determined in accordance with the valuation method set forth in Section 5 (b)(2) hereof),on the date of exercise of the SAR. (d) Settlement Election. Upon a Grantee's exercise of any SARs, the Grantee shall have the right to elect the portions of the settlement amount that the Grantee desires to receive in cash and shares of Common Stock, respectively. For purposes of calculating the number of shares of Common Stock to be received upon settlement, shares of Common Stock shall be valued at their fair market value (as determined in accordance with the valuation method set forth in Section 5 (b)(2) hereof), on the date of exercise of the SARs. Notwithstanding the foregoing, the Committee shall have the right (i) to disapprove a Grantee's election to receive such settlement in whole or in part in cash, and to require that shares of Common Stock be delivered in lieu of cash or (ii) to require that settlement be made in cash if the Company does not or may not in the future have sufficient shares authorized for issuance. If shares of Common Stock are to be received upon exercise of an SAR, cash shall be delivered in lieu of any fractional share. (e) Exercise. An SAR is exercisable only during the period when the Stock Option to which it is related is also exercisable. No SAR may be exercised, in whole or in part, by any person who is subject to Section 16 of the Exchange Act except in accordance with Rule 16b-3(e) under the Exchange Act. 7 8. Transferability of Options and Grants ------------------------------------- Only a Grantee (or, in the case of an individual Grantee, his or her authorized legal representative) may exercise rights under a Grant. No individual Grantee may transfer those rights except by will or by the laws of descent and distribution or, if permitted under Rule 16b-3 of the Exchange Act and by the Committee in its sole discretion, pursuant to a qualified domestic relations order as defined under the Code or Title I of ERISA or the rules thereunder. Upon the death of an individual Grantee, the personal representative or other person entitled to succeed to the rights of the Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee shall furnish proof satisfactory to the Company of such person's right to receive the Grant under the Grantee's will or under the applicable laws of descent and distribution. 9. Certain Corporate Changes ------------------------- (a) Sale or Exchange of Assets, Dissolution or Liquidation, or Merger or Consolidation Where the Company Does Not Survive. If all or substantially all of the assets of the Company are to be sold or exchanged, the Company is to be dissolved or liquidated, or the Company is a party to a merger or consolidation with another corporation in which the Company will not be the surviving corporation, then, at least ten days prior to the effective date of such event, the Company shall give each Grantee with any outstanding Grants written notice of such event and shall indicate in such notice one of the following determinations by the Committee (which determination shall be made in the exercise of the sole and absolute discretion of the Committee and shall be binding on the Grantee): (i) the Grantee shall have the right to exercise in full any installments of such Grants not previously exercised (whether or not the right to exercise such installments has accrued pursuant to such Grants), within ten days after such written notice is sent by the Company, and any installments of such Grants not so exercised shall thereafter lapse and be of no further force or effect; or, (ii) the Grantee shall receive new Grants in substitution for any then unexpired Grants under terms set forth in such notice; or, (iii) any such successor to the Company shall assume any then unexpired Grants in accordance with their terms. (b) Merger or Consolidation Where the Company Survives. If the Company is a party to a merger or consolidation in which the Company will be the surviving corporation, then the Committee may, in its sole and absolute discretion, elect to give each Grantee with any outstanding Grants written notice of such event. If such notice is given, each such Grantee shall thereupon have the right to exercise in full any installments of such Grants not previously exercised (whether or not the right to exercise such installments has accrued pursuant to such Grants), within ten days after such written notice is sent by the Company. Any installments of such Grants not so exercised shall thereafter lapse and be of no further force or effect. 10. Stockholder Approval -------------------- The Plan is subject to and no Options shall be exercisable hereunder until after approval of the Plan by holders of a majority of the shares of Common Stock present or represented by a 8 proxy in a separate vote at a duly held meeting of the stockholders of the Company within twelve months after the date of the adoption of the Plan by the Board of Directors. 11. Approval By The Committee ------------------------- The Plan is subject to and no Options or SARs shall be exercisable hereunder until after approval of the Plan and Grants by the Committee which is comprised solely of the then directors who are (i) not presently employees of the Company (or related entities); (ii) not former employees still receiving compensation for prior services (other than benefits under a tax-qualified pension plan); (iii) not officers of the Company (or related entities) at any time; and (iv) not currently receiving compensation for personal services in any capacity other than as a director. 12. Amendment and Termination of the Plan ------------------------------------- (a) Amendment. The Board of Directors may amend or terminate the Plan at any time, subject to the following limitations: (1) the approval by the stockholders of the Company and approval by the Committee shall be required in respect or any amendment that (a) materially increases the benefits accruing to Eligible Participants under the Plan, (b) increases the aggregate number of shares of Common Stock that may be issued or transferred under the Plan (other than by operation of Section 3(b) above), (c) increases the maximum number of shares of Common Stock for which any Grantee may be granted options under the Plan, (d) materially modifies the requirements as to eligibility for participation in the Plan, or (e) modifies the provisions for determining the fair market value of a share of Common Stock; and (2) the Board of Directors shall not amend the Plan if such amendment would cause the Plan, any Grant or the exercise of any right under the Plan to fail to comply with the requirements of Rule 16b-3 under the Exchange Act, or if such amendment would cause the Plan or the Grant or exercise of an Incentive Stock Option to fail to comply with the requirements of Section 422 of the Code including, without limitation, a reduction of the option price set forth in Section 5(b) above or an extension of the periods during which an Incentive Stock Option may be exercised as set forth in Section 5(c) above. (b) Termination of the Plan. The Plan shall terminate on the tenth anniversary of its effective date (as set forth in Section 19 below) unless earlier terminated by the Board of Directors. (c) Termination and Amendment of Outstanding Grants. A termination or amendment of the Plan that occurs after a Grant is made shall not result in the termination or amendment of the Grant unless the Grantee consents or unless the Committee acts under Section 20(b) below. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant. Whether or not the Plan has terminated, an outstanding Grant may be 9 terminated or amended under Section 20(b) below or may be amended by agreement of the Company and the Grantee which is consistent with the Plan. 13. Funding of the Plan ------------------- The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under the Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants. 14. Rights of Eligible Participants ------------------------------- Nothing in the Plan shall entitle any Eligible Participant or other person to any claim or right to any Grant under the Plan. Neither the Plan nor any action taken hereunder shall be construed as giving any eligible Participant or Grantee any rights to be retained by the Company in any capacity, whether as an employee, non-employee member of the Board of Directors, independent contractor, consultant or otherwise. 15. Withholding of Taxes -------------------- The Company shall have the right to deduct from all Grants paid in cash any federal, state or local taxes required by law to be withheld with respect to such Grants paid in cash. In the case of Grants paid in Common Stock, the Company shall have the right to require the Grantee to pay to the Company the amount of any taxes which the Company is required to withhold in respect of such Grants or to take whatever action it deems necessary to protect the interest of the Company in respect of such tax liabilities, including, without limitation, withholding a portion of the shares of Common Stock otherwise deliverable pursuant to the Plan. The Company's obligation to issue or transfer shares of Common Stock upon the exercise of a Stock Option or SAR or the acceptance of a Restricted Stock Grant shall be conditioned upon the Grantee's compliance with the requirements of this Section to the satisfaction of the Committee. 16. Agreements with Grantees ------------------------ Each Grant made under the Plan shall be evidenced by a Grant Letter containing such terms and conditions as the Committee may from time to time approve. 17. Requirements for Issuance of Shares ----------------------------------- No Common Stock shall be issued or transferred under the Plan unless and until all applicable legal requirements have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Stock Option, Restricted Stock Grant or SAR on the Grantee's undertaking in writing to comply with such restrictions on any subsequent dispositions of the shares of Common Stock issued or transferred thereunder as is deemed 10 necessary or advisable as a result of any applicable law, regulation or official interpretation thereof, and certificates representing such shares may be legended to reflect any such restrictions. 18. Headings -------- The section headings of the Plan are for reference only. In the event of a conflict between a section heading and the content of a Section of the Plan, the content of the Section shall control. 19. Effective Date -------------- The provisions of the Plan shall be effective as of the date the Plan is adopted by the Board of Directors of the Company, subject to the approval of the Company's stockholders within twelve months of the effective date. 20. Miscellaneous ------------- (a) Substitute Grants. The Committee may make a Grant to an employee who was an employee of another corporation and became an Eligible Participant by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company or a Subsidiary Corporation and such other corporation. Any such Grant shall be made in substitution for a stock option or restricted stock grant granted by the other corporation ("Substituted Stock Incentives"), but the terms and conditions of the substitute Grant may vary from the terms and conditions required by the Plan and from those of the Substituted Stock Incentives. The Committee shall prescribe the provisions of the substitute Grants. (b) Compliance with Law. The Plan, the exercise of Grants and the obligations of the Company to issue or transfer shares of Common Stock under Grants shall be subject to all applicable laws and required approvals by governmental or regulatory agencies. With respect to persons subject to Section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan shall comply with all applicable conditions of Rule 16b-3 or any successor provisions under the Exchange Act. The Committee may revoke any Grant if it is contrary to law or modify any Grant to bring it into compliance with any then applicable government regulations. The Committee may also adopt rules regarding the withholding of taxes on payments to Grantees. (c) Ownership of Stock. A Grantee or Successor Grantee shall have no rights as a stockholder with respect to any shares of Common Stock covered by a Grant until the shares are issued or transferred to the Grantee or Successor Grantee on the stock transfer records of the Company. (*This Amendment shall be effective as of January 23, 1996, with respect to all options granted after such date.) 11 EX-10 6 EXHIBIT 10.17 401(K) PROFIT SHARING PLAN OF RAPIDFORMS, INC. As Amended and Restated Effective as of July 1, 1996
INTRODUCTION.................................................................................................... v SECTION I. DEFINITIONS................................................................................... 1 1.1 "Account"..................................................................................... 1 1.2 "Affiliated Company".......................................................................... 1 1.3 "Amendment Effective Date".................................................................... 1 1.4 "Anniversary Date"............................................................................ 1 1.5 "Code"........................................................................................ 1 1.6 "Committee"................................................................................... 1 1.7 "Company"..................................................................................... 1 1.8 "Compensation"................................................................................ 1 1.9 "Effective Date".............................................................................. 2 1.10 "Elective Deferral Account"................................................................... 2 1.11 "Employee".................................................................................... 2 1.12 "ERISA"....................................................................................... 2 1.13 "Five Percent Owner".......................................................................... 2 1.14 "414(q)(7) Compensation"...................................................................... 2 1.15 "Fund"........................................................................................ 2 1.16 "Highly Compensated Employee"................................................................. 2 1.17 "Hour of Service"............................................................................. 4 1.18 "Investment Fund"............................................................................. 5 1.19 "Key Employee"................................................................................ 5 1.20 "Leased Employee"............................................................................. 5 1.21 "Limitation Year"............................................................................. 5 1.22 "Matching Contribution Account"............................................................... 5 1.23 "Member"...................................................................................... 5 1.24 "Non-Highly Compensated Employee"............................................................. 5 1.25 "Non-Key Employee"............................................................................ 5 1.26 "Normal Retirement Age"....................................................................... 6 1.27 "Participating Member"........................................................................ 6 1.28 "Plan"........................................................................................ 6 1.29 "Plan Year"................................................................................... 6 1.30 "Profit Sharing Account"...................................................................... 6 1.31 "QDRO"........................................................................................ 6 1.32 "Qualified Joint and Survivor Annuity"........................................................ 6 1.33 "Qualified Non-Elective Contribution Account"................................................. 6 1.34 "REA"......................................................................................... 6 1.35 "Rollover Account(s)"......................................................................... 6 1.36 "Sponsor"..................................................................................... 6 1.37 "Spouse"...................................................................................... 6 1.38 "TEFRA"....................................................................................... 6 1.39 "Total Disability"............................................................................ 6 1.40 "Trustee"..................................................................................... 7 SECTION II. PARTICIPATION AND SERVICE..................................................................... 7 2.1 Initial Eligibility........................................................................... 7 2.2 Break-in-Service.............................................................................. 7
i
2.3 Readmission After Termination of Employment................................................... 8 SECTION III. CONTRIBUTIONS................................................................................. 8 3.1 Amount of Contributions....................................................................... 8 3.2 Timining of Contributions..................................................................... 8 SECTION IV. CREDITS OF MEMBERS............................................................................ 8 4.1 Allocation of Company Contributions........................................................... 9 4.2 Eligibility................................................................................... 9 4.3 Participating Members......................................................................... 9 4.4 Allocation of Realized Gains, Losses and Expenses............................................. 9 4.5 Annual Additions Limitations.................................................................. 10 4.6 Allocation of Amounts in Excess of Section 415 Limitations.................................... 11 4.7 Annual Additions Limitations for Multiple Plans............................................... 12 4.8 Allocation Date............................................................................... 12 4.9 Valuation - Fund Assets....................................................................... 12 4.10 Valuation - Profit Sharing Account and Rollover Account(s).................................... 12 SECTION V. VESTING....................................................................................... 13 5.1 Profit Sharing Account, Matching Contribution Account, Qualified Non-Elective Contribution Account, Elective Deferral Account and Rollover Account(s)........................................................................... 13 SECTION VI. EMPLOYEE ELECTIVE CASH OR DEFERRED ARRANGEMENT................................................ 14 6.1 Definitions................................................................................... 14 6.2 Amount and Timing of Elective Deferrals....................................................... 16 6.3 Amount of Matching Contributions.............................................................. 17 6.4 Amount of Qualified Non-Elective Contributions................................................ 17 6.5 Amount of Voluntary Non-deductible Contributions.............................................. 17 6.6 Excess Elective Deferrals..................................................................... 17 6.7 Actual Deferral Percentage Test............................................................... 18 6.8 Average Contribution Percentage Test.......................................................... 20 6.9 Allocation and Valuation...................................................................... 23 6.10 Distribution (Normal and Hardship)............................................................ 23 SECTION VII. TOP HEAVY PLAN RULES.......................................................................... 25 7.1 General Rule.................................................................................. 25 7.2 Determination of Top Heavy Status............................................................. 25 7.3 Minimum Contribution.......................................................................... 27 7.4 Vesting....................................................................................... 28 SECTION VIII. INVESTMENT OF FUNDS........................................................................... 29 8.1 Vesting....................................................................................... 29 8.2 Investment Direction by Members............................................................... 29 8.3 Accounting Procedure.......................................................................... 29 8.4 Failure to Direct Investment.................................................................. 30 SECTION IX. DISTRIBUTION OF BENEFITS...................................................................... 30
ii
9.1 Distribution in General....................................................................... 30 9.2 Death or Disability........................................................................... 30 9.3 Valuation and Retirement Options.............................................................. 30 9.4 Form of Benefit............................................................................... 30 9.5 Termination of Employment Other Than Because of Death, Total Disability or Retirement...................................................................... 36 9.6 Annual Fund Adjustments....................................................................... 39 9.7 Death Benefits................................................................................ 39 9.8 Designation of Beneficiary.................................................................... 39 9.9 Payment to Minors, etc........................................................................ 40 9.10 Commencement of Benefits...................................................................... 40 9.11 Loans to Members.............................................................................. 40 9.12 Nonalienation of Benefits..................................................................... 43 9.13 Receipt of Domestic Relations Order........................................................... 43 9.14 Qualified Spousal Consent..................................................................... 44 9.15 Direct Rollovers.............................................................................. 44 SECTION X. THE COMMITTEE................................................................................. 45 10.1 Appointment of Committee...................................................................... 45 10.2 Adoption of Rules............................................................................. 45 10.3 Delegation;Contracting for Services........................................................... 45 10.4 Construction of the Plan...................................................................... 46 10.5 Records....................................................................................... 46 10.6 Member's Access to the Committee.............................................................. 46 10.7 Designation of Plan Administrator; Power and Duties of the Committee..................................................................................... 46 10.8 Review of Decisions of the Committee.......................................................... 46 10.9 Reporting and Disclosure...................................................................... 46 10.10 Indemnification............................................................................... 47 10.11 Service of Legal Process...................................................................... 47 SECTION XI. DISTRIBUTION OF BENEFITS...................................................................... 47 11.1 Distribution in General....................................................................... 47 11.2 Voluntary Termination......................................................................... 47 11.3 Liability of the Company...................................................................... 48 11.4 Plan and Trust Qualification.................................................................. 48 SECTION XII. MISCELLANEOUS................................................................................. 48 12.1 Plan Creates No Contract of Employment........................................................ 48 12.2 Exclusive Benefit of Funds.................................................................... 48 12.3 Transfer from Qualified Funds................................................................. 48 12.4 Severability of Provisions.................................................................... 49 12.5 Mergers and Consolidation of Plans............................................................ 49 12.6 Exclusive Benefit; Refund of Contributions.................................................... 50 12.7 Liquidation of the Company.................................................................... 50 12.8 Location of Member or Beneficiary Unknown..................................................... 50 12.9 Headings and Captions......................................................................... 50
iii INTRODUCTION ------------ This Plan is to provide eligible Employees of RapidForms, Inc., and Affiliated Companies who adopt the Plan, with deferred compensation. This Plan was originally effective August 8, 1965 as the RapidForms, Inc. Profit Sharing Plan. The RapidForms, Inc. Profit Sharing Plan is being amended and restated effective July 1, 1996 due to (1) the merger of the RapidForms, Inc. 401(k) Plan and the Russell & Miller, Inc. Profit Sharing Plan into it and (2) the addition of a 401(k) salary reduction feature. This Plan is a deferred compensation plan qualified under Section 401(a) of the Internal Revenue Code. It includes this Plan and the related Trust Agreement. All trust assets held under the Plan and Trust will be administered, distributed, forfeited and otherwise governed by the provisions of this Plan and the Trust Agreement. The Plan is administered by an administrative Committee for the exclusive benefit of Members (and their beneficiaries). iv RAPIDFORMS, INC. 401(K) PROFIT SHARING PLAN As Amended and Restated Effective as of July 1, 1996 SECTION I. DEFINITIONS 1.1 "Account" shall mean the entire interest of a Member in the Plan. A Member's Account will consist of the sum of the Profit Sharing Account, Rollover Account(s), Elective Deferral Account, Matching Contribution Account and Qualified Non-Elective Contribution Account. 1.2 "Affiliated Company" shall mean (a) any entity included with the Company in a controlled group of corporations (as defined in Code Section 414(b)); (b) a trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)); (c) any organization (whether or not incorporated) in an affiliated service group (as defined in Code Section 414(m)); and (d) any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o). 1.3 "Amendment Effective Date" shall mean July 1, 1996, the date when this Restated Plan shall be effective. 1.4 "Anniversary Date" shall mean any January 1 after the Effective Date. 1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.6 "Committee" shall mean the administrative Committee appointed as provided in Section IX. 1.7 "Company" shall mean RapidForms, Inc., a New Jersey corporation, and any Affiliated Company, that with the approval of the board of directors of the Sponsor, has joined the Plan by executing a declaration of joinder. 1.8 "Compensation" shall mean the first $150,000 of cash compensation paid by the Company [or Affiliated Company] to a Member during the Plan Year, including salary, wages, overtime pay, bonuses and commissions, excluding reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation and welfare benefits, but including any amount contributed which qualifies as an "elective contribution" as defined in Section 6.1 or amounts which are not includable in the gross income of the Member under Code Section 125. Compensation shall not include contributions to this or any other plan for the benefit of Employees, remuneration derived from nonrecurring extraordinary items, or amounts attributable to service before becoming a Member. Compensation shall be calculated only for the balance of the Plan Year during which the Member participates. The limitation on Compensation shall be adjusted to reflect cost-of-living increases provided in accordance with Code Section 401(a)(17). Furthermore, for purposes of the limitation on Compensation, the "family member rule" as set forth in Section 1.16(c) of the Plan shall apply in determining a Member's total Compensation. However, for purposes of this Section, the term "family member" shall include only the Member's spouse and any children who have not attained age 19 before the close of the Plan Year in question. See Sections 1.16 and 1.19 for special testing definitions of compensation. 1.9 "Effective Date" shall mean August 8, 1965, the date as of which the Plan was effective. 1.10 "Elective Deferral Account" shall mean a Member's account established pursuant to the provisions of Section 6.2. 1.11 "Employee" shall mean any individual employed by the Company or an Affiliated Company, including any Leased Employees, but excluding any person who is (i) an independent contractor, or (ii) a member of or otherwise included in a collective bargaining unit which has negotiated with the Company in good faith for retirement benefits. 1.12 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.13 "Five Percent Owner" shall mean any individual who owns (or is considered as owning within the meaning of Code Section 318) more than 5% of the outstanding stock of the Company or stock possessing more than 5% of the total combined voting power of all stock of any Affiliated Company. Code Section 318 shall be applied for purposes of this section by substituting "5%" for "50%" in Code Section 318(a)(2)(C). In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Section 414(b), (c), and (m) shall be treated as separate employers. In determining whether an Employee is a Five Percent Owner of an entity which is not a corporation, Five Percent Owner shall mean any individual who owns more than 5% of the capital or profits interest in the entity. 1.14 "414(q)(7) Compensation" shall mean 415 Compensation as defined below, but without excluding therefrom amounts not included in taxable income because of Code Sections 125 (relating to cafeteria plans), 402(a)(8) (relating to cash or deferred arrangements), 402(h) (relating to simplified employee pensions), and Code Section 403(b) (relating to annuity contracts). 1.15 "Fund" shall mean all property held by the Trustee for purposes of the Plan. 1.16 "Highly Compensated Employee" shall mean: (a) each Employee who, with respect to the Company or an Affiliated Company, performed services (an "Active Employee") during the Plan Year for which a determination is being made (the "Determination Year") and who during such Determination Year, or the preceding Determination Year, (i) was at any time a Five Percent Owner; 2 (ii) received 414(q)(7) Compensation in excess of $100,000 (adjusted to reflect any cost of living increases provided in accordance with Code Section 415(d)); (iii) received 414(q)(7) Compensation in excess of $66,000 (adjusted to reflect any cost of living increases provided in accordance with Code Section 415(d)) and was in the top 20% of Active Employees (based on 414(q)(7) Compensation received) during such year; or (iv) was an officer (as defined in Code Section 416(i) and the regulations issued thereunder) and received 414(q)(7) Compensation greater than 50% of the amount in effect under Code Section 415(b)(1)(A) for any such Plan year ($120,000 for 1996 to be adjusted to reflect any cost of living increases provided in accordance with Code Section 415(d)). If the Company does not have at least one officer whose annual 414(q)(7) Compensation is in excess of 50% of the amount in effect under Code Section 415(b)(1)(A) for any Plan Year, then the highest paid officer of the Company will be treated as a Highly Compensated Employee. Notwithstanding the foregoing, the provisions of paragraph (ii), (iii) or (iv) above shall not cause an Employee to be treated as a Highly Compensated Employee for the Determination Year of reference unless such Employee is one of the top 100 Active Employees (based on 414(q)(7) Compensation received) during such Determination Year and was a Highly Compensated Employee in accordance with the provisions of paragraph (ii), (iii) or (iv) above for the preceding Determination Year (without regard to this sentence). The term "Highly Compensated Employee" includes a Highly Compensated Former Employee. (b) A Highly Compensated Former Employee shall mean any Employee who separated from service (or was deemed to have separated) prior to the Determination Year, performs no service for the Company during the Determination Year and was an active Highly Compensated Employee for either the separation year or any Determination Year ending on or after the Employee's 55th birthday. (c) Family Member Rule - If an Employee is a "family member" of either (1) a Five Percent Owner or (2) one of the top ten Highly Compensated Employees based on 414(q)(7) Compensation, then any compensation paid to the "family member" and any contributions made under the Plan for the "family member" are aggregated with the compensation paid and contributions made for the Highly Compensated Employee. An individual is a "family member" with respect to a Member if he is a spouse, lineal ascendant or descendant or the spouse of a lineal ascendant or descendant. (d) The determination of Highly Compensated Employee made pursuant to this Section shall be made in accordance with Code Section 414(q) and the regulations issued thereunder. 3 1.17 "Hour of Service" shall mean: (a) Each hour for which an Employee is paid or entitled to payment, for the performance of duties for the Company during the applicable computation period. (b) Each hour for which an Employee is paid, or entitled to payment, by the Company on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability) layoff, jury duty, military duty or leave of absence, provided that an individual shall be credited with no more than 501 hours of service on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period). For purposes of this subparagraph (b), a payment shall be deemed to be made by or due from the Company regardless of whether such payment is made by or due from the Company directly, or indirectly through, among others, a trust fund, or insurer to which the Company contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company. The same hours of service shall not be credited both under subparagraph (a) or subparagraph (b), as the case may be, and under this subparagraph. Crediting of hours of service for back pay awarded or agreed to with respect to periods described in subparagraph (b) shall be subject to the limitations set forth in that subparagraph. (d) For purposes of determining hours of service for reasons other than the performance of duties and for crediting of hours of service to computation periods, the rules of DOL Reg. Secs. 2530.200b-2(b) and (c) are hereby specifically incorporated by reference. Hours of Service shall also be credited for employment with Affiliated Companies. Solely for the purpose of determining whether a One Year Break-in-Service has occurred, Hours of Service shall be credited for "maternity and paternity leaves of absence". A "maternity or paternity leave of absence" shall mean an absence from work for any period by reason of the pregnancy of the Member, birth of a child of the Member, placement of a child with the Member in connection with the adoption of such child by such Member, or for purposes of caring for such child for a period beginning immediately following such birth or placement. For purposes of this paragraph, Hours of Service shall be credited for the computation period in which the absence from work begins, only if a credit therefor is necessary to prevent the Member from incurring a One Year Break-in-Service, or in any other case, in the immediately following computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Committee is unable to determine such hours normally credited, eight Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed 501. 4 1.18 "Investment Fund" shall mean all property, except contracts, held by the Trustee for the purpose of the Plan. 1.19 "Key Employee" means any Employee or former Employee (and his beneficiaries) who, at any time during the Plan Year ending on the Determination Date (the last day of the preceding Plan Year, the last of the first Plan Year, or such other date as defined in Treasury Regulations) or any of the preceding four Plan Years, is: (a) an officer of the Company or Affiliated Company (as the term officer is defined within the meaning of the regulations under Code Section 416), having an annual 414(q)(7) Compensation greater than 50% of the amount in effect under Code Section 415(b)(1)(A) for any such Plan year ($120,000 for 1996 to be adjusted to reflect any cost of living increases provided in accordance with Code Section 415(d)), provided that no more than 50 Employees, or if lesser the greater of 3 or 10% of the Employees, shall be treated as officers; (b) one of the ten Employees owning (or considered as owning within the meaning of Code Section 318) the largest interests in the Company or an Affiliated Company required to be aggregated under Code Sections 414(b), (c), (m) and (o) and having annual 414(q)(7) Compensation for the Plan year of more than the dollar amount set forth in Section 4.5(a) applicable to the Plan year; provided that if two Employees have the same ownership interest in such employers, the Employee having the greater amount of compensation from the employers shall be treated as having the larger interest; (c) a "Five Percent Owner" of the Company or Affiliated Company. (d) a "one percent owner" of the Company or Affiliated Company having an annual 414(q)(7) Compensation of more than $150,000 and who would be a Five Percent Owner if 1% were substituted for 5% in the definition of Five Percent Owner. 1.20 "Leased Employee" shall mean a person described in Code Section 414(n)(2). This Plan shall not cover any Leased Employee. 1.21 "Limitation Year" shall mean the Plan Year for purposes of Section IV. 1.22 "Matching Contribution Account" shall mean a Member's account established pursuant to the provisions of Section 6.3. 1.23 "Member" shall mean any Employee employed by the Company who meets the eligibility requirements of Section 2.1, has become a Member of the Plan pursuant to Section 2.1 and is employed by the Company on the appropriate entry date pursuant to Section 2.1. 1.24 "Non-Highly Compensated Employee" shall mean an Employee who is not a Highly Compensated Employee. 1.25 "Non-Key Employee" shall mean any Employee who is not a Key Employee. 5 1.26 "Normal Retirement Age" shall be age 65. 1.27 "Participating Member" shall mean any Member who meets the requirements of Section 4.3. 1.28 "Plan" shall mean the 401(k) Profit Sharing Plan of the Company as set forth herein. 1.29 "Plan Year" shall mean a fiscal year ending on December 31 of any year. 1.30 "Profit Sharing Account" shall mean a Member's account attributable to Company contributions under this Plan plus earnings, accretions, or forfeitures less any loss properly allocated to such Profit Sharing Account. 1.31 "QDRO" shall mean a "qualified domestic relations order" within the meaning of Section 206(d)(3)(B) of ERISA. 1.32 "Qualified Joint and Survivor Annuity" shall mean an immediate annuity for the life of the Member, with a benefit payable after the death of the Member to the surviving Spouse of the Member for the life of such surviving Spouse, where the periodic benefit payable to such surviving Spouse is not less than 50% nor more than 100% of the periodic benefit payable to the Member during his lifetime, and which is the amount of benefit which can be purchased with the Member's vested Account. Unless otherwise specified in the Plan, any reference to a Qualified Joint and Survivor Annuity in the Plan shall be a reference to such an annuity providing a surviving Spouse's benefit of 50% of the benefit that would have been (or was) payable to the Member during his lifetime. 1.33 "Qualified Non-Elective Contribution Account" shall mean a Member's account established pursuant to the provisions of Section 6.4. 1.34 "REA" shall mean the Retirement Equity Act of 1984. 1.35 "Rollover Account(s)" shall mean a Member's account established pursuant to the provisions of Section 11.3. 1.36 "Sponsor" shall mean RapidForms, Inc., a New Jersey corporation. 1.37 "Spouse" shall mean the person to whom the Member was married on the earlier of his benefit commencement date or his date of death. However, Spouse shall instead refer to a former spouse to the extent provided under a QDRO. 1.38 "TEFRA" shall mean the Tax Equity and Fiscal Responsibility Act of 1982. 1.39 "Total Disability" shall mean disability of an apparently permanent nature based on medical certification which prevents the Employee from performing the principal duties of his regular occupation with the Company. The Committee may require physical examinations by its medical representative at reasonable intervals during the continuance 6 of the disability, and the decision of the Committee regarding the extent of the disability shall be final. 1.40 "Trustee" shall mean the Trustee or Trustees duly designated by the board of directors of the Sponsor from time to time pursuant to the terms of a Trust Agreement ("Trust Agreement"). Terms stated in the masculine or feminine gender shall be construed as applying in the opposite gender as appropriate in the context or circumstances. Terms stated in the singular or plural shall be deemed the opposite as appropriate in the context or circumstances. SECTION II. PARTICIPATION AND SERVICE 2.1 Initial Eligibility. For purposes of Section 3.1, each Employee hired prior to August 1, 1996 who has completed a Year of Service during a Plan Year shall become a Member as of the first day of such Plan Year. For purposes of eligibility to make Elective Deferrals under Article VI, each employee hired prior to August 1, 1996 who has completed a Year of Service during a Plan Year shall become a Member as of the next January 1 or July 1 after the Employee has completed a Year of Service, provided that the Employee is employed by the Company on such entry date. Each Employee hired on or after August 1, 1996 who has completed a Period of Service shall become a Member of the Plan as of the earlier of the next January 1 or July 1 after the Employee has completed a Period of Service, provided that the Employee is employed by the Company on such entry date. Employees of Affiliated Companies which have not adopted the Plan shall not become Members. For purposes of this Section 2.1, (a) "Year of Service" shall mean a computation period of twelve consecutive months of service as an Employee during which the Employee is credited with at least 1,000 Hours of Service, and (b) "Period of Service" shall mean a computation period of six consecutive months of service as an Employee during which the Employee is credited with at least 500 Hours of Service. The initial computation period shall begin with the date on which the Employee first performs an Hour of Service for the Company, any Affiliated Company, or any predecessor corporate employer, partnership or sole proprietorship whether as an Employee, partner or sole proprietor. Subsequent computation periods will be measured from the end of the immediately preceding computation period. 2.2 Break-in-Service. A "One Year Break-in-Service" shall occur when a Member fails to be credited with more than 500 Hours of Service in any Plan Year. However, a One Year Break-in-Service shall not occur if the Member failed to be credited with more than 500 Hours of Service because of: (a) absence for military service under leave granted by the Company or when required by law, provided the absent Employee returns to employment with the Company within 90 days of his release from active military duty or any longer period during which his right to re-employment is protected by law, or 7 (b) an authorized leave of absence for no longer than two years, for personal hardship or other unusual circumstances. Except in the event of an earlier forfeiture under Section 8.5, a Member shall continue as such until such time as the Member has completed five consecutive One Year Breaks-in-Service and is not employed by the Company on the last day of the Plan Year in which occurs the fifth (or later) consecutive One Year Break-in-Service. Any Employee who has ceased to be a Member under the preceding sentence shall again become a Member of the Plan as of his date of re-employment and a Participating Member of the Plan as of the first day of the Plan Year in which he satisfies the requirements of Section 4.3. A Member who has completed five consecutive One Year Breaks-in-Service and is not employed by the Company on the last day of the Plan Year in which falls the fifth (or later) consecutive One Year Break-in-Service shall forfeit that portion of the balance in his Profit Sharing Account, determined as of the beginning of the Plan Year in question, which is not vested as of the end of the Plan Year during which the fifth (or later) consecutive One Year Break-in-Service occurs. Thereafter, such a Member will have a 100% vested interest in the nonforfeited balance and all earnings attributed to this balance. An earlier forfeiture may occur pursuant to Section 8.5. Furthermore, in the case of a terminated Member whose vested benefit is zero, such Member shall be treated as having received a distribution of his vested benefit upon his termination of employment pursuant to Section 8.5. Restoration of such amounts shall occur, if need be, pursuant to Section 8.5. 2.3 Readmission After Termination of Employment. A Member of the Plan who terminates employment and who subsequently is reemployed shall again become a Member of the Plan as though his employment had been uninterrupted. SECTION III. CONTRIBUTIONS 3.1 Amount of Contributions. The Company and each Affiliated Company will contribute annually to the Fund in respect of each Plan Year such amount, if any, as may be determined by their respective boards of directors, regardless of whether the Company or the Affiliated Companies have any current or accumulated profits. The amount of contributions made by each employer shall not exceed the amount deductible under Code Section 404(a). 3.2 Timing of Contributions. Contributions under Section 3.1 will be made not later than the time prescribed by law (including any extensions thereof) for filing the contributing Company's federal income tax return for the Plan Year for which they are made. 8 SECTION IV. CREDITS OF MEMBERS 4.1 Allocation of Company Contributions. Subject to the provisions of Section 4.5, the Company's contribution for any Plan Year shall be allocated to the Profit Sharing Account of each Participating Member in accordance with the following: (a) First, the Company's contribution for each Plan Year shall be allocated to the Profit Sharing Accounts of Participating Members in the ratio that the sum of each Participating Member's total Compensation plus "excess compensation" bears to the sum of the total Compensation plus "excess compensation" of all Participating Members. The amount allocated pursuant to this paragraph (a) shall not exceed 5.7% of the sum of the total Compensation plus "excess compensation" of all Participating Members. (b) Second, that part of the Company's contribution for the year which exceeds the part of the contribution allocated under paragraph (a) shall be allocated to the Profit Sharing Accounts of all Participating Members according to the ratio that each such Participating Member's compensation for the year bears to the total Compensation of all Participating Members for the year. (c) For purposes of this provision "excess compensation" of a Member shall mean his Compensation in excess of the Social Security Taxable Wage Base in effect on the first day of the Plan year. 4.2 Eligibility. Before making the allocation pursuant to Section 4.1 above, any amounts released from the Accounts of former Members as forfeitures shall be credited in the following order: (1) against the expenses of the Plan and (2) to Participating Member's Profit Sharing Accounts in the same ratio as the amount of each such Participating Member's Compensation during the Plan Year bears to all such Participating Members' Compensation during the Plan Year. 4.3 Participating Members. Allocations under Sections 4.1 and 4.2 shall be made only to Members who are Participating Members for the Plan Year. The following Members shall be Participating Members for the Plan Year: (a) Any Member who is credited with 1,000 or more Hours of Service during a Plan Year and who is employed by the Company on the last day of the Plan Year; and (b) A Member (irrespective of the number of Hours of Service with which he is credited), if his employment was terminated prior to such Plan Year end if the reason for such termination was because of his retirement, death or Total Disability. 4.4 Allocation of Realized Gains, Losses and Expenses. As of the last day of each Plan Year for those Members and former Members who will have a balance in their Profit Sharing Account and/or Rollover Account(s) on such last day, all realized net income, net losses and expenses of the Fund for the Plan Year shall be credited or charged to such Profit Sharing Accounts and/or Rollover Account(s) in direct proportion to the respective balances (determined pursuant to Section 4.9) of each as of the first day of the Plan Year 9 in question, except that during the first Plan Year credits under Section 4.1 for the first Plan Year shall be considered. 4.5 Annual Additions Limitations. Notwithstanding anything to the contrary contained in this Section IV, the maximum Annual Addition to any Member's Account for any Limitation Year shall in no event exceed the lesser of: (a) $30,000.00, or, if greater, one-fourth of the defined benefit dollar limitation set forth in Code section 415(b)(1) as in effect for the Limitation Year, or (b) 25% of the Member's 415 Compensation for the Limitation Year in question. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different twelve consecutive month period, the maximum permissible amount will not exceed the amount in subparagraph (a) above multiplied by the following fraction: Number of months in the short Limitation Year --------------------------------------------- 12 The term "Annual Addition" shall mean: (1) the Company's contribution for the Member, (2) forfeitures allocated to the Member's Profit Sharing Account, plus (3) amounts described in Code Sections 415(l)(1) and 419A(d)(2). The term "415 Compensation" shall mean a Member's remuneration including wages, salaries, fees for professional services and other amounts received (without regard to whether an amount is paid in cash) for personal services actually rendered in the course of employment with a Company maintaining the Plan to the extent that the amounts are includable in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, reimbursements and expense allowances), and excluding the following: (a) contributions made by the Company to a deferred compensation plan which, without regard to Code Section 415, are not includable in the Member's gross income for the taxable year in which contributed; (b) Company contributions made on behalf of a Member to a simplified employee pension to the extent they are deductible by the Member under Code Section 219(b)(7); (c) distributions from a deferred compensation plan (except from an unfunded non-qualified plan when includable in gross income); (d) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by a Member either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; 10 (e) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; or (f) other amounts which receive special tax benefits, such as premiums for group term life insurance (to the extent excludable from gross income) or Company contributions towards the purchase of an annuity contract described in Code Section 403(b). The compensation limitation referred to in paragraph (b) above shall not apply to any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an Annual Addition or any amount otherwise treated as an Annual Addition under Code Section 415(l)(1). Contributions made to the Trust pursuant to Section 11.3 shall not be treated as Annual Additions. If, in addition to this Plan, the Company maintains one or more other qualified defined contribution plans as defined by ERISA and the Code, the above limitation on Annual Additions to a Member's Account shall be applied to the maximum Annual Addition (as defined above and in the other such Plan or Plans) made to both Plans in the Limitation Year in question. 4.6 Allocation of Amounts in Excess of Section 415 Limitations. An allocation may not be made to a Member's Profit Sharing Account in any Plan Year if it will exceed the limits set forth in Section 4.5. However, if as a result of the allocation of forfeitures, a reasonable error in estimating a Member's Compensation, or other limited facts and circumstances which the Commissioner of the Internal Revenue Service finds justify the availability of the rules set forth in this Section 4.6, then such allocation would (if made) exceed such limitations, the following steps must be taken: (a) Any elective deferrals made by the Participating Member for the Limitation Year (whether to this Plan or another defined contribution plan maintained by the Company) causing the excess shall be distributed immediately to the Participating Member pursuant to Section 6.6. (b) If after returning any such contributions or deferrals to the Participating Member as provided in paragraph (a) an excess would still exist, and if the excess is a result of forfeitures which were available for allocation pursuant to Section 4.2, the excess amount shall be reallocated to all the other Participating Members in the ratio of each such Participating Member's Compensation for the Plan Year to the total Compensation of all Participating Members sharing the reallocation. (c) If after complying with the provisions in paragraphs (a) and (b) an excess would still exist, then such excess shall remain unallocated and be held in a non-interest bearing suspense account. Amounts held in such suspense account will be allocated in subsequent Limitation Years in accordance with Section 4.2 until the suspense account is exhausted. No additional Company contributions shall be made until the 11 suspense account is exhausted. In no event shall any excess amounts that are held in such suspense account be distributed to a Member or Former Member. For purposes of this Section, the term "excess amount" for the Company's contribution shall be the difference between the credit due the Member under Section 4.1 less the limitation amount of the Company's contribution for the Member determined under Section 4.5. 4.7 Annual Additions Limitations for Multiple Plans. (a) If the Company maintains a qualified Money Purchase Pension Plan and in any Plan Year the Company's contribution to the Money Purchase Pension Plan will when added to the Company's planned Profit Sharing Plan contribution exceed the applicable limitation of Section 4.5, then the Company's contribution to this Plan will be reduced to zero if necessary to bring the combined contributions within the limitations prescribed by Section 4.5 before the Company will reduce its contribution under the Money Purchase Pension Plan. (b) The Company and all Affiliated Companies shall be considered a single employer for purposes of applying the limitation of Code Section 415. 4.8 Allocation Date. Credits under Sections 4.1, 4.2 and 4.4, shall be deemed to have been made on the same date to which they are related although actually determined on some later date. 4.9 Valuation - Fund Assets. The Trustee shall ascertain and certify to the Committee the fair market value of the Fund as of the last day of the Plan Year. In addition, when requested by the Committee, the Trustee shall within fifteen (15) days after the last day of that month ascertain and certify to the Committee, the fair market value of the Fund as of the date requested by the Committee, provided, however, to the extent that the Fund is invested in a common Trust Fund of a corporate Trustee, such interests shall be valued as of the last quarterly valuation date thereof, in the valuation of the Fund. Such determination of value so made shall, for all purposes of the Plan, conclusively establish such value. As of the last day of each Plan Year, the balance in each Member's Profit Sharing Account and Rollover Account(s) shall be adjusted to reflect the fair market value of the Fund as of such last day by allocating the value to each Account less transfers made pursuant to Section 11.3 during the last month of the Plan Year in direct proportion to the respective balances in each Account determined pursuant to this Section 4.9 as of the end of the last Plan Year plus the (1) credits and charges under Sections 4.1, 4.2 and 4.4, and (2) transfers during the first eleven months for the Plan Year in question. Transfers made pursuant to Section 11.3 during the last month of any Plan Year will be allocated directly to the Member's Rollover Account(s) on a dollar for dollar basis. 4.10 Valuation - Profit Sharing Account and Rollover Account(s). For purposes of distribution to Members or their beneficiaries under Section VIII, the value of the Profit Sharing Account and Rollover Account(s) for each Plan Year shall be the respective balance in the Member's Profit Sharing Account and Rollover Account(s) as of the 12 valuation date following his death, Total Disability, retirement at Normal Retirement Date or other termination of employment, determined pursuant to Section 4.9. SECTION V. VESTING 5.1 Profit Sharing Account, Matching Contribution Account, Qualified Non-Elective Contribution Account, Elective Deferral Account and Rollover Account(s). A Member shall have at all times a nonforfeitable interest in his Qualified Non-Elective Contribution Account, Elective Deferral Account and Rollover Account(s). Each Member shall have a vested interest in his Profit Sharing Account and Matching Contribution Accounts determined as of the end of a Plan Year on the basis of Section 4.9, based upon Years of Service determined as follows: Years of Service Percent Vested ---------------- -------------- less than 3 0% 3 20% 4 40% 5 60% 6 80% 7 or more 100% A member who was employed by CSS Industries, Inc. and had three Years of Service on December 29, 1989 under the CSS Industries, Inc. Profit Sharing Plan shall have the following vested interest in the amount credited to his Profit Sharing Account: Years of Service Percent Vested ---------------- -------------- less than 3 0% 3 40% 4 60% 5 80% 6 or more 100% For purposes of this Section 5.1, "Year of Service" shall mean any Plan Year in which the Employee completes 1,000 Hours of Service. A Member who was a participant in the RapidForms, Inc. Profit Sharing Plan who had attained age 60 and had five Years of Service in the RapidForms, Inc. Profit Sharing Plan as of July 1, 1996, shall have a 100% vested interest in his Profit Sharing Account. In addition, as of July 1, 1996, a Participant shall have the greater of the Years of Service calculated under the RapidForms, Inc. 401(k) Plan or the RapidForms, Inc. Profit Sharing Plan. A Member who has less than a 100% vested interest in his Profit Sharing and Matching Accounts pursuant to the applicable above schedule shall nonetheless be deemed to have a 100% vested interest upon the happening of the following events: 13 (a) Death prior to termination of his employment by the Company. (b) Normal retirement or retirement due to Total Disability. Any discharge or voluntary termination of employment of a Member who has reached Normal Retirement Age shall be deemed at retirement. SECTION VI. EMPLOYEE ELECTIVE CASH OR DEFERRED ARRANGEMENT 6.1 Definitions. The following definitions shall apply for purposes of this Section VI: (a) Actual Deferral Percentage ("ADP"): For a specified group of Members for a Plan Year, the average of the ratios (calculated separately for each Member in such group) of (i) the amount of Company Contributions actually paid over to the trust on behalf of such Member for the Plan Year to (ii) the Member's Compensation for such Plan Year (whether or not the Employee was a Member for the entire Plan Year). For purposes of computing the Actual Deferral Percentages, an Employee who would be a Member but for failure to make Elective Deferrals shall be treated as a Member on whose behalf no Elective Deferrals are made. (b) Aggregate Limit: The sum of: (i) 125% of the greater of the ADP of the Non-Highly Compensated Employees for the Plan Year or the ACP of Non-Highly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year beginning with or within the Plan Year of the CODA; and (ii) the lesser of 200% or 2 plus the lesser of such ADP or ACP. (c) Average Contribution Percentage ("ACP"): The average of the Contribution Percentages of the Eligible Members in a group. An Eligible Member is any Member of the Plan who is eligible to receive a Matching Contribution. (d) CODA: A cash or deferred arrangement as described under Code Section 401(k) and the regulations thereunder. (e) Company Contributions: Company Contributions on behalf of any Member shall include: (i) any Elective Deferrals made pursuant to the Member's deferral election, including Excess Elective Deferrals, but excluding Excess Elective Deferrals that are taken into account in the Average Contribution Percentage test (provided the ADP test is satisfied both with and without exclusion of these Elective Deferrals); and 14 (ii) Matching Contributions and Qualified Non-Elective Contributions. (f) Contribution Percentage: The ratio (expressed as a percentage) of the Member's Contribution Percentage Amounts to the Member's Compensation for the Plan Year (whether or not the Employee was a Member for the entire Plan Year). (g) Contribution Percentage Amounts: Matching Contributions (to the extent not taken into account for purposes of the ADP test) made under the Plan on behalf of the Member for the Plan Year. Such Contribution Percentage Amounts shall include forfeitures of Excess Aggregate Contributions or Matching Contributions allocated to the Member's accounts which shall be taken into account in the year in which such forfeiture is allocated. Qualified Non-Elective Contributions shall be included in the Contribution Percentage Amounts. The Company also may elect to use Elective Deferrals in the Contribution Percentage Amounts so long as the ADP test is met before the Elective Deferrals are used in the ACP test and continues to be met following the exclusion of those Elective Deferrals that are used to meet the ACP test. (h) Elective Deferrals: Any Company Contributions made to the Plan at the election of the Member, in lieu of cash compensation, and including contributions made pursuant to a salary reduction agreement or other deferral mechanism and allocated to a Member's Elective Deferral Account. (i) Elective Deferral Account: A Member's account attributable to such Member's Elective Deferrals under this Plan. (j) Excess Aggregate Contributions: With respect to any Plan Year, the excess of: (i) the aggregate Contribution Percentage Amounts taken into account in computing the numerator of the Contribution Percentage actually made on behalf of Highly Compensated Employees for such Plan Year, over (ii) the maximum Contribution Percentage Amounts permitted by the ACP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages). (k) Excess Contributions: With respect to any Plan Year, the excess of: (i) the aggregate amount of Company Contributions actually taken into account in computing the ADP of Highly Compensated Employees for such Plan Year, over (ii) the maximum amount of such contributions permitted by the ADP test (determined by reducing contributions made on 15 behalf of Highly Compensated Employees in order of the ADPs, beginning with the highest of such percentages). (l) Excess Elective Deferrals: Those Elective Deferrals that are includible in an Employee's gross income under Code Section 402(g) to the extent such Employee's Elective Deferrals for a taxable year exceed the dollar limitation under such Code Section. Excess Elective Deferrals shall be treated as Annual Additions under the Plan. (m) Matching Contributions: Company Contributions made to this Plan on behalf of a Member on account of a Member's Elective Deferral, under a plan maintained by the Company and allocated to a Member's Matching Contribution Account. (n) Matching Contribution Account: A Member's account attributable to such Member's Matching Contributions under this Plan. (o) Qualified Non-Elective Contributions: Contributions (other than Matching Contributions) made by the Company and allocated to Member's Qualified Non-Elective Contribution Account that the Members may not elect to receive in cash until distributed from the Plan; that are nonforfeitable when made; and that are distributable only in accordance with the distribution provisions that are applicable to Elective Deferrals. (p) Qualified Non-Elective Contribution Account: shall mean a Member's account attributable to such Member's Qualified Non-Elective Contributions under this Plan. 6.2 Amount and Timing of Elective Deferrals. Each Participating Member shall be eligible to have Elective Deferrals made on his behalf. Each Participating Member may elect to enter into a written salary reduction agreement with the Company which provides that the Member agrees to accept a reduction in salary (in an amount specified by the Participating Member) from the Company and that the Company will make a contribution to his Elective Deferral Account in an amount equal to the amount by which the Participating Member's salary was reduced pursuant to the salary reduction agreement. The maximum reduction in salary that a Participating Member may elect shall not exceed 15% of his Compensation. No contributions or benefits (other than Matching Contributions) shall be conditioned upon a Participating Member's Elective Deferrals. Elective Deferrals made by a Participating Member shall be subject to the limitations set forth in Section 6.7. (a) A Participating Member shall be afforded a reasonable period at least twice each calendar year, during which he may elect to commence Elective Deferrals. Such election may not be made retroactively. A Participating Member's election to commence Elective Deferrals will remain in effect until modified or terminated. (b) A Participating Member may elect to increase the amount or frequency of his Elective Deferrals on the first day of each month. (c) A Participating Member may elect to decrease or terminate an election at any time. 16 6.3 Amount of Matching Contributions. The Company will make Matching Contributions on behalf of all Members who make Elective Deferrals. The amount of such Matching Contributions shall be determined each year by the Company and allocated pro rata according to a Member's Elective Deferrals not in excess of a Company-specified percentage of his Compensation. (a) Matching Contributions are subject to the limitations set forth in Section 6.9. Matching Contributions shall be vested in accordance with Section 5.1. (b) Forfeitures of Matching Contributions, other than Excess Aggregate Contributions, shall be made in accordance with Section 4.2. 6.4 Amount of Qualified Non-Elective Contributions. The Company will make Qualified Non-Elective Contributions to the Plan on behalf of all Members. The amount of such Qualified Non-Elective Contributions shall be an amount necessary to satisfy the Actual Deferral Percentage test, Average Contribution Percentage test, or both. In addition, in lieu of distributing Excess Contributions as provided in Section 6.7(h), or Excess Aggregate Contributions as provided in Section 6.8(i) of the Plan, the Company may make Qualified Non-Elective Contributions on behalf of Non-Highly Compensated Employees that are sufficient to satisfy either the Actual Deferral Percentage test or the Average Contribution Percentage test, or both, pursuant to regulations under the Code. 6.5 Amount of Voluntary Non-deductible Contributions. No Member shall be permitted to make contributions to the Fund. 6.6 Excess Elective Deferrals. No Member shall be permitted to have Elective Deferrals made under this Plan, or any other qualified Plan maintained by the Company, during any taxable year, in excess of the dollar limitation contained in Code Section 402(g) in effect at the beginning of such taxable year. (a) A Member may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Member by notifying the Committee on or before January 31 of the subsequent taxable year of the amount of the Excess Elective Deferrals to be assigned to the Plan. (b) Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Member to whose Elective Deferral Account Excess Elective Deferrals were assigned for the preceding year and who claims Excess Elective Deferrals for such taxable year. (c) Excess Elective Deferrals shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Elective Deferrals is the sum of: (i) income or loss allocable to the Member's Elective Deferral Account for the taxable year multiplied by a fraction, the numerator of which is such Member's Excess Elective Deferrals for 17 the year and the denominator is the Member's Elective Deferral Account balance without regard to any income or loss occurring during such taxable year; and (ii) 10% of the amount determined under (i) multiplied by the number of whole calendar months between the end of the Member's taxable year and the date of distribution, counting the month of distribution if the distribution occurs after the 15th of such month. 6.7 Actual Deferral Percentage Test. (a) The Actual Deferral Percentage for Members who are Highly Compensated Employees for each Plan Year and the ADP for Members who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (i) The ADP for Members who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Members who are Non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (ii) The ADP for Members who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Members who are Non-Highly Compensated Employees for the same Plan Year multiplied by 2.0, provided that the ADP for Members who are Highly Compensated Employees does not exceed the ADP for Members who are Non-Highly Compensated Employees by more than 2 percentage points. (b) The ADP for any Member who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Non-Elective Contributions if treated as Elective Deferrals for purposes of the ADP test) allocated to his accounts under 2 or more arrangements described in Code Section 401(k), that are maintained by the Company, shall be determined as if such Elective Deferrals (and, if applicable, such Qualified Non-Elective Contributions) were made under a single arrangement. If a Highly Compensated Employee participates in 2 or more cash or deferred arrangements that have different Plan Years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. (c) In the event that this Plan satisfies the requirements of Code Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Code Sections only if aggregated with this Plan, then this Section shall be applied by determining the ADP of Members as if all such plans were a single plan. Plans may be aggregated in order to satisfy Code Section 401(k) only if they have the same Plan Year. (d) For purposes of determining the ADP of a Member who is 5% Owner or one of the 10 most highly-paid Highly Compensated Employees, the Elective Deferrals 18 (and Qualified Non-Elective Contributions if treated as Elective Deferrals for purposes of the ADP test) and Compensation of such or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of Member shall include the Elective Deferrals (and, if applicable, Qualified Non-Elective Contributions) and Compensation for the Plan Year of family members (as defined in Code Section 414(q)(6)). Family members, with respect to such Highly Compensated Employees, shall be disregarded as separate Members in determining the ADP both for Members who are Non-Highly Compensated Employees and for Members who are Highly Compensated Employees. (e) For purposes of determining the ADP test, Elective Deferrals and Qualified Non-Elective Contributions must be made before the last day of the twelve-month period immediately following the Plan Year to which contributions relate. (f) The Company shall maintain records sufficient to demonstrate satisfaction of the ADP test and the amount of Qualified Non-Elective Contribution, used in such test. (g) The determination and treatment of the ADP amounts of any Member shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (h) Notwithstanding any other provision of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Members to whose accounts such Excess Con tributions were allocated for the preceding Plan Year. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10% excise tax will be imposed on the Company maintaining the Plan with respect to such amounts. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of such Employees. Excess Contributions shall be allocated to Members who are subject to the family member aggregation rules of Code Section 414(q)(6) in the manner prescribed by the regulations. (i) Excess Contributions (including amounts recharacterized) shall be treated as Annual Additions under Section IV of the Plan. (j) Excess Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Contributions is the sum of: (i) income or loss in the Member's Elective Deferral Account (and, if applicable, the Qualified Non-Elective Contribution Account) for the Plan Year multiplied by a fraction, the numerator of which is such Member's Excess Contributions for the year and the denominator of which is the Member's Elective Deferral Account balance (and the Qualified Non-Elective Contribution Account, if any of such contributions are included in the ADP test) without regard to any income or loss occurring during the Plan Year; and 19 (ii) 10% of the amount determined under (i) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month. Excess Contributions shall be distributed from the Member's Elective Deferral Account in proportion to the Member's Elective Deferrals for the Plan Year. Excess Contributions shall be distributed from the Member's Qualified Non-Elective Contribution Account only to the extent that such Excess Contributions exceed the balance in the Member's Elective Deferral Account. 6.8 Average Contribution Percentage Test. (a) The Average Contribution Percentage for Members who are Highly Compensated Employees for each Plan Year and the ACP for Members who are Non-Highly Compensated Employees for the same Plan Year must satisfy one of the following tests: (i) The ACP for Members who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Members who are Non-Highly Compensated Employees for the same Plan Year multiplied by 1.25; or (ii) The ACP for Members who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Members who are Non-Highly Compensated Employees for the same Plan Year multiplied by 2, provided that the ACP for Members who are Highly Compensated Employees does not exceed the ACP for Members who are Non-Highly Compensated Employees by more than 2 percentage points. (b) If one or more Highly Compensated Employees participate in both a CODA and a plan subject to the ACP test maintained by the Company and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then the ACP of those Highly Compensated Employees who also participate in a CODA will be reduced (beginning with such Highly Compensated Employee whose ACP is the highest) so that the limit is not exceeded. The Aggregate Limit shall be the sum of: (a) 125% of the greater of the ADP of Non-Highly Compensated Employees for the Plan Year or the ACP of Non-Highly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year beginning with or within the Plan Year of the CODA and (b) the lesser of 200% or 2 plus the lesser of such ADP or ACP. The amount by which each Highly Compensated Employee's Contribution Percentage Amounts is reduced shall be treated as Excess Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees are determined after any corrections required to meet the ADP and ACP tests. Multiple use does not occur if both the ADP and ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of the Non-Highly Compensated Employees. 20 (c) For purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(m), if two or more plans of the Company to which Matching Contributions are made are treated as one plan for purposes of Code Section 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988), such plans shall be treated as one plan. In addition, two or more plans of the Company to which Matching Contributions are made may be considered as a single plan for purposes of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated under this paragraph (c) only if they have the same plan year. (d) For purposes of this Section, the Contribution Percentage for any Member who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his account under 2 or more plans described in Code Section 401(a), or arrangements described in Code Section 401(k) that are maintained by the Company, shall be determined as if the total of such Contribution Percentage Amount was made under each plan. If a Highly Compensated Employee participates in 2 or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. (e) For purposes of determining the Contribution Percentage of a Member who is a 5% owner or one of the 10 highest-paid Highly Compensated Employees, the Contribution Percentage Amounts and Compensation of such Member shall include the Contribution Percentage Amounts and Compensation for the Plan Year of family members (as defined in Code Section 414(q)(6)). Family Members, with respect to Highly Compensated Employees, shall be disregarded as separate Employees in determining the Contribution Percentage both for Members who are Non-Highly Compensated Employees and for Members who are Highly Compensated Employees. (f) For purposes of determining the ACP test, Matching Contributions and Qualified Non-Elective Contributions will be considered made for a Plan Year if made no later than the end of the 12-month period beginning on the day after the close of the Plan Year. (g) The Company shall maintain records sufficient to demonstrate satisfaction of the ACP test and the amount of Qualified Non-Elective Contributions used in such test. (h) The determination and treatment of the Contribution Percentage of any Member shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (i) Notwithstanding any other provision of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be distributed (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event 21 later than the close of the following Plan Year), to the Highly Compensated Employee having the highest actual contribution ratio, his portion of Excess Aggregate Contributions (and income allocable to such contributions) until either one of the tests set forth in paragraph (a) above is satisfied or until his actual contribution ratio equals the actual contribution ratio of the Highly Compensated Employee having the second highest actual contribution ratio. This process shall continue until one of the tests set forth in paragraph (a) above is satisfied. Excess Aggregate Contributions shall be allocated to Members who are subject to the family member aggregation rules of Code Section 414(q)(6) in the manner prescribed by the regulations. If such Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10% excise tax will be imposed on the Company maintaining the Plan with respect to those amounts. (i) Excess Aggregate Contributions shall be treated as Annual Additions under Section IV. (j) Excess Aggregate Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Aggregate Contributions is the sum of: (i) income or loss allocable to the Member's Matching Contribution Account and Qualified Non-Elective Contribution Account, to the extent amounts therein are not used in the ADP test, and Elective Deferral Account for the Plan Year multiplied by a fraction the numerator of which is such Member's Excess Aggregate Contributions for the year and the denominator of which is the Member's account balances attributable to Contribution Percentage Amounts without regard to any income or loss occurring during such Plan Year; and (ii) 10% of the amount determined under (i) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month. (k) Forfeitures of Excess Aggregate Contributions may either be reallocated to the accounts of Non-Highly Compensated Employees or applied to reduce Company Contributions, as elected by the Company. (l) Excess Aggregate Contributions shall be forfeited, if forfeitable, or distributed on a pro-rata basis from the Member's Matching Contribution Account (and, if applicable, the Qualified Non-Elective Contribution Account or Elective Deferral Account, or both). 22 (m) For purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(m), if two or more plans of the Company to which Matching Contributions are made are treated as one plan for purposes of Code Section 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988), such plans shall be treated as one plan. In addition, two or more plans of the Company to which Matching Contributions are made may be considered as a single plan for purposes of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated under this paragraph (m) only if they have the same plan year. 6.9 Allocation and Valuation. A Member's accrued benefit derived from Elective Deferrals and Qualified Non-Elective Contributions is nonforfeitable. An Elective Deferral Account, Qualified Non-Elective Contribution Account and Matching Contribution Account will be maintained for each Member. Each Account will be established and credited with the applicable contributions and earnings thereon in a manner analogous to that set forth in Section IV. 6.10 Distribution (Normal and Hardship). (a) Elective Deferrals and Qualified Non-Elective Contributions and income allocable to each are not distributable to a Member or his beneficiary or beneficiaries, in accordance with such Member's or beneficiary's or beneficiaries' election, earlier than upon separation from service, death or disability. Notwithstanding the foregoing, such amounts may also be distributed in accordance with paragraphs (b) and (c) below. (b) Amounts described in (a) above may also be distributed upon: (i) termination of the Plan without the establishment of another defined contribution plan; (ii) the disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Code Section 409(d)(2)) used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring such assets; and (iii) the disposition by a corporation to an unrelated entity of such corporation's interest in a subsidiary (within the meaning of Code Section 409(d)(3)) if such corporation continues to maintain this Plan, but only with respect to Employees who continue employment with such subsidiary. (c) Distribution of Elective Deferrals (and earnings thereon accrued as of December 31, 1988), Profit Sharing, Matching and Rollover contributions, subject to a 23 $1,000 minimum amount, may be made to a Member in the event of hardship. For purposes of this Section, hardship is defined as an immediate and heavy financial need of the Member where such Member lacks other available resources. Hardship distributions are subject to the spousal consent requirements contained in Code Sections 401(a)(11) and 417. (i) The following are the only financial needs considered immediate and heavy: (i) expenses incurred or necessary for medical care, described in Code Section 213(d), of the Member, the Member's Spouse, children, or dependents; (ii) the purchase (excluding mortgage payments) of a principal residence for the Member; (iii) payment of tuition, related educational fees, and room and board expenses for the next twelve months of post-secondary education for the Member, the Member's Spouse, children or dependents; or (iv) the need to prevent the eviction of the Member from, or a foreclosure on the mortgage of the Member's principal residence. (ii) A distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Member only if: (A) the Member has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Company; (B) all plans maintained by the Company provide that the Member's Elective Deferrals (will be suspended for 12 months after the receipt of the hardship distribution; (C) the distribution is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution); and (D) all plans maintained by the Company provide that the Member may not make Elective Deferrals for the Member's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such taxable year less the 24 amount of such Member's Elective Deferrals for the taxable year of the hardship distribution. (d) Distributions under this Section 6.10 shall be made to a Member from his Accounts in the following order with each Account balance being reduced to $0 before distributions may be made from the next succeeding Account: Elective Deferral, Rollover, Qualified Non-Elective, Matching and Profit Sharing. SECTION VII. TOP HEAVY PLAN RULES 7.1 General Rule. Notwithstanding any provision in the Plan to the contrary, for any Plan Year in which the Plan is determined to be a Top Heavy Plan, the provisions of this Section VIA shall become effective. 7.2 Determination of Top Heavy Status. The Plan will be considered a Top Heavy Plan for the Plan Year, if as of the Determination Date: (a) the Top-heavy ratio for this Plan exceeds 60% and the Plan is not part of any Aggregation Group (within the meaning of Code Section 416(g)(2)), or (b) the Plan is part of an Aggregation Group (within the meaning of Code Section 416(g)(2)) and the Top-heavy ratio for such Aggregation Group exceeds 60%. (c) Top-heavy ratio shall mean: (i) If the Company maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Company has not maintained any defined benefit plan which during the 5-year period ending on the Determination Date(s) has or has had accrued benefits, the Top-heavy ratio for this Plan alone or for the Aggregation Group (within the meaning of Code Section 416(g)(2)) as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the Determination Date(s) (including any part of any account balance distributed in the 5-year period ending on the Determination Date(s)), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 5-year period ending on the Determination Date(s)), both computed in accordance with Code Section 416 and the regulations thereunder. Both the numerator and denominator of the Top-heavy ratio are increased to reflect any contribution not actually made as of the Determination Date, but which is required to be taken into account on that date under Code Section 416 and the regulations thereunder. (ii) If the Company maintains one or more defined contribution plans (including any Simplified Employee Pension Plan) and the Company maintains or has maintained one or more defined benefit plans which during the 5-year period 25 ending on the Determination Date(s) has or has had any accrued benefits, the Top-heavy ratio for any Aggregation Group (within the meaning of Code Section 416(g)(2)) as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (i) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the Determination Date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all members, determined in accordance with (i) above, and the present value of accrued benefits under the defined benefit plan or plans for all members as of the Determination Date(s), all determined in accordance with Code Section 416 and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the Top-heavy ratio are increased for any distribution of an accrued benefit made in the 5-year period ending on the Determination Date. (iii) For purposes of (i) and (ii) above, the value of account balances and the present value of accrued benefits will be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date, except as provided in Code Section 416 and the regulations thereunder for the first and second Plan Years of a defined benefit plan. The account balances and accrued benefits of a Member (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not been credited with at least one Hour of Service with any Company maintaining the Plan at any time during the 5-year period ending on the Determination Date will be disregarded. The calculation of the Top-heavy ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Code Section 416 and the regulations thereunder. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of a Member other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Company, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Code Section 411(b)(1)(C). 26 (d) For purposes of this Section 6A.2, Determination Date shall mean for any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year. (e) 'Aggregation Group' means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (i) For purposes of this Section 6A.2, Required Aggregation Group shall mean (i) each qualified plan of the Company in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the plan has terminated), and (ii) any other qualified plan of the Company which enables a plan described in (i) to meet the requirements of Code Sections 401(a) or 410. (ii) For purposes of this Section 6A.2, Permissive Aggregation Group shall mean the Required Aggregation Group of plans plus any other plan or plans of the Company which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Section 401(a)(4) and 410. 7.3 Minimum Contribution. Instead of the allocation of Company contributions to Member's Profit Sharing Accounts provided in Section 4.1 and the allocation of forfeitures provided in Section 4.2, the Company's contribution and forfeitures for the Plan Year shall be allocated to the Member's Profit Sharing Accounts of Participating Members in accordance with the following, subject to the provisions of Section 4.5. (a) The Company's contribution for each Plan Year shall be allocated first to the Profit Sharing Accounts of Participating Members according to the ratio that such Participating Member's Compensation for the year bears to the compensation of all Participating Members for the Plan Year. The sum of the allocations under this paragraph (a) and under Section 4.2 shall not exceed 3% of such Member's Compensation. The minimum contribution under this subparagraph (a) shall be made on behalf of each Non-Key Employee who is employed on the last of the Plan Year without regard to whether or not such Employee has completed 1,000 Hours of Service, his Compensation or whether such Employee has made any contribution to the Plan in such Plan Year. (b) The Company's contribution for each Plan Year shall be allocated to the Profit Sharing Accounts of Participating Members who earned "excess compensation" for such year. Such allocation shall be made on a pro rata basis according to the ratio that a Participating Member's "excess compensation" for the year bears to the "excess compensation" of all participating Members for the year. However, the portion of the Company's contribution to be allocated pursuant to this paragraph shall not exceed 3% of the "excess compensation" of all Participating Members for the year. (c) That part of the Company's contribution which is in excess of the amounts allocated under paragraphs (a) and (b) shall be allocated to the Members' Profit 27 Sharing Account of all Participating Members in the ratio that the sum of each Participating Member's total Compensation plus "excess compensation" bears to the sum of the total Compensation plus "excess compensation" of all Participating Members. The amount allocated pursuant to this paragraph (c) shall not exceed 2.7% of the sum of the total Compensation plus "excess compensation" of all Participating Members. (d) That part of the Company's contribution for the year which exceeds the part of the contribution allocated under paragraph (c) shall be allocated to the Profit Sharing Accounts of all Participating Members according to the ratio that each such Participating Member's compensation for the year bears to the total Compensation of all Participating Members for the year. (e) For purposes of this provision "excess compensation" of a Member shall mean his Compensation in excess of the Social Security Taxable Wage Base in effect on the first day of the Plan Year. 7.4 Vesting. For any Plan Year in which the Plan is determined to be a Top Heavy Plan pursuant to Section 6A.2, each Member shall have a vested interest in the fair market value of his Profit Sharing Account and Matching Contribution Account determined as of the end of a Plan Year on the basis of Section 4.9, based upon Years of Service for the Company determined as follows: Years of Service Percent Vested ---------------- -------------- less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 100% To the extent that Section 5.1 of the Plan provides for a greater vesting percentage in a Member's Profit Sharing Account and Matching Contribution Account, such greater vesting percentage shall be applicable to such account rather than the vesting percentage set forth in this Section. The vesting schedule set forth above shall not apply to those Members or former Members who are not credited with an Hour of Service on or after the first day of the Plan Year in which the Plan becomes a Top Heavy Plan. Instead, such Members shall continue to vest according to the schedule which was in effect prior to the first day of the Plan Year in which the Plan becomes a Top Heavy Plan. If in any year the Plan has been a Top Heavy Plan and in a later year ceases to be a Top Heavy Plan, the Plan shall once again be governed by the vesting schedule set forth in Section 5.1. However, no decrease in any Employee's already vested percentage in his Profit Sharing Account and Matching Contribution Account shall result from such change in vesting schedule. Furthermore, each Participating Member of the Plan on the date the Plan ceases to be a Top Heavy Plan who has a vested interest in his Profit Sharing 28 Account and Matching Contribution Account balance and has at least three Years of Service at the expiration of the election period may elect in writing during the election period to have his vested interest in his Profit Sharing Account and Matching Contribution Account balance determined pursuant to the Plan's vesting schedule in effect on the last day of the last year the Plan was a Top Heavy Plan. Any such election shall be irrevocable and shall only be available to Employees who are Members of the Plan at the time such election is made. The Member's election period shall commence on the date that it is determined that the Plan is no longer a Top Heavy Plan and shall end 60 days after the latest of: (i) The date that it is determined that the Plan is no longer a Top Heavy Plan. (ii) The effective date of the Plan no longer being a Top Heavy Plan, or (iii) The date the Member receives written notice of an amendment to the vesting schedule from the Company or the Committee describing in detail the change in the vesting schedule and the election provided for by Section 6A.4. However, any Participating Member with at least three Years of Service at the expiration of the election period shall automatically remain subject to the vesting schedule set forth in this Section 6A.4 if such schedule is more liberal than the vesting schedule contained in Section 5.1. SECTION VIII. INVESTMENT OF FUNDS 8.1 Vesting. Investment of the Fund shall be at the direction of each Member as to his own Account as provided herein and in the Trust Agreement. 8.2 Investment Direction by Members. In conjunction with Section 7.1 and irrespective of anything else contained in this Plan to the contrary, the investment of the balance in each Member's Profit Sharing Account, his Rollover Account(s), his Elective Deferral Account, Qualified Non-Elective Contribution Account and Matching Contribution Account shall be controlled solely by the Member who will instruct the Trustee, on forms provided by the Committee as to such investments. The investment options will be limited to those vehicles chosen by the Committee. 8.3 Accounting Procedure. All earnings and losses with respect to funds in each Member's Account subject to investment by the Members pursuant to Section 7.2 will be allocated directly to each Member's Account involved irrespective of the provisions of Section IV of this Plan. The Trustee shall ascertain and certify to the Committee the fair market value of each Account as of the end of each Plan Year. In addition, when requested by the Committee, the Trustee shall within fifteen (15) days after the last day of the month certify the fair market value of any or all such Accounts as of the date requested by the Committee. Any costs and/or expenses related to the Committee's and 29 Trustees' compliance with a Member's direction, pursuant to Section 7.2, shall be borne by such Member's Account. 8.4 Failure to Direct Investment. In the event that any Member fails to direct the investment of his Account, the Trustee shall invest all such non-directed funds in investments selected by the Trustee from among the vehicles chosen by the Trustee. SECTION IX. DISTRIBUTION OF BENEFITS 9.1 Distribution in General. The value of the Member's Account shall be paid to him at the times, to the extent, and in the manner hereinafter provided in this Section VIII. 9.2 Death or Disability. Upon the death of a Member or former Member or upon the Total Disability of a Member while employed by the Company, the value of the Member's Account determined under Section 4.10, shall become payable in the manner hereinafter provided. Proof of death or Total Disability satisfactory to the Committee must be furnished prior to any payment. 9.3 Valuation and Retirement Options. When a Member's service is terminated on or after his Normal Retirement Age, the value of the Member's Account determined under Section 4.10, shall become payable to him. If the Member remains in the Company's employ subsequent to the normal retirement date, subject to the provisions of Sections 2.2 and 4.3, he shall share in all contributions made in his behalf up to the end of the Plan Year in which actual termination of employment occurs and he shall be entitled to receive his retirement benefits only after death, Total Disability or actual termination of employment, or if earlier, April 1 of the calendar year after the calendar year in which the Member attains age 70 1/2. 9.4 Form of Benefit. I. For Members Whose Employment Commences On Or After January 1, 1988. (a) When the Account of any Member becomes payable, the value of his Account shall be paid in the form of either a lump sum distribution or in equal installment payments, as such Member (or such beneficiary, in the event of death of the Member, if no choice of payment methods was made by the Member or if the beneficiary wishes to change the payment method selected by the Member) shall request. The Member or beneficiary, as applicable, shall notify the Committee in writing of his election of method of distribution within sixty days of the event in Section 8.2 or 8.3 which causes amounts to become payable under Section 8.4. Any designation of the method of distribution shall be by written notice filed with the Committee on forms supplied by it or by other means selected by the Committee. The Committee, with the consent of the Member or beneficiary, shall have the right to accelerate distributions under any method of distribution selected by the Member or beneficiary. 30 Equal installment payments which the Member, or beneficiary, as applicable, may select shall be the payment of equal annual, quarterly or monthly installments over a period not to exceed the period permitted by paragraph (b) or (c), as applicable, with the first installment to be paid within 60 days after the end of Plan Year in which actual termination of employment or death occurred, or such later starting time as the Member may select, within the constraints set forth in paragraph (b) or (c), as applicable. If a Member dies before all the funds in his Account have been distributed to him, the remaining balance shall be paid or made available to the designated beneficiary or the beneficiary otherwise determined according to the provisions of Section 8.8, in the form of a lump sum or equal installment payments as the Member (or such beneficiary, if no choice of payment methods was made by the Member or if the beneficiary wishes to change the payment method selected by the Member) shall request in a signed writing. The method of payment so selected by the beneficiary may be any of the methods listed above. (b) Notwithstanding the provisions of paragraph (a), no payment method shall fail to comply with the provisions of Code Section 401(a)(9) and the regulations thereunder including the incidental death benefit regulations. Such Code and regulation provisions shall override any provisions of the Plan which are inconsistent therewith. (i) Distributions of the Member's Account shall commence not later than the Required Beginning Date. The Required Beginning Date shall be April 1 of the calendar year following the calendar year in which the Member attains age 70 1/2. (ii) Distributions shall be made over a period not extending beyond the longest of the life of the Member, the life of the Member and a designated beneficiary, the life expectancy of the Member, and the life expectancy of the Member and his designated beneficiary. The Member shall have the right to elect, no later than the Required Beginning Date, whether or not life expectancy of the Member (and his spouse, if the spouse is his beneficiary) will be recalculated annually in the manner prescribed by Treasury regulations. Any such election shall become irrevocable on the Required Beginning Date. In the absence of an election by the Required Beginning Date, life expectancy shall be recalculated annually in accordance with Treasury regulations. (c) Notwithstanding the provisions of paragraph (a), if a Member dies prior to the distribution of any portion of his Account, no payment method shall fail to comply with the provisions of this paragraph (c). (i) The Member's Account shall be distributed to the beneficiary(ies) of the Member within 5 years of the death of the Member. (ii) However, if any portion of such Account is distributable to a designated beneficiary (as such term is defined in Treasury 31 regulations), the 5-year distribution rule shall not apply to such portion if the designated beneficiary so elects and distributions begin no later than December 31 of the calendar year following the calendar year in which the Member died in the case of a non-spouse beneficiary; and the Spousal Required Beginning Date in the case of a designated beneficiary who is the Member's spouse. If the election is made, such portion may be distributed over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such designated beneficiary). (iii) However, if the designated beneficiary is the Member's Spouse, the requirement that distributions commence within one year of the Member's death shall not apply. In lieu thereof, such distribution must commence no later than the later of December 31 of the calendar year immediately following the year in which the Member died and December 31 of the year in which the Member would have attained age 70 1/2 ("the Spousal Required Beginning Date"). The Member's Spouse shall have the right to elect whether or not to have his life expectancy recalculated prior to the Spousal Required Beginning Date in accordance with Treasury regulations. Any such election shall become irrevocable on the Spousal Required Beginning Date. In the absence of an election received from the Spouse prior to the Spousal Required Beginning Date, such Spouse's life expectancy shall be recalculated annually in accordance with Treasury regulations. If the surviving Spouse dies before the distributions to such Spouse begin, then the 5-year distribution requirement of subparagraph (i) shall apply as if the Spouse were the Member. (d) Notwithstanding the provisions of paragraph (a), if a Member dies after payments to the Member commence subject to the rules of paragraph (b), the portion of the Account of such Member remaining at the Member's death shall be distributed at least as rapidly as under the method of payment being used before the Member's death which complies with the requirements of paragraph (b). II. For Members Whose Employment Commenced Prior to January 1, 1988. (a) When the Account of any Member becomes payable, the Member may elect to have the value of his Account paid in one of the following forms rather than a lump sum: (i) Payment of substantially equal monthly, quarterly or annual installments over a period not to exceed the period permitted by this Section, with the first installment to be paid before the end of Plan Year after which actual termination of employment or death occurred, or such later starting time as the Member may select, within the constraints set forth in this Section, as applicable. 32 (ii) An annuity for the life of the Member as described below. (b) 1. If a Member elects an annuity form of payment, in accordance with paragraph (a)(ii) above and the Member is married on the "Annuity Starting Date", he will be paid in the form of a Qualified Joint and Survivor Annuity. A Member who elects an annuity form of payment, in accordance with paragraph (a)(ii) above, and is unmarried on the "Annuity Starting Date" will be paid in the form of an annuity for his life. Except where an earlier date is required, payments shall commence no later than the 60th day following the close of the Plan Year in which the event in Section 8.2 or 8.3 causing such amounts to become payable occurs, unless the Member elects a later starting date permitted under this Section. 2. For purposes of this Section, the "Annuity Starting Date" means the first day of the first period for which an amount is paid as an annuity (whether by reason of retirement or Total Disability) or any other form. 3. The Committee shall provide each Member no less than 30 days and no more than 90 days prior to the Annuity Starting Date a written explanation of (i) the terms and conditions of the Qualified Joint and Survivor Annuity (or, if the Member is unmarried, the life annuity), and (ii) the rights of the Member's spouse. The Member shall also be furnished a general description of the eligibility, conditions, and other material features of the optional forms of benefit and sufficient additional information to explain the relative values of the optional forms of benefit available under the Plan. 4. If the value of the Member's Account determined under Section 4.10 does not exceed $3,500 at the time of an event causing such Account to become payable to the Member under this Section 8.4, the Qualified Joint and Survivor Annuity form of benefit (or, if applicable, the life annuity form of benefit) shall not be made available to the Member. If any contribution under Section 3.1 is made to the Member's Account after payment under the preceding sentence, it shall be distributed within 30 days after it is made to the Member's Account. (c) In the event a Member duly elects pursuant to paragraph (a) above not to receive the value of his Account in a lump sum, or in the event of the Member's death, the value of his Account shall be paid to the Member or his surviving designated beneficiary or the beneficiary otherwise determined according to the provisions of Section 8.8, in such alternative form of payment, as such Member (or such beneficiary, in the event of death of the Member, if no choice of payment methods was made by the Member or if the beneficiary wishes to change the payment method selected by the Member) shall request from the forms set forth below. The Member or beneficiary, as applicable, shall notify the Committee in writing of any alternative payment method he has selected before the end of the "notification period". The notification period shall be: 1. In the case of a living Member, the period ending on the Annuity Starting Date. 33 2. In the case of a deceased Member, the period beginning on the date of the Member's death and ending on the sixtieth day after the close of the Plan Year in which the Committee learns of the Member's death. The methods of payment which the Member, beneficiary, or Committee, as applicable, may select shall include: (i) Payment of substantially equal monthly, quarterly or annual installments over a period not to exceed the period permitted by this Section, with the first installment to be paid before the end of Plan Year after which actual termination of employment or death occurred, or such later starting time as the Member may select, within the constraints set forth in this Section, as applicable. (ii) An annuity for the life of the Member. If a Member dies before all the funds in his Account have been distributed to him, and such funds were not being distributed in a life annuity form of benefit, the remaining balance shall be paid or made available to the designated beneficiary or the beneficiary otherwise determined according to the provisions of Section 8.8, in a lump sum or equal installment payments as the Member (or such beneficiary, if no choice of payment methods was made by the Member or if the beneficiary wishes to alter the payment method selected by the Member) shall have requested in a signed writing. If no choice of payment methods was made by the Member and the beneficiary does not select a method of payment within the notification period after the death of the Member, a lump sum distribution will be paid. Any designation of the method of distribution shall be by written notice filed with the Committee on forms supplied by it or by other means selected by the Committee. The Committee, with the consent of the Member or beneficiary, shall have the right to accelerate distributions under any method of distribution selected by the Member or beneficiary under this paragraph (c). (d) Notwithstanding the provisions of paragraph (a) or (b), no payment method shall fail to comply with the provisions of Code Section 401(a)(9) and the regulations thereunder including the incidental death benefit regulations. Such Code and regulation provisions shall override any provisions of the Plan which are inconsistent therewith. (i) Distributions of the Member's Account shall commence not later than the Required Beginning Date. The Required Beginning Date shall be April 1 of the calendar year following the calendar year in which the Member attains age 70 1/2. (ii) Distributions shall be made over a period not extending beyond the longest of the life of the Member, the life of the Member and a designated beneficiary, the life expectancy of the Member, and 34 the life expectancy of the Member and his designated beneficiary. The Member shall have the right to elect, no later than the Required Beginning Date, whether or not life expectancy of the Member (and his spouse, if the spouse is his beneficiary) will be recalculated annually in the manner prescribed by Treasury regulations. Any such election shall become irrevocable on the Required Beginning Date. In the absence of an election by the Required Beginning Date, life expectancy shall be recalculated annually in accordance with Treasury regulations. (e) Notwithstanding the provisions of paragraph (a) and (b), if a Member dies prior to the distribution of any portion of his Account, no payment method shall fail to comply with the provisions of this paragraph (e). (i) The Member's Account shall be distributed to the beneficiary(ies) of the Member within 5 years of the death of the Member. (ii) However, if any portion of such Account is distributable to a designated beneficiary (as such term is defined in Treasury regulations), the 5-year distribution rule shall not apply to such portion if the designated beneficiary so elects and distributions begin no later than December 31 of the calendar year following the calendar year in which the Member died in the case of a non-spouse beneficiary; and the Spousal Required Beginning Date in the case of a designated beneficiary who is the Member's spouse. If the election is made, such portion may be distributed over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such designated beneficiary). (iii) However, if the designated beneficiary is the Member's Spouse, the requirement that distributions commence within one year of the Member's death shall not apply. In lieu thereof, such distribution must commence no later than the later of December 31 of the calendar year immediately following the year in which the Member died and December 31 of the year in which the Member would have attained age 70 1/2 ("the Spousal Required Beginning Date"). The Member's Spouse shall have the right to elect whether or not to have his life expectancy recalculated prior to the Spousal Required Beginning Date in accordance with Treasury regulations. Any such election shall become irrevocable on the Spousal Required Beginning Date. In the absence of an election received from the Spouse prior to the Spousal Required Beginning Date, such Spouse's life expectancy shall be recalculated annually in accordance with Treasury regulations. If the surviving Spouse dies before the distributions to such Spouse begin, then the 5-year distribution requirement of subparagraph (i) shall apply as if the Spouse were the Member. 35 (f) Notwithstanding the provisions of paragraphs (a) and (b), if a Member dies after payments to the Member commence subject to the rules of paragraph (d), the portion of the Account of such Member remaining at the Member's death shall be distri buted at least as rapidly as under the method of payment being used before the Member's death which complies with the requirements of paragraph (d). (g) All annuity contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity contract purchased for or distributed to a Member or a Member's spouse shall comply with all of the requirements of the Plan. 9.5 Termination of Employment Other Than Because of Death, Total Disability or Retirement. I. For Members Whose Employment Commences On Or After January 1, 1988. In the event a Member's employment is terminated for a reason other than death, Total Disability or retirement, the amount to which he has a vested interest standing to his credit in his Account, determined under Section 4.10 shall be distributed to him or to his surviving designated beneficiary (as the case may be) as follows: (a) In a lump sum as set forth in Section 8.4(a), beginning on the first payment date, to be selected by the Member. (b) In equal installments as set forth in Section 8.4(a). If the Member's vested benefit does not exceed $3,500, then the Committee shall automatically distribute the Member's vested benefit to him in a lump sum as soon as practicable after termination of employment, and after completion of the valuation of the Plan as set forth in Section 4.10. Any former Member who receives a distribution of his vested benefits attributable to Company contributions pursuant to this paragraph, who once again qualifies as a Member of the Plan subsequent to his being rehired may buy back into the Plan and restore his Profit Sharing Account balance by paying to the Trustee in cash the full amount of the distribution he received under this paragraph. The Member's restored Profit Sharing Account shall equal the sum of (i) the amount paid back to the Trustee by the Member, plus (ii) the amount of the unvested portion of the Member's Profit Sharing Account not distributed to the Member under this paragraph. In order for a rehired Employee who once again qualifies as a Member to buy back into the Plan, he must not have been 100% vested at the time of termination of his employment and the Employee must repay the full amount of the distribution no later than the earlier of five years after the first date on which the Member is rehired by the Company or the date of completion of five consecutive One Year Breaks-in-Service commencing after the date of distribution. If the Employee complies with the buy-back rules, the Company shall restore his Profit Sharing Account balance equal to the predistribution account balance, in accordance with Treasury Regulation Section 1.411(a)-7(d)(6)(iii). Any member who fails to buy back into the Plan within 36 the time limitations herein established shall be deemed to have waived his right to buy back into the Plan. If a distribution to a partially vested Member is made prior to the Member's having completed five consecutive One Year Breaks-in-Service pursuant to the above rules, the Committee shall treat such nonvested portion as forfeited as of the end of the Plan Year in which the distribution occurs, subject to the restoration right noted above and the Member shall cease being a Member at the end of the Plan Year in which the distribution occurs. If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (1) the Committee clearly informs the Member that the Member has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Member, after receiving the notice, affirmatively elects a distribution. The provisions of paragraphs (b), (c) and (d) of Section 8.4 shall apply to distributions made under this Section 8.5. II. For Members Whose Employment Commenced Prior To January 1, 1988. In the event a Member's employment is terminated for a reason other than death, Total Disability or retirement, the amount to which he has a vested interest standing to his credit in his Account, determined under Section 4.10 shall be distributed to him or to his surviving designated beneficiary (as the case may be) as follows: (a) In a lump sum as set forth in Section 8.4(a), beginning on the first payment date, to be selected by the Member. (b) In equal installments or an annuity as set forth in Section 8.4(a). If the Member elects to receive his benefit in the form of an annuity in the manner described in Section 8.4(a) in the 90-day period ending on the 60th day after the close of the Plan Year (the "first payment date") in which occurs the former Member's 65th birthday or in which the Committee receives proof prior to such former Member's 65th birthday of his Total Disability, in the form of a Qualified Joint and Survivor Annuity (or an annuity for the life of the Member, if unmarried), commencing with the close of the 90-day period described in this paragraph (b). The Committee shall furnish the Member with the notice required by Section 8.4(a)(3) within a reasonable period prior to the commencement of benefits hereunder. (c) The Member may elect to receive his vested benefit as soon as practicable after termination of employment, and after completion of the valuation of the 37 Plan as set forth in Section 4.10. If the vested benefit of the Member exceeds (or at the time of any prior distribution exceeded) $3,500, such vested benefit shall be distributed to him, with his written consent. If the vested benefit of the Member does not exceed $3,500, then the Committee shall automatically distribute the Member's vested benefit to him in a lump sum as soon as practicable after termination of employment, and after completion of the valuation of the Plan as set forth in Section 4.10. Any former Member who receives a distribution of his vested benefits attributable to Company contributions pursuant to this paragraph (c), who once again qualifies as a Member of the Plan subsequent to his being rehired may buy back into the Plan and restore his Profit Sharing Account balance by paying to the Trustee in cash the full amount of the distribution he received under this paragraph (c). The Member's restored Profit Sharing Account shall equal the sum of (i) the amount paid back to the Trustee by the Member, plus (ii) the amount of the unvested portion of the Member's Profit Sharing Account not distributed to the Member under paragraph (c). In order for a rehired Employee who once again qualifies as a Member to buy back into the Plan, he must not have been 100% vested at the time of termination of his employment and the Employee must repay the full amount of the distribution no later than the earlier of five years after the first date on which the Member is rehired by the Company or the date of completion of five consecutive One Year Breaks-in-Service commencing after the date of distribution. If the Employee complies with the buy-back rules, the Company shall restore his Profit Sharing Account balance equal to the predistribution account balance, in accordance with Treasury Regulation Section 1.411(a)-7(d)(6)(iii). Any member who fails to buy back into the Plan within the time limitations herein established shall be deemed to have waived his right to buy back into the Plan. If a distribution to a partially vested Member is made prior to the Member's having completed five consecutive One Year Breaks-in-Service pursuant to the above rules, the Committee shall treat such nonvested portion as forfeited as of the end of the Plan Year in which the distribution occurs, subject to the restoration right noted above and the Member shall cease being a Member at the end of the Plan Year in which the distribution occurs. If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: (1) the Committee clearly informs the Member that the Member has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Member, after receiving the notice, affirmatively elects a distribution. The provisions of paragraphs (d), (e) and (f) of Section 8.4 shall be deemed to modify distributions made under this Section 8.5. 38 9.6 Annual Fund Adjustments. Any installments which shall be payable in accordance with 8.4 or 8.5 shall be adjusted annually to reflect increases in the value of the Fund by way of interest, dividends, realized and unrealized gains, and income from other sources and shall bear any realized or unrealized losses and expenses as provided in Section 4.4. Such adjustments shall not affect the manner or intervals of payment. However, this provision shall not cause payments to be reduced below the minimum amount which must be distributed to the Member in order to comply with plan qualification requirements concerning the form of payment as set forth in Section 8.4. If a former Member's interest in the Fund is being paid to him in installments, such former Member may direct the Committee to pay the value of the former Member's interest in the Fund to him in a lump sum within 31 days after the end of such month in which the request is made. The provisions of this Section shall not apply to payments made in the form of a life annuity. 9.7 Death Benefits. I. For Members Whose Employment Commences On Or After January 1, 1988. Within a reasonable time following the death of a Member or former Member, the sum of the vested portion of the balance of the Member's Account determined under Section 4.10 shall be paid in a lump sum or installments to the beneficiary determined under Section 8.8. II. For Members Whose Employment Commenced Prior To January 1, 1988. If a married Member or married former Member dies prior to commencement of payment of benefits to such Member and such Member had elected to be paid in an annuity form of benefit, then the sum of the vested portion of the balance of the Member's Account determined under Section 4.10 shall be paid as an annuity for the life of the Spouse, unless the Spouse elects to have the benefit distributed in the form of a lump sum or in equal installments. For all other Members or former Members the sum of the vested portion of the balance of the Member's Account determined under Section 4.9 shall be paid in a lump sum or equal installments to the beneficiary determined under Section 8.8. 9.8 Designation of Beneficiary. A Member shall designate a beneficiary or beneficiaries to receive any benefits which may become payable in the event of his death. If the Member is married, such designation shall be made only with the consent of the Member's Spouse, in the form of a Qualified Spousal Consent, if the beneficiary is other than the Member's spouse. A Member may at any time revoke his designation or change his beneficiary by filing written notification of such change with the Committee. However, the Member's Spouse must again consent in writing in the form of a Qualified Spousal Consent to any such change or 39 revocation. A designation made by a Member while unmarried shall not be given effect if the Member subsequently marries. If a married Member designates a beneficiary other than his Spouse (and does so prior to the Member's normal retirement age and prior to receipt of any benefits under Section 8.4 or 8.5), then such designation shall only be given effect if a General Spouse's Consent is on file with the Committee. The term "beneficiary" as used in the Plan, includes beneficiaries if more than one beneficiary is designated. If there is no beneficiary designated and surviving at the Member's death, payment of any benefit which may become payable in the event of his death shall be made to any one of or jointly to any number of the following surviving relatives of the Member with priority in the order named: (1) spouse, (2) children, (3) parents, (4) brothers and sisters, (5) nephews and nieces, and (6) the Member's estate. In the event the benefits are paid to a surviving relative or class of relatives, they shall be paid to the first-mentioned relative or class of relatives, if there be such, in order named to the exclusion of all the following relatives or classes named. Any designation or change of beneficiary shall be by written notice filed with the Committee on forms supplied by it. A change of beneficiary shall take place only upon the filing of a notice of change with the Committee. 9.9 Payment to Minors, etc. If any person to whom a benefit is payable hereunder is an infant or if the Committee determines that any person to whom such benefit is payable is incompetent by reason of physical or mental disability (whether or not such incompetency has been recognized in a legal proceeding), the Committee shall have power to cause the payments becoming due to such person to be made to another for his benefit without responsibility of the Committee or the Trustee to see to the application of such payments. Any payment made pursuant to such powers shall, as to such payment, operate as a complete discharge of the Fund, the Trustee and the Committee. 9.10 Commencement of Benefits. Irrespective of any other provision in this Section VIII, unless the Member elects otherwise, the payment of benefits under the Plan to any Member will begin not later than the 60th day after the latest of the close of the Plan Year in which: (a) the Member attains the earlier of age 65 or the Normal Retirement Age specified under the Plan, (b) occurs the 10th anniversary of the year in which the Member commenced participation in the Plan, or (c) the Member terminates his service with the Company. No Member may elect that benefits commence later than the time specified in Section 8.4. 9.11 Loans to Members. The Committee is responsible to authorize and administer all loans under the Plan. Upon written application to the Committee specifying the amount, duration and security for the loan, a Member or beneficiary may borrow from 40 the Fund for any reason whatsoever provided that the total amount borrowed from this Plan and all other Plans enumerated in the following sentence shall not at any time exceed the lesser of: (1) $50,000.00, reduced by the highest outstanding balance of all loans from the Plan during the one-year period ending on the day before the date the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made, or (2) one-half (1/2)of the vested interest of such Member's Account. For purposes of the foregoing limitation, all Plans of the Company in which the Member is a Member (and beneficiary is a beneficiary) shall be treated as one Plan and all Plans of Affiliated Companies in which the Member participates (the beneficiary has an account balance) shall be treated as Plans of the Company. The minimum amount of a loan shall be $1,000 and no more than three loans may be outstanding at any time. A Member may borrow from his Elective Deferral Account and Rollover Account for any reason, but may only borrow from his Profit Sharing Account, Qualified Non-Elective and Matching Contribution Account in the case of a hardship, the criteria for which will be determined by the Committee in accordance with the provisions of Section 6.10(c)(i). Limitations on the total amount a Member may borrow are always subject to the provisions set forth in the preceding paragraph. Loans will be granted in a uniform and nondiscriminatory manner. However, a loan request may be denied for failing to meet any one of the requirements set forth in the following paragraph, for failure to satisfy the spousal consent requirements set forth in this Section 8.11, or for any other reason for denial which commercial lending institutions commonly deny loan requests. If a loan is denied for any reason, a full written explanation will be provided to the Member or beneficiary. Any such borrowing shall be permitted only upon the Member's execution of a promise to repay the amount at a reasonable rate of interest as required to comply with Section 408(b) of ERISA and Code section 4975(d)(1); any such loan shall provide for level amortization with payments to be made not less frequently than quarterly over a period not to exceed 5 years. However, loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a principal residence of the Member shall provide for repayment over a reasonable period of time that may exceed 5 years. All loans shall be repaid on a schedule providing for level amortization determined by the Committee. All such loans shall be nonrenewable. By accepting such a loan, the Member automatically assigns to the Plan as security for the loan his right, title and interest in and to the appropriate portion of his Account (not to exceed the lesser of $50,000.00 or 50% of such Member's vested interest in his Account as of the date the loan is made) plus any additional collateral security as may be required by the Committee in its discretion (such as title to an automobile, a second mortgage on a residence, etc...). A reasonable rate of interest will be determined which will be reflective of the interest rate which would be charged by an independent lending institution with regard to a similar loan. In determining what the final interest rate and additional collateral security, if any, will be, the Committee may consider the creditworthiness of the Member and the security given for the loan. If a Member borrows pursuant to this section, the amount of such loan shall be treated for accounting purposes as being taken from the Member's Account in the 41 following order with each Account balance being reduced to $0 before distributions may be made from the next succeeding Account: Elective Deferral, Rollover, Qualified Non-Elective, Matching and Profit Sharing. Any and all investment results which occur in connection with such loan (i.e., installment payments of principal and interest and any losses) shall be allocated directly to the Member's Rollover Account, Elective Deferral Account, Matching Contribution Account, Qualified Non-Elective Account and Profit Sharing Account of the Member who borrows from the Plan and shall not be treated as a general investment of the Fund. A default of the loan will occur upon the event of: (a) failure to make a payment within sixty days after the due date of the payment, (b) commencement of any insolvency proceedings by or against the Member, or (c) the death of the Member. The Member (or beneficiary) will receive notice that the loan is a taxable distribution and will be reported to the Internal Revenue Service. If a default occurs or a Member terminates his employment with the Company and the debt remains unpaid when the Member (or beneficiary) is otherwise eligible to receive a distribution, the amount distributable is reduced by the outstanding indebtedness (principal plus interest). In the event a Member defaults on any such borrowing, the Committee and the Trustee are specifically directed to immediately take legal action against the defaulting Member by filing suit against the Member for breach of his promise to repay the loan and/or filing suit to obtain title and possession of any and all security pledged as collateral for the loan except that the Committee and the Trustee shall not proceed to acquire the Member's vested interest in his Member's Account for default unless all other legal remedies have been considered and either pursued or rejected on the advice of legal counsel. It is the intention of the Company that a Member's vested interest shall be maintained for that Member free of any alienation except as provided in this Section 8.11 and that a forfeiture of the Member's interest should only be considered a remedy of last resort. No married Member shall be permitted to borrow from the Plan without the written consent of the Member's Spouse in the form of a Qualified Spousal Consent. The Member and spouse shall consent to the possible reduction in the Member's plan benefit in the 90-day period before the making of the loan, which could occur if the Member defaults on repayment of the loan and the Member's plan benefit is reduced to satisfy the Member's obligation. Such consent shall acknowledge the effect of the loan. No borrowing shall be permitted from a Member's Rollover Account(s) originally attributable to participation in a non-corporate qualified plan without an opinion of counsel 42 to the Company or the Plan that such borrowing will not adversely affect the qualified status of the Plan. Trust investments (including investments in residential mortgages) shall not be considered as loans if: (1) such investments are made pursuant to an established written investment program, (2) the amount of the mortgage loan does not exceed the fair market value of the property purchased with the loan proceeds, (3) the mortgage loan was not made as the result of a directed investment, and (4) the loan does not benefit an officer, director or shareholder of the Company or the beneficiaries of such person. 9.12 Nonalienation of Benefits. (a) No benefit payable under the Plan will, except as otherwise specifically provided by law or herein, be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same will be void; nor will any benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled thereto. Compliance with the provisions and conditions of a QDRO shall not be considered a violation of this provision. (b) If the Committee receives a qualified disclaimer (as defined in Code Section 2518) from any beneficiary entitled to benefits as a result of and within 9 months after the death of a Member, such benefits shall instead be paid to an alternate beneficiary determined according to a valid beneficiary designation made by a Member, or if an alternate beneficiary cannot be determined according to such a designation, according to the provisions of Section 8.8. Payment to an alternate beneficiary on account of receipt of a qualified disclaimer shall not be treated as a violation of paragraph (a) of this section. 9.13 Receipt of Domestic Relations Order. If the Committee receives a domestic relations order (as defined in Code Section 414(p)), the Committee shall promptly notify the Member and any spouse, former spouse, child or other dependent of the Member who is recognized by the order as having a right to receive all, or a portion of, the benefits payable to the Member under the Plan ("alternate payee") of the Plan's procedures for determining the qualified status of such order. Within a reasonable time after receipt of such order, the Committee shall notify the Member and alternate payee of its determination whether the domestic relations order is a QDRO. While making its determination, the Committee shall segregate in a separate account in the Plan the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a QDRO. If within 18 months of receipt, the order is determined to be a QDRO, the Committee shall pay the segregated amounts to the person or persons entitled thereto under the order. If within 18 months of receipt the order is determined not to be a QDRO, the Committee shall treat the segregated account as belonging to the Member in accordance with the other provisions of this Section 8.13, and shall pay to the Member any amounts in the segregated account which would have been paid to him during the period of segregation if no order had been received. If an order is determined to be a QDRO more than 18 months after receipt by the Committee, it shall be applied prospectively from the date of determination. Furthermore, once the domestic relations order is determined to be a QDRO, the alternate payee shall be entitled to 43 designate a beneficiary pursuant to the provisions of Section 8.8 of the Plan with respect to the amounts which have been segregated on his or her behalf. To the extent that an order is determined to be a QDRO, Sections 8.4, 8.5 and 8.7 shall be deemed modified, but only to permit payment to the alternate payee. 9.14 Qualified Spousal Consent. Any spousal consent referred to in this Section VIII as a Qualified Spousal Consent shall comply with the provisions of this Section 8.14 and shall not be required under those circumstances described in this Section 8.14. A spouse's consent shall be in writing, shall be irrevocable and must acknowledge the effect of such election and be witnessed by a member or agent of the Committee or a notary public. Such consent shall not be required if it is established to the satisfaction of the Committee that the required consent cannot be obtained because there is no spouse or the spouse cannot be located. If the spouse is legally incompetent to give the consent, the spouse's guardian, even if the Member, may give consent. If the Member is legally separated or has been abandoned (within the meaning of local law) and a Member has a court order to such effect, spousal consent shall not be required unless a QDRO provides otherwise. A former Spouse's consent shall not be binding on a new Spouse. Any spousal consent to a Member's waiver of the Qualified Joint and Survivor Annuity or the Qualified Pre-retirement Survivor Annuity must state the specific non-spouse beneficiary who will receive the benefit. Any spousal consent to a Member's waiver of the Qualified Joint and Survivor Annuity must specify the particular optional form of benefit. Notwithstanding the foregoing, a Member's Spouse may execute a "General Spouse's Consent" which permits a Member who waives the Qualified Joint and Survivor Annuity to change the designated non-spouse beneficiary or the optional form of benefit without any further spousal consent requirements. A General Spouse's Consent must acknowledge that the Spouse has the right to limit his or her consent to a specific non-spouse beneficiary and a specific optional form of benefit, in the case of a waiver of a Qualified Joint and Survivor Annuity, and that the Spouse voluntarily elects to relinquish such rights. However, a Spouse may execute a General Spouse's Consent that is limited to certain beneficiaries or optional forms of benefit. A General Spouse's Consent to a Member's waiver of a Qualified Joint and Survivor Annuity must be made within the period set forth in Section 8.4(a)(3). A General Spouse's Consent executed prior to October 22, 1986 does not have to meet the requirements of this paragraph. 9.15 Direct Rollovers. (a) This section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this section, a distributee may elect, at the time and in the manner prescribed by the plan administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 44 (b) For purposes of this Section the following definitions shall apply: (1) An "eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) An "eligible retirement plan" is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) A "distributee" includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) A "direct rollover" is a payment by the Plan to the eligible retirement plan specified by the distributee. SECTION X. THE COMMITTEE 10.1 Appointment of Committee. The Board of Directors of the Company shall appoint a Committee to administer the Plan consisting of one or more persons who shall serve at the Board's pleasure. The Board of Directors shall fill vacancies on the Committee and shall fix from time to time the compensation of members of the Committee. 10.2 Adoption of Rules. The Committee shall adopt such rules for the conduct of its business and administration of the Plan as it considers desirable provided that they do not conflict with the Plan. 10.3 Delegation;Contracting for Services. The Committee may authorize one or more of its members or any agent to act on its behalf and may contract for legal, investment, advisory, medical, accounting, clerical and other services to carry out the Plan. 45 The costs of such services and expenses of the Committee shall be paid by the Fund except that the Company may, at its option, pay any or all such costs. 10.4 Construction of the Plan. The Committee may construe the Plan, correct defects, supply omissions or reconcile inconsistencies to the extent necessary to effectuate the Plan and such action shall be conclusive. 10.5 Records. The Committee shall keep records reflecting administration of the Plan which shall be subject to audit by the Company. Members may examine records pertaining directly to them. 10.6 Member's Access to the Committee. The Committee shall make available to each Member a copy of the Plan and Trust after a written request from such Member and such of its records as may pertain to the assets held by the Trustee for the benefit of such Member. 10.7 Designation of Plan Administrator; Power and Duties of the Committee. The Company is hereby specifically designated as the administrator of this Plan and Trust and, as such, is charged with full and complete liability and responsibility for the administration of the Plan. Each member of the Committee is hereby designated a "named fiduciary" as this term is used in Section 402 of ERISA. The Committee shall have the discretionary authority to interpret the provisions of the Plan and Trust. Decisions regarding eligibility and payment of benefits shall be made by the Committee in a manner consistent with the provisions of the Plan. Where deemed necessary, the Committee may assign the duties of plan interpretation. Any denial by the Committee of the claim for benefits under the Plan by a Member or beneficiary shall be stated in writing by the Committee and delivered or mailed to the Member or beneficiary; and such notice shall set forth the specific reasons for the denial, written to the best of the Committee's ability in a manner that may be understood without legal or actuarial counsel. In addition, the Committee shall afford a reasonable opportunity to any Member or beneficiary whose claim for benefits has been denied for a review of the decision denying the claim in the manner set forth in Section 9.8. 10.8 Review of Decisions of the Committee. The Company intends that the payment of benefits to a Member under this Plan will be automatic and will not depend on any specific action of the Member. However, any Member or his beneficiary who feels aggrieved by a decision of the Committee with respect to such Member's or beneficiary's rights under the Plan, may submit a written statement to the Committee listing the Member's or beneficiary's position with respect to the matter in question. The Committee may, at its option, invite the Member or beneficiary to attend a Committee meeting to present his position to the Committee or respond in writing to the Member or beneficiary. 10.9 Reporting and Disclosure. The Committee shall exercise such authority and responsibility as it deems appropriate in order to comply with ERISA and governmental regulations issued thereunder relating to records of Member's service, account balances and the percentage of such account balances which are nonforfeitable under the Plan, notifications to Members, annual registration with the Internal Revenue Service, and annual reports to the Department of Labor. 46 10.10 Indemnification. No Committee member or Trustee guarantees the Fund in any manner against investment loss or depreciation in asset value. The Company shall, to the maximum extent permitted by ERISA, indemnify each Committee member, director, officer, and Employee who is a fiduciary of the Plan and who is a party, or who is threatened with being made a party, to a threatened, pending, or completed action suit, or proceeding, whether civil, criminal, administrative, or investigative (including any such action by or in the right of the Company), by reason of the fact that such person is or was a fiduciary of the Plan, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement, actually and reasonably incurred by such fiduciary in connection with such action, suit, or proceeding. Reasonable expenses incurred in defending any such action, suit, or proceeding shall be paid by the Company in advance of a final disposition of such action, suit, or proceeding, upon presentation of the statements received by him therefor by any such fiduciary of the Plan. 10.11 Service of Legal Process. Each member of the Committee is hereby designated agent for the Plan for purposes of accepting service of process in any judicial or administrative proceeding. Such service shall be effective if the member is served at 301 Grove Road, Thorofare, NJ 08096-9499. SECTION XI. DISTRIBUTION OF BENEFITS 11.1 Distribution in General. This Plan may be amended by the Company, if as amended, it continues to be for the exclusive benefit of Employees. Any amendment shall be accomplished by a resolution (or, if allowed by applicable corporate law, unanimous written consent) of the Company's board of directors. No amendment shall divest a Member's then vested interest. No amendment to this Plan shall have the effect of eliminating or reducing an early retirement benefit or retirement type subsidy, nor shall any amendment made to this Plan have the effect of eliminating a Section 411(d)(6) protected form of benefit with respect to benefits attributable to service before the amendment except to the extent permitted by regulations of the Internal Revenue Service or other publications of the Internal Revenue Service of general applicability. The rules of Treasury Regulations Section 1.411(d)-4 are incorporated herein for the purpose of determining what is a Section 411(d)(6) protected form of benefit. In the case of a retirement type subsidy, the preceding sentence shall apply only with respect to a Member who satisfies (either before or after the amendment) the pre-amendment conditions for the subsidy. However, an amendment to this Plan may have the effect otherwise prohibited by the preceding two sentences to the extent the amendment is necessary (1) to satisfy a change in the law regarding plan qualification, if the amendment is timely, the Internal Revenue Service grants relief under Code Section 7805(b), and the elimination or reduction is made only to the extent necessary to enable the plan to continue to satisfy the requirements for qualified plans; or (2) is permitted by Treasury Regulations Section 1.411(d)-4(b)(2)(ii) relating to multiple forms of qualified joint and survivor annuities. Notwithstanding any other provisions of this Plan, no amendment to this Plan shall be construed in a manner to have the effect prohibited by this Section. 11.2 Voluntary Termination. (a) The Company intends to continue the Plan indefinitely but reserves the right to terminate it at any time. Upon the complete or partial termination of the Plan or the complete discontinuance of the Company's contributions, 47 the total amounts (including contracts) then standing to the Member's Accounts shall be nonforfeitable and the Fund shall continue to be held for distribution as provided in Sections V, VIII and XI. (b) Notwithstanding paragraph (a), upon the full termination of the Plan, the Company may direct the distribution of the assets of the Fund to Members in a manner which is consistent with and satisfies the provisions of Section VIII. Distributions to a Member shall be made in cash or in property or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d)(6) protected benefits" in accordance with Section 10.1. 11.3 Liability of the Company. The Company shall have no liability for payments under the Plan or administration of the Fund except to make the contributions required by Section 3.1. Persons entitled shall look solely to the Fund for any payments under the Plan. 11.4 Plan and Trust Qualification. This Plan and the accompanying Trust Agreement have been qualified under the Code and the lawful rules and regulations of the Secretary of the Treasury or his delegate promulgated thereunder so as to be a tax-free deferred compensation Plan and Trust, contributions to which are deductible by the Company in computing taxable income, and it is intended that they should continue to be so qualified. This Plan, as restated, will be submitted to the Secretary of the Treasury or his delegate for a ruling with respect to such continued qualification. If such authority refuses to rule or withholds his ruling that this Plan and Trust are so qualified, and if this Plan and Trust can in a manner satisfactory to the Company be amended and the favorable ruling of such authority be obtained thereby, the Company reserves the right to so amend and such amendment, anything else in this plan to the contrary notwithstanding, shall be effective July 1, 1996, the same date as if incorporated herein in the first instance unless a different effective date is expressly stated in such amendment. SECTION XII. MISCELLANEOUS 12.1 Plan Creates No Contract of Employment. This Plan shall not confer upon any Employee any right to be continued as such. 12.2 Exclusive Benefit of Funds. At no time prior to the satisfaction of all liabilities with respect to Members and their beneficiaries shall any part of the corpus or income of the Trust be used for or diverted to purposes other than for the exclusive benefit of Members and their beneficiaries. 12.3 Transfer from Qualified Funds. (a) With the consent of the Committee, amounts may be transferred from other qualified corporate and non-corporate plans, provided that the trust from which such funds are transferred permits the transfer to be made and, in the opinion of legal counsel for the Company, the transfer will not jeopardize the tax exempt status of the Plan or Trust, create adverse tax consequences for the Company or require the Plan to provide any 48 optional form of benefit which it does not already provide. Each such amount transferred shall be set up in a separate account herein referred to as a "Rollover Account(s)". A separate account shall be maintained for each rollover of a given Member. If a rollover is attributable partially to employer contributions and partially to Employee contributions, a separate Rollover Account(s) shall be established for the amounts attributable to each such portion. Such account shall be fully vested at all times and shall not be subject to forfeiture for any reason. (b) For purposes of this Section the term "amounts transferred from another qualified corporate and non-corporate plan" shall mean: (i) amounts transferred to this Plan directly from another qualified corporate and qualified non-corporate plan; (ii) lump sum distributions received by a Member from another qualified Plan which are eligible for tax free rollover treatment and which are transferred by the Member to this Plan within 60 days following his receipt thereof; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which were previously distributed to the Member by another qualified plan (other than an individual retirement account or if transferred prior to January 1, 1984; an H.R. 10 plan) as a lump sum distribution which were eligible for tax free rollover treatment and which were deposited in such conduit individual retirement account within 60 days of receipt thereof and other than earnings on said assets; and (iv) amounts distributed to the Member from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Member to this Plan within 60 days of his receipt thereof from such conduit individual retirement account. Prior to accepting any transfers to which this Section applies the Committee may require the Member to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Member to provide an opinion of counsel satisfactory to the Company that the amounts to be transferred meet the requirements of this Section. (c) For purposes of this Section, the term "qualified corporate or non-corporate plan" shall mean any tax qualified plan under Code Section 401(a). 12.4 Severability of Provisions. It is the Company's intention that this Plan and Trust will meet all of the requirements contained in ERISA and for qualified plans under the Code, and all regulations issued thereunder. Any provision contained herein which does not meet any such requirement is hereby declared null and void as of the effective date of this applicable requirement. 12.5 Mergers and Consolidation of Plans. If the Plan is merged or consolidated with another Plan or if the assets or liabilities of the Plan are transferred to any other Plan, each Member in the Plan will (if the Plan then terminated) receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit the Member would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan had then terminated). Further, all optional forms of benefit which are available to the Member in this Plan shall be available to such Member in the transferee plan at least to the extent of the benefit accrued by the Member in this Plan. 49 12.6 Exclusive Benefit; Refund of Contributions. The assets of the Plan are intended to be held for the exclusive purposes of providing benefits to participants in the Plan and their beneficiaries and defraying reasonable expenses of administering the Plan. The contributions are not intended to inure to the benefit of the Company; however, as provided in Section 403(c) of ERISA, the Company may require the Committee to return certain contributions, in whole or in part, to the Company in the following instances: (a) In the case of a contribution which is made by the Company by a good faith mistake of fact, the contribution may be recovered within one year after the payment of the contribution. Earnings of the Plan attributable to the excess contributions may not be returned to the Company but any losses attributable thereto must reduce the amount so returned. (b) If the contribution is conditioned upon the deductibility of the contribution under Code Section 404, then to the extent the deduction is disallowed, the contribution may be recovered by the Company within one year after the disallowance of the deduction. Earnings of the Plan attributable to the excess contributions may not be returned to the Company but any losses attributable thereto must reduce the amount so returned. 12.7 Liquidation of the Company. If at any time the Company is liquidated, the Company shall designate a plan administrator to serve effective after the liquidation of the Company. Such plan administrator shall have authority to exercise all powers granted to the Company and the plan administrator in Articles 9 and 10 and in the Trust Agreement, including, without limitation, the power to amend the Plan and the Trust Agreement. If the Company fails to appoint a plan administrator pursuant to this provision, then the Trustee shall have the power to appoint a plan administrator (which may include the Trustee or any one of the Trustees, if more than one is serving) to act as plan administrator. 12.8 Location of Member or Beneficiary Unknown. In the event that all, or any portion, of the distribution payable to a Member or his beneficiary hereunder shall, at the expiration of five years after it shall become payable, remain unpaid solely by reason of the inability of the Committee, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Member or his beneficiary, the amount so distributable shall be treated as a forfeiture pursuant to the Plan. In the event a Member or beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored. 12.9 Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. 50 EX-10 7 EXHIBIT 10.26 MEMORANDUM TO: File FROM: John Pinti SUBJECT: Non-Qualified Supplemental Executive Retirement Plan ("SERP") Covering Officer-Employees of Berwick Industries, Inc. (the "Company") and its Subsidiaries in the United States DATE: November 18, 1996 1. With the approval of the Company's Executive Committee, effective January 1, 1996, a SERP is instituted covering the officers of the Company and its subsidiaries in the United States who are also employees hereof. 2. Commencing with the calendar year 1996, the Company will, for each year in which the Company makes a Profit Sharing contribution to the Berwick Industries, Inc. 401(k) Retirement Plan or such other profit sharing plan then maintained for the benefits of the employees of the Company (the "Plan"), incur and accrue on its books as a liability to each such officer of the Company, an amount equal to the product of (x) the percentage then used in deriving the dollar amount approved by the Company's Board of Directors as the Company's contribution to the Plan for such calendar year, and (Y) the difference between each such Company officer's total cash compensation for such calendar year and the dollar amount of the compensation limitation imposed by section 401(a) (17) of the Internal Revenue code of 1986, as amended. 3. The accruals on the Company's books required by paragraph "2" above will be entered on the books of the Company for the benefit of each such officer on the same basis that accruals are entered on the books of the Company for its Plan participants; 4. The amounts so accrued on the books of the Company as required by paragraph "2" above shall thereafter be adjusted to reflect the performance of the investments selected for the Plan by the participant, at the same time and as if such accrued amounts had been invested in the Plan during such period; 5. All accrued amounts due to such an officer pursuant to the SERP shall be deemed vested and payable in accordance with and pursuant to the pertinent provisions of the Plan; page 1 of 2 6. All amounts payable by the Company to any officer (or to his or her designated beneficiary in the event of such officer's death) for whose benefit amounts have been accrued on the Company's books under the provision of the SERP shall represent an unsecured debt of the Company and the Company shall not be required to escrow or otherwise segregate any money or other property on account of its obligation hereunder; and 7. Nothing herein contained shall be construed to affect the status or nature of the employment with the Company of each officer covered by the SERP and such employment shall continue to be an employment at will, unless otherwise expressly provided in writing between the Company and such officer. 8. Each officer-employee of the Company shall as a condition precedent to entitlement of SERP participation execute and deliver to the Company a form of designation of beneficiary of the SERP amount which has been accrued for such officer's benefit in the event of his or her death, an acknowledgement of receipt of a copy of this memorandum and an agreement to be bound by the provisions hereof. page 2 of 2 EX-10 8 EXHIBIT 10.27 PAPER The Paper Magic Group, Inc. MAGIC P.O. Box 977 GROUP Scranton, PA 18501 Phone:717-961-3863 TO: File FROM: John J. Nucero DATE: December 5, 1996 RE: Non-Qualified Supplemental Executive Retirement Plan ("SERP") Covering Officer-Employees of The Paper Magic Group, Inc. (the "Company") and its subsidiaries in the United States - ------------------------------------------------------------------------------- 1. With the approval of the Board of Directors, effective January 1, 1996, a SERP is instituted covering the officers of the Company and its subsidiaries in the United States who are also employees thereof, 2. Commencing with the calendar year 1996, the Company will, for each year in which the Company makes a contribution to the The Paper Magic Group, Inc. Profit-Sharing Plan or such other profit sharing plan then maintained for the benefits of the employees of the Company ("Plan"), incur and accrue on its books a liability to each such officer of the Company, an amount equal to the product of (x) the percentage then used in deriving the dollar amount approved by the Company's Board of Directors as the Company's contribution to the Plan for such calendar year, and (y) the difference between each such Company officer's total cash compensation for such calendar year and the dollar amount of the compensation limitation imposed by Section 401 (a) (17) of the Internal Revenue Code of 1986, as amended. 3. The accruals on the Company's books required by paragraph "2" above will be entered on the books of the Company for the benefit of each such officer on the same basis that accruals are entered on the books of the Company for its Plan participants; 4. The amounts so accrued on the books of the Company as required by paragraph "2" above shall thereafter be adjusted to reflect the investment performance of the Plan, at the same time and as if such accrued amounts had been invested in the Plan during such period; 5. All accrued amounts due to such an officer pursuant to the SERP shall be deemed vested and payable in accordance with and pursuant to the pertinent provisions of the Plan; Memo to File December 5, 1996 Page 2 6. All amounts payable by the Company to any officer (or to his or her designated beneficiary in the event of such officer's death) for whose benefit amounts have been accrued on the Company's books under the provision of the SERP shall represent an unsecured debt of the Company and the Company shall not be required to escrow or otherwise segregate any money or other property on account of its obligation hereunder; and 7. Nothing herein contained shall be construed to affect the status or nature of the employment with the Company of each office covered by the SERP and such employment shall continue to be an employment at will, unless otherwise expressly provided in writing between the Company and such officer. 8. Each officer-employee of the Company shall as a condition precedent to entitlement of SERP participation execute and deliver to the Company a form of designation of beneficiary of the SERP amount which has been accrued for such officer's benefit in the event of his or her death, an acknowledgment of receipt of a copy of this memorandum and an agreement to be bound by the provisions hereof. JJN/ame cc: Rick Barton EX-21 9 EXHIBIT 21 Exhibit 21 LIST OF SIGNIFICANT SUBSIDIARIES OF CSS INDUSTRIES, INC. Name of Subsidiary State of Incorporation - ------------------ ---------------------- The Paper Magic Group, Inc. Pennsylvania - --------------------------- Rapidforms, Inc. New Jersey - ---------------- Berwick Industries, Inc. Pennsylvania - ------------------------ Cleo Inc. Tennessee - --------- Philadelphia Industries, Inc. Delaware - ----------------------------- EX-27 10 FDS
5 0000020629 CSS INDUSTRIES YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 2,755 0 159,008 3,838 58,189 9,152 97,900 44,654 346,364 157,324 4,612 0 0 1,229 175,523 346,364 412,079 412,079 266,964 266,964 97,312 2,295 8,235 37,273 14,389 22,344 0 0 0 22,344 2.03 2.01
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