EXHIBIT 10.4
TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT (this "Agreement") for the
performance of certain corporate services is executed and made effective as of
June 6, 2002, by and among SWS Group, Inc., a Delaware corporation ("SWS"),
Westwood Management Corporation, a New York corporation ("Westwood Management"),
and Westwood Trust, a Texas trust ("Westwood Trust" and together with Westwood
Management, "Westwood"). Unless otherwise defined herein, capitalized terms have
the meaning assigned to them in the Distribution Agreement (defined herein).
WHEREAS, SWS, through its ownership of 80.18% of the issued and
outstanding common stock, $0.01 par value per share (the "Westwood Common
Stock"), of Westwood Holdings Group, Inc. participates in the business of asset
management;
WHEREAS, the Board of Directors of SWS has determined that it would be
advisable and in the best interests of SWS and its stockholders for SWS to
distribute all of the shares of Westwood Common Stock that it owns on a pro rata
basis to the holders of SWS common stock (the "Distribution") pursuant to that
certain Distribution Agreement, dated as of the date hereof, between SWS and
Westwood Holdings Group, Inc. (the "Distribution Agreement");
WHEREAS, the parties intend that the transactions described herein will
be effective at the Distribution Date (as defined in the Distribution
Agreement); and
WHEREAS, the parties hereto deem it to be appropriate and in the best
interests of the parties that SWS provide certain services to Westwood on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Description of Services. Effective as of the Distribution Date, SWS
shall, subject to the terms and provisions of this Agreement, provide Westwood
with the information technology and equipment services listed on Schedule 1.1
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and the human resources services listed on Schedule 1.2; provided, however, that
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the human resources services specifically exclude direct involvement with
employees of Westwood in the investigation of employee discipline and
grievances, or regarding an employee's specific question or problem involving
interpretation under any policy, program or benefit document; or any specific
activities involving potential employee complaints under any federal or state
regulations.
2. Consideration for Services. Westwood shall pay SWS the fees set
forth on Schedule 1.1 for information technology and equipment services provided
------------
and $95.00 per hour for human resources services provided in the first 15 hours
in any calendar week, and $125.00 per hour for all human resources services
provided in excess of 15 hours in any calendar week.
3. Terms of Payment. Within ten business days after the end of each
month during the term of this Agreement, SWS will submit a written invoice to
Westwood for service fees for services performed during the immediately
preceding month together with an accounting of the charges for such services.
Within 30 business days after the receipt of such invoices, Westwood will remit
payment of the full amount of such invoice to SWS in the manner provided below.
Interest shall accrue at the Prime Rate (defined herein) plus 2% per annum on
any amounts not received by SWS within 30 days after Westwood's receipt of the
SWS invoice. "Prime Rate" means the prime rate of interest as published from
time to time in the Wall Street Journal.
4. Method of Payment. All amounts payable by Westwood for the services
rendered by SWS pursuant to this Agreement shall be remitted to SWS in United
States dollars in the form of a check or wire transfer.
5. Warranties. THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY STATED
IN THIS AGREEMENT, THERE ARE NO WARRANTIES OR GUARANTIES, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE AND FITNESS FOR A
PARTICULAR PURPOSE.
6. Liability; Indemnification.
(a) In no event shall either SWS have any liability, whether
based on contract, tort (including, without limitation, negligence),
warranty or any other legal or equitable grounds, for any punitive,
consequential, special, indirect or incidental loss or damage suffered
by Westwood arising from or related to this Agreement, including
without limitation, loss of data, profits, interest or revenue, or
interruption of business, even if the party providing the services
hereunder is advised of the possibility of such losses or damages.
(b) The limitations set forth in Section 6(a) above shall not
apply to liabilities that may arise as the result of willful
misconduct, gross negligence, fraud or breach of this Agreement of the
party providing the services hereunder.
(c) Each party hereto (the "Indemnifying Party") shall
indemnify and defend the other party and its directors, officers,
employees and representatives (the "Indemnified Party") from and
against any and all claim, loss, cost, damage, liability and expense,
including reasonable counsel fees, incurred by the Indemnified Party
resulting from the Indemnifying Party's gross negligence, willful
misconduct, fraud or breach of this Agreement. If for any reason the
indemnification provided for in this Section 6(c) is unavailable to any
Indemnified Party, or insufficient to hold it harmless, then the
Indemnifying Party shall contribute to the amount paid or payable by
such Indemnified
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Party as a result of such claim, loss, cost, damage, liability and
expense in such proportion as is appropriate to reflect all relevant
equitable considerations.
(d) Any indemnification claim arising under this Agreement
shall be resolved in accordance with Sections 3.4 and 3.5 of the
Distribution Agreement.
(e) The indemnification obligations set forth under Sections
6(c) and 6(d) shall terminate two years after the date of this
Agreement; provided, however, such obligations shall not terminate with
respect to any claim for indemnification or contribution or with
respect to which notice is delivered to the Indemnifying Party in
accordance with Section 3.4 of the Distribution Agreement prior to the
date of termination.
7. Termination.
(a) SWS will provide Westwood (i) the information technology
and equipment services for one year following the Distribution Date,
except for the equipment rentals listed under Schedule 1.1 hereto which
will continue until the expiration of the leases relating to such
equipment whether such expiration is before or after the one year
period and (ii) the human resources services for a period of six months
following the Distribution Date; provided, however, that Westwood may,
at its option, upon no less than 30 days prior written notice to SWS
(or such other period as the parties may mutually agree in writing),
terminate any or all of the information technology and equipment
services or the human resources services.
(b) SWS and Westwood are parties to (i) the Investment
Agreement dated June 2, 1999, relating to The Southwest Special Reserve
Account for the Benefit of PAIB and (ii) the Investment Agreement dated
October 19, 1993 relating to The Special Reserve Account for Exclusive
Benefit of Customers, as such agreements may be amended or superseded
from time to time (collectively, the "Investment Agreements"). SWS and
Westwood Trust are parties to (A) the Agency Account without Investment
Advice Letter of Instruction March 31, 1998 relating to the Special
Reserve Account and (B) the Agency Account without Investment Advice
Letter of Instruction June 2, 1999 relating to the Special Reserve
Account for the Exclusive Benefit of PAIB, as such agreements may be
amended or superseded from time to time (collectively, the "Custodial
Agreements" and together with the Investment Agreements, the
"Management Agreements"). Nothing in this Agreement is intended to
modify or amend the terms of the Management Agreements, except that SWS
agrees that, except in the event of a default under the terms of the
Management Agreements, SWS shall not terminate any of the Management
Agreements at any time less than one year following the Distribution
Date. Thereafter, the termination provision of each respective
Management Agreement shall govern the terms of its termination.
(c) Notwithstanding Section 7(a) above, this Agreement may be
terminated in its entirety in accordance with the following:
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(i) Upon written agreement of the parties;
(ii) By either SWS or Westwood for material breach
hereof by the other if the breach is not cured within 30
calendar days after written notice of breach is delivered to
the breaching party; or
(iii) By either SWS or Westwood, upon written notice
to the other if the other shall become insolvent or shall make
an assignment of substantially all of its assets for the
benefit of creditors, or shall be placed in receivership,
reorganization, liquidation or bankruptcy.
Notwithstanding the foregoing, the termination of
this Agreement shall not affect the continued effectiveness of
Section 7(b)(or Section 9(d) pertaining to the Management
Agreements), absent the express written stipulation of the
parties otherwise.
8. Transfer of Software Licenses. SWS agrees to take all necessary
actions on the Distribution Date to transfer and assign to Westwood (i) all
applicable software licenses for the authorized use by Westwood of all versions
of Microsoft Office Professional on existing computers as of March 31, 2002 (up
to and including XP), upgrade rights to versions of Microsoft Windows Operating
System on existing computers as of March 31, 2002 (up to and including XP),
current version of Microsoft Server Client Access Licenses as of March 31, 2002,
Symantec NAV, Symantec Ghost 7.5, Microsoft Windows NT 4.0 Server, Microsoft
Windows 2000 Server and Microsoft SQL Server 2000 used by Westwood on the
Distribution Date, and (ii) all applicable upgrade protection or maintenance
purchased by SWS related to the Symantec NAV licenses (collectively, the
"Software Licenses and Maintenance"). Westwood agrees to execute all required
documents for transfer as required by the manufacturer of said items, as well as
accept and assume the Software Licenses and Maintenance as of the Distribution
Date.
9. General.
(a) Force Majeure. Any delays in or failure of performance by
SWS or Westwood shall not constitute a default hereunder if and to the
extent such delay or failure of performance is caused by occurrences
beyond the reasonable control of SWS or Westwood, as the case may be,
including, but not limited to: acts of God or the public enemy;
compliance with any order or request of any governmental authority;
acts of war; riots or strikes or other concerted acts of personnel; or
any other causes beyond the reasonable control of SWS or Westwood,
whether or not of the same class or kind as those specifically named
above.
(b) Confidentiality. Section 5.6 of the Distribution Agreement
shall govern this Agreement.
(c) Notices. All notices and other communications to any party
hereunder shall be in writing (including telecopy or similar writing)
and, except as noted, shall be deemed given when received addressed as
follows:
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If to SWS, to:
SWS Group, Inc.
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
Attention: General Counsel
With a copy to:
Gardere Xxxxx Xxxxxx LLP
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Telecopy: (000) 000-0000
Attention: Xxxxx X. XxXxxx
If to Westwood Management or Westwood Trust, to:
Westwood Management Corporation
or Westwood Trust
000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxx X. Xxxxx, President
With a copy to:
Xxxxx Liddell & Xxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxx X. XxXxxxxx
(d) Amendments; No Waivers.
(i) Any provision of this Agreement may be amended or
waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by SWS and Westwood,
or in the case of a waiver, by the party against whom the
waiver is to be effective.
(ii) No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
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(e) Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof
and supersedes all prior agreements, understandings and negotiations,
both written and oral, between the parties with respect to the subject
matter hereof and thereof. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made
or relied upon by any party hereto. Neither this Agreement nor any
provision hereof is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder. To the extent that the
provisions of this Agreement are inconsistent with the provisions of
any other Distribution Document, the provisions of this Agreement shall
prevail. The terms of Section 7(b) (as well as the terms of Section
9(d) pertaining to the Management Agreements) shall prevail over any
inconsistent terms in the Management Agreements.
(f) Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that neither
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other
parties hereto. If any party or any of its successors or assigns (i)
shall consolidate with or merge into any other Person and shall not be
the continuing or surviving corporation or entity of such consolidation
or merger or (ii) shall transfer all or substantially all of its
properties and assets to any Person, then, and in each such case,
proper provisions shall be made so that the successors and assigns of
such party shall assume all of the obligations of such party under the
Distribution documents and the Management Agreements.
(g) Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Texas, without
regard to the conflicts of laws rules thereof.
(h) Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when each party
hereto shall have received a counterpart hereof signed by the other
parties hereto.
(i) Jurisdiction. Any Action seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated hereby may be brought in the
United States District Court for the Northern District of Texas or any
other Texas state court sitting in Dallas County, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of
the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such
court has been brought in an inconvenient form. Process in any such
suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court.
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Without limiting the foregoing, each party agrees that service of
process on such party as provided in Section 9(c) shall be deemed
effective service of process on such party.
(j) Existing Arrangements. Except as otherwise contemplated
hereby, by the other Distribution Documents or by the Management
Agreements, all prior agreements and arrangements, including those
relating to goods, rights or services provided or licensed, between the
Westwood and the SWS shall be terminated effective as of the
Distribution Date, if not theretofore terminated. No such agreements or
arrangements shall be in effect after the Distribution Date unless
embodied in the Distribution Documents or by the Management Agreements.
(k) Severability. If any one or more of the provisions
contained in this Agreement should be declared invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability
of the remaining provisions contained in this Agreement shall not in
any way be affected or impaired thereby so long as the economic or
legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such a declaration,
the parties shall modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner so
that the transactions contemplated hereby are consummated as originally
contemplated to the fullest extent possible.
(l) Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or
interpretation hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
SWS GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------------------------
Executive Vice President
WESTWOOD MANAGEMENT CORPORATION
By: /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx, President
WESTWOOD TRUST
By: /s/ Xxxxx X. Xxxxx
--------------------------------------------------
Xxxxx X. Xxxxx, Executive Vice President
Schedule 1.1
Information Technology and Equipment Services
SWS agrees to provide to Westwood information technology and equipment services
in a manner that is consistent with the current support services provided by SWS
to Westwood and at a pricing level that is consistent with the pricing provided
to other SWS customers. The prices and support services are subject to change
based on current practices and market conditions.
Internet Access/Email:
SWS will continue to provide Westwood with internet access for a fee of $600 per
month. Westwood will be required to purchase the following items in order to
have the equivalent email capabilities it currently has:
Hardware
$ 2,092.00
Upgrade to 1GB Ram $ 697.00
5 18 GB Hard Drives $ 1,530.00
Smart Array 5302/32 $ 984.00
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Total Hardware $ 5,303.00
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Software Qty Unit Price Ext. Price
VLA Windows 2000 Server 1.00 680.39 680.39
VLA Windows 2000 Client 51.00 27.59 1,407.09 **
Windows 2000 Server with Boot Disk 1.00 23 23.00
VLA Exchange Server 2000 1.00 644.46 644.46
XXX Xxxxxxxx Xxxxxx 0000 51.00 61.95 3,159.45 **
Exchange Server 20000 English CD Media 1.00 19 19.00
Total Software 5,933.39
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Less: Licenses to be transferred to Westwood from SWS
VLA Windows 2000 Client (1,407.09)
VLA Exchange Client 2000 (3,159.45)
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Adjusted Total Software 1,366.85
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Grand Total $ 6,669.85
================
** The client licenses for Windows 2000 and Exchange are already included in the
core licenses per user that are being transferred to Westwood from SWS.
Westwood will continue to be directly connected to SWS's network. As such,
Westwood will be provided with SWS's standard virus protection, network security
and network monitoring.
Schedule 1.1 - Page 1
Data Lines:
All data line costs that are currently billed to SWS (e.g., T1, circuits, etc.)
for the access and use of Westwood will be billed to Westwood at cost. Currently
these lines include:
---------------------- --------------------- -------------------- ---------------------- --------------------
Line Vendor Acct # Circuit ID Avg Monthly Amount
(a)
---------------------- --------------------- -------------------- ---------------------- --------------------
T1 (300 Crescent Ct MCI Worldcom 31187-dal 13-odc-3cr-0007 $375.00
to 1201 Elm)
---------------------- --------------------- -------------------- ---------------------- --------------------
ISDN Backup (300 Southwestern Xxxx 000-000-0000 11.ibjd.674094 $80.00
Crescent Ct. to 1201 Telephone
Elm)
---------------------- --------------------- -------------------- ---------------------- --------------------
56K private line to Southwestern Xxxx 510-072-1015 14.XHGS.65394 $80.00
Bloomberg Telephone
---------------------- --------------------- -------------------- ---------------------- --------------------
(a) Monthly billing is subject to change based on current tariffs and fees.
SWS agrees to work with Westwood in good faith to transfer ownership to, and
obligations for, all data lines, including any modifications thereto specified
by Westwood, as deemed necessary for Westwood's normal course of business.
SOHO/VPN Connections:
SWS will continue to support all current VPN and SOHO connections for the period
of this Agreement.
Westwood will be billed monthly per the following schedule, based on the method
of connection:
ISDN Connection $100 per connection per month
----
ADSL Connection $100 per connection per month
----
Modem/Dial Up Connection $35 per connection per month
---
VPN Connection $30 per connection per month
---
Desktop, Server and Application Support:
SWS will provide Westwood with help desk support and trouble ticketing services
for a flat fee of $100 per month. In the event that the help desk is unable to
provide the assistance requested assistance from Westwood, it will direct the
matter to another support department and monitor the services provided by such
department, which may include on-site services. If this occurs, SWS will charge
Westwood at a rate of $40 per hour, plus out-of-pocket travel expenses.
---
Schedule 1.1 - Page 2
ILX or Other Equity Quote Services:
SWS will continue to provide ILX or other equity quote services to Westwood for
the term of this Agreement for a fee equal to the actual fees charged to SWS by
third parties for such services, which may change from time to time.
Equipment Rental:
The equipment attached as Exhibit 1 to this Schedule 1.1 are leased by SWS from
--------- ------------
Winthrop Resources Corporation as of the date of this Agreement. Westwood will
continue to use the equipment set forth on Exhibit 1 until such time the lease
---------
relating to such equipment expires. Westwood will be billed monthly by SWS at
the rates listed below. Westwood will be subject to the terms and agreements of
the Master Lease Agreement between SWS and Winthrop Resources Corporation.
The equipment lease schedules and monthly rent for the equipment leases in
effect as of the date of the Agreement are listed below. The monthly rent
indicated below includes applicable sales tax.
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Lease Expiration Monthly
Schedule Date Rent
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7 4/30/2002 $ 1,010.25
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8 7/31/2002 $ 130.71
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9 10/31/2002 $ 299.48
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10 1/31/2003 $ 444.92
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11 3/31/2002 $ 443.49
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12 7/31/2002 $ 431.50
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13 7/31/2003 $ 1,324.12
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14 9/30/2003 $ 719.07
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15 11/30/2003 $ 172.96
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16 2/28/2004 $ 657.00
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17 4/30/2004 $ 126.11
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18** 6/30/2004 $ 51.18
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** more equipment may be added to this lease schedule pursuant to the terms of
the Master Lease Agreement
Website Hosting/Maintenance:
SWS will continue to provide website hosting and co-location services for
Westwood's website through SWS Technologies. The current monthly fee for this
service is $319.80, including applicable sales tax. Westwood will be billed for
this fee separately by SWS Technologies and is subject to its pricing terms,
which shall not be less favorable than the fair market value for such services.
Schedule 1.1 - Page 3
SWS will provide website maintenance (e.g., updates, modifications, etc.) for
Westwood's website at a rate of $75 per hour plus related out-of-pocket
---
travel expenses.
Disaster Recovery:
Westwood currently performs their own data backup of all servers located at
their offices. This process is coordinated by an SWS employee and monitored by
Westwood. Following the Distribution Date, Westwood will continue to be
responsible for tape storage and monitoring. In the event that Westwood converts
to a different method of tape backup, such as Vytal Vault, Westwood will be
responsible for the conversion to the new method, including all costs and
expenses relating thereto, and SWS will provide any support needed for such
conversion. SWS will charge Westwood a fee of $45 per hour for such conversion
---
support services.
Any consultation for disaster recovery plan development and testing or Work
Place Area recovery will be quoted under a separate agreement.
Schedule 1.1 - Page 4
Schedule 1.2
HUMAN RESOURCES SERVICES
General human resources advisory services involving the evaluation or
development of payroll, benefits and compensation programs and systems
Development of employee handbook and pertinent policies
Development of effective human resources practices
Consultation on setting up proper controls to insure human resources compliance
with various federal and state employee relations regulations
Guidance on proper interviewing procedures and processes
Assistance in identifying effective recruiting resources
Development of human resources forms and documents
Other general human resources related services
Schedule 1.2 - Page 1
